Welcome to Motley Fool Money, a very special Sunday mailbag edition. It is all of those things, as it always is, and ever more special, because I'm joined by the straw man himself, the man of straw, the hay person, the, I don't know what else is there, silage human, no, no, I'm running other things now, Andrew Page. Yeah, I'm pretty good, how's things? I'm going with it, you know, sort of, you know, similes for straw and then man, and trying to, you know, like, try those together.
Yeah, we'll workshop it later, yeah. I couldn't possibly work, could it? I'd like to have to make fun of you, maybe after the guy with no brain in the wizard of Oz, and then we'll put it back on that point. Is that the case?
Yeah, yeah, look, I mean, if I had my time, yeah, yeah, yeah. Go on. Look, with the original, look, unnecessary segue to start it off, but the whole premise really was that I wanted somewhere where it wasn't just an echo chamber of mutually reinforcing sort of beliefs. I say it a lot, but it's just like my fundamental belief is that the best way to improve and the best way I do is to challenge it, so it's sort of like, here's an argument, knock it down.
Now, that's not a straw man fallacy, so it's a bastardization of the term, but it was also a URL that was available, it was also easy to remember, so you know, you kind of think, yeah, it's working, it's working. Once it's stuck, it's stuck, right? So it's sort of like, it's what it is. The business has to have a billion dollars, you're driving a Tesla, everything's good.
You're right. I am so curious what it is, though. It's not something that makes a billion dollars, I tell you that much. I don't mention to you, if I really wanted, if this was about making money, I would just sell easy answers to hide problems, and that's how you make money in this industry, providing a nuanced perspective is not an easy one to market.
This is one of the very first times, you didn't mention the private investment, I'll follow it for you. This is one of the very first times I've given you a heads up. Andrew's a very good sport, by the way, this is because, generally speaking, I come to the podcast, I try and find the questions I've got to deal with, I try and answer questions slash comments, that we've got from Nathan, who messaged me on Facebook. Hi Scott, I hope you're well.
I've got a new game for the podcast. It's been put to bed for a while now, since Cogan's come back to reality, but the new game is every time Rampage says nuance, he has to drink. And so, of course, Andrew has done a favour and thrown into the original opening. Well done, mate, thank you very much for that.
I do overuse that term, I do. I did reply, oh, we all do. Apparently I say by definition too much, and apparently it's not always by definition I say by definition, so they're all... It's good to have a point it out, because a lot of these things you're not aware of, I was a very guilty deal going back a long way, but I would say literally, all the pet hates at this point, because everything hates, you know, I don't think people really understand...
Literally annoying. ...what literally means. You meant to be metaphorically, yeah. Yeah, you know, so it's good to have these things pointed out.
Okay, now I'm aware of it. Oh, so funny. Relentlessly about self-improvement here, though. There you go, I feel like that.
I used to say fundamentally a lot, I think I still do. I think fundamentally... Fundamentally, we know we get it, it's just unnecessary verbiage, which I tend to throw in, but I will also throw it up. Putting the mental in the fundamental?
Or maybe putting the fine in the fundamental. Oh, yeah, yeah, both, maybe. So, look, that's the reality of the situation we find ourselves in. Now we're going to have people just messaging us all over the joint, talking about what we say and don't say, and how they wish the podcast would like to spend this long, rather than whatever they could end up doing this today.
I did say, in response to Nathan, and the podcast will be shorter if he's drinking that much, to which Nathan says, just mention Bitcoin. You'll go for three hours per episode. Three hours if you're lucky. That's the first half of the episode.
Anyway, Nathan, love it, love it, mate. Thank you for the humour, as always, Ram, thank you for taking it in. In the good humour, to which it's intended. Mate, speaking of comments, we actually got another one from Alec.
He says, I'm a big fan of the pod, but I've only been listening since last October. I've recently started listening to your older mailbag episodes, as I find value in the way you answer listener questions with both yourself and Andrew's differing opinions. I just listened to a pod from the 12th of June, 2022, and a writer asked about holding their money for 12 months instead of dollar cost averaging, due to the negative outlook on the market and the high bank interest rates. Your advice was to continue to dollar cost average, as you never know what the market will do.
Apparently, well, here goes. He said, and you said you would come back to this date and check the results. He said, surely you have forgotten. Yes, thank you, I think.
Thanks for reminding me of my failures. I can't remember what we said last week, but I don't know. Tell me about it. I did a video recently, for me about services.
Did you mention a stock? I don't know. I don't know. It was like a week ago.
No idea. Anyway, he said, surely you have forgotten. But I thought I would share that the ASX 200 is up 9.5% to the time of my listening, about 12 months and 10 days from your recording date. I noticed there's nothing over the long term, just thought it was nice to point out.
Keep up the rants. Thanks for your time educating and entertaining, Alec. And I just thought that was really useful, mate, because I forgot I said it. I mean, I forgot I said dollar cost average if I didn't.
You can shoot me out. That's what I say all the time. But 9.5% gain. By the way, Alec's data almost certainly doesn't include dividends.
So if you took the average ASX 200, you could probably add 3.5%, 4% of that matter, I guess. So probably 12%, 12% for fun. 12% over that period. More than the average market, by the way, let alone up on the negative market sentiment that was being shared.
Any thoughts on that, mate, as a piece of advice slash reminder of what we said 12 months ago? Yeah, hindsight's 20-20. That's the lesson, right? Like, you know, if I knew that the market was going to go up 13%, would I have given that advice?
No, absolutely. Actually, you know what I would have done is I would have borrowed myself to the eyeballs, leveraged up, and taken that 13% gain and turned into much more. I mean, that's the point with dollar cost averaging. It starts from a pose of humility, which is like, I don't know.
