A listener production. Share the IPF, the Ajax stop. This is the Motleyful Money Mailbag. Welcome to Motleyful Money, our very special Sunday Mailbag edition.
I am Scott Phillips from the Motleyful. He is Andrew Page from the private online investment club known to friends and family as strawman.com. That gets the, uh, politeness out of the way. Andrew Page, how are you mate?
Very good. Two episodes running when you're from England. Coming at me, coming at trend, isn't it? Hey, let's see if you're enjoying the fact that I'm just making bad jokes for a let me know.
If you also missed the bad jokes, tell us that too, because, you know, I'm a dumb feed back, but maybe there's a different feed back from people. So let's not assume. Let's not assume. I'm not ruling out the chance that we may revert to type next week.
So you'll have to stand by. You'll have to keep listening. See how we go. Mate, how are you?
Yeah, pretty good. Pretty good. About as good as I was when we spoke 10 minutes ago. Oh, pulling back the curtain in the theatre of the mind here.
It was only. There we are, recording on Thursday, the 23rd of February. So as I say regularly, everything horrible has happened in the meantime. Sorry, we didn't know.
You are more informed right now than we are. Well, I mean, we know, but we're not here. And anyway, let's not go there. Virtual reality is not yet with maybe one day, maybe one day, my podcast had a little avatar of you and I talking, like put him on the desk and see us chatting or something.
In the metaverse. Yeah. In the metaverse. Yeah.
Probably not a bit positive that would be fair. Or something like that for radio. It's probably right. I think so.
Maybe we'll keep it purely audio. We'll see how things pan out. Mate, I did a bit of a tease on Friday afternoon. I said I would ask you to solve the problem of superannuation.
Now we don't normally, OK, so we do let topics drag across from the main podcast or the regular Friday podcast to this one. But I thought it's a bit of a Q&A type question. It's a bit of a, a, a, a, a, a, sort of a sort. This question comes from Scott P from the couple of monthly four.
Love the show guys. Great show, particularly Scott. He's still informed how to collect. Love the show.
Tell you what you're worth more. Love Scott. What that's weird. Anyway, mates, superannuation.
Lots and lots of conversation now. I'll just again, read timestamp. This is what happens in the meantime. There was talk about capping super at $5 million.
Now it's $3 million if you believe what was in the papers on Thursday morning, certainly the AFR led by the fact that the PM and Treasurer both kind of use that as examples when they're talking about it on radio. It feels very much like one of those fly the flag type things where they say, we might do this and they wait and see what the response is like, how can we get away with it? Well, no, no, I didn't say we were going to. I just use the example.
It looks like the entrant caps superannuation. I was, I've been pretty clear on super, both the benefits and the potential moon doggles involved. I was surprised to read even the great institute who had a bit left landing, but generally pretty center and pretty reliable with their analysis said that if we capped super at three billion, $3 million, $3 million, $3 million, inside the budget, $1 billion a year. Now, that's a lot of money, but it's also not that much money in the overall scope of things.
I actually would have thought that numbers might have been a little bit higher than that. Now maybe it gets higher as things go forward. I guess you may be index that number anyway. How would you fix superannuation?
I mean, I think first you've got to ask what it's for. I mean, just first principles, right? Like it was there to take the burden off the public purse to look after, particularly the baby boom generation was a big, big demographic bubble. They could very easily see what was going to happen.
We can't, we can't fund it. So let's introduce super. And I think it's had a lot of success. I think it's a really great scheme.
To my mind, I don't know why this should be a controversial statement, but sometimes it is. It wasn't ever intended as a tax haven, you know, or an estate planning mechanism or anything like that. So I stick to the first principle of what it's for. And I think that's what it should be used for.
I think once you've met your goal of, you know, you are provided for immense time in retirement, I think that the benefits and the incentives should stop. Why the incentives, the incentives being a lower tax regime, it is there to encourage you to do it. You don't need any more encouragement at a certain level. Now, you can debate where that line is drawn.
