A listener production. Cheers, Marcus. The recipe of the ice-exist toss. Theist is the Motleyful Money Mailbag. Welcome to Motleyful Money, yes, it's, um...
I think it's... It must be Sunday, and I suppose it's time for a mailbag episode, and I guess if this boy turns up it'll be special, but, um... I guess it's... Of course, it's Sunday, it's special, it's the mailbag. What's going on? Where's Scott? What have you done with him?
Here's Andrew Page. He invented strawman.com. He breathed life in his lifeless corpse and turned it into a behemoth. Then I just said, I'm Scott Phillips. I work for the Motleyful.
This is Motleyful Money, it's our mailbag episode, and just a page. Good morning. Good morning. How are you? I'm very, very well made of Sunday.
Morning, how are you on the weekend so far? I assume it's going to be a good weekend, so yes. Let's go with that. Let's go with that. You know, I'm the eternal optimist. I never had a dark cloud on the horizon.
I only appreciate it. I was probably going to write. I'm not going to be able to put it in. I'm not even going to get out of bed. What's the point?
Why bother? Info at full.com.com.au. The email just says, you well know, and now listens, hopefully well know, has it you before, mate. I do get the, uh, an uncomfortly large number of people who say, we've got a question on my bag. How do we get in contact?
I've said, you haven't been listening, have you? Yeah, so you should be recording podcast joke for the winter holiday break. So if you've got questions from us, we'd love to answer them in that vein. Let's get started on a question from Ben made who says, Dear soapbox Scotty and rant page, which is a conflict trip about this. No, I'm kidding the ring. Oh, it's okay.
But I have pre-order Scott's book as a way to say thank you for the years of education entertainment. I mean, Ben, if you want to order the one page investing plan from Amazon, I'll talk to you here and make a pre-order end, jump online right now, buy a couple of your friends, some for your family, a couple extra cases, the one you've got, I heartly endorsed that idea then. So I shouldn't, I shouldn't plug the one page investing plan too much. I mentioned the one page investing plan too often people are going to think, I'm just here trying to build a by the one page investing plan. I'm not going to do that. I'm not going to do that.
I've got my order on copy, I'll say that much. Very current. Thank you. I looked at the grief you throw my way for the typos and the screw up. I've got some notes.
I'm a bit disappointed that there's not a sound money chapter in the end of there. I'm sure it's all enthusiastically. Volume two, there you go. Speaking of which, Ben says, rant page, I will do the same when your book is released, perhaps to be titled, is anyone listening? My 10 greatest rants of the pot machine, volume one.
Is anyone listening? Yes. What's it called? What's that rule that says? Wherever there's a question in the title, the answer is no.
No, no, no. Mackenzie's law or sign it. I'm making a couple of blurs and razors. I love the laws. Yes, yes.
That's going to be the book, the book. The book is going to be the book of laws. The book of laws, yes. There you go. I did like Ben said volume one.
He assumes there's going to be more and I think it's a very, very good idea. That's a sound approach, no pun intended. All right. Ben says, for my own health, the Berkshire, Buffett, Munger and double for grand drinking game has now been turned off for good. I've replaced the drink with 20 push-ups to be tallied up during the podcast and done by the end of the day.
The turning point was Scott dropping three Ben Grands in 15 seconds during an episode in December. All I can speak, Ben, and obviously we'll see you with the bloke with the massive arms and massive shoulders given the push-up game. I do like the idea of replacing it. Not as much fun, but probably a bit more productive. Ben says, my question relates to the peg ratio, which is the price to earnings ratio to the growth rate.
And if there is a point at which you feel the peg ratio of a company may represent fair value and then pick your interest. Before you dismiss the premise of my question, I have heard you comment, you may see a company whose share price has fallen and therefore the P may have dropped. Hmm, interesting, he says. You then look at his recent perhaps likely growth prospects. Hmm, still interesting, yes.
Even if you're not conscious of looking at the peg ratio, you are probably calculating it subconsciously. Obviously, a capital debt isolation has been coming up here ratio of 10% with a growth rate of 10%, which would be very different from a P of 40 and a growth rate of 40%. And therefore also have a peg ratio of 1. Is there a sweet spot you find yourselves favoring? Are you companies with a lower or higher P's and growth rates?
And finally, is it something we should consider when thinking about the market valuations overall? While the US is market-in-law relatively high P ratio, its forecast growth is also high and looks much more attractively valued than the cheaper but slower growing Australian market. Curious to hear your thoughts and the various, it depends, Ben's getting it on. Thank you both and maintain the rage, Ben. Thanks, Ben. We will.
We shall maintain the rage we have been raging over the last few weeks. We will continue to rage. Um, Ram, peg ratio. Yes, no? Good bad?
Uh, it depends. Just very quickly, I had to get it in. It's, uh, it's Beatrice's law. Any headline that ends in a question mark can be answered by the word no. There you go.
Um, uh, is that a question mark? Yeah, there you go. Uh, so the peg ratio I put into the category of US, the category of useful mental framework, absolutely useless practical output. And that sounds like a whole list. Yeah.
I mean, it's, the concept is really nice and Ben did a great job of just outlining it, which is basically, you know, a PE in and of itself is not really going to give you much context, you know, without understanding what the growth is. And the PE, again, the company with the PE 40, who's earning a growing at 40% per annum, is a great example. I would say that was a super cheap company, provided that, you know, that growth rate was sort of sustainable. Um, the trouble with it is, is that like a lot of metrics where people start thinking that they can use it as a something, like a factor, they call it factor investing. I just scan for it and I'll buy everything that has a PE, a peg ratio of whatever this is.
And the trouble is there's so much noise in a lot of the data because you'll get, you'll get things. I see, I speak from experience having been lured into the appeal of these things in the deep distance past. Um, and you, you realize, I realized anyway that I was, it was not a great deal of practical value. Just to, just to argue the counterpoint, those that do say that there is value in it are usually what you would call trading desk. In other words, there is probably some statistical validity enough that if you've got, you know, $100 million, a super computer and you're able to trade five different markets across 10,000 different stocks where you can find enough of an edge to get 1% alpha and like, yes, okay, you got me, right?