I don't know, so I'm going to average in. Or, what's your alternative? I'm going to time the market. Well, you know, people want to time the market.
Time the market, right? Maybe you're the one in a billion that can actually do it. Good luck, right? Yeah.
Actually, if you want to time the market, don't time the market. I don't think facetiously. It's a very, very bad idea. Do you know what it is?
It's like saying, I should have put all my money on black because it's not black. Why didn't I do that? Look at that person over there did it, and they doubled their money, and you didn't. Or, you and I just had a few rounds of Russian roulette, and we both walked away.
It's like, oh, this obviously wasn't a bad idea. It's how my kids rationalize. So, I stand by that, firmly in those comments. Mate, don't do that.
You won't hurt yourself. Does it? Look at me triumphantly. See, that I told you.
Why don't you do it a hundred times? Have an undeveloped. It would be wonderful, wouldn't it? Yep.
Yes, I think that's right. Alex's point was just, as he said, he didn't know the future either. I'm just a reminder that even though the market looked bleak back in, the market is still up 12 or 13% in the meantime. Just a reminder that trying to work on short-term sentiment or expectations.
He might have been right. He might have been wrong. I think, mate, we don't know. I think that was Alex's point.
You know, at that point, as with many, many points in the past, the perma bears tend to lose badly, even if they have the occasional period of victory. Yeah, I mean, yeah. This is why I often say it's more about process than outcome, I think. It's about having a process that you can have some reasonable expectation that it'll work more than 50% of the time.
That's it, right? It's as simple as that. Can I say, this is the most... Things are really bearish out there.
Anyone who's opened up any kind of financial publication, I mean, it is... We have inverted yield curves. We have everyone calling for a recession. We have earnings.
Like, actually, forget about share prices. Like, the actual earnings on average of most companies are not doing that well at the moment. And we talked extensively about how retail is just getting knocked out of the park for six in a bad way, right? Yes.
And yet, the market's like 5% away from an all-time record high. The US has had this incredibly strong rally. It is really, really unusual. So, it goes to show you that there could have been someone a year ago who'd said, I think this is what the broader macro landscape, how it's going to evolve in this way.
That's right. And therefore, I'm going to take a short position. I'm going to position myself to take advantage of that negative outcome. Well, the negative outcome happened.
And yet, the share market's up. So, it's sort of like, you can be right and still lose a whole bunch of money on that. So, you've got to come back to the humility side of things. And it rests, really, I think, a fundamental tenant, I think, of investing, at least for me, I'm sure it is the same for you, is it's not about saying when things will happen, but the general direction in which things tend to go.
It tends to be a pretty good framework to work from. Of course. I mean, if I could be more accurate in short-term forecasts of human sentiment, which is what market prices are, I would. But I can't, so I don't.
Simple as that. Yes, I think that's right. I think it's, as you say, the process, I will say, a process that you have reasonably will be successful. You know what's funny?
I really hate to sound like a politician, but you kind of, because of the way people take some of what you say, either honestly or maybe a little bit dishonestly, and try and twist it, and say, well, but didn't you say this? Like, we're buying hold, was the same, right? We said, we're buying hold investors. I.e., you buy, and you get hold, and that's what you're supposed to do.
And then you still say, I think you're buying hold. I was like, well, yeah, that's the approach. And then we go, well, let's all buy to hold. Because we can always hold it.
Okay, we have to change that. Let's do that. It's the same with this sort of stuff. We kind of go, you know, it's the process, it matters not the outcome.
Doesn't the outcome matter? Yes, of course. My point is that the process is, and so you end up having to try and qualify and describe, and at one point, you kind of think, you know what? I'm wasting my time here.
I'm responding only to the cranks and the narcs and the negative nellies. That's okay. But the other hand is, I think sometimes valuable, because it does really give a more nuanced reply. The other hand is, I think sometimes valuable, because it does really give a more nuanced reply.
Rule number one, never lose money. Rule number two, don't forget rule number one. Misploded. Right?
And that's exactly. So I think, just for what it's worth, you know, keep, I will come back to some of what I say all the time, which will be roughly right, not precisely wrong. You know, get the general direction, right? Kind of like the old lack of progress thing, right?
Things improve over time. You know, and if you genuinely believe, this is about being 5% from all time high, if you genuinely believe that capitalism has popped out, if capitalism peaks in 2021, 2022 never be as good again, then you know what? You really, really should think about what you should be investing. That's a really worthwhile thing to ask.
If your view is, actually, no, I think humans are going to keep finding ways to improve productivity, technology, population, right? Is it going to be bigger or better in 10, 15? If it is. And if, again, the ASX has always had, well, markets, developed markets, have always had the cream of the commercial crop listed.
Okay, so the best companies in a growing economy, in a more productive, profitable economy, you can just depend against that if you want. You can just try and play funny burgers and guess the intermediate peaks and troughs. We can kind of go, hey, I reckon this thing's going to keep working because it has for the last 120 years. And by the way, more than that, we've had, you know, stock markets for the last 120 years in the way we know them now, but business enterprises have been around for as long as, you know, they might be the oldest profession.
That's probably the second one. You know, the reality, if I do this thing and someone pays me for this thing, I do it well, I will have a clientele and that will lend me some money. This is, it's the industrial revolution. I mean, for all of the things that, again, capitalism is also not perfect.
Don't talk about that either. But the reality of the long-term prospects of the system we're in, being against that, even over the short term trying to guess, I know, I really, really, really, it's a mindset, I get it, it's psychology at some level, and some people are born pessimistic, and some people only see problems, and I get it, and I feel sorry for those people, because for all of the stuff, we talked about some big news on Friday, and you all disagreed about some of the positive news was good and bad, but overall, I think, you know, for all the potential drawbacks and all the systemic, you know, things we might or might not change, it's just a big call to bed against them getting better over time, isn't it? Oh, it really is, it really is. And just be careful what you, at least come back to what we were saying at the start there, I mean, if you really want to, like, make a bunch of money, sell certainty, certainty sells.
