Finding the next Star Wars. April 24, 2026

A listener production. This is Motley Fool Money. Welcome to Motley Fool Money. The podcast is going to charge a 25% on overseas listeners. I'm Scott Phillips from The Motley Fool. He is Andrew Page, the man who invented tariffs, who invented Smoot-Hawley, the man who is responsible. No, not really. He just created. How dare you? How very dare you? Australia's premier online investment club instead, which is far more important, far more impressive, far more valuable, has made more money than the Smoot-Hawley tariffs ever did. He is, of course, Andrew Ram-Page. Mr Page, how are you?

I'm very good, sir. Although I do not like attribution towards market distorting policies. It's been good. What can I say? Leaves are falling. The weather's turning. There's a lot of interesting things happening in the world, but there's some good things happening too. It's hard to...

There's so much and there's so much negative kind of stuff. And I guess that's the model of how much of social media and news kind of works, but it overwhelms you at times, right? I think sometimes it's just like, I don't know, you just got to step back from it. Not because you don't care, but because I just don't think we all have the emotional capacity to just be bombarded by here's something else horrible and here's something else really evil and here's only like, oh. So you got to smell the roses and remember that there's a lot of good in the world too.

You know what? So that's a great point. Ross Gittins wrote a great article in the Herald this morning, actually. We're recording this on Wednesday, the 22nd of April. We're here a day early because I'm going to need a Wogger. So I'll take a listen to this. It'll be yesterday. I did a presentation of the Wogger Business Summit on Thursday, the 23rd. So we couldn't record it on a normal day. We're recording a day early. So yeah, Ross Gittins this morning. And mate, what was fascinating. You talked about the fact that people are losing faith with democracy and there's an economic impact to that or economic drivers to that, which is those who feel like they're feeling like they're being left behind.

are kind of rejecting democracy and rejecting kind of... And we've seen that with the rise of One Nation. I don't want to get political. But good point was kind of that. But he was talking about the fact that a lot of people are seeing the bad news. And he talks about the fact that the rise of social media, this is a great institute piece of research. But he talked about the fact that newspapers write bad stuff because that's what we read. But he also made mention of the fact that if that's all you do, people will get turned off. So there's a... Even the media knows there's a natural proportion of here's the awful stuff. But also, before you never buy a paper game because you can't confront it, here's some other stuff you might want to read. And so that was... As much as we say, if it bleeds, it leads. It's true.

But even they know that that's not, they'll get the headline and get you to grab it. But if it's just day after day after day, nothing's good, everything's bad. Eventually, either you get desensitized or as you say, you just, you can't physically take it all in. You can't have that. you can't live in that world forever. And it's kind of a human coping thing, right? I think you're absolutely right. If you lined up all the stuff that was going wrong that we know about, and then add in the stuff that doesn't even get reported that we don't know about. I often get too dark too early. I don't know how social workers and child protection workers and stuff. It's like, I don't know how they do their jobs. I don't know how you literally spend your entire working life. I guess you have to celebrate the wins. Maybe that's the combination that we're talking about here. But you're right, man. There's a lot of bad happening. And maybe that's, I mean, it's kind of, there's a nice metaphor there for long-term investing, right? I mean, to bring it back to that. You know, we, the market creates enormous value. And not because these bad things don't happen, because they do all the time and yet.

Optimism still wins, right? Exactly. We still managed to go, yeah, that'll happen. But we also did X, Y, and Z. And not even three big things like there's iPhone or internet or AI. You pick a big thing. But it's not even that. It's just the little things that little businesses do every day to say, how can I do a slightly better job of improving how I serve my customers? How can I grab an extra customer? How can I make that more valuable for them? How can I make myself more valuable for the people I serve or the people who buy my products? And that is kind of the story of capitalism. It's the story of innovation and progress, right?

Yep. Yep. I mean, you need to see that section on the news with the squirrel water skiing, right? It's almost like whatever the human interest story is, it's sort of like, well, okay, there is that, but look at this. He's a fucking dog. He's a squirrel water skiing. Here was Bill Murray's Groundhog Day. You took me straight to the Groundhog Day. The morning show, the breakfast television show where it's like, hey, here's the human interest story. And you're right, it's the squirrel or it's the Groundhog or it's the something. I just watched that again recently, by the way. Did you? It still holds up. Yeah, great movie. Fantastic. I thought there'd be a joke about watching it again recently because it's Groundhog Day. I thought that was good, so I'll allude to the fact there could have been a joke there and listeners can kind of fill in the gaps and make up their own joke.

about that yeah yeah you know you've done well as a movie where it becomes part of the vernacular like it's sort of a you know it's a it's a saying in and of itself beyond the reference to the movie sliding doors is another one yes right that gets used a lot that's such a great movie too by the way see i need to go back and watch i don't even know if i saw it at the time yeah okay um yeah anyway i don't know how we got onto all of that let's get back to the depressing stuff before we do before we do i did hear someone it's not a new joke either but talk about the fact that what i should do is release a sequel to groundhog day And it's just a re-release of the same movie. Yeah, nice. That is bad. You can't watch it. If you're another joke, you can go and watch it as a group just for the hell of it. They released it at the movies. I've never seen this before, mate, but there is nothing more fun than going to watch a re-screening of an old movie with people our age who saw it the first time. I saw Top Gun, the original Top Gun, at the movies. I mean, years ago now, but...

20 years after it was released or whatever it was. With a group that were all of my age, who all knew the lines, who all laughed at the right points. I was like, there's just something about, it's a shared experience, right? Again, it's been getting deep on this stuff. It's just that there's something about, I mean, watching the movie itself is, you can watch it at home. Why would you pay your money when you go and watch it at the cinema? Because you're doing it to relive the nostalgia. You're ever also doing the same thing and you can almost paint the picture of everyone in the same seat 10 or 15 years earlier when they were out the first time. It's like, now we're here and we've got this hair a bit greyer and carrying a bit more weight and looking a bit older but we're still in the same seats and still watching the same movie. There's some, again, if I was clever, there's some nice little metaphor or visual kind of picture of what that is and kind of how

I have actually noticed quite a few of the sort of little independent cinemas sort of tapping into the nostalgia market and, you know, where they will have Goonies or whatever, you know, Ghostbusters, something of that kind of. They fill out. They fill out. And it's five bucks a ticket, you know, or Moonlight Cinema did a bit of that kind of stuff. I mean, it's great. It's a great idea. And probably the economics are interesting too because I guess the rights are a lot cheaper as well. I don't know. Maybe it's more affordable. I don't exactly know how distribution rights work with cinemas and movies. It's expensive first run, but you've got to think X years later. The movie maker's like, what?

you want to, yeah, okay, we're screwing it. If I get something out of it, sure, I'll take the money. It's like, you know, if you're going to throw me some money or something that isn't in current release, go for it, knock yourself out. I think it's absolutely right, mate. And I've got to say, I suppose more consumers don't do it, actually. I mean, at some point, maybe it gets boring and you've got to make an event of it and something, but I don't know, it just feels, I mean...

We're gentlemen of a certain age these days and our parents are older again and that combination, you kind of, there's not a lot of money there, a lot of people looking for something to do and a lot of nostalgia being relived. It feels like, I don't know, if I was going to make a bet on something, I would suspect the nostalgia market is a very, very safe bet. Not everything, not all the time, but just as an idea. If I had to, if you had to give me a risk, I want a low risk idea that's going to make me a lot of money. You strongly go past nostalgia just as a concept, like, well...

Always cashed up older people who just miss their youth, but take them back there. They will pay you whatever it costs to go back there. Even if only for a couple of hours watching a movie or something else, you've got to figure there's something like that. Actually, I'll pivot it into another investing sort of angle here. I've had the theory, and that's all it is, hypothesis, that Star Wars memorabilia will plummet in price in the coming decades. Okay. Because, I mean, who are the people? It's like you watched it as a kid. It was the best thing ever.