Like, yes, maybe there is something to it. For the ordinary person who's just looking, you know, out there in the market, what can I buy? And unfortunately, it doesn't make a lot of sense. So for example, you have a, um, a particular year where the earnings just like took a really big heck up, you know, the one off right down or something like that, or they just happen to be a global pandemic and the price fell and move the PE around and it's just, you, you, you, you lose the noise. I mean, you lose the signal, but all of the noise.
And the other thing is, when you Google this kind of thing, um, you're, I think, I don't know who invented it, but it was, it was always framed to me as like, if it's below one, it's cheap, if it's above one, it's expensive. Well, the reality is that you don't find ones below one. Like, if you can find me, a company on a PE of 10 who's growing at double digit earnings on an sustainable basis, I will back up the truck because that is a very, very, very rare beast indeed, you know. So, and then you'll find more formula, different interpretations of formulations, well, that's silly, but below 1.5 and above 1.5. And you say, you're getting to these, then it's just a question of where do you draw the line, and then unfortunately you get all these exceptions to the rules.
So when very, very large data sets have a very long periods of time, maybe on the individual, I just don't think it's that valuable, but then you're right to think about it in that, that general way. And that is not to go cheaper expensive because PE high or low, cheaper expensive because the PE is out of whack, with the likely growth rate. Does that make sense? Yeah, I think it's perfect. I think as a reality, I don't do relative PEs ever.
It's like, oh, well, 6 on the P of 35 and 6 on the P of 34, therefore it's cheap. It's not true. I mean, it's true of the market to believe that the PE is valid, but it's not, I don't like relative PEs. But what the PEG ratio, the peak ratio, the price, the peak ratio, what that tells you will be to be is, in a relative sense, the relationship between the price and the growth rate. And so it's useful to ram as one, so heuristic has a directional idea as a concept to think about the relationship of price and growth.
Because that's, you know, we said a million times and you make the point then, you know, P of 10 and growth rate per 40, for 40, very different businesses. But also, that's one year, right? Now, it's best maybe it's an average growth rate for extended period of time, but the pace at which that growth slow is also really, really important. So, even though those two companies have the same peg ratio or different, the persistence of that is also important, right? PE of 10, growth rate of 10, for growth rate of 10, for growth rate of 10.
And for 40, 40 percent, then it grows at 10, it grows at zero. That's still very, very different. even though the starting gear will last you for the back. Excuse me, is the same? You're not going to get the same sort of result.
So I can't let you go. What Ram said, yes, he has heuristic as an idea, as a concept, as a way to think about investing. I think it makes a whole lot of sense. I don't know that I would never use an absolute number to jump with buying or not, absolutely not. But conceptually, I want things that have lower p's and higher growth rates, all things being equal.
So yes, conceptually, that idea is absolutely valid because it tells you directionally, when you can afford to pay a bit more, based on stronger, longer growth. And we need to pay a bit less because that growth is not there, or not going to be consistent or you're just not sure. And again, the likelihood of that is important as well. I mean, the way to think about these, I think, I made the point, probably not that long ago on the pod, is that the more intuitive way to think about a p is just to flip it on a TED and talk about an earnings yield. So instead of dividing p by the e by the p, it's the same thing, just the inverse of the other.
And I feel it's at least more intuitive because people get yields, right? And then I'm like, well, wait a second. If I'm actually not good enough to do this in my head, so let's just bang out the alternative. Oh yeah, I should have done that. I was going to go, what is this?
What is p of 15? I forgot to carry the one. No, no, no, no, no. So p of 15 is an earnings yield. So there you go.
OK. 6.66666666. So what you're saying is that a company that's trading on a p e of 15 is that if it was to distribute all of its net profit back to me and it was never to grow its earnings ever again, I would get about a 6.7% yield. So that's an easier question to answer. Like is 15 high or low?
I don't know. Is that 6.7% yield? Well, now I can compare it to the investment property to the term deposits. Well, it's much easier. But then pulling on that threat a little bit longer, you start to get a real sense of the significance of growth because these days you more often than not have a company on a p e of 25.
Hello, come off bank. And that's on earnings yield of 4%. And don't forget that that assumes no reinvestment. That means that you never really have to update the systems. There's never any reason to invest for the future.
Well, you have cash flows in the current year, because that's obviously what's left. But you have to put a large amount on your side for future use. Yeah, absolutely. So any kind of thing? Well, 4% ain't a lot.
Not when I can get. That's with the somehow managed to make this a rant on the banks. But just as an example, that helps you frame it up a little bit, doesn't it? 25 high loads? Your point.
Well, the market's actually not that high when you look at it like that. And actually, we know that we're back in the abs. That's not even the bull bar till it's OK. But certainly on the peg basis, these things aren't going to 25% for you. Let me assure you of that.
And any amount that anyone wants to take me on, that will ever be the case. But you've got, then, again, opportunity cost rise. So I'm like, well, if I can get 5% in the government bottom, then I'm going to get 4% on this. So as I say, now, the bulls are going, yeah, and true, but growth. And I'm just like, yes, exactly.
When you get something that is growing very rapidly, actually, the yield is going to be far higher than that, because next year, they're going to be paying out far more than that $1 for every $25 worth of equity. And it's going to go up and it's going to go up. I made the, I had the epiphany years ago and in, actually, when I was at the full, when I was running dividend investor, and it occurred to me that the best dividend stocks tend to have lower yields. And it completely flips everything on its head. Because as someone who's tasked with finding dividends stocks, what do you do?
Oh, you look for the highest yield. Company A has a yield of 7.7 fully franked. Company B has a yield of 4% fully franked. Which one are you going to go for? And when you actually look at the data, you find that actually the lower yielding stock tends to be a better, I'm generalizing you always exceptions to the rule, but on average, in my analysis, if you just look at one or two years, then obviously there's no contest.
But when you're sort of talking about meaningful timeframes, you end up getting a much bigger income stream because you would find that the company paying 4%, whose earnings and therefore its dividends are growing, not therefore, but very often, growing at say 10%, I'm getting a pay rise every year. Now the company on a 7%, your pay is paying the same dividend. Tell us your classic example back in the day. Oh, it's a great dividend stock. Oh, it pays wonderful dividends.
Yeah, but dude, this is before they cut them. It's like, you know, their dividends are the same. And they have been the same for a decade. They're never increasing. Do you want a 7% yield that never, you want a 7% yield starting yield on an investment and your income never grow?