Oh, absolutely. So, you know... I think I should buy the HPG, what do you think? Yes, you should buy the HPG, thank you.
Yeah, but it's that lovely meme which I often reference, you know, it's like, there's two stores, one is complicated but right, easy but wrong, and everyone's lined up on the easy but wrong kind of thing, and it's just, it is so alluring, it really is, and our industry just feeds on that, you know, so, because when you sort of say, well, I'd like some form of financial advice, the person who goes, well, it depends, maybe nuance, et cetera, et cetera, is just a very unappealing product, compared to, oh, you do this and you'll make a million dollars, it's like, oh, okay, I'm going to get that one, and I'm like, well, you can opt for that if you want, but I would be, I would be gorgeous, yeah. Anyway, it's just, yeah, really, really good point, you know, looking back to me down to 10%, our advice wouldn't have changed, but it's just a useful reminder that, when everyone knows, I've said before, I post things on Monday, or Friday or Sunday on Twitter, and say, oh, yeah, just wait until Tuesday, this is going to happen, and it's just like, you know, the worst thing about this, and this is, you'll know this because you've been doing this as long as I have, actually, in the industry is, the people who say things are going to happen, without a certain degree with you, who have no public track record, no, whatever, they're going to be the side-backs who say, I think it's going to happen, and if they're right, they say, I told you, they're wrong, you need to hear from them again, and someone else pops up, and someone else does the same thing, we're the poor, well, we're not really lost at that stuff, but, you know, we get stuff wrong again, because we do, but we stay around, we stay public, and we stay accountable, and so it's like, you know, I told you, I was going, you said I wasn't, so you're wrong, well, okay, wrong this time, next time, they're gone, ghosting, never there, or what the last time, it's not, I read regularly about the famous, it's quite famous, progress decadence, who made forecasts once about one thing, if you were just wrong about the forecast, and that's okay, you know, and so, that seems to be put for that a little bit, yeah, because you made that landish forecast, and you got it wrong, so that's the lesson, don't do stupid things like that, but the broader one of, actually, what's the, you know, what's the opportunity here, where does the, you know, what's more likely to be right over time, that's where you've got to focus your time. Yep, and just one more thing, remember, again, this is a probabilistic endeavour, it's all it can be, if Buffett's going to get it wrong all the time, so are you, you know, and that's fine, that's just not only is it fine, it's like, what else do you expect, right, that is, you've got to own that, I find it very, like, there's kinds of heuristics you can apply when looking around the landscape of pundits in this space, and it's just always a really green flag, I suppose, not a red flag, in the sense that I love it for those people who own their mistakes, and put them out there, and talk about them, I just think that it's just so genuine and real, and the flip side is that the person who's never wrong, you know, it's just like, that is the biggest red flag you can imagine, because it's not, it's obviously not true, and it's definitely not true if they're trying to sell you something, because it's like, if you're that good, and, you know, I've got the formula, it's related to gold, but I'm going to sell you the formula, I'm like, why not just use it? It's just, it's really obvious when you start to think about it, and if you have, if there's anything that's going to blow you up in this game, it's hubris, and, like, you know, I just run a mile, if you're ever thinking about investing in some kind of managers' fund, and they're just like, run a mile, run a mile.
Yeah, hey mate, Jason emailed us with a really interesting question, he says, hi Scott and Ram, maybe one for the pod, Solpats and Brickworks, two great companies with interesting cross-share holdings in one another, I will say, now I own both those companies, he says, I hold Solpats, but Brickworks pricks my interest, as they're also invested into property, they have amazing track record increasing dividends, he says, I think, 42 years of interest, he says, holding Solpats and Brickworks, quotes, but what are your thoughts on holding Solpats and Brickworks, when they both have that cross-share holding, would holding one over the other be the way to go, similarly to an index fund, or holding an LIC like AFIC, or international index funds, multiple banks, etc, we're holding two very similar companies in a portfolio, I'm using your opinions, keep up the fantastic work, Jason, now Jason, I will say, I'm also not very kind, Jason, I'm sorry, I know you've heard this before, but when I say Jason, I even hear Jimmy Rees, Jason, Jason, Jason! For those who follow me on Facebook, that'll ring some bells. Anyway, what do you think? Top has brickwork, both?
Is there some value of both or are you just kind of doing the same thing? Where's the opportunity there? It's true to say that if you own either one of them, you own both to some extent. So it's kind of like there is exposure either way.
It's the degree of exposure you want, I suppose. They're both perfectly decent companies in and of their own right and I wouldn't blame anyone who owned both of them. So you're making a more concentrated bet, I suppose. And there's nothing wrong with concentrating on your best ideas.
So if they're your best ideas, by all means, absolutely. And it might be that you're more interested in the investment conglomerate or you're more interested in the brickmaking side of things. So you can sort of do that. But no, no, I, well, you own both.
So maybe you'll get a better place to answer it. I'll give you my thoughts. So Jason, I think what's interesting about the diversification is it was a line from Peter Lynch, the US fund manager, who did spectacularly well. He talked about mostly companies themselves.
He was talking about an age where, by the way, talking about the long-mortem of different degrees. But he was talking about business and saying, you know what, I'm in the business of men's straw. And I'm going to go into the business of Bitcoin money. No, I'm in the business of shoes.