You know, now you're old, peak earning power. You've got a bit of cash. It's like, yeah, I want that. I will buy a Han Solo unopened for whatever Han Solo costs, you know, 50,000. But the next generation doesn't give us stuff. No one's collecting, you know, like, I mean, there's someone out there with, you know, I'm trying to think of an actor from, you know, Buster Keaton memorabilia, you know, but the market is so much smaller. And I, there's a collector of Star Wars out there, right? No, no, no. And maybe it will. It's a hypothesis, but there is some, you know, unless you sort of go to Monet kind of status or something like, you know, Picasso kind of sort of status, it is.

The market is almost by definition going to shrink. And the other angle to it is as a long-term investment, really long-term investment, what you should do is see what is like, what's a real cultural phenomenon around the sort of 13 to 21-year sort of age bracket now? Buy a bunch of it, put it in storage somewhere, and in about 30 years, take it out again, right? Like in terms of a return on invested capital, it's probably attractive, right? I think you're right, except I do think it might be a little bit like mining species.

Yes, yes. Because I think about my childhood, I could have got all in on He-Man action figures for Transformer, whatever, or... I kind of did, to be honest. Or Star Wars. I'm not saying you're wrong, I suspect it'd be hard to know which things it wouldn't... I wonder whether it'd be hard to work out which things to do. The Star Wars, if you knew, of course, it'd be fine. But in 1979, do you buy the... I don't know if Han Solo was like, well, this is a bit of a schlocky kind of movie, so I'm going to catch on. Because Star Wars 1 wasn't supposed to be a big hit, right? It kind of all of a sudden snowballed. And at some point, I'm not saying you couldn't have been looking at it and gone, this feels generational. But I also wonder whether it might have been, you know, Star Trek instead, or Battlestar Galactica.

to get raw. I mean, apologies for the 80s references for those who weren't there at the time, but yeah, you're right, if you could do it. I wonder if you could handicap it sufficiently enough to make that money, I don't know. Well, I think we can torture the analogy a bit further in terms of stocks. Well, I mean, think about the, I think you would do it David Gardner style where it's just like, here's the 20...

things that I can identify. And I know, I know that this little strategy is not going to work out for most of them. But again, you don't need to, because I spent five bucks, you know, five bucks, that's dating me, you know, 20 bucks bit of plastic or something. So if it turns out it's not worth anything in 30 years time, it's fine. But the $20 piece of plastic that's now worth $30,000 in 30, you know, is it like, well, that kind of makes up for it. And then some, I don't know, maybe that, and I say that there's an analogy there because I've talked about it a lot on the pod. I think that is, there is a great deal of sense in that, not just throwing, you know, darts at.

that's a thin review and hoping it lands on something good and you'll just catch it if you cast a wide enough net. But sort of trying to sort of be somewhat targeted, but also recognizing it's probabilistic in nature and that a majority, but potentially a small majority are not going to work out, but the ones that do work out really, really, really, really well, right? I was in my own portfolio the other day and it's just like, there's one that's come really good lately. And it's kind of like, you know, I didn't, I didn't know. Yeah, but there's plenty of, it's not a flex, like there's plenty that didn't, you know, but also it's very tempting when that happens to go, ah, I knew that. And it's like, no, I didn't. So I did, I wouldn't have bought the other stuff and I would have bought a lot more of that thing, right? But also, but also I give myself a little bit of credit in that,

When you do snag one, it's kind of like, well, keep with it, right? Because that is the lesson. It's like the ones that do well. Winners keep tending to win as long as there's sort of something fundamental kind of behind it. And it always had that potential to do it. It wasn't just a complete flyer, one in a million. Oh, turns out they just invented perpetual motion machines or something ridiculous. It was like, no, it's a decent business. I think it's got a good chance of a re-rate. Again, it's trying to put the odds in your favor.

fully cognizant of the fact that it's just not going to work out a lot of the time, too. So there you go, listeners. There's a 30-year investment strategy. Start filling your garage full of quickie social phenomena. We're almost at our 1,000th episode. That's going to be next Friday. So we'll check back in our 3,000th episode, see where the RAM was right, see what we should have bought in 2026 that we probably shouldn't, should have, but didn't. I will ask you for the fun of it. You've got a couple of kids. Was there a top-of-the-list idea for you? I know you just said do a portfolio of stuff, but are there things kind of like, you know what, if I'd add this to the list, that would be part of the portfolio, what would you be looking at?

Not so much as they've gotten older, but when they were little, I don't know, Beyblades were big in our household. I was going to say Pokemon. Well, Pokemon definitely was big, but that's actually been big for a while. I mean, that is just quite... Is that not the best business in the world? It's cardboard. It's cardboard, you know? And obviously, I don't mean to denigrate it or diminish it anyway. It's obviously a whole canon of, you know, there is an art there. There is a...

what's the word? I'm trying to reach for the right word. But it's obviously, it's unfair to sort of say it's just cardboard. Nevertheless, from a pure business economics kind of standpoint, once you've developed equal cost, it's like the margin on this is insane. And they're very smart with it too because they know the economics, right? So they don't print off a thousand Chagasaws. I can't even remember the names. Pikachus and whatever. Charizard. Charizard's the one. Yeah, so they went to Ninjago. Oh, there's a whole bunch of them. There's a whole bunch of them. Well, actually, Ninjago was a Lego, right? So Lego.

Have we ever talked about Lego? Probably past him. You're right. That's the whole thing itself, right? There's nothing we can bring that's new to the table here, but there's a bunch of stuff on YouTube for it. Look at the history of Lego as a business. It's just phenomenal, and they just go from strength to strength. I suspect they will be going strong in 30 years, right? And there are copycats, right? Because it's literally...

plastic bricks that i can click together we have the technology you can you know i'm sure there's certain patents around various sort of form factors and sizes and the rest of it and we did we had some generic we somehow through parties or whatever got some generic sort of and probably me being just tight or the kids are just the same it's not it's not the same yeah yeah and like if you can stumble across something like that that that is cheap to make but can be sold at a premium and importantly I won't say can't be, but it's very, very, very difficult to replicate. You are on something incredibly special because, you know, as we always say, that the value of assets are really determined by their lifelong cash generating power. At least you're talking about productive assets. And that is what makes these things special. It's not that Lego had a really great fiscal 2019 or something like that. I'm sure they did. But it was the fact that they're having good and growing financial success decades after the original investment. When you compound, when you look at the...

the internal rate of return on the initial money invested. And in fact, on all money invested over time, I'm sure it's just stratospheric. And it's also a good example too, I think I'll be investors desperately trying to sort of make this relevant to our listeners, is to remember too that you... I think we are naturally drawn to new as investors. Oh, it's new. And it's like sometimes- The next big thing, right? The next big thing. Yeah, the next big thing. And look, obviously, if you do get the next big thing and you get it early, obviously, that's fine. But there's a lot of stories of just like, no, this was around since I was a kid. And for what, you know, there's something happening in the Strait of Hormuz or the president of the US is tweeting out something dumb and I can now buy this thing, which is very sensibly, reasonably expected to last for decades more. You can do extremely well out of very old legacy businesses. Marvel, Marvel, DC. There's so many more examples now that I start thinking about these sort of institutions.

Yeah, I don't know. But you mentioned new too. Two things, I think. Firstly, as we said regularly, the best stock might be the one you already own. So if you're going to buy some more shares, don't have to add to the portfolio, you might be able to buy more of what you already have. Secondly, too, the idea of new of, and new is implicit in new, is ground floor.

before all the gains are made. And I've used an example before. It's a really cheap and simple example, but it's true. The Berkshire Hathaway share price. I own shares. Everyone knows that. Over the last 40 years, at any point you look at it and go, oh, it's gone from X to Y. That's a lot. Now it's gone from Y to Z. That's a lot. And of course, now I've run an alphabet. So let's go to something else. But yeah, the idea of it's already gone up. Therefore, I need to find something else before the next thing goes up.

As opposed to, I'm just going to find the thing that's going to keep going up even though it's already gone up. And we're talking about watering the weeds and pulling the flowers and vice versa in the past. But that's just a really nice example made of, you know, the next thing to invest in, to your point, might actually be, maybe not Star Wars, the generational thing you mentioned, but stuff that isn't necessarily our generation or isn't necessarily over just because it's already a thing. You know, and you talked a lot about the fact that, you know, the risk-adjusted idea of buying later once something's proven out. You don't necessarily, I mean, do the other day. You go out and buy one of 50, one of each of 50 things and hope one of them does well. You can say, well, actually, I'll wait till those 50 become 10 or five. And by then, yes, I'll get it later.