Or do you want a lower starting yield, but then over the length of duration of your investment, the total income derived as a percentage of your capital invested is far greater. Sorry for the word, Sally, but you get my point, right? Like that is one is mathematically objectively better. And this is a long way of just rounding back onto the peg ratio. Growth matters are hell of a lot.
You've just got to be careful that that growth is reasonable and sustainable. Because there's no, again, the mass breaks down. It's like, yeah, they're going to grow at 20% for the next three years and then they're going to drop earnings 50% and stay there. Huge numbers of examples of that on the market. All of a sudden that PE is looking really, really expensive in hindsight.
So yeah, it depends and it's hard. All those things. Quickly, I'm going to do this in big numbers made. I'll people listen to the numbers for their own sake, but directionally this is useful. So you can reverse engineer Pies and just kind of cash flows.
Now these earnings see if it's cash flow, they're not exactly the same thing. Let's for the sake of it. As you may are just to make life easier. We can work it out for that. And so you do some really reformers.
So I kind of, so building in side, basically here, I go for a discount rate of 10%. That means I want to get a 10% annual return. Why? Because we're going to do about nine. So 10 is kind of the minimum price I want to pay.
Now, just marginal say to yourself, this is just the calculation. And if you use a 10 year DCF, which most people don't like, by the way, is an opportunity in that. So let's go with it anyway. If you use a 10 year, so here's an input, a 10% return, 10 years and a 3% term will grow through it. That means the end of 10 years, the growth rate from there on is 3% a year in perpetuity.
So let's just, and again, if you don't understand this, don't worry about it, but just so for the nerds and the number of people, the inputs. So that's the best way to do it. And so, I actually have done this exercise. Right. Just remind me, if anyone wants to Google finding value with the humble PE ratio, I wrote an article and I put a table, I put a table, I put a table, I put a table, and there's a table there that will tell you the growth you need to justify.
So, but only on those assumptions, you know, go into the chart. It puts the PE in the growth in context, right? So, the numbers I've got here, and it may depend on starting in finishing prices, they're roughing on. If you're going to pay you have 20, you need 5.4% a year for 10 years and then 3% a year after that. And that's not going to, that's not a big ratio of one, right?
If the PE is 15, you need 3.2% growth for 10 years and then 3% a year after that. If the PE is 10, you added half a percent for 10 years and then 3% every year after that. I had zero on my calculation. That's not only different terminal value, all of the time. And you choose a terminal growth rate, you choose different time horizons.
The point is to suggest these numbers, the point is a peg of one doesn't do the job because without getting too detailed about it, they're exponential functions, they are not, the comp and exponential straight line. So, a peg works on a one for one at one point in time. The longer you extend it out, the less relevant PE is the point I'm trying to make you. And so, by the way, so, and just against the numbers he made, I'll do a P of 15 for fun. If you're a 10 year, you have to do 3% a year after that, you need 3.2% growth.
If you're telling you growth at 3.2%, over the P of 15 for only 7 years and then 3.2% you need 4.6%. And a PE of 15 for 5 years and then growth at 3.6%. In other words, the quicker the growth rate slows, makes sense, the larger you need that growth to be to start with. And so, again, it depends, again, back to the peg, because how long that growth is going to be valid for and what sort of decay, if you like what sort of reduction in growth happens, that quickly happens. Just again, what was the outcome right now?
Brothers? Thank you. I'll come back to this. Finding value with the humble P slash E ratio. There you go.
You'll find it on strongman blog. But so, as the example, as an example, when looking at a company's... No, actually, I would mention that if it was wrong, it's my way to fragile. So, when looking at a company's P ratio, you can use the table to help determine employee bubble. As an example, let's look at Woolworth's.
Undoubtedly, this is a solid company with a long history of shareholder wealth creation. At present, it shares a trading on a PE of roughly 28. And I go on to explain, based on the cable that I calculated, they would need to go with this rate for you to get a decent investment. Now, I wrote this article in the 3rd of December 2019. Do you know what the share price was?
The 3rd of December 2019. It was $31.93. The share price today is $34. Hey, yeah, nice. So, what you're talking about there is a seven year long-term investment, one of the best companies on the Australian Stock Exchange, and you've gone from $31 to $34.
And before someone goes, boop, boop, boop, boop, but dividends and frankincur is like, yeah, yeah, exactly. You got 6%, 7%. This is not a massive wealth-creating engine for you. It's terrible. You could have done far worse.
But we've made the example with the banks and it's so many. It's not seeing around corners. It's not having any clairvoyants or anything like that. And we've made the point so often recently. I'm going to hit it one more time.
It's like, no company is worth an infinite amount. You can absolutely get at best mediocrity at worst you can have it handed to you by overpaying. And so the exercise that Scott went through and the way that Ben sort of framed all of this out is just so valuable in terms of thinking. And that's just the come full circle on this. This is why the peg ratio is just brilliant as a concept.
Terrible as a practical instrument. But it's a concept. It's just so, so, so, so good. And yeah, I've taken nothing away from this, except this podcast. Take that away.
Nice. And then I'm always right. Look up. Look up. Look up.
I'm from Andy. And go from valuation to the thesis itself. It says, hi, dear. I hope you both will. I have a question.
A question on thesis break, if I may. I am choosing Mass Group, M-A-A-S group. It's a building and construction conglomerate. So our business. I bought them after a previous holding CSR was taken over by Saint is a gobain.
G-O-B-A-N. I've probably messed that up. I bought Mass for many reasons. A few are, I believe, the build out in regional areas along the increase. And they are also found to lead.
However, recently they announced they had planned to sell the whole building and construction business to change focus from that to digital infrastructure and the electrification of Australia. To be honest, I'm pretty annoyed. He said it for us. I'm pretty annoyed. As I feel the founder and manager are just jumping up the hot new thing.
No data electrification and build out of the grid will be an enormous thing in the future. But why take such a huge gamble? By selling the whole building and construction business they spent years building. In hopes they can make a serious impact in the electrification field. The transaction is subject to hell, approval.
I will be fighting against the transaction. What are your thoughts? Thanks in advance and keep the rants coming. Andy. Now, just a quick, I went back to the answers a few months ago actually.
In my interview with my other guest, we were really specific question about a very specific company. I didn't know if you knew it. I was kind of one of those. Then I had a relatively worse priority. Andy follows up and says, hey, just wondering if you missed it.