I'm going to go into the business of forestry all of a sudden because I'm going to diversify my business. Now, Peter Lynch would say, hang on, unless you have business being in those other categories, unless you bring something to the table, diversifying for the sake of it can be de-worsifying. In other words, making things worse by trying to add that diversification. It's not necessarily about what you hold in a portfolio specifically or even what the companies themselves do.
It's about understanding what the competitive advantages are or the core competencies of a business and sort of sticking with those. So that's that bit. In terms of the overlap, here's the thing, they actually hold large chunks of each other. When Brickworks reports, by the way, shameless plug, I had Brickworks CEO Lindsay Partridge on the Good Oil podcast recently.
I actually got, I reckon, more positive comments about that one than anything in the last year or year and a half. I've had some really positive comments about other ones in the past recently. People are like, wow, that was a really great podcast. I really enjoyed it.
And again, I take no credit for it because I'm on the podcast. I feel something good about that one. It's probably Lindsay Partridge particularly good. So check that out for your insight.
When Brickworks reports, they talk about their property business, their investment business, i.e. the saltpats cross-sharing and their brick and tile business. Well, I said bricks at the beginning. Property tiles and bricks anyway.
They're their three pillars. Now, if you think about saltpats, they get some earnings from Brickworks as well from effectively property and bricks bit and a whole other stuff besides. So you've got to think, for those who are mathematically inclined or understand the idea of concentric circles, that is, circles are kind of interlinked. There's an overlap in, you know, put two circles together, overlap them to some degree.
There's some that's in common and some that's on the outside is only one circle, not the other. I think people kind of get concentric circles. No, it's not technically a concentric circle. The mathematician...
Oh, a Venn diagram, Venn diagram. Venn diagram. Sorry, mate, thank you. A Venn diagram.
There's being right and there's being technically right and technically right is always the more fun. That's what I mean, if you can't be a big subparter. I appreciate you picking up the nuance of that. So yes, the Venn diagram, thank you, mate.
Where's the overlap? Saltpats and Brickworks, meaningfully overlapping. Now, here's the thing about people by overlapping companies. I wouldn't buy four banks and think I'm diversified.
But equally, if I want exposure to the banking sector, if I had three, if I had two, five positions or four, two and a half positions, it's probably still the same way from the banking sector. There might be some value in picking your favourite two or choosing all four to diversify. But either way, I don't think it's an issue. I don't think you need to worry about it.
If you have a particularly strong view that the brick and tile business was much, much better and so therefore more justified to own, then great. If you have a reverse view, which is, actually, I really love, you know, I hate the brick and tile business, but I love saltpats, then great too. So if you have a particular preference for the outside of the Venn diagram, go with one or the other. If the valuation drives you one direction, go with one or the other.
If you were to say, I like them both relatively equally and hold them both, I think you'll do perfectly fine if you have both really high quality businesses. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener. All right, mate, that's true, people write it.
That's true, that's true. I don't like them, you know, I'm going with it. Anyway, Jacob says, I recently started investing for the long term. I've got a diversified portfolio of ETFs and managed funds, he says in brackets, to scratch that itch.
I have a comment and a question. My comment, I had managed a fund, I had managed funding, he says, but I could not trace your banking glitch and I managed to locate it after many years, during which I presumed the money was lost. A chance conversation with a financially savvy friend told me a way to contact it using a TFN tax fund number. I was surprised the fund returned 15% per annum over eight years and I still hold it.
It reminded me of a story I heard by Fidelity Asset Management. The story, of course, is the one in which the investor who, well, the article linked is just quoted as why the dead outperform the living. There's a famous piece of research. I know this one, yes.
Where basically, allegedly, some research, I don't know the original piece of research, so I thought allegedly they're just for fun, but effectively, just leaving things alone. Dead account holders are actually better than live account holders after a particular fund manager and it would basically be kind of let alone and then basically try to feel too much and end up doing worse. I'm not entirely sure what's true or not. Jacob says, I must stress I have not seen any evidence.
The story is true. I have a published peer-reviewed journal article, but hey, it makes a good story and a good lesson. I believe this. I believe this.
I find a whole portfolio, he says, is one you won't filter to change depending on the prevailing winds, but navigate up instead to your destination. In my case, retirement in 25 years. I'm willing to invest in a growth portfolio rather than dividends to minimize my tax rate. I used to bet it to the concessional contributions cap, but my portfolio was outside super.
He says, I want to have a diversified portfolio around 40% Australian, 40% Nasdaq, and 20% emerging markets. I'm not naive to the risks or volatility of the portfolio, but I'm struggling with the concentration risk of Australian portfolios in banks and miners, as you hold me, he says, in managed funds and ETFs. My unfair question, says Jacob, is what are your thoughts on Australia without the banks and miners? And he mentions an ETF called the Global X Australia X Financials and Resources ETF.
The code is OZXX for those who are wondering. Would you recommend it as an ETF alternative compared to the Australian market, which does obviously have a lot of banks and miners in it? Yes. Well, I'm pretty bearish on banks.
Have a long period of time, can I ask? Are you bearish over 50 years or over three years? Oh, that's a different question. Definitely have three years.
Yeah, I mean, the pace of change in our world has never been faster. I think anyone who goes out more than 10 years is really kidding themselves really as to how things are going to look. It's just so, I mean, just go back 10 years ago and look at what sort of unfolded. It's just radically accelerating.
So I don't know. Who was the other fund manager who said in the long run we're all dead? That was John Mayer-Keynes, wasn't it? That might have been Keynes, yeah.
There you go, you said the occasional smart thing. So, yeah, I'm hesitant because the whole point of the broad-based index is just saying I don't know and knowing that it's sort of all captured in the average. So as soon as you start bringing specific outlooks to things you kind of undermine the strategy. So I am wary of that.