But it's proven itself to be attractive. Pokemon cards are a great example. It's been around forever, yeah. But at what point were they not worth buying financially? Well, never so far, at least. And so you might have missed the very first one. You might have missed the second one. You might have missed the third one. It wasn't too late to be part of that process. And I think there's a lot there about horses, of course. Yes, some new things will. Maybe there's something right now that's being done that you and I aren't across because we're not cookies anymore. Because, of course, we were once. Hey, easy on.

Speak to yourself. We're doing a finance podcast. Let's not pretend. I mean, there's theatre of their mind and there's just stuff that clearly is, you know. But yeah, it's just, either or both, I think that's maybe the folly you're highlighting is in thinking it has to be one or the other. And it can't just be, you know, it's very important, of course, just at any point, the point is simply, what happens next? And you can't know the answer, but, you know, will it be more popular than it is now? Yes. Does that mean the price will probably be higher? Yes. Whether it's a day old, a month old, a year old, or a decade old, if it's worth more in the future, that's the only question you need to ask, right? And that's the key.

Hey, I mean, look, one of the best sectors, if not the best sector to invest in recent times has been energy, right? Yeah, huge. We've been digging that stuff, drilling that stuff for decades, not a new industry at all, right? And in fact, the whiz-bang, state-of-the-art cutting-edge tech has been the worst place. Now, this is not fair because over narrow timeframes, you'll prove anything. But, you know, there's something to that. Hey, let me ask you this again. We can probably wait till that 45 minutes in before we get to the agenda. You mentioned Berkshire. Yes.

And I just keep seeing the usual nonsense that you tend to see on Twitter and elsewhere about it. But there's something that is interesting about it. There's two data points that I've seen come up a few times recently. And I've been meaning to ask you about it. The first is Berkshire's cash pile. Yep. Right. So they have, I just looked it up. Where is it? Five million Australian roughly? Yep. Yep. 373 billion US. So yep. Yeah. Pretty much bang on.

Let that sit there for a second. Half a trillion, right? Like, the mind boggles, right? Can we make that actually even more relevant? That's half of Australia's total national federal government debt.

Wow. Buffett at one point will have – you asked what they'll do with the money in a minute. If nothing else changes, Berkshire will have more cash than Australia will have debt at some point. Keep going, keep going. It's amazing. Well, I wasn't going to ask you so much. It's just that that's 31% of their total assets. So it's a big number. We talk a lot about – the press loves to do that. Big number, big number. Oh, the bank's made this much. It's like, yeah, but it's not that it's not a big and it's not that it's not offensive in a lot of ways, but it's what is more relevant. I need to benchmark that. I need to make it relevant to another number. What is that as a percentage of assets or whatever, however you sort of want to –

try and make sense of it. And with a company like Berkshire, which has 1.2 trillion in assets, it's kind of like, okay. But it's still, it's 31%. That's a record high, I want to say. So the first question, so there is that, there is that.

The other thing that you see with Buffett is, you remember the, I don't know, some listeners might not be familiar with what's called the Buffett ratio, right? So what he does is he takes total US market capitalization. So just what's the value of all the stocks on the US market? And he divides that by US GDP. It's kind of a PE ratio. Yeah, it is. But for the whole darn thing. And that ratio is now at 227%.

Now, in his previous writings, he once remarked that a ratio of 75% to 90% is reasonable. Anything above 120% and you're playing with fire. Quote, direct quote from the Oracle of Omaha. And we're at 227%. So the obvious so what here or the easy so what that you sort of hear is like, Buffett knows a crash is coming.

He's piling up the cash. He's not deploying it. And he never sort of said that this is what I trade on, you know. But, you know, your measure of sort of general market enthusiasm or valuations is not just, you know, pushing up against what you've sort of indicated is a high level. It's like near enough double that kind of level. Is it too simplistic just to sort of say that, oh, yeah, not that he knows, but he's... The way I would do it is it's like, I don't know what... I don't think he would say I can predict anything.

All I know is that there's not a lot of opportunity and things are expensive, so I guess I'm just stuck in cash until – and he'll – if and when something falls, they'll go, oh, he knew it. He saw around corners. I think that's not a sensible take. But should we as investors at least adopt a similar mindset and go, well, if this guy – and he's retiring, right, too. He's like, maybe this is a good time to step out. Now, that was always happening anyway. I think he's giving up at 95 because he's worried about the next couple of years. Right, right, right. I could be wrong. But just in terms of those first two points, what are your thoughts on that?

So I have a couple of thoughts, actually. I think the Buffett... As you know, my starting rule is if you disagree with Warren Buffett, you should be the other one who's wrong. It's a very good rule for life and investing. Good starting point. But if I was asked to, I think the Buffett ratio is one thing he's wrong about. And I think he's wrong for two reasons. And I think that's not... I don't know if he said anything recently about it, because that's the other thing is, at a point in time, he might have been right. I'm not sure whether he's still right. Two things in my head, mate. First is, for that to remain accurate, the proportion of America's GDP created by listed companies would have to be the same. Yep.

Because in terms of your PE, you're right in terms of saying it's kind of a national PE, but it's a bit like property. The share market is 1,800 companies, not the entire economy, not the entire list of the two million businesses in Australia. When we look at property, we look at the whole property, every single property ever. And so we're already not comparing apples with apples, right? There's some horrible, horrible listed companies, but most of them on average are better than the average non-listed company, kind of by definition. And so if I said to you, I'm going to have the property exchange with the top 1,800 or whatever percentage of properties that were the best, the best quality, the best areas, whatever definition you used, I suspect the property...

The Australian Property Exchange would do better than property in general, the same way the ASX does better than the average businesses, which is a long way of saying for Buffett's rule to continue to be applicable, the ratio of... sales and earnings of listed companies would need to be the same over time as a proportion of the total economy. I'm not sure if it's more or less, it may be no different at all. But for that to continue to be true, you'd have to be able to carry the same thing through. Let's assume for the fun of it that the sales and profits of listed companies are now twice the proportion of the total US economy now than they were 50 years ago. The buffer ratio would need to be adjusted by that extent to be able to be used regularly like for like. So that's the first thing. Second thing is we know that these days it's something like, I can't remember the exact number, I haven't done it in a while, 40%-ish of the revenue of the S&P 500 comes from outside America these days.

And I don't think it's an outlandish assumption to believe that 50 years ago it would be much, much, much less. You know, Coke only really dominated Europe effectively after the Berlin Wall fell. Certainly isn't it. And so you kind of think about, you know, what... And US businesses have bought non-US companies and put them in. The internet has globalised the world and most of that's based in the US. So I don't know whether the Buffett ratio holds at all. And I'm not saying Buffett necessarily is wrong in having that view at that point. I suspect the applicability of the Buffett ratio for those two reasons.

It's just less certain. I'm not saying it's wrong, I'm not saying it's not. It may well be the ratios are identical to what they were in terms of those two things I mentioned, and maybe the Buffett ratio is a big deal. So I think that's... But he never traded on that anyway, right? It was more of just a vibe check for want of a better term. And that's the other thing I was going to get to, which is the cash, right? I suspect that Berkshire is being left behind by the technological revolution, and in slow and almost imperceptible ways over time, but which are showing up in the cash pile. I suspect Buffett's looking at the companies he has a circle of competence in.

and he's saying, I want to be able to deploy a dollar and earn more than a dollar, and I need to find returns that I think are attractive enough. And he's looking at tractor companies and retailers and big trading companies and shoemakers and kind of going, those prices don't look attractive. And I don't think he's necessarily wrong. Because, again, think about the composition, speaking of the market, think about the composition of the S&P 500 or the NASDAQ 100. Think about the top, the most expensive companies in the world. Amazon shares, Apple, Facebook, Tesla, Nvidia. I mean, these companies that are creating massive amounts of value are the growing businesses. We talked last week about the Livewire article from,

Was it Alan Gray? All of the market cap of the top. Yes. All market cap growth in the last three months since this year has come from three or four companies. And so I think, I suspect the growth that has happened has happened in some of those big ends of town and they're not the sort of companies Buffett would normally invest in other than Apple, which he has had a stake in. So I don't know. I think Buffett's not making a bet based on the Buffett ratio. He's gone, I got $500 billion and I should probably invest it at some point if I can find something worth investing in that meets my investment criteria. And given he's got so much money, and we talked about this before, there's no point in him investing in any Australian company at all that's going to buy the whole thing.