That's a more nuanced discussion. But I mean, just to have a stupid example, a billion dollars, you know, should you still be getting preferential concession or tax treatment? That's right. You know, I, you know, there's so much you can take off the public purse.
That's a level, right? And there is, there is the very, the core problem and challenge of politics is that there's only so much money to go around, right? There is a compromise on everything. Anytime you spend a dollar on that program, it's not being spent there.
And we have the whole political apparatus wrapped around trying to figure out how we're going to sort of do these things. So a billion dollars might not be a huge relative to GDP or even the national debt. But it's a billion dollars. And maybe that could use to be, you know, bulk up the hospital system or something that others might deem as more worthwhile.
So, yeah, yeah, I think I don't know what do you think? Yeah, I completely agree. So I've said this before. This, everything is inherently political, right?
I don't even mean that in general sense. I mean, in terms of any policy that's going through parliament has a political lens to it. There's the general, everything's political, we've resolved for the thing. So I don't like caps.
I think caps are largely silly because they don't talk to the returns made from that money. And also, it doesn't really talk to what you would do if you go over the cap. Now, we haven't seen the policy. There may be or may not be policy.
There's talk about the budget. It might be a way of a few months. But let's say you get to 3.00001 million dollars. Then what happens?
Do you tax it 100%? Do you tax? Do you take them out people? Take money out with jewelry every year to get back down below that threshold.
If you do what you do with the money they take out as a taxable or not. I think because this is a growth asset, super to growth asset class, if you like, as an asset structure, cap is just makes a zero sense to me. If I've got three dollars today, I'll take them any out of it. Maybe 3.3, 10% average share market gain.
That should make it really easy for my little brain. 3.3, that's 3.63, then it's probably cost a four million dollars. And so if you don't touch it, what do you do? You make people take that money out.
Maybe you do, but it just seems really weird. Can you just say that the concessional tax treatment applies up to a certain amount and then it can stay in there. It just goes to the regular tax amount. Or maybe you base it more around withdrawals.
When it's done, you do it that way, right? So it's kind of like you're drawing an income, it happens to be from this source, but you'll pay the same rate of taxes as income tax. I don't know. It's just really messy.
If I don't have, unfortunately, 5.3 million dollars, I see, I have to watch it, I have to make sure it stays below that, take it all right every time it goes over or over. It's just silly right as I'm making it. But just don't have to cap it for its own sake. You respectively income drawn from it drives me a little bit nuts.
So you're just doing clearly on the income drawn or? So, yeah, I've got to, I was asking the question just to give my answer, but it's, I think there's a really simple solution, right? So here's what I'll do with this. I would say, so we know the tax-free thresholds are now, right?
Whatever they are. I was going to say, for everyone over 67, which is retirement age, your tax-free threshold now goes up to pension plus some number, 15 grand a year call, it's a fine number, it's a big grand. Any money you earn from your pension, and by the way, everything you earn is taxable. So pension is taxable, super taxable, work is taxable, everything's taxable.
There's no tax-free income anywhere. But for the first, let's say pension, let's say pension is 30 grand, let's call it that new tax-free threshold 45. So it's taxable, but if you only get the pension, you still fall by the tax-free threshold, so you find a tax on it. If you get 10 grand, 15 grand with a superannuation payment, you pay no tax on it, completely fine.
If you want to work, a couple of hours a week, and you don't go over that threshold, they're completely fine. But as you trip over that tax-free threshold, your $45,000 of first dollar, you get taxed at the marginal tax rate of whatever is probably 15%, 30%, something like that. So you literally decide a people, superannuation is concessionally taxed in its accumulation through your life. But as you draw down money from super, as you get a pension over 47, you just simply pay marginal rates of tax on it.