But at the same time when I sort of look at the investing landscape right now I see a sector that is highly concentrated on a particular asset class that I see is bonkers. I see a very cyclical and highly leveraged business model it's just the nature of banking. I wouldn't touch it. I wouldn't invest your money in it as they say, right?
So I actually have some sympathy with that approach and having that being said within my super fund I have got, there's a BAS I think, the very broad-based which has that exposure. And I kind of sort of account for that by direct investments outside of it. But yeah, what do I say? I've got to be careful here because it's just, it's a very, do you know what I'm getting?
Because it's sort of... No, I was, I'm not, I'm a little bit surprised to that actually because I thought you would say that, I thought you would say you would avoid because of the banks and miners but you can't hardly send them back to what would be my point. So I'm going to be basically stealing your own comments and repeating them back to you. The reason I after that three years versus 50 years was exactly that reason.
With that passive versus active, right? I think over the next three years it's entirely possible, maybe even probable, that the banking sector underperforms the ASX. And miners are hard as a group to look at because, you know, even within resources you've got iron, gold, oil, lithium, copper. I mean, if you take those five commodities they're going to have different directions at different coal, different directions at different times, right?
So you think, where are we there? The oil prices are a four-month life, right? you know, it's a different answer on oil than it is today, potentially. Not that I have a particularly strong view either, you know what I'm saying.
So it's kind of that concept one day you retire, right? I hope it goes for 20, 30 years after that. So if you've got 25 years to retire, you've probably got a 50-year investing horizon. So the extent you're looking at an investment in an ETF, you know, trying to time, why the ETF are only after banks do X or miners do Y, it's just a dangerous way to think about it.
The other thing about if you're buying an ETF is if the miners and resources companies don't do quite so well, others will grow until they're waiting in the ETF. So you're not just saying I will only have the miners of their current size and the other companies of their current size and the future of that. As you invest in, you know, the ETF in three years, five years, seven years, ten years, the proportions are going to change. And so you think about the SP5, this is a really great example.
Go back, I'm going to say 15 years, that might have been two, maybe it's 20 now. 15, 20 years. The top companies in the US were GE, General Motors, Exxon, Cisco, whatever. If you have correctly said those businesses will be meaningfully challenged over the next 20 years, you'll have been right.
If you said therefore I'm not going to invest an index, you'll have been horribly, horribly, horribly wrong. Why? Because the smaller companies not only did they beat the big guys, they then kept growing from there. And so if you're saying in the US of those countries, they're not going to go anywhere.
And then again, you look now and now, it's easy to take hindsight by the ICDF4, this might be the exception that proves the rule. But to your point, I would not exclude, so I did for a while. I guess I still haven't, I think it might be on my own profile, you've got ASX small libraries, which are basically all odds less the top 100. Now in the event, there's actually a lot of mines in the next 200 anyway, and so the proportion is actually not that different, funnily enough.
Two close of all companies on the ASX are which are as mining companies. And it's probably, you know, there's probably 20-ish percent I could be, first I could be wrong about the banks and all the miners. So I really want to make that bet. I don't know.
Even if I'm right about them and the small companies become larger and take over the ETF as well, you know, now if I can still avoid them by buying the exponential left miners ETF and go buy that therefore I give them more upside. But if I'm wrong, if I'm wrong, I'm being active on big, I might be able to pick stocks and around and around we go as you started with. One last thought for me just quickly mate is the ETF team mentions has a management fee of 0.25%. You can get an ASX 200 or 300 ETF for about 0.04.07%.
So you have to be right, and you buy the size of that management fee even to be square and then get growth on top of that. So you're kind of, you know, 0.18% is not a massive difference to make up, but it is a bogey. You're starting further behind by choice, hoping that you know you write out the difference but you write by enough that it offsets the fees plus something on top of that. It covers a harder and longer part at some point.
So I used to want to avoid that. I've chosen, as you just said mate, not to do that. I have international diversification for reasons to cover that. I'd rather do it that way frankly.
I was going to say, I'm worried about the ASX exposure. I'd probably go passive in an international way rather than try and place funny budgets with the local portfolio waiting in that sense. You reminded me there of a stat. So speaking of Peter Lynch, so for those that don't know, Peter Lynch ran the Magellan Fund in the US.
He ran that between 1977 and 1990 and anyone invested over that period got a 29% average annual compound return. That's a story, isn't it? He's one of the best investment managers in history, right? Like Buffett's done 20%.
Buffett's done it over a much longer period but still, that's nothing to say. Apply the rule of 72 to that, you basically double your money every two years. Two hundred years. Incredible.
Here's the rub. Most of the investors in the Magellan Fund had years like every investor. He had periods where he underperformed, periods where he overperformed. And so when Magellan was doing well, everyone plowed their money into it and then had a bad year and everyone sold.
Well, not everyone. But the majority of people did. There's an investment research for, I put this in the Strongman Newsletter recently actually, so investment research from Delbar, they published an annual report of investor behavior each year and they just looked at the average equity fund return versus the S&P 500. And so you can look at it and the conclusion this year was the same as it is every year.
It's like investors are their own worst enemies. But if you're stuck in the S&P 500 over the last 30 years, you have that 9% per annum. At one point it became the 200th largest company on the ASX and got added to the ASX 200 index and the various associated ETFs. And then it grew and grew and re-weighted up as that happened.
At the same time you had I'm trying to think of a company that hasn't done well over that period. But every that company that started on just did worse and worse and worse. You get that automatic rebalancing just to reiterate your point alone. The other thing that's interesting I think about markets is that there's something like there's 260 trading days in a calendar year.
And so over a 20 year period there's called 2,600. Most of the gains are made over a, it's like only 30 or 40 days in that period account for most of the gains and otherwise you take them out and the performance is radically different. And again it all comes back to this hubris of timing of trying to get in and out in position and the rest of it. Not that you shouldn't I mean, I'm a stock picker, right?