And even then, you know, like, is he going to buy some shares in, I don't know, Suncorp Bank? No, it's too small. He's not going to look at it. And so Buffett's probably got an investable universe of, I'm going to say, just for fun of it, 25. US listed companies at best and probably another few hundred global private businesses. That's kind of it, right? Because we just talked about the fact that his cash pile is half the Australian national debt. So what do you, you know, maybe buy Australia, but we could maybe privatise the country with sporting codes these days, but we could buy 49% of Australia and we could, you know, take his money to do that. I'm kidding. But, you know, the idea of him having enough.

I think it's the biggest issue for him, I would suspect. I don't think it's a view of the market as a whole. Because he doesn't buy index funds. He does buy small stakes in very big companies when he thinks they're attractive. But if a universe is a certain size, let's say it's 25 companies. Of those, 20 are going to be tech by definition where the market is. So if you're Buffett, you're like, well, I can't use the money. Now, I should pay a dividend, by the way. And he won't. And I suspect that Greg Abel, who's the new CEO, won't do it in Buffett's lifetime, almost out of respect. Although he's actually already made some changes to the portfolio and sold some stuff Buffett likes. So he's at least being independent of action, which I partly like.

theoretically. Go back to the thing I started with, though, which is when you disagree with Buffett, you're probably wrong. So I'm like, Greg, I don't know if the boss has necessarily lost it just yet. Maybe don't assume. I would, I wouldn't put money on anything. I would reckon within five years of Buffett's death there's a dividend. I don't think that's a controversial prediction. I agree. Let's roll that forward. Percentage-wise, the company's generating so much bloody cash. It's going to be 40%, 50%, 80% then. I mean, you can't get 100%.

And you know what you do? That guarantees that you get bonds-type returns. Correct, correct. Yeah, which is why am I buying equity just to get exposure to a bunch of underlying treasuries? Like, makes no sense. Can I push back on it? Please, yes, do. So I agree. I mean, so where I feel as though there might be at least an element in the back of their minds that we should keep some powder dry is because everything you said about nowhere to deploy is absolutely true. But they're on a PE of 15, Berkshire.

buy back your stock. They have been. Pay your dinner then. Rounding errors, you know, and it's sort of like, so if it was just a case of, ah, look, it's just very unlikely for us to find the kind of deals, like we would just get rid of the capital. And I'm kind of deliberately being a little provocative here, but it's like, if you felt that, again, not because we've got 60 years of him telling us exactly how we operate. So I'm not, I'm not trying to say all of a sudden he's thrown it out that we know I'm trying to time it. And I, you know, by a fourth quarter, we're going to have a bar, which people love to sort of, he doesn't, but there must be an element in the back of your mind that's like, let's just keep this cash handy because.

Because if it was kind of like only what you said and like, and yes, he likes to like have a very strong quote unquote lazy balance sheet for the optionality and for the resilience, but that is way too much resilience. That is way too much of a buffer, you know? And it just, like the only way I can square that circle is like, well, we don't know exactly when, but probably not in like 20 years away or even 10 years away, we think we might actually get a chance to snap up half of corporate America and absolutely bargain price. Because otherwise you would just buy back your shares. We're buying.

$100 billion worth of Berkshire shares or $100 billion of dividends. And he talked extensively about the rationale behind dividends and capital management. And he talks about how you should think about buybacks, how you should think about dividends. Well, according to your own philosophy, I know you've got a legacy here, but it's like you're also a pragmatist. So I just...

Again, I guess I'm kind of fishing for a conspiracy that doesn't exist probably, but it's interesting that juxtaposition that it's just sort of like, because the argument that you put forward, which I agree with, it just feels as though, yeah, but you can actually have your cake and eat it too here, right? You can actually do all of those things and that can all be true, but still buy back a ton of shares and pay a huge dividend. So I would, Buffett's, your point about Buffett being very clear and very consistent for a long time. I don't, I don't, I will take the other side of that one. I have to be entirely wrong, so I don't pretend to be. It's more of a provocation than a firm belief. It's a fair question.

I suspect very, very, very strongly that if Buffett had a use of the cash, he would use it rather than hold it aside. Because he knows this is a wasting asset. To your point about the Treasury returns, he doesn't want to hold the cash. But he can deploy it in Berkshire itself. Even he must recognise it as one of the best companies that's out there. And it's 15. I can buy Google at 40. And I can buy Berkshire at 15. They have been buying back. So here's the thing.

If your theory is right, Buffett has been horribly served by his own idea because even if he finally finds an idea next year when the market crashes, the chance that he makes any decent money... He's talking about having the elephant gun loaded. I use that phrase elephant gun in the annual report. Maybe you can look up what year it was while I talk. He's talking about using the elephant gun now for, I guess, over a decade. Now, any money that he withheld while that cash pile built and built and built and built and built, which it has for, I'm sure, at least a decade, the reality of that is he's cost the company money by trying to wait.

And so he has underserved the, if it was a deliberate, I'm going to wait for the crash. By the way, he had the COVID crash and he did nothing with the money. And so I would strongly believe that he is saying, I will invest the money when I can get the sort of return I'm looking for. And if I can't get that return, I'm not going to invest in the least worst asset I'm going to hold money aside. So imagine a scenario in my head, imagine a scenario where you say, and I'm not going to put words in the mouth, but just for the fun of it, let's say you said, I will buy shares only when I get a PE less than 10. It's not what he does, but it's just easy for us to talk about. He's waiting for that to happen. And if it doesn't happen, he's not buying. And if it happens, you'll buy.

And so it just so happened that over the past 10 years, whatever the number is, he hasn't had the opportunity to put that money to work at his preferred hurdle rate. And in hindsight, I don't know. Buffett's very, very, very straightforward and doesn't mind rub his nose in his own problems. But there's a bit of a go there too. And I suspect he wouldn't say this out loud if he doesn't want to. I think if he was challenged, he would say it was a mistake not deploying that cash earlier because the market got away from you and the cash drag has cost shareholders a decent amount of money. Had he invested in a slightly less optimal...

you know, return on investment, whatever number he was highlighting, he would have got a better return than waiting for that to turn up, which never did. And we can talk about the whys, by the way, which we don't want to get back into monetary policy and other things. But the reality is that maybe he was waiting for a crash, not because it was going to be one, just because he thought when it happens, I can deploy the money. And that should happen every three or four years. So my cash drag is only going to be a couple of years. In the event, the cash drag has been a decade and it gets worse every passing year. Could he or should he have brought his own shares back? Yes. Clearly, yes, in hindsight. I suspect at the time he went, I think Berger's worth a dollar. The shares are selling for...

90 cents uh that's not enough of a discount i want to be a discount for i buy shares anything including my own company and hindsight should on that rather than get the bond returns because that's been a massive cash drag um but i suspect he was like no eventually i'll be offered the price i want i'll wait for that price to turn up and we talked before mate about being approximately right so roughly right rather than precisely wrong and wanting the absolute price you know we've said before gee wouldn't be great if you get willies at 10 bucks yes but if you don't buy it at 15 while you're waiting for 10 you're gonna lose a lot of money and i suspect buffett's probably been too picky easy for me to say right hindsight i don't criticize the bloke he's the goat um But I suspect he's been too picky. I suspect he was waiting for the too fat 8-pitcher which never came. And the flip side of that is, yes, by all means, keep the cash for the good idea. If the good idea doesn't come, there's a real cost to that. I think shells have borne that cost. Yeah, interesting. It was 2011 when he first used the... There you go, 15 years ago. Yeah, he's brought it out. Yeah, he's brought it out a few times since then. It's most recently in 2023. He said, the 11 gun is still in the cabinet. Yeah. Yeah. So, I mean, it's interesting to speculate. I don't think... I mean, he goes horribly, horribly wrong since 2011 in waiting for a question that never came. Objectively wrong. Now, hindsight's 20-20, right? So I'm not going to bag the guy, but...