If you don't want to ask if you want to ask if you want to ask if that's okay. I know what back in the middle I didn't because I felt a bit specific. He said, okay, look, I just really wanted to ask about thesis break in general. And so I thought I was probably too, I actually could have absolutely done that with the first question that came through. Thank you for listening.
Thanks for following up, mate. Thanks for prompting me to put the question back into the mailbacks. I've done that. But I'm not, I don't know if you're a masquer member, if you do, that's fine. But more broadly, just on thesis break, a company changing what it's doing.
How could others just think about this sort of thing? What happens? Yeah, it's an excellent question. Of course, there are two excellent questions in a row. Just having an investment thesis, you're ahead of 90% of other investors, right?
And what I mean by that is, why are you buying it? And you don't get to count because the shares are going up all my mates told me it was good. You have a set of expectations that underpin a rational increase in the share price. And I think the only rational way to do that is that you can make the argument that the business will be earning more in the future. And it's not too egregiously priced at this point in time.
And by the way, what the business actually does, right? Because it's going to do these things. And by doing these things, it's going to get this sort of growth. But if this sort of growth, I can pay this price and that all sounds like it makes sense. And it's going to pull the right out.
I've got that thesis. The rest of it's doing. But I think I've got to keep building more stuff. They're not going to. What do I do?
I mean, just to pull on that thread for a minute. I've had conversations with them and said, oh, this is a great company. You go, oh, OK, cool. What do they do? I don't know.
I think it's something to do with data centers. Anyway, how can you have an investment thesis without knowing what the business is? I think it's your business broker and said, I just want to buy that company. Why? It's just because you must understand at least what they do, for goodness' sake.
So I think that, sorry, going back to the first step here. So yes, you have to have a, hopefully, as rational and objective case for value that you can. If the facts change as our mate, JP, John, and Morgan would famously say, then you must change your mind. And that doesn't mean you sell. It might be that the facts change.
You've stepped back. You've looked at it and you think, actually, this still makes sense. And I can formulate a new investment case and I'm still happy to hold it maybe even by some more. Or the facts have changed. The thesis is no longer so much broken, but it's no longer relevant.
And I can't actually formulate a confident investment thesis in which case I should walk away. Of course hindsight will tell you at some point whether you will write or run. But at that point in time when you can't know what the future will bring, or you can do is just sort of make a reasonable, a reasonable basis for my expectation. And if anything happens that's going to alter that, I need to change my mind. And it might actually be that I change my mind and still like it for different reasons.
Or it might be I change my mind and I can't make any sense if I need to get away. So it's such an important question because as I've so often say that there's no easier person to trick than yourself, particularly when you've got money in it and your ego is tied up into it, I mean, your brain and subconscious is going to do everything that it possibly can such that you will interpret any change as a positive. Oh, yeah, it wasn't really great, but now that really changes. I know it's even more value and now I'm going to buy some more. Oh, yeah, there's a million different ways you can sort of rationalize it.
I won't specifically talk about Mass Group too much. Other than I think yes, I think you do need to reevaluate it. And if you are not confident in the new direction, then you should absolutely sell because otherwise you're investing on hope and as I like to say, hope is not an investment strategy. At the same time, and I'm just, I'm devil's advocate here. I've got no dog in the fight.
I don't own shares. I don't know what that well. But here's a company that was a founder led built from the ground up bloke as I understand it with a few bits of kit that started renting it out and grew it into a very big empire and is that incredible success? There's always luck in business, but maybe there was a degree of intuition there. The same person is saying, now why are you getting rid of a business that's so great?
Now, that could be wrong, but I suspect if you were to get them away from spotlight and the answer would be, because we're struggling with this business. Or maybe we can make a work with a very exciting week and take this. Oh, over here, every second phone call I get is, can we go and build a new data center? Can we send up a new solar power plant? All the money is to be made over here.
So we're actually doing it for very rational reasons. Not that it's not a perfectly fine business over here. Comparatively, this is a much better business. And no matter how much access to capital, we may have relative to the average small business. We don't have unlimited amounts.
We can sell this, reallocated over there. We're going to compound shareholder capital at a far greater rate than we ever did before. And it might actually be the best thing that the company ever did. Or, ladies, point, it could be, what are you guys doing? You're chasing a hot new thing.
You haven't really thought it through. And you've killed the goose that laid the golden egg or for some flight of fancy. Now, which answer is it? I don't know. You've got to try and figure it out.
But even without that, even when you come to a company fresh, it's the same challenge, right? What are they doing? What's the opportunity? Have they got the capacity to get there? And do I think they've got the ability to prosecute it effectively?
And the best you can do is really unsatisfying it. Like, yeah, but how do I know? You've just got to try and build up some convictions by asking lots of dumb questions and trying to take a stab at it. That's interesting. It's entrepreneurship.
It's everything. So I'm a long ramble. But I will say this. You may find, and often for me, this is the case. It's not that I reach a strong view of yay or nay.
Are you more often than not read the rigid conclusion? I don't know. Maybe. And if I ever get to that point, if I'm honest, and I don't always do it, but if I'm honest with myself, it will be self. Because again, I'm back to hope and hope is not great as a strategy.
Yeah, I think that's right. Yeah, tell me right. The hard part is going to be Andy that you know the problem with binary decisions when you go to sell or not sell is you could hold and go down and you'll hate yourself. You can tell it goes up and you'll hate yourself. Or you could hold and tell and go.
Any of those range of outcomes is possible, right? And so you're going to be looking at this going, oh man, if I make the risk of regret it. And that's a really, really tough. At the end, I would affect where we value things we own more than things we don't. And it's just a whole because just in case it goes up, it's overwhelming.
You've got to really fight against it. I know I know your mask group at all. Couplings I would say your thesis is clearly broken. And so the question for you now is, is there another thesis you can create from scratch without that endowment effect bias that gives you the confidence to continue to hold these shares. In other words, if you sold them tomorrow, would you buy them back the day after?
Because you really like the fact that this business is in the electrification and grid builder space. Have they delivered results? Do you see the growth? You see the skill set? Do you believe they're able to price appropriately?
Is there a case for mask group in the electrification business? If there is, then that's fine. You don't have to have to sell to do that. You can ask those questions separately. So the reason you bought, not only exist, the question for you now is, are there reasons to hold?