I'm actively trying to beat the index, not by timing, but by just trying to pick the better quality companies within that. But I'm really hyper alert to the fact that it's just sort of like, given the work that's involved in that, it's a hard part to jump over when the average is actually probably going to be pretty good. I don't have to do any work and I can just get on with my life and probably focus more of my efforts on just earning a good income and saving. Like, let's be careful with this.
It prompted me to do a little bit of an exercise. I love this spreadsheet, as you know, Scott. So I went on to, I've got a data subscription service, went on and got the All Lords over the last 12 months and it turns out that the All Lords is up, oh, here we go. What our list is up, about 9%.
So, and all I did was I just lined up all of those days and I just removed the three best trading days. Not the 20, but three. And the return was radically different. In fact, where am I here?
It was almost twice as bad. This is the problem. And here's the coup de grace. So the COVID crash of early 2020, feels like ancient history, right?
Because so much has happened since then. But that COVID crash was started on the market before the COVID crash was February 20th and hit a bottom on March 24th. That is a period of 24 trading days and the market lost a third of its value. Like literally tens of billions whacked off the market value of companies.
34%. Now within that 24 period, we actually saw in a full third of all trading days, the market went up. In three of those trading days, the market went up by more than 4%. So the idea with timing is that I'm going to get out before it goes down.
And so someone might be going, yeah, but what if you take the three worst days out? Well, the return is insanely good, right? It's much, much, much better. But you've got to be right there because it's very counterintuitive that the best one day gains tend to happen in bear markets.
It makes sense when you think about it because there's extra volatility. There's extra uncertainty. So the bigger one day, if you want to find, if you were to ask me what periods did the best one day gains happen on the ASX? I reckon they happened during periods of when the market was selling off.
Because it's like plummets and it bounces back up and it plummets and it bounces back up. But my point is you only have to remove a few of those and gosh, you shoot yourself in the foot massively. Like just hugely. And you just get further and further behind.
So I've kind of gone well off the original sort of point here. I guess my point is you're either going to be a direct investor or you're going to take a blended approach depending on what you want to do. I do, right? I just said I own some ETFs and the vast majority is indirect picks but there's nothing wrong with doing that.
But if you're going to go, I just feel as though if you're going to go the ETF approach, let it do its thing. Don't start applying either a timing lens to it or a sector selection period to it because it kind of undermines it is counterproductive, I guess. And if you're going to be dollar-cost average, you're going to be investing during some high periods and low periods and some uncertain periods in between. And even the high periods will be higher later on.
It's a very, very important message you share. Can I make another quick point? Sorry, I don't hate emerging market investing. I don't like it.
Yep, don't like it. Don't like it. And so you should invest some money there. And I would say, well, history doesn't suggest that's true.
In fact, a lot of these economies have been emerging for decades. I can't think of the last developing country that became a developed country, quite honestly. Right? I mean, they're all getting better.
Yeah, yeah. The world rises in prosperity but it's not an even kind of thing. So here's the best example of all, right? So unequivocally, over the last 10 years, China is a much bigger economy today than it was in 2013.
Would you agree? Yes. I don't think anyone's silly enough to debate that. So in mid-2013, 10 years ago, I put my money into a Chinese ETF.
There's a developing market, right? It's massively developing. So I just Googled one quickly. The iShares China large cap ETF.
The ticket code here is IZZ. Guess what the price is? You guess where I'm going, you? Okay, go on.
Right? So 10 years ago, the unit price was $39.26. Today it's $41.82. So this is that thing of being right and wrong at the same time.
Yes. My 2013 self said, China is just on a 10. It's going to keep getting bigger. I'm therefore going to bet on it.
Well, you were right. It did get bigger. You didn't make any money, though. In fact, you lost in real times.
And why is that? A, the economy. Market is not the economy. That's a really important point to make.
I think one of the things that while they have better growth potential and prospects, unfortunately, to speak to anyone who comes from these or has experience, they don't have the strength of institutions that we have. They don't have the rule of law. They have generally high levels of corruption. So it's not like wealth isn't being created.
But don't keep yourself that it's being evenly spread around. And much of it is being left over for ordinary shareholders. So I just don't like emerging markets. I think if you find a really great company, it happens to be an emerging market.
By all means, do it. But too many people do it because, oh, it's an emerging market. It's good sense to invest outside of Australia just because. I think it's flawed.
Because most of the wealth gets siphoned off. The wealth creation gets siphoned off. And if there was a scenario where I just had zero opportunity in my local market, which has much stronger institutions, much better rule of law. I have a home field advantage because I live here, speak a language.
I know the market. I know I probably deal with a lot of the companies. I'm going overseas into these jurisdictions that are just very opaque and foreign just conceptually to me. I just feel as though with investing, you stay within your circle of confidence.
Play where you have an edge. What do I? I mean, the arrogance to think that I am going to understand these companies better than the locals. I just feel as though I've got no edge there.
Therefore, I've got no business investing in them. What about, though, that you've gone from ETF investing to individual stock picking? You know, the investment. No, no, no.
I'm wondering whether is that different if it's an ETF? If it's the case of I want broad global exposure, I'll have some Australia's some developed markets, some emerging markets, roll it together, I'll go on the world on average. That's a pretty good starting point for some people who are saying passive, passive, passive of everything. Is that meaningfully different?
I think it's more about saying, well, why do you want exposure to emerging markets? If you want exposure to emerging markets because that feels as though it makes sense and someone in a suit and Martin Place said that it makes sense. I don't think it's, and they've probably got a vested interest and they just happen to have a product that they can sell you that will scratch that itch. It sounds good.