I would suspect in 2012, if an idea would come along without a crash, he would have happily used all his money. Or at least the money he needed above the... He keeps some money to pay insurance, payouts, he's always kept. And he put aside a amount of cash. I don't think he's updated that number. He'd be about 50 billion, I suppose, these days to cover that. The rest, I'm sure he'd happily invest if he got a good ROI made available to him. And I think he's just gone, I won't spend a second ROI of X, whatever that is he's looking for. And he hasn't been offered it in his decision set of large companies. So he hasn't done anything. I think that's probably...

I think he's perfectly the enemy of good, frankly. I think he's hoped for too much. And he chased 15 and gave up 12 and ended up getting six. And so that's the rule of investors if you try too hard to wait for the very... Wait for the fat pitch is a nice idea. Buffett's always also said, by the way, if he had a million dollars, he thinks he'd get 50% a year. So we don't have the same issues he's got necessarily. I'm not saying individual listeners shouldn't wait for the fat pitch. I do think the fat pitch, in Buffett's case, he's cost his share. And I'm not complaining. The shares are actually really well, so I'm not complaining the slightest. But it's true that had he had slightly lower sites...

and not that perfect enemy of good, Berkshire would be more valuable to that. I think that's just objectively true. Yeah, that's occurred to me too. I do wonder if he is waiting for opportunities that made a lot of sense over the long arc of his career by just sort of applying various – because he's good at heuristics, right? It's general rules of thumb. He doesn't overcomplicate things. But in a world of – not to introduce the monetary component to it, but there is – we've talked about it on the pod. Yeah.

It's unlikely. We can probably suggest, and I've suggested, I won't drag you into it, but that maybe market valuations never really go back to the old normal because in a world of more structural inflation, it makes sense to trade at a higher multiple. So here's Buffett going, well, normally I'm making this up, but at a PE of 16, I'm quite interested, so I'll wait for then. It's like, no, it's never going to. Well, not never, but they're far more unlikely. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

Don't we say Berkshire holds half a trillion Australian dollars? They don't. They hold US treasuries, bonds. Now, a lot of bondholders have been wiped out. Not wiped out. Well, yeah. Yeah, pretty much, right? Because it's just a bit of bond math for those that don't know. When interest rates rise, bond prices fall. So if you bought a 30-year bond when interest rates were zero and then interest rates went up to 5%, well, I don't know. I can't do the math in my head. And it's not exactly, it doesn't make sense with 0%. Nothing makes sense when the cost of capital is zero or negative. We lived through that. Let that hang there for a second. But anyway, if you are holding half a trillion dollars in bonds that effectively collapsed in price, you've been wiped out. Now you can say, well, I'll hold to duration and I'll get repaid in nominal terms.

credit where it's due. Buffett didn't touch that stuff. I like him more and more every time I get into what he does. So all of their treasury exposure was basically six to 12 month exposure. So they're just like, we totally can wait for it to mature. We don't need to roll things over and mark to market and all of this kind of stuff. But I do think that there is, or maybe this is just wishful thinking, but actually now that I say it's probably wishful thinking. But why not? The yield curve is not inverted at this point in time. Let me stop being so wankily technical. You get a better interest rate with a 10 year bond.

And he's got a lot of money and he can absolutely say there's probably a good chance that we can leave this money untouched. So it's the US government. Why not buy some three-year treasuries, five-year bonds, whatever it happens to be. It was like, no, we will park it here because we need to get some interest on that just to outrun the money printer. But we're not touching anything with more than a year duration. Am I overthinking that? Or if I'm not overthinking it, what's the explanation for a bond portfolio of such an incredible magnitude? As you said, half of the Australian debt, right? You'd have 5% exposure to the five-year.

10% exposure to the third wouldn't you or every other bank every other big financial institution has and he hasn't but he's always kept it short term mate and for as far as decades So it's not a new issue. And it's just because he'd rather be investing it. And so it's effectively, it's at call funds. And he doesn't want the duration risk. He's not trying to play that game. It's like, I've got the money. It's effectively a term deposit in Buffett's mind. It's just, it's a high for savings account. If I and G Direct got married in the US, he'd definitely put the money there. I mean, he wouldn't because he wants the support of the US government. But conceptually, it's just, I've got this cash. I don't want it. I'm not going to invest it because I haven't found a hurdle rate yet. So where should I put it? So that I get some return until I find something to invest in. So there's absolutely no, he's not got a bond portfolio. And by the way, the portion of...

the excess cash they would keep in cash anyway for the insurance claims may be required within six to 12 months. So it's always been a case of- That's a much more sensible explanation. Yeah, it's not. I mean, look, I don't want to put my mouth in entirely wrong, but my understanding is it's always been super short term and it's always been a proxy for cash that actually is not just cash, cash because cash is crap and you don't have money under the bed, you want at least earning something while you wait to put it to work. That's kind of his. It's a redraw account. It's just there because he hasn't invested it yet for the most part.

Bond portfolios that's actually done well, though, in recent years. Because as interest rates have gone up, he's getting a higher return on it. Like, you know, it's just fantastic. I mean, yeah, in other times, his rate's fairly well done badly on the same basis. So again, he's not claiming any expertise of, you know, I bet on the future of bonds. He's also holding more to maturity. So there's no, even if he had market to market, it'd be marked down and marked back up again when it was cleared. So it would just be the accounting jiggery-pokery that he has to deal with. By the way, Berkshire also has to...

mark-to-mark its stock portfolio. And so when it reports quarterly, it reports big increases and decreases. And Buffett says, look, here's the thing. Here's how they call it GAAP over there, generally accepted accounting principles, GAAP. And every time he says, here's the numbers, we have to report them according to the rules, and we should, but also know they don't mean anything because we had to mark these things to market. And whether up or down in the last three months is irrelevant to our long-term thesis for holding these shares. So that's kind of, you know, he refers people to the operating earnings of the businesses and any liquidated kind of...

recognize a lot of losses. Obviously, if you buy something for 10 and sell it at five, that's real. If you buy something for 10, it goes to five, then back to 15, then back to 10. One quarter, you lose money. One quarter, you make money. The next quarter, you lose money again. You're back where you started. So he doesn't, I'm pretty sure he doesn't agree with the marketing to market, but he's obviously happy to do it because they're the rules. He's happy to play by the rules. He just chooses to then represent what he sees as the real and important data separately so that shareholders can make an informed decision about what's actually happening with the operating business itself, rather than having those results be clouded positively and negatively by the rest. Yeah, right. That makes sense.

It is interesting, though, just in general bond issuance, the US is selling, like they're relying far more on, sorry for the terms, the short end of the curve. In other words, we need to raise some money because we've got an ungodly deficit. So we'll sell you some IOUs. Now, you made such a great point back in COVID, like why the Australian government and other governments didn't just load up on 30-year debt. There were buyers out there saying, I will lend your money for 30 years at half a percent, whatever it was, like insanely low.

You're not paying back for 30 years. Yeah, no thanks. And the Australian government can print as much as we shouldn't print money. If worse came to worse, they can tax the buggery out of us and all print money to make good on the repayment. So they're never at risk of being able to pay it back. Now, technical fault otherwise aside, if you're the government, you're like, not only is this a good bet every day of the week, but in the very, very, very worst case scenario, we'll print the money and pay it back anyway. Yep. No doubt. But what's really interesting is that the Treasury in the US is just like, not as much. So they are...

really relying on when they need to raise money. It's like, we just don't have much of the demand for the long-term stuff, which is telling, which is like, we'll just issue the short term, which means that they've got more of interest rate risk. If interest rates do go up, it's like, they're going to cop that straight away. And it's already the second biggest expense for the, for the U S sort of government. Um, because I mean, if they had their, I think percent, they said, you know, it's like, we would love to, what do they call it? They called it operation twist at one point in time, but you know, like we want to sort of, we want to make sure that our duration is more, uh, pushed towards the longer end. We just like get rid of all the nonsense speak. I just want to have a bunch of debt that I don't have to pay back anytime soon and roll over continually, but they can't.