And that way it's not about whether it's a $3 million or $2 million super fun. It's like, okay, if you want to work, you should, because you know, all the people working really good, it's good for me to work, it's good for health, it's good for lots of things. Go on to work, good physical health, go on work, get the pension, get super, whatever combination that is, why don't you go over 45 grand, I'm going to start texting you. That's just how it works.
It's very elegant. I really, I've not been able to say it can't work because it just seems like the easiest solution in the world, then you don't have accumulation accounts and pension accounts in stupid. You don't have to worry how much money I've got in terms of total cap. If I work an extra hour to lose my pension, it's like, no, no, it doesn't, it doesn't, it just you just have a higher tax-free threshold.
What about the concessional treatment on the way through though? So you get advantages there. So if I am, and we know that money makes money, right? And so if you've got a lot to start with, you're going to earn a lot more.
Do you still get to benefit from that with your $10 million in that favorable environment? I'm happy to be the difference mate. I think I don't have a strong answer on that. Because there are assessments, there are limits to how much you can actually contribute during life at that consistency way anyway.
So I personally, you leave me that horrible path here. If it was me, I think, and I'm over-changing this, right? This is just my kind of thing. I've got a bit of a bit of money changes.
I would allow our consistency as they currently exist, because superannuation guarantee. Then on top of that, I would allow a particularly tax-during accumulation, because you want it to grow to a size where it can actually take care of people in retirement. Does that make sense to me? I would then marginally tax the withdrawals from super.
And it's already the case, by the way, apparently, that superannuation given to non-dependent kids is already taxed at 7,000 in the way back out as well. So you can't get this effective inheritance actually, don't call it that. No one says that. Those words go to taxes, political poison.
But I think that kind of takes care of the residual, right? If you take it out during your life, you pay tax on it. If you take it out, you can take it out when you die. That's what my mind does, the full life cycle is super quite nicely.
So what the right rate is for those things is an open question. Maybe 17% is enough. Maybe 30, maybe it should be a marginal tax rate on the inheritance, potentially. I would be open to that as well.
But broadly speaking, I think I would allow it to be consistently taxed during its accumulation, because you want it to grow to a size which takes care of the pension requirements. So I think that's a positive, it's not a data positive for me. But I would just be massively taxed with tax that withdraws from super. And also, by the way, that's why you catch up on the concessional stuff.
It was taxed twice the tax in the way out. It kind of is. But by using that marginal progressive tax rate, you make good on the concessions in the way in. You let it compound during your working life at a good rate, so that you have enough to offset the pension liability.
I can get on board with that. As long as I say, I think that as long as we move away from the unintended consequence of it being a tax haven. That's sort of my... This is where I sort of sit.
The devil really is in the detail. But I think the question of does it need to be looked at and could we make some easy changes? I think the answer is very strong, yes. And then you get into the detail of the debate.
But it's not there, so that you can avoid a bunch of tax when you have absolutely no worries financially in retirement. Exactly. Sorry. No, you're right.
That's exactly the point. And any tax advantage given on top of that are necessary and they actually hurt the... I think people throw out, I don't want to pay tax on super blah blah blah. What you're effectively just saying is someone should pay the tax instead.
And that's where it comes into the key fairness thing. Okay. So you don't want to pay tax on your $5 million super fund, but you think someone will work a factory job and earn $7.75 in the dollar tax. Is that really what you're actually...
Is that fair? Is that the first one to do? Or I'll work on my life and I'll do it. Okay.
Well, again, who should contribute more or proportionally to the upkeep of society? I think it makes a whole lot of sense to your point because you don't have a $5 million super fund, you won't tend to that. That's why I'm a grainy. This is not replacing pension level.
This is 10 times the annual pension. At that point, you've got to say, hey, something's not working properly and really, really should. You've got to think about whether or not to what degree it actually works. Yeah.
I'll send it by just saying, if you want to get angry, get angry at how the money is spent more so than how much is collected. I mean, you can have it if you want both, but when I sort of shake my fist, it's more of like, I'm happy. I get it. We live in a society with certain things that we all need to sort of chip in for.