And again, not reasons to hold like I convinced myself, but objectively, if I sell the shares, would I buy them back the day after? And sometimes, I don't think I have to do this all the time, but sometimes I actually sell this shit anyway. And look at the fresh eyes. Because I found out about the mass shares, I found out the cash of the same thing. But our brains can't compute them the same way.
Our revolution is not built for this sort of stuff. So if you want to sell them, you're going to see this cap and bangs on other implications and all this stuff. I can't give you personal advice anyway, as you well know, Andy. But yeah, that idea of just, you know, if you sold them, would you buy them back? The other thing I'd say is the only other question I suppose is the management team.
And founder led is there are two versions of founder led, right? There is the generic founder led, which is founder led companies tend to do well. And that's objectively true, certainly anecdotally true, and not all of them, not all the time, but generally. And that's the question you're asking, is it because the founder is a genius? Are you, they can take, put them into anything?
Because that's the case. Maybe you back them because they can make great decisions to allocate capital education with the returns higher and the growth is stronger. That's very possible. Or is it just a great founder? Because the founder, I don't mean about master, but I have no view of the founder.
The founder was really, really good at the one thing that they did. You know, they were built up by trade. They turned to a big company. They had to keep building stuff. That's, that's founded, which is great.
But it's founded led in a very specific industry, specific industry knowledge. And the example here is, let me find a, what's your main examples? Let's say, well, these, well, these people, remember words have been traditionally retailers. And they really got a retail. And that's been the course goes on.
You've got to have capital allocation. Yes, they've got to have culture. But generally speaking, they've come up through the ranks. And they've got to have a lot of people who are selling as retail experts. If we'll just sort of become a mining company, would you feel like the manager of table good at that?
Or are they just really good at running supermarkets? The flip side would be Warren Buffett. Now, Warren Buffett is a capital allocator by trade. Do I want to buy operationally running a supermarket? No, I love the guy, but no.
But do I want him allocating capital if he owned or was so sellable as to IBHP? Or to take away assets, shut down the supermarket business, like you did with the literally birthday was a textile mill. You bought a textile mill, most of it. And he shut the textile mill down and use the money for other things. So capital allocation was his skills in which case you go, okay, well, I'm not buying the textile mill.
I'm buying Warren Buffett's skill. Whatever he turns his mind, I'm going to back him because that's the thesis. Now, it's been a half and a half year. And you've said it's about management, but it's also about the building construction business. And so that's a challenging kind of decision to make.
But you've got to ask yourself, does the founder, does the founder skills lend themselves to the new business, both in terms of choosing that business and executing? If so, then you can add a bit for that. Because that's not just part of the thesis was this management is great and I'll back them into whatever they do. That would give you more comfort with the new business. If it was, well, I just like the fact that we're founders because it tends to do well.
And I like the business, the construction business. That's a very different outcome. So keep those things in mind as well. Well said. Let's go to another question then, mate.
An anonymous question with a challenge for us, mate. It starts with please stop. So, brush yourself. Please stop making the point, says our anonymous question or listener. No.
Moving on then. Next question. Please stop making the point. Australia should not bother doing any development in regard to strategic defense assets because there is no point developing X because we're allowed to be rolled over by the invaders in X months or weeks instead of X days or something along those lines. Now, I've absolutely said exactly that.
If you've got a hundred holes in the fence, fixing two holes is going to delay the invaders by 15 minutes, but I can make a meaningful difference unless you fix the fence properly. I assume that's what the question is alluding to. He or she says, we know history is littered with examples. But if you don't like the real world, go watch Lord of the Rings and look for Gandalf on the third day at first light or whatever it is. To illustrate my point.
Now, I have not ever watched Lord of the Rings. How will Horrify you around? What? Yeah, the book's all right. No.
Oh. Yeah, missed out. Explains light doesn't really. Everything's going in the place. Now, I'm not saying, says our question.
We have to keep on profitable copper, so not as light because that means we have them ready to switch to making fire digits in a heartbeat or some rubbish. But I really want to pick the point that simply suggesting we don't prepare to some degree and roll over does my head in. Hopefully that's not how you meant it. I misunderstood. But in any case, kiss the ring, cat out of the pot.
I will do etc. Geez. He follows on. Actually, we'll do that first and we'll go from there. I don't know.
I don't know. I don't think I'm going to resolve from my original view. I just gave the example. I think there's a lot of emotional need slash desire to want to believe that we can be safer than we actually can be. And I know there's a real human discomfort with, well, let's just do something.
And I just think it's kind of a better analogy about the holes in the fence or the licks in the dam or whatever else it is. But I get the desire, the impulse to do something like nothing. At least it's the whole play the violin. It's not that bad. I just think I'll have an impact on the thing you're trying to do.
Don't bother. I don't know how better to put it than the holes in the fence. Have you been convinced otherwise by the question or by the comment? No, I mean, well, we had a great discussion on Friday and that continued afterwards. In the mic stopped, right?
Couple of Fridays ago, sorry, I'm getting my timing mixed up. And it's a question of degrees. Yes, it is. So this is what's tricky about it. Like if you want to go one end of the spectrum and the other, it's like I can argue those points all day long.
But the question is really at what point? So it's like with the question of say, well, I'm not arguing for maintaining every unviable copist's null term, but I am arguing for something. It's like, okay, well, I don't think either of us are a mile away from that. We're going to be more aligned than not aligned. So these are really tricky things because they're not black and white.
So I actually have a lot of sympathy with that. I agree. I mean, I think as long as there is some benefit and there's no great opportunity costs, then yeah. Okay, sure. Absolutely do it.
But that's your point is only, and this is how this is my framing matters. Your point is if it doesn't really move the needle and it costs a lot of money, then don't do it. And I don't think the question I would disagree when you put it that way. Then like so many of these debates, arguments, you get down, well, I think this and I think that and we started voting really narrow and specific examples. And it's that you talk past each other and that's where it all gets messy.
So I mean, all I can do is remain very high level and very general and say like you, if it's not going to really do much, then let's not do it. At the same time, there is a point in which it will do enough to justify doing it, even though it's not a simple bullet. That's what it's like. Yeah. That's something.
So also, how much money do you spend doing the thing that's going to make a difference? It doesn't make a difference. Because it's not just, if it's a hundred holes, you fix the hole, you might as well if you're walking past, you're going to do a wire. Not because of that. But if it's like, well, I was getting used that wire to actually, you know, my technology fixed the car.
Well, I fixed the hole in the fence. They still own iron holes. I'm still getting through and I still can't drive the car. It's like, well, now we'll just trade it something off, which is all you can do. Everything is trade off.
So it's a cost as well. Yeah. Yeah. It's really tricky. There's also the, you know, my other favorite word, asymmetric kind of returns here as well.
I'm very big believer in trying things, even if it's not an obvious win. And even if maybe, you know, it's like, maybe it won't do anything if the cost is very narrow. I'll give you an example in the context of national security. I don't think we put nearly enough emphasis on diplomacy. And that's not because I'm a laadie does skip down the meadow with a holding hands of the fire.
We know. We know. That's my turn. But I look at the risk reward of that. It's like, let's say we get, there's 28 million of us.
I'm sure there's some really articulate, clever, convincing mother flippers out there. They're like, really make the case, you know. And if we're going to pay them a million dollars and they could fly around on a taxpayer-funded jet to have conversations with powers that be. And I'm just like, how much are they going to do? Probably not much.
But potentially a lot. And the cost is very, very small. So in that case, it feels like I'm talking out of two sides of my mouth. But in those kinds of scenarios, I'm far more open to the marginal thing because it's like, well, even if it doesn't do much, what's the harm? If you want to go and spend, I don't know, several tens of billions of dollars on submarines that we may not ever get and could be completely obsolete by the time we get them, the risk reward tradeoff is sort of like, well, let's hope that it's going to give us a lot of bang for our buck because we spend a hell of a lot of money on that kind of thing.
So that's another dimension to look through that kind of stuff. Correct, correct. I think it does go on and say, also, if you're not put out by the previous rant, firstly, you're very gracious for reading this. And secondly, I'd love to hear a segment on your thoughts about whether the country can legitimately come together to have a conversation in good faith, and I will, since I'm about the BS, they're calling, quote, intergenerational inequality. As I bastard millennials, as I question, I will not disagree with you, I can't stand the boomer hate.
I think it's rubbish. Why shouldn't these people have the right to send their $200,000 home with a $100,000 home with a $100,000-4-wheel drive and $100,000- grand caravan if they like, they're actively taking away anything from our generation, the way I see it. As someone who's growing up is spied to be a farmer, the chances of that happening are even less than buying a home. A thousand acres, a viable amount to live on for anywhere from $5,000 to $10,000,000 an acre anywhere near my home geography. I've got a better chance of colonising my hours, but no one cries about the budget helping people like me, and nor should it necessarily.
I think we need to outline the genuine points and how to address them. Not CGT and negative gearing, FME, says our, question now, talking about Titanic deck chair shuffling. The boomers are rightly holding as much wealth as they can, so they have been told by the government to do so ever since they send fund your own retirement with super. Those were people who died, retired at $50, and died at $75. Now we retire at $60 or $65, and they do $100.
So that's a major change you need to adapt to. Add in immigration, one for your rent, money printing, cultural division and everything is now a crisis. Housing, cost of living energy, on and on. From the millennials and below, these need serious conversations, which no one can seem to have. Maybe you legends can lead the way.
Cheers again, again, for an hour on us. All I'm hearing is we're being dragged to be cogated for the country. That's what the people want. I said, give the people what they want. Absolutely.
It's benevolent dictatorship. What was it? For us, for Kings. You do like that one. I'm all into it.
You do like that one. I'm all into it. You do like the crown. Do you like the crown? Do you like the crown?
Do you like the crown? Do you like the crown? Do you like the crown? Do you like the crown? Do you like the crown?
Do you like the crown? Darn it, Darn it! I think it's got to be purple. I was thinking red. I was thinking red would be quite striking.
All right. I think it's superectable. It's not the back of it. It's not the back, it's the back of it. I'm in theorient.
I'm the king. You're free to disagree. That's the detail. I'm the flossman. Actually, really like that.
I'd like to ask the question. I'm working on a bit of, I didn't have some in everyone. That's the detail around the Fosseman team. I actually really like that. I like all the questions, actually.
I think it's a great pushback and great points. 100%, I think that I feel as I say it a bit weak. Way too narrow, way too my op-ic, way too short-sided, all of that kind of stuff. And I've been wanting many a time on this platform to have a little bit of a dig at the boomers, right? But I've also, I think I've also said many times before, and let me say it now to, so the view is clear.
I mean, everyone plays the cards they're dealt with. What would have I done if I was born a generation earlier? I would have done the same thing. I think it wasn't a thing because it wasn't like they said, I know, in 25 years it's going to be expensive, I'll hold my houses now. I had no more foresight than we did.
What in the house? And then it went up. And I would have done the same. And there's no problem in that whatsoever, right? It's even wrong to criticise a whole demographic based on a couple of knuckleheads within that demographic, right?
What makes people bristle is when you get the boomers who sort of say, well, I did it, so you should too. I bristle just as much against the... So I didn't stress anybody? Yeah, right. You know, the bill, you know, it's like, well, I pulled myself up my grip strap, you could be a billionaire too.
It's the same argument, right? And so it's just, again, I would never ever criticise anyone for just having good fortune and good luck and even making good decisions and good sacrifices and working hard. All that's like full credit to you. Again, you played the cards that you would dealt. But then to pretend that that same opportunity is there for others when like, mathematically, it just isn't.
And to paint your success as purely one of your own genius and the struggles of the young as purely a consequence of their own laziness, it's just wrong. And that's what people get upset about. At the same time, I know far more boomers that have the exact opposite view on that. So it's wrong to sort of cast that entire generation as self-interested, historically ignorant, in-raineses when it's just like, it might just be like 5% of that group and the rest of them. In fact, I would hesitate to guess the vast majority of them as it's like, yeah, we got really lucky and we did it and we're living our best life.
And it's a real tragedy that no one can afford home anymore. So, yeah, the way it is portrayed as some great divide, I think that is not reality. And I think you raise a great point anonymous. I do wonder, and I don't know how good, I don't know how good enough, I know. I don't know very often because we have very good at a lot of things, but I wonder if we could actually take up the challenge and try and frame an episode around a conversation where we could put aside, or mention the industry as a couple of the hobby horse everyone knows, rather than spend the whole thing on sort of wealth funds and to sell money and kind of start from that point and try and work out some of the other problems.
I don't know if we'll have a thing about it, I don't know if you want to have a segment or a chat about it, we'll put our minds that off here and see if we can, no promises, no guarantees, because it may not get anywhere. I'm frankly hearing the two of us. I don't mind other stuff. But the discussion itself is totally fine. But it's worthwhile.
Talking things through is just the best way to understand something I think I often find myself in discussion with people coming in with a particular viewpoint, leaving with that same viewpoint because I'm too stubborn to make the point, acknowledge any other point in the heat of the moment, but then in the quieter moments, go, I'm not sure that was a decent point, maybe I need to. So, and you don't put yourself in that circumstance, you just never can change your mind and then you're not, you're not a good thinker if that's the kind of person you are. So maybe we'll leave it with us, we'll see how we go. Motley for all money. For more, subscribe to the free newsletter.
At full.com.au forward slash listener. Here's a question, a couple of questions from Adam. Happy Sunday to you, Scott and Ram. I'm a fairly long time listener and now a third time, a question, a third time's a charm, well done. I much preferred.
I forgot Andrew, please, so I'll straw me this again. However, I will bend my 50 year old knee to the podcast, Kings and plead for your wisdom. You're welcome, Adam. As Peter Lynch... Good vintage as well, Adam.
You're a good feature. Well done. As Peter Lynch famously stated, go for any business an idiot can run. Consumer or later, any idiot probably is going to run it. Or along the lines of Uncle Warren, buy the business an even a ham sandwich can run.
Considering the US stock market continues to flirt with all time high, as is Adam. In fact, we recorded this couple of weeks earlier, it cost 50,000 last night. So in real time and in recording time, that's what's happened since. Could the US of A currently be the poster child for that business? Discuss. Is it in brackets?
I'm sure you get my inference, but just in case there's two subtle. Yes, I am calling old Donald a ham sandwich. Thank you, Adam. Second is a comment, Tony, you're going to buy it? I'm not sure what the question or comment he was.
I guess the question is, do you run screaming from the US because of their politics or do you invest regards? Yeah, I actually, Uncle Warren has a point on this many times. And he's basically taken the view, espouse the view that it's sort of like don't get against America. And it comes across particularly to a non-American who's in a patriotic hogwash guy. You know, a guy that Americans are so full of themselves, right?
Yeah. But I mean, there is some special about America. Not the people are people. I've traveled enough and met enough people to know wherever you're from, whatever your background, human beings are very, very similar. But they do have, there is something in their culture that really leans into the entrepreneurial side of things.
And I think that ended incredible blessing of natural endowment that they have had and the good fortune of their, you know, of what happened earlier on in the 20th century, that's, you know, left them to sort of be the world superpower when Europe was bombs within an inch of its life. There's a whole bunch of historical reasons for it. But yeah, I don't think, I don't think Trump is going to, he might hasten a demise of an imperative. I think it is in a longer term structural decline, I think. But I think we're going to have all kinds of bad politicians ahead of, and I also think that you were, if I was that, if you were put a gun to my head and said, name the country in which the next trillion dollar business will be created.
I'm going to go with US every time. I just am, you know. I'm going to pick up more politically, it's more likely, right? Statistically, right? So yeah, I'm not put it this way.
There's, there is a lot of things, almost everything I don't like about Trump. I'm trying to think of something I do like, but I would not avoid an investment in a really great, nice, big company because of Trump. Yeah, I completely agree. Who have you gone at some point? Someone else will come at some point.
I mean, think about the value created during his first term in his second term, not because he's there, but despite his, yeah. I don't mean despite his, he's doing bad things. It's irrelevant. He just, he didn't, he didn't, he didn't create value frameworks on or Google or Netflix or Nvidia or whatever. He just happened to be there while it was being done.
And that's really, I agree with you. Whether Donald's at the ham sandwich or not, and the events might suggest he might be as a bit of a total of the podcast episode. Yeah, don't, don't, don't, don't get to America. I would actually, don't, don't get to get to the capital of broadly to America. I mean, maybe I've got some sort of social source, but the, by the way, the ISX had a better debt, essentially not a bit than the US market.
Australia as of 2024, I think we're the top four in market, and the US for a second. Just a reminder, I don't, I think we should over praise the US, you know, as necessarily special, there's a word now. No, it's not, I just, I think we can be over, over-refuse for our praise. But also around the world, because of the size scale infrastructure, ecosystems, they're likely to be there. I'll, I'll, I think that is the other thing.
It is just such a giant market. Like, you know, there is, it's really, if you really want to, we won't, but you really could go down the path of why free and open markets are so good. It's a national boundary. It's somewhat very much easier for someone in LA to do business with New York as it is much easier than it would be for someone in LA to do business with London. For example, not that those are particularly hard things, but it's like, once you get rid of various artificial borders and you allow commerce to flow, it's going to just happen to this, like, what's 340 million people in there.
And it's just like, that's why it's much of the richest people in the market is so big. But I also would fundamentally point to, if you fail as a business there, it's far less punitive, it's far easier to start up a business. There's a lot of, there's a lot of advantages. That's not just in places like the US, there's other examples around Poland, by the way. Right? Like, wow, are they really turned things around really rapidly?
Vietnam is really in the last 30 years come a long way. There's some things you can do, it turns out, that really make a hell of a difference. And it's just that the Americans bang the drum on a lot of nonsense, but there are some things that it's sort of like I think that they're right to. And I think that if I was to pinpoint some of the reason for this, success beyond some of the structural market size scale, all these kinds of things, I think they've got that right, which was lamenting actually the other day when we were doing a podcast about, you know, the idea of where I fear it's happening in continental Europe, in general, in fact, and more so here, where it's sort of like the tendency to rail against what people think is capitalism, I think is a very dangerous kind of thing.
And that's something that goes very well for America, that they have so far at least have avoided some of the more scary socialist tendencies that would undercut the very means of their prosperity. I think that's true. And not your saying this again, just to take a flushing it out. Actually, so many people, you've talked about seeing a poor before, and like, OK, there's some good things over here, but also there was a systemic regime, not much freedom. And it's kind of, it's really easy to go, I want to be American, not Cuba.