Not that they don't want to, but they can't. It's just like, well, we just don't have that demand at the moment. It's just a very interesting thing to me. The quote-unquote global risk-free asset is like, who wants it? Like, not me. Okay, but only if you pay me back in a year. I am not lending it to you for five years, let alone 30. That's funny, right? And that's kind of, there's two parts to that. There is the general repayment risk. And then there's just the rate at which you're being offered the money. And they're kind of the same thing, right? Because one reflects the other. But there's two things. Do people want long-dated treasuries? Yeah, at the right price.

Yeah, hell yeah. Yeah, why wouldn't you, right? There's a price for almost everything, not actually everything, but almost everything. And so it's kind of like at some point, there's not like a lack of... If you could lock in risk-free, just a stupid example, 10% per annum for 30 years, do you want it? Yep. So there's no lack of demand for long-dated bonds. There's a lack of demand for long-dated bonds at the price the government would like to issue them. Yes. And that's the... And rightly so for both parties, right? And why? Why is that? Because...

Because inflation, bro. You might offer me 5%, but, you know, in real terms, it's like 1%, 2%, you know? No. And that's the challenge. I will say that the bond market is fascinating itself, Matt, because it is a lower return asset class and much, much, much bigger than equities. And there's reasons for that which are legitimate, either in absolute rational fact or just in, like we say all the time, it doesn't matter whether I think it's real, whether I think it's a good idea or not. So there are people who want bond-style investment options for all the reasons.

And that's fine. They want the volatility. They want the ongoing steady cash flow. They want reliability. They want diversification. They want whatever reason they want to buy bonds, even though they are. We've talked before about investors who say kind of the same thing themselves is, you know, I want to, I don't want to take, I don't want the volatility of shares. I will take a low return because I want volatility. That's perfectly reasonable. I wouldn't criticize it. It's not for me, but yeah, everything's trade-offs. It's like high returns. Yes, please. Oh, but by the way, it comes with a lot of volatility. I'll take the low return. And it's not throwing shade at that at all. It's like, yes, you've just, you've recognized the trade-off and you say, yeah, it's a low return, but I'll sleep well at night.

And for, if you're an investment fund, if you're a superannuation fund, and members say, I want money back now, please. Well, we can't because we bought these shares and the shares market's down at the moment. Or I want regular income. We can have these dividends. Yeah, dividends might be paid. Good point. I mean, government bonds may not, you might not get the interest coupon, but you're almost certainly going to. And so, you know, I want the regular income. Okay, well, there's this. And so there's reasons why entities should want bonds. It is, we just talked about Berkshire, right? Berkshire can put cash in a bank account, but generally speaking, in the Western world, at least, governments have better risks than banks. So if you've got half a trillion dollars, what do you do with the money? Are you going to go and throw it in Commonwealth Bank? I mean, maybe. Maybe I split it in a couple of banks, or are you going to go?

well, at least I'm a US-based investor investing in US dollar assets. I'm going to get paid back by the government in the nominal rate. At least I know I'm going to get it. There's zero chance I don't get paid back that the money I put in plus some sort of nominal return. So do I want to put in a bank and take more risk? Well, probably not with that sort of money. No. Okay, well, they're on it in shares. Well, you have to get the right price. But so there's very, very good reasons to buy bonds for those who have specific needs or desires. That's not what you would do. It's not what I would do.

because we're happy with volatility rather than minimizing it and paying an insurance premium or a volatility premium and getting lower returns as a result. But it's a perfectly fine thing to do. The question, as you've rightly pointed out, is the durations matter and the prices matter and the market will determine how much they're prepared to pay based on things like how likely am I going to get paid back and what the inflation rate is going to be in the meantime. What return do I need to offset that inflationary headwind I'm sailing into? And that's that combination. And again, the uncertainty of future inflation is the other thing. The uncertainty premium is huge because maybe inflation is massive because they put a lot of money or maybe it's not. And we can have our own views on that. The reality is whatever the views are.

The future is uncertain, certainly to the quantum of that inflation. So you've kind of got to say, well, if I knew it was going to be between 1% and 2%, I'd want a higher return at 2% than 1%, but the range isn't huge. If I'm getting 4%, then I'm okay with getting something more than inflation. If you say, well, inflation could be somewhere between 2% and 5%, well, okay, now am I going to bet on 4%? Probably not. Am I going to bet on 5%? Maybe, if I think the chances are likely it's 2% rather than 5%, but if it is 5%, get nothing. So maybe I want 6%. And so the range of outcomes is hugely important when it comes to bond pricing as well.

You ready? Get this. I just had to look this up because it's like, even for me, it was like, that can't be right. So again, this is, try and say it with a straight face, the risk-free, this is the risk-free rate, okay? Now, I don't know what you understand by risk. So let's not even talk about predicting the future. Let's go back 10 years. And don't forget, have you seen the meme about with 2019, talking to 2026? Yes. The two girls talking. Yeah, yeah, yeah. And the other girls were just holding him around like, what? And I was like, yeah. No, no, no.

So 2016, right? A lot has happened. A lot has happened since then. I mean, the world was already crazy, but it was just like a teaspoon of crazy compared to the crazy levels we've got at the moment. Anyway, back in 2016, as a sensible long-term investor, I'm going to buy a 10-year treasury. It was 1.8%. It was a yield, right? Okay. And you still did it. So you put $100,000 into it. And we all know what happened to bond prices, et cetera, et cetera.

You didn't play that game. I held to maturity. After 10 years, if you put $100,000 in, you got $18,000 in interest, $118,000 return. The cumulative inflation between April 2016 and April 2026, 38%. So in other words, for you just to not make money, just to maintain your money. And you were bought the lowest risk asset on the planet, according to accepted wisdom. On the planet, right?

You would need $136,000, $138,000 to be square, right? And so you've lost about 1.8%, 1.9% per annum on that investment held to maturity. And it really just emphasizes the point that you're making there. And it feels like it's a big so what, I suppose. And people can make up their own mind. As I've said, I would not buy them with your money at this point in time. But it is a great example of how...

Unquestioned sort of financial wisdom can just really be diametrically wrong because inflation matters. Now, if you are of the view, I'm not talking about hyperinflation or anything silly like that, but just that inflation is higher for longer. And you're only getting, I forget what the 10 year, I should look at this up actually, but I think I want to say it's around 4.8%, something like that. You want to hope that we don't run too much into inflation because you're potentially going to lose a whole bunch of money in the same way that 10-year bond investors have over the last year. And just in case you're thinking that I wouldn't be so silly, don't forget that incredible amounts of Australia's retirement savings have got into exactly those kinds of assets because it's mandated to, right? So very, very high chance to your listener that you've got exposure to these kinds of things. And unless you've got the size of a super fund to...

justify the setup of a self-managed super fund. They actually don't have much choice about it, really. Yes, but I don't want to forget they have the option of direct investment within their retail super funds most of the time. So if you take just the default, you're absolutely right. Which is 90% of people, though, right? There is a third path. If you don't do SMSF, most, if not all, super funds will let you choose a direct investment option where you can choose stocks or ETFs or investment strategies or components that exclude bonds if you want to. Here's the thing now, mate. I think that's all true.

But I also suspect there is a world in which rates actually are lower in five years than they are now. Oh, I guess you'll do better, yeah. Right, so you wouldn't buy bonds with my money. I don't know if you meant it. It's 4.3%, sorry, I just looked it up. Yeah, 4.29 around. I wonder, and I'm not asking you to predict it all.