But it's more how you spend it rather than how you collect it or how much you collect. Let's answer some questions. Do you want some other questions? I like my questions, but I've got another question.
Let's go with that. Let's ask a question from... What have we got first here? Let's go with one from Jamison who says, I've gotten around, but love the podcast.
The Sunday episode is the highlight of my week. Thank you, Jamison. A question regarding dividend reinvestment plans. Does a company issue new shares for drips or other dividends used to buy existing shares on market?
If it's the former, does a solution mean that shares acquire the drips are less valuable than putting the equivalent shares on market with the dividends? Final question. What is your approach to evaluating debt in companies? Do you use any rule of thumb heuristics such as the current ratio or the debt to equity ratio?
Thanks again. Your podcast is priceless. You said it's my kind of price. That's from Jamison.
We have to get drips before my... I was going to say there's a lot of bells ringing here. You should do this recently. No, different question because this is about the...
He asked about the dividends that shares acquire the drips being less valuable than purchasing equivalent shares on market with the dividends. This is in the hands of the shareholders themselves. But it's a similar type question in terms of what we should think about those dividend reinvestment plans. I'll have first go, Jamison.
It's a two-point question. We had that similar question a couple of weeks ago or so. The shares that are acquired are not any more or less valuable than other shares. But the company itself, there's more dilution in that dividend reinvestment plan.
So the shares that are being acquired don't change value because the shares... Any oil shares that come to the same amount because it's a proportional ownership. So whether... They're fungible.
You're getting those shares. Thank you. Whether you get those shares versus... If you have already and you've got some new shares that are acquired on market or that are diluted, it's not those new shares that are worthless.
The whole thing is worthless because of that dilution. I hope that kind of differences is clear, Jamison. Broadly expect, as we said last time, if it can't be easy showing new shares, then all of the shares are less valuable than if they put existing ones on the market. Does that make sense when I was explaining that, right?
Yeah. I mean, it's not necessarily one that's better than the other because, again, it depends. By issuing new shares, they obviously don't have to pay for them. They get to keep the cash.
And if they can get a great return on that cash, then that's a better way of going. If they're just going to use it to put some new carpet in the border. And then maybe not. That's the question.
Yeah. Yeah. I think that's right. So, yes.
All of that's being equal. Delution is worse than not being diluted. But if it's a question of how about best to use that dollar of cash, if you can get a better return by using the money rather than using the buyback shares, better off, I would argue overall, for that theoretical example, I don't think most of us do this before. Most companies aren't so good at capital allocation.
They're doing it deliberately for that reason. Most are, most are, most are, don't letting you keep the cash just because it suits their purposes rather than, you know, they can pay a higher dividend by issuing more shares than if they deal with cash. Yeah. Fundamentally, that's, I'm not going to say why they don't necessarily but I'm absolutely sure it's part of the calculus since it's easier.
Thanks to this all the time. If you wish to do share, look at some new shares. Therefore, it doesn't hurt my capital ratio. I can spend it equates more money.
It's effectively spending. On dividends, then I could have had a funded cash. So, guess what? You're very welcome.
You're even in yield seems higher. So, look how good I am. Look how clever I am. You're very welcome.
It's more often than not, not always. More often than not, slight of hand. The best companies, as Andrew, says, will absolutely do the opportunity cost question. I would say that's less than 10% of companies genuinely go.
Oh, easy. Yeah. 100%. Yeah.
Cool. What about debt? I think equity ratio. Yeah, I think that to equities, like any of these metrics or ratios, they've got a purpose but it's very high level and there's a lot of butts involved in it all.
I mean, yeah, it depends. I mean, if you're dealing with a Trans-Emp or a Sydney airport and the debt is held against very long-lived, durable, likely to retain their value assets, it's probably not a huge deal. You'll always be able to roll that debt over, maybe under better or worse conditions. And I don't want to suggest there's no risk.