OK, sure, if you get that's the binary choice, then I agree. Let's say America. Well, I like America with a few sharp edges. Yeah, I think that's OK, too. And so it's kind of like, I'm making the point, because I think it's important.
The binary thinking of, do you want to be like America? What, you know, something else? Can I choose that I like? Right. Can I live the AK-47, but bring in some of that, you know, bring in some of that entrepreneurial spirit?
Exactly. And it's important because that's kind of the, in any debate or discussion, and we kind of told this for a few weeks, but arriving at a better outcome is not Red vs Blue, who gets knocked down. Right? I mean, well, he's unfortunate. That's kind of the problem.
But if you kind of wrap it back, just a couple of steps, like, what if we actually discuss the policies themselves and say, you know what's going on in America? These things. You know what's going on in Singapore? These things. Let's go down China. These things. OK, so if we go to design an economy,
or we've thought of economy or set some government policies, which you know, you talk a lot about, you know, government's managed economy, it's true. But if you're going to set some policies, they will, what if we could have that from there? Could we learn something from that? I mean, you're going to have to be like, yeah, do we have to have terrible health, like America? No.
Do we tell you, like China? No. The idea of all or nothing, it gets a number of times, I get called communist on Twitter because I say that CGT should change. So I mean, firstly, you declare what communism is. Secondly, you know, like, just, you've already qualified yourself for any sort of serious conversation. But secondly, the idea that like,
oh, OK, well, that's clearly, that's obviously the only choice then, right? You're the communist or you're not. You're in favor of, well, I don't know what, I don't know what the alternative is in their mind. I don't know what, I don't know what threshold you cross to become communist and what you don't do just on the other side of that line. But just that all or nothing, absolutism of the conversation.
And I think you're absolutely right. They're not. And you write, you point beautifully to some of the benefits that America has. And there's some hard kind of categories if you like, the things like we've do these things, this will work. And then there's the soft stuff, which is it seems like these things matter.
And by the way, there'll be false positives and false negatives. You know, oh, it's the fact that America has seven letters in its name. That's what's responsible for it. I don't know. I think you're probably sure that's not exactly causal.
That makes silly literally. But that kind of idea of some of the things we think are causal probably are. Some things we don't think are causal probably are. So anyway, let's make this and do all those things. Like, can we learn some stuff from it? Absolutely.
Just so we can learn stuff from every other country, we actually want to improve. If we're in the game of how we make things better rather than pick your favorite, which I've been jumping on team America or team UK or team China, team New Zealand. But actually, what things can we do? What can we learn? What can we try? That's where the value is.
And I think that's you make a really good point. I think to your point out of your question, as a group, as a group of policies, the US is doing something very right. So imagine that that will go away. Actually, I'll take a step back. I say group of policies.
That's a group of features, right? Because it may well just be 70 years of compounded culture that far more responsible than anything we've just talked about. Or it may not. It may be absolutely the one thing, whatever that is. It might be religious. It might be the lack of family for failure.
That might have nothing to do with it. It might be completely coincidental and correlated, but not actually causal. So we've got to be really careful saying we didn't do all that or none of that. Or even the list we choose. Pick the things that seem to contribute.
And as you've said in minutes, I was before, you don't feel nothing. Just keep it a go. Does it make a difference? Yeah, it turned out we reduced the cost of bankruptcy and cost of failure. And we created 25% more businesses.
Well, that seems like a good thing. Let's do more of that. Or we changed it. Didn't work. We have more bankrupts, more people with more money. Let's go back to the old way.
Okay, cool. Let's do that. It's not... we can iterate. We can be smarter about this. We can be nuanced about it.
We thought about it. We thought about it. Then it resolved to our red trench and the blue trench and kind of no lob grenades over the top. Well said, man. This is the hard thing with the soft sciences.
You just can't run an experiment. I can very easily determine various physical and chemical processes because I can just do it. I can repeat the process and you can verify it. We can all agree. It's messier with economics.
But we also have... So while you were talking and I just opened up my LLM and I said, where are the easiest places in the world to set up a business? And they're also very forgiving of business failure. US number one, Singapore number two, Switzerland, Netherlands, UAE, Japan, Israel, places that are well above their weight. And then I won't do the exercise. But I reckon if you were to do the opposite,
I'm going to get North Korea. I'm going to get Cuba. I'm going to get whatever. I mean, it's not... I don't want to be so binary because it is very complex.
And these are multi-factorial kinds of things. But when you look at places that have experienced incredible prosperity and they share a certain thematic, they're very least. But who's asked to go? Maybe that's a thing. Exactly.
And when we look at the opposite and then it tends to be more commonly associated with the opposite of prosperity, then maybe... You know what I mean? I feel... Maybe I'm kidding myself. But I feel as though you can bring a degree of empiricism to it.
It goes beyond the vibes of I feel like this is to be the way the world works. That's right. You know, at a point, it's like, look, I can't give you a nice neat experiment to run. But I can show you reams and reams and reams of evidence going back to 2000 years. It just turns out that whenever this was done, all else being equal, it tended to push us in a better direction.
Was it a utopia that solved every known problem to men? No, of course not. We did bad things still happen. Absolutely it did. Was it a better way of lifting everyone else up than the alternative?
And it's just like, that's why I often sort of railed these days. Mainly among one of my friends. It's just like, how is it in 2026? I mean, having a discussion about these kinds of things. That's right.
I mean, I get the first thought of thinking. I get the appeal. I really do. And I very much had huge sympathy for that as a younger member. At a point, you've just got to take on the empirical data and just go, well, isn't that surprising?
That's what it is. Correct. Turns out if you open up in Needle and Jechting room, it actually reduces harm and drug. That's really counterintuitive. Yeah, it is. That's what's kind of interesting about it.
But beyond that, maybe we should do that. But no, you're completely missing the point. There's like a 10 billion examples of the thing that is the counterintuitive thing. But it just works. So it's like, do you want something that feels right or do you want something that is right?
Sorry, it's rant over. Have your opinion kind of your own facts, right? Exactly. Exactly. All right. That's a great point, I think, on which to finish today's episode.
You're going to confide it, won't you? No, I will. No, I know you will. I know you will. With more great news from the land of strawman.com.
First Premier, all on investment club because Adam wants to know what strawman was again. I thought I would tell him. Until then, good on you. For sure. Cheers.