I think I wouldn't buy bonds with your money is a reasonable view if you expect rates to stay high or go higher. If rates fall from here, buying bonds, you get the 4.3%, but if rates are lower in 10 years' time, you'll actually, well, you won't get extra because you won't get the money back. If you want to buy that bond and then sell it at some future point at a higher price, you actually may do better if rates were to fall, even modestly between now and 2036, assuming you could find someone to buy that bond off you if the bond price did jump based on the falling official cash rate. So there's something to that. I wouldn't say there's never a time when you could buy bonds and make money. Now, you're still in the question of inflation, but if you buy at 4.3%,

I think I'm almost being devil's advocate for the sake of it, actually. But I guess just for the sake of balance, for our listeners to understand, if interest rates fell and inflation fell over the next 10 years, you get a 4.3% bond now. So you're getting net return. Inflation currently straight at 3.7%, so you're not miles ahead. But let's assume that under some miracle, inflation is lower in three years' time. Make it most of a percent in real terms. Right. But let's say inflation is 2.5% in three years' time and the bond, the official cash rate, let's go with that, falls to 2%.

than the bond price. You could sell your bond having got an above average return for a few years and then sell that bond for way more than you paid for it. And you can make a lot of money. So there are times when you can absolutely make money buying bonds. Now you're a speculator on bond prices. I'm just saying there's not always a losing bet. I try to point that picture for our listeners. It's not the case of you always lose buying bonds. I'm glad you did that. I didn't want to...

My opinions on it are pretty clear, but I certainly don't want to frame it as a fait accompli, other than just to sort of say, understand the bet you're making, because I think too often when it gets talked about, it is talked about as in like, I mean, people look at you like you've got two heads if you suggest that there's even a modicum of risk here. Like, what do you mean there's no risk? Here's the thing. It's like inflation doesn't, it just stays the same. It's 3.3% in the US at the latest rate. So you're getting 1% real. And we all know that the rate of return is there to compensate you for the risk, for the uncertainty. Now, I have no idea what's coming. You have no idea. Buffett doesn't have any idea what's coming. But it's the whole Benjamin Graham, three most important words.

investing margin of safety you've got a one percent margin of safety here you want to hope that inflation falls right because because if it doesn't um and and here's the thing it's just like well one of i mean maybe maybe different people see it differently but i would suggest unless whatever whatever the uh the deficit is the size of christmas and growing and we're relying on the money printers it's going to make the the the potential for inflation to go away is harder and harder. There's a lot of hope, let's call it what it is, hope being put on AI. It's like, no, AI will drive incredible productivity gains and then that will offset it. It's like, I hope so. Because there's, as you say, the bond market and the US bond market is the gorilla in the global asset stage. It is far bigger than equity markets and most other markets, I think all other markets. And it's like, it just boggles my mind that it's just of such a narrow, narrow margin of safety.

on these things, particularly when we don't have to go, oh, there was a period in 1786, between 1786 and 1790s, where if you held bonds, you got wiped out. It's like, oh, you know, there's all these weird esoteric examples from history, but it's like, no, the last 10 years, the last 10 years, half of which was before COVID even happened. You know, that strategy has seen you lose 2% a year or 20% almost compound in total. Anyway, it's safe to say, I shall not be buying bonds in the new term. I am shocked. But you're not either though, right? No, no. You probably wouldn't either way. And that's the, this is kind of where

Yeah, I think you're right. I wouldn't buy it either way. And that's probably why... You mentioned speculating before. You can only get a...

Over the long term, the data would suggest it's very hard for bonds to beat shares in general. Or just the general level of economic growth. Right. So if you're buying those bonds, you are almost certainly either speculating on the future direction of interest rates and inflation, which I'm not going to do because I don't have any interest. Either way, to Ram's point, he's expecting one version of the outcome. I'm not, I don't. I think you're agnostic. Well, no, I think you're probably right more than wrong, frankly. But am I going to bet on that? No, because it would be literally better. It'd be outright speculation. Yes, yes. Will it happen? Well, I mean, anything could happen. I mean, Trump's your appointee to the Federal Reserve could cut interest rates in the US by two percentage points tomorrow.

Okay, well, that changed the story. I'm pretty sure he was picked for a reason. Or he won't. And so it's like, we're still betting on that, right? And even if it's likely, likely's not enough. I mean, you can spread a range of bets on a range of things and happily take a loss if you're wrong on that one, but you're still speculating, I think the Roosters are going to win this weekend. Okay, well, am I sure? No. Okay, there's a 60% chance.

all right, but, you know, am I going to bet my investment portfolio on the base that maybe they'll win even though they're likely to? So, you know, at some point, and that's, I mean, all that shares as well, right? You diversify accordingly. But I don't expect bonds to outperform shares over the long term. And I don't believe I have a special insight that allows me to beat the rest of the market at bond pricing. I mean, the bond market is already massively larger than the share market. And smart, well-educated, well-connected people are making their bets on the price. That's what the trade is. The rolling yield on the bond price is what we think it's worth paying for as a group.

So do I want to bet against that? Not really. So no, I'm not buying bonds either way, mate. I don't expect they will add to an investment portfolio's long-term return. I think it's a track from average. And so I'm going to go and bet on things, literally use the word deliberately, that have a higher probability of capping and or a higher return if that probability plays out. And that's, to me, just an easy decision.

Yeah, actually, it's pretty much the same for me. So what the argument is, is opportunity cost. That's what the argument is. And everything you just said, I agree with. But I bet, I know I would think differently, and you probably would too, if let's say a hypothetical scenario where the average market P is 30, something insane, and the average dividend yield of the market is like 0.6 of a percent. You know, it's just things that it's like, whoa, like historically it's off the chart. And you could get from the US government or the Australian government a bond that was paying 8%.

I bet you'd reconsider this then. I would. There's a price, right, exactly. Now, if it was paying 8%, though, you would ask yourself why I pay 8%. That's the other problem. The most useful words for thinking through a theory are if all else is equal. Because it makes sense you get to control for those things and say, if nothing else changed, if I changed this bit, what would happen? That's a really, really useful learning tool because you get to look at the relationship of certain things. But then you've got to say, okay, so I get that. If all else is equal, that would happen, great. What if all else isn't equal? What would happen for that bond yield to be offered to me?

Well, Venezuela's offering 25%. There's a reason for that. You know, it's like, would I take a 25% government bond yield? Yeah, buy it right now. Right now you get a 25% yield from many, many governments around the world. Fill your boots. Hey, speaking of this, this is massively random. I read it this morning. It's entirely not even close to, it's a little bit relevant. There's only 31, I think, liberal democracies in the world.

Yeah, it's a tiny fraction. 170 sovereign individual countries, something like that. We are so insanely privileged. And even within those 30-odd or so, there's a spectrum there. We are...

We are not the norm. Not to pivot it away and definitely not to get into this as a conversation, but it comes up a bit with this stablecoin stuff that's sort of happening at the moment. It's the fastest growing product category ever. And it's just huge. And it really jars you when you hear it. It's like, well, I don't see them. They're not in my world. And I think that's what you've got to remember. It's just like, yeah, but you're 30 out of 170.

Yes, like Latin America, Africa, Southeast Asia. Like, there are man, Eastern European countries. So many countries are like, oh, thank God, right? And it's worth remembering, I think, for us in these very particular situations, just how unusual it is and how fragile it is, frankly. Yeah, I don't know. I don't know where we're going with all of that. It's worth, I think, unpacking a lot of these things because there are so many things that are just seen.

as eternal and everlasting and incontrovertible, but they don't actually stand up to much scrutiny. I caught this, a straw man member pointed out a Charlie Munger speech he gave in 2001 at a university. I hadn't come across, I thought I'd sort of come across all of them by now. And this is a little, this is a complete tangent, but just in the idea of things being counterintuitive. And I was talking about the early days of Berkshire when it was a textile mill. And I don't know if it's apocryphal, right? I don't know how literal it is, but Munger was talking about how an employee came up and said, it's great, great news. They've got looms now that are 10 times more efficient. And Buffett said, that's terrible. Yes. Isn't it great? And you go, wait a second, you guys are in the textile business, at least you were in the early days. And someone's just invented a machine that can increase your productivity many, many, many, many fold. And you're upset about that. And Charlie Munger put it in a great way. He's like, well, none of the meat's going to stick to our ribs.

That all goes to the consumer. You go, well, what do you mean? Well, everyone has access to these machines. And people probably need a 4%, 5%, 6% return on investment of these big capital equipment to make it make sense. So the mistake is to think that we can buy this and continue to sell at the same price and there'll be no impact to it. And this is a great line. He's making this point. One, you've got to think about second and third order consequences. And two, these things generally, at least when markets are fair and competitive and open.