There absolutely is. I'm just saying it's a different kettle of fish than a company that doesn't have any real tangible assets to back it up. Maybe it's in an area that has much more volatile earnings. Again, taking COVID out of the picture, something like Sydney Airport has pretty reliable revenue streams.
Trans-Emp and has pretty reliable revenue streams. So I'm kind of trying to point that right? It is the one that I have. The Black Swan can bring you right.
Yeah. Yeah. Although it's not technically a Black Swan. But yes.
So I look at those things. All else being equal, less debt is better. But debt does have a use. I mean, I think that too often companies lean towards raising capital on the market rather than taking on debt.
When you issue new shares, those shares, unless they do buybacks down the track, which are less common, they tend to be forever. And as you just said, that dilution cost is a real cost. Debt comes with an interest payment. And the person who lends you the money is first in line, if anything terrible sort of happens.
But you pay that back and shareholders retain their stake in the business or their equivalent stake in the business. It's just like you would look at it in your own situation. No one really bats an eye if someone's got a mortgage against their house, if it's a conservative level and they can easily serve us. It's a good thing, in fact.
It helps in a lot of ways. Same with businesses. Just watch how much they extend themselves. What's the maturity profile?
What's the interest cost? All of those kinds of things. And I think that's how I look at it. Yeah, 100% with you, mate.
No debt is always safest. And I'll go back to it's a portfolio approach or a probabilistic approach. They're the same thing, because if you never ever bought a company with debt, you can never ever lose 100% of your money because the debt costs become overwhelming. So if you're in the job of pure risk elimination, then buying a debt, take one lot of risk off the table.
Absolutely true. And so if you're saying, which is safer, that's a very easy question to answer. But I would suggest that if you bought 20 companies with debt, that on average, that's going to create more value, even if a couple of them suffer, maybe one goes broke because of the debt that's got. Now, not every case, not every 20 companies and that sort of stuff, but probabilistically.
So Andrew's point, because you're using that money, hopefully wisely, not deluding, getting a return on that debt, if Andrew said to me, look, here's what I'll do. I will lend you money at 1%. And you can invest it in a Australian government bonds paying 4%. I will borrow as much money as Andrew will let me borrow.
Is that riskier than having no debt? Well, I guess I mean the Australian government could fold and the Australian government bonds could be worthless and you could come and reap just my house and say, well, I'll let you the money, you didn't have your back. I said, well, I'll get my way back. So I don't care.
I want the money back. So is there a chance? Yeah. But every day of the week, I would borrow at 1 and invest in government bonds at 4, 5,000.
Now that doesn't exist because no one's silly enough to lend me that money. And Andrew's smart. But he's smart. He's smart.
He's trying to lend me that 40%. Don't make it a bit too close. But that's, you know, there are times when, if that debt is used well, Andrew says there is very much, very worthwhile way to use that debt. Does it add risk?
Absolutely. So, you know, interest coverage is one that I look at reasonably closely and frankly more closely in the last two years than probably in the decade and half before that. So interest coverage simply how, how, how, to what degree do companies profits cover the interest cost? So if you're making a dollar in profit, you're just costing 92 cents.
I can't I'm a little bit concerned about that because interest never rise much until I just assume you're an entire pre-interest profit. If your profit is a dollar and you're interested two cents, that could double and double and double again. It's still be, you know, less than 50 cents and I'd be completely fine. So interest cover is probably the one thing I would look at when I'm looking at it.
I don't really care that much about it because it's kind of interesting but it's not particularly useful in and of itself. Yes, again, it's going to repay but it's going to be rolled over. Again, the higher it is the riskier it is. So I do care a little bit but it's very much the ability of that coming to meet interest payments.
That is the core of, you're shooting on as a half smart. By the way, interest cover also can see the range of outcomes. Right. So, no, it's covered today.
We're going to be going well. But what if this company got it's off in a trouble? We're saying plenty companies refinance their debt at really serious rates because they got