It sounds good. But these are, I mean, invest in Africa. Best of luck to you. A lot of capital has gone there to die for a whole bunch of depressing reasons.
Same with South America. Same with a lot of Asia. Just, you know, I think sometimes we have to check our financial privilege. We forget the incredible good fortune we have to live in these liberal democracies with very strong rule of law.
A whole bunch of problems, of course, but I know where I would prefer to be. And we find Australian companies experience this all the time. There's a lot of news at the moment. I don't want to be critical of the people from those countries.
You know, they're human beings and beautiful people but their institutions are crap. They just are. And I'm not going to invest in those places where I just can't take for granted what I can more reasonably take for granted here. That's just me.
That's just me. Yeah, unless I'm sure that only looking at the negatives or risks is the only way to do it. I don't have any emerging market exposure. I don't think I need it necessarily.
I've got the VGS, the Vanguard Global ETF which is developed in Australia. That's good enough for me. Sorry, I do. Actually, no.
I had the Asian Tigers ETF for a while. I think I might still have it. Let me double check before I get this in trouble. How's this for live research as we go?
Log in, log in, log in. I don't have it there, don't have it there. I still have a few units of the Asian Tigers ETF which is emerging markets. Has it done?
I don't know. I'm just generally... Thank you very much. I'm just genuinely curious.
9.7% as I bought the ETF units. Who is that? I don't know actually. I'll cut you some slack if it was short term but it was over 10 years.
Oh no, probably 2 or 3 years ago probably max. Okay. And for me it was purely a diversification move. You're like, hey, I'll buy some.
The broad thinking was, this is partly active and partly passive again to the kind of comment we've been having on going. I think it's very likely that in the next 20 years the top or four of the top 10 companies that were probably Asian and probably Chinese just because of the sheer development of that market and the size of the population and the realities of the compound the Valley Barbers and the JD.coms and the others. To the extent that that might be a market I shouldn't be exposed to I bought some Unithithia. Now it's 1.26% of my super fund which is probably whatever percent of the total it's a tiny holding but it was on that basis that it just made some sense to have some exposure to that market as a quasi-passive part of my superannuation portfolio.
I have some Nasdaq in there I have some Vanguard Smallers and some Globals. So there you go. So as a box set I've got Smallers Global Nasdaq and Asian Tigers they are the only ETFs I have in my super fund and it was just that kind of broad global exposure. I didn't have that Asian exposure for any of my other ETFs so I thought yeah that sounds like I could probably have some exposure to.
I had no idea where they go next maybe it was always a terrible idea maybe it was always a falling idea Chinese companies Ali Barber in particular was backed by the Chinese government so you have a sovereign risk. Surprise, surprise. Yes. I mean Ali Barber's gone nowhere in 10 years right?
Yes. So that's part of that. It hasn't been applied of course it is now where it was but very volatile in the meantime. Anyway so I have a little bit I don't think you need exposure to emerging markets I do think global diversification makes sense if going to pass a ETF strategy I think only investing in Australia is a very concentrated way to think about living your life if your job, your house, your car and your portfolio are all in Australia only you're just taking geographic which you're going to need to take not that I'm anti or worried about Australia at all but looking back and going something happened was it smart not to diversify or nothing happened did it cost you much to diversify?
If you weigh out the outcomes of those two questions I think it makes a lot of sense it's just the opinion of one ill-informed person who's just shooting from the hip here but I just I think that you you always need some degree of diversification but I think it really does become de-versification when it is purely for the sake of it it's like we often criticise a lot of pundits who say you should own a bit of gold and you should own a bit of financials and you should own a bit of retail and you should own a bit of retail and you should like well why? Again back to my original point I own a whole damn lot I just sit back and go for it or I try and and don't forget your returns can be made significantly better not by identifying the best performers but just by actively removing what's likely in your view look at your own portfolio not you specifically like anyone listening take out the one worst performer over the last five years just the one and see what changes you know it's like it's massive and this is really I think too many of us we all focus on oh what's the next you know I have to pay or whatever happens I have to pay is a bad example these days you know which is kind of a point right but it's just like I try to focus as much as I can as well what's the one thing that I can what's the tumour I can excise here from my portfolio rather than the supplement that I can add horrible analogy but you get where I'm coming from I do exactly I'm exactly right let's finish off with a question from Adam who says hi guys I'm brand new to this podcast machine thingy and I can't work out what straw man is is there someone you can ask and get a rant no there's not no there's not you've already you've done your shtick for this week we've done it and yeah Adam would like to know go to strawman.com figure it out Adam you're a smart guy you'll work it out in case you haven't worked it out I've been listening to you for years and thanks again for all your help I know you can't give advice I'm trying to all the info to make my own decision my question relates to an SMSF and when to start one I've always been worried about starting one due to compliance regulations and penalties if breached there also seems to be considerable ongoing cost with audits and accounting fees I saw that one provider has just started a new complete SMSF service for $990 per year including setup cost but not including brokerage fees or foreign exchange what have you heard about one stop SMSF shops are they trustworthy couldn't they just jack up the fee later on we already have Australian super members direct with four ETFs broad based index funds and would do the same in SMSF when I ask your advisor anyone who does SMSF will say yes do one he says in brackets every barber wants to cut my hair sorry Scott yeah thank you Adam I would really appreciate some impartial feedback thanks and fool on Adam I don't know the particular product I think there is a place for companies that can enhance the user experience just making it easier straightforward doing it at a reasonable fee definitely right no problem with that anyone who provides a service of genuine value deserves compensation for that in fact that's totally cool but it's such a broad question because within that you've got a whole bunch of shysters well I say shysters they're not doing anything illegal but they're gouging they're charging prices that are well about what is reasonable in terms of what they are doing so it's hard to speak specifically I use Australian super for whatever it's worth and I even say that without having done an exhaustive search and pro con competitor analysis it was just like I think it was when I was at the full with you I was like that's who we went so I stuck with them they worked out pretty well it's a very very low touch affair so I don't end up copying much cost at all because it's a very inactive kind of segment but you do see a lot of things that are out there lots of bells and whistles and the rest of it I think the more you actually have a super I don't think you want necessarily two feature-rich a set because each feature is going to be associated with the cost and you just I mean you're really less is more when it comes to these kinds of things do I need to install a home gym and do all this kind of stuff to get fit and hire a personal trainer to come around for three hours every day or I could or just maybe cut back a bit on the ice cream and go for a walk it's just we are we've touched on this earlier on in the pod it's just really for this kind of stuff just focus on what you can put into it let compounding do its thing stay broad stay basic you'll do pretty well could it be done better obviously you could bought bitcoin at a dollar at one point in time does that mean that the smart investors put all their money into that in 2011 or whatever it was no it's crazy so I just I am a little cynical on a lot of the products that are out there yeah yes well enough to talk about the helpers in our industry by the way and I help us as well and so we're charging a fee for our respective products and you choose whether that's worth your money so we're not I have an SMSF I wanted to have more control of my investments timing it is more controllable either you're closer to the product you're closer to the investments you make the trade yourself all that kind of stuff it's nice to have I've got to say mate if I was trading stuff as well through an Australian super membership record option it'd be cheaper and a whole lot that's absolutely just to do that so honestly I'm not a million miles away from going back to an industry super fund with a direct investment option because I'm like I'm spending the money I'm taking the time there are other penalties if I get it wrong there's obligations to pay I'm like what am I getting extra here and there's a real let's be really honest people listening right now there's a real psychological desire to have control over things control is a really human desire control of our lives control of our money control of this all this stuff is all about you control it you're better than this there's more bloody trading the new ads on TV I own the training, you learn to trade and then master the markets and all this kind of rubbish. And it's all about playing to the ego. I want to take control because I can do this because it's mine, so whatever, whatever.
We don't think we want control when it comes to fixing the car or the wiring or, by the way, mate, just a quick cut out for our list as well, just for fun. While we're recording this podcast, I've got a message from someone at the house saying that the guy digging outside hit a water main. So that's why I'm going to hit a water main. Which is exciting.
But I'm going to take my own hole, right? Well, maybe I should have hit a water main, but you know what I'm saying. So look, you know, there's times you should absolutely take control of your own stuff. You should be responsible for it, for sure.
But do you need SMSF to do that? For most people, it's actually no. You know, like, wonderful advisors, people like individual companies. But we don't tell you to do SMSF to do it.
If a member's director or something similar does it for you, knock yourself out. You don't make life more complicated than it needs to be. Make it simple. You know, the SMSF people will make their money trying to tell you to take control and play up to your ego and all that kind of stuff.
And, you know, that's their red butter, right? Is it useful sometimes? Yeah, sure. Is it useful all the time?
No. Should people have SMSF? No. There should be fewer of them, frankly.
And honestly, the ability to take a superannuation fund, which is in trust for my retirement, and screw it by investing badly, I actually think there's a policy failing. Because, honestly, people say, well, that's what I'm going to do with this. Yeah, but you guys still want the pension if you can make a mess of this. You know, it's sort of a moral hazard, right?
It's like, here's the mentality on the pension. That's okay. Well, no, no, no, no, no, no, no. It's a very, very difficult combination to try and get you around.
The whole thing should be simple. I mean, super is a wonderful concept. Yes. You know, and then the finance industry gets its dirty little things involved.
Milk that baby dry. You know, it's just a non-productive component of our economy. You know, it's sort of like, really, this is not strictly true, but I would be very tentative if I was king of Australia, to say, with super, you've got one choice. It's a broad-based equity.
It just follows the market. You know, that's the prosperity, essentially, of our country. That's it. That's all you can do, you know?
You don't need all of these products and advisors and accountants and everything sort of around it. It's basically become a tax haven for rich people. Unfortunately, it's been bastardized beyond all recognition. I mean, the amount of literally billions of dollars that go into sort of administering something which really shouldn't be that hard.
I'd probably actually tie it to our sovereign wealth fund, which is basically, you know, that's it. It's one of the same. That's the default. That's it.
You don't have to invest in it any more than what's mandated about that, but that's the go, right? And it's a bet. It's a bet on our fair share future prosperity, and I think it makes a lot more sense than, you know, having four negatively geared properties inside of it and, you know, squirreling away $8 million. It's kind of sickening, really.
It is. With that, I'm going to go on time to fix my water, mate. I'm sorry, mate. I'm so sorry to hear that.
How good is that? And then I'm going to go on holidays. But we have got plenty of podcasts backed up for you. We will be publishing Good Lord Willing the Creations Don't Rise every Friday and Sunday over the next four weeks, and then you and I will be back to record some fresh episodes.
By the way, what's that? Everything's fresh. It's all new. We've just got to pre-record some so we can give you some podcasty goodness from the podcast machine.
Pre-recorded freshness. Pre-recorded freshness. Oh, it's still fresh. Fresh time of production, yes.
It's been kept fresh in the freezer. It's been brought out, especially. Nice. It's the first time ever.
Anyway, I'm going to holidays. Enjoy. If you want to follow me on Twitter, please feel free at TMFScottP or on Facebook at ScottPhilipsMoney. You'll get some holiday photos in a few weeks.
You can follow around on Twitter at Sage underscore Simeon or at StrawmanInvest. Until next time, Fool on. Cheers.