This is great news for the consumer because your textiles, your clothing, your blankets, all of these kinds of things are now a hell of a lot cheaper. And it means that you're going to have to reinvest, not because you want to, but because you have to, because everyone else is doing it. And any cost savings you make goes straight through to the consumer. So a whole bunch of capex spending and no extra rate of return. And maybe if you do it very quickly and you're first to it, you might get a year or two of some outsized returns, but that curve only goes in one direction.

I did have some way of linking that to the point we were talking to. Oh, yeah. Just think like a lot of these things, I think they're really counterintuitive things that happen in markets and in economics all the time. And it's worth thinking about that. I mean, the classic example we've talked about a lot recently is sort of like cigarette taxes, you know, sort of like, well, look at that. Smoking rates have gone up for the first time now because it pushed too far. Or, you know, look at the NDIS has actually increased the cost of services. You know, there are these sort of things that you don't think through. They're very obvious once the pain drops. But at first encounter, it's like, no, well, obviously this would be a better thing. It's like, no, actually it can be not just...

neutral, but detrimental in so many ways. Let's throw that to the internet and the AI. I mean, that's the lesson of the internet. For everyone who says, well, Google's a fortune, Amazon's worth a fortune, and Nvidia's worth a fortune. Yes, absolutely. There are companies who will make money because the internet exists. There are companies who will make money because AI exists. Of course they will, because they'll find a way to create value for someone and charge for that and make a profit on it, because of course they will. And if that's true, if you've said many times, that's a good thing, because it says they've created something that people actually want to pay for, and that's cool, right? The thing is in between, the group in between, and that's my view on AI, and I think it's yours, but I suspect the most likely outcome for AI is like the internet.

It's a costly business for everybody else. Woolies and Coles are, Woolies is better than Coles because you use the internet. And Coles are better than Woolies because you use the internet. They both have to because if they don't, what, Woolies isn't a website? You can't shop online from them? Well, I guess I'll go to Coles then. So Woolies aren't doing it because they want to try and beat Coles. You know, everyone's able to access that, as you said, the textile loom. That's exactly what the internet was. We're using electricity. It's like, ooh, that's a competitive edge. No, it's not.

We've got air conditioning in the store. Well, now everyone wants air conditioning in the store. Well, that's going to cost us more to provide. Okay, let's do that. I know air conditioning, I'm going to save money. Well, people are going to shop with you. I guess I'm going to have air conditioning then. Okay, fine. Cold fridges. Well, I don't want to have cold fridges. Well, I guess you've got to have, okay. Fresh fruit and veg. It deteriorates. It goes off. You've got to throw a lot of it out. Let's not do that. Well, if you don't, people are going to go to Coles instead of, okay, I guess we've got to do that. There is, you know, the things that are genuine. This is, it goes by competitive advantage, mate. Those things aren't competitive advantages. They are requirements. They are tickets to the dance in business. The things your customers require you to have to be worth going to. Yep.

There's a lag. There's a lag. You talk about the value creation of Google and the Amazons and that world. But you've got to look to your point. You've got to look at it on a net basis. Can we throw in the legacy media as one industry, right? It's like on a net basis. There's like, again, that while value was created in this one sort of newish niche to properly account for the value across society or not even just within the business landscape. I would say it's not nearly as positive.

I mean, massively positive to us as citizens, but not as positive if you only focus on the winners. Look at Google, they made a fortune. It's like, no, no, no, they made a fortune because they created an insane amount of value for everyone else. And a lot of that value was bled from legacy industry, right? So it's sort of like, there's always this thinking, and I think this is probably the core issue with a lot of political interpretation of economics, is it just starts and ends and doesn't even conceive of anything other than a fixed pie. There's a pie, who gets a slice? And it's sort of like, yeah, but the pie can change size.

And I think that's what we forget. So I just wanted to throw that point in, but I cut you off. I was going to make the point that we are thinking about the consumer-facing stuff, the stuff like the textiles in the back room. You know, we could use machines at our distribution centers to lower the cost of distribution of the goods from warehouse to the store. And great, well, you've got to make money then. Well, yeah, until Coles does the same thing. And then Coles does it and passes on the savings to the consumer. Well, now we'll do it as well. And you can't not have an automated distribution center because if you're still relying on people, it's costing you more to do that and you can't compete on price. So the investment, as you say, the textile loom example in the simple supermarket one is the automated distribution center. It feels like a big deal. Like, oh, this would be a great advantage. Like, well, if it is, it's only for as long as it takes the other guy to catch up.

And then you're back on even playing field because you've both got the same cost base. So the sustainable competitive advantage is the thing, not the thing you can do to lower your costs. It's the thing you can do to lower your costs that the other guy can't do. It's the thing you can do to serve your customers that the other guy can't do. And yes, occasionally that might be some sort of proprietary technology. We've talked about proprietary data, for example, for AI. That might at some point. I think it's overblown personally. I don't know if you have a different view, mate. But I suspect the genuine incremental value from that is really limited because the stuff that's genuinely proprietary, that gives you a genuine advantage that's big enough and noticeable enough for the consumer. I mean, I don't know how big that is. Massive, by the way, in search. That's a Google smash Yahoo.

They're the same internet. They both index the same internet, right? Google did it better. People went, well, I like their search result better. And that proprietary, and the great thing for search is the feedback loop. Google knows how good the results are because they get the clicks. It's perfect, right? It's like, so if I give you that result, you click on it. If I give you that result, you don't. Okay, I'll give you that result more often. It's a wonderful feedback loop. They get instant feedback. And once you get a head start, that thing snowballs like no one's business. So that's really attractive and really a great way to do it. But yeah, it's got to be the thing. It's called the PageRank algorithm, if anyone wants to nerd out on it. Yeah, a really genius bit of programming. Yeah, and it's...

So yeah, sometimes, yes, but that was a sustainable competitive advantage. It wasn't the internet. It wasn't the fact it indexed. It was that information. The broader question or comment, I think, is really what is sustainable as a competitive advantage. What gives you an advantage that others can't get? Not what lowers your costs, because others can do it too. Not what makes you able to serve this customer faster, because others can do it too. It's what can you do they can't do, that your customers care about. And that's where the advantage genuinely comes from. Yep. I mean, yes. I'll say this and then we'll move on. But it's just like, given all of that, why do prices go up?

You've got to connect those two dots, right? And I'll just, I'll shut up. I very rarely tweet, but I did retweet an article that I thought just nailed the argument so well by a gentleman called Alan Farrington, a co-writer with The Session Live. Did a really, really good piece. A little bit snarky in places that are unnecessarily so, but it's just like, I couldn't help but throw that in there. It's like, well, if everything you're saying is true, then how come everything's getting more expensive? And I would go, yes, that is a very good point. Should we do?

Where are we? An hour and 17 minutes. What do you want to do? Should we actually do the agenda? Because none of this was on the agenda when we sat down this morning. It really, really wasn't. You know what? I think we should leave the agenda. There's nothing that's particularly... I'll leave those points in case they come up. Is there anything you wanted to throw in from the listener? No, not really. Not really. I mean, I think the conversation off air was just like, what are we talking about? And it feels like we're sort of circling the same kind of thing there. Not because necessarily we're a dog with a bone, although that's true, but it's in the news and it feels like you run out of things to sort of say about it. Sometimes you feel like, well, I guess that's what everyone's interested in.

and that's what we can talk about. But this is far more interesting, so I'm happy to leave. Me too, me too. All right, we'll go back to next week. Well, next week, episode 1000. Oh, yes. Next Friday, episode 1000. And I'm going to, well, I'll say this now, laugh you off air, and then you can tell me yes or no. I'm going to hijack the episode with an announcement. Oh, okay.

Well, you promised it now. You can absolutely countermand it. There may not be an announcement next week, but if there is, we will go from there. Oh, but then that's unfair because now it's like there's not an announcement at all. So Paige threw some cold water all over that, did he? Mate, we're now at 15. No one's listening. That's true. That's true. I'll tell Mum separately and we'll be good. Okay. Until next month until Sunday, actually. We'll come back on Sunday, won't we? Hell yeah. We can't get to an episode of 1,000 unless we get up to 999, so that's what we'll do on Sunday. That's how it goes. Until then. Cheers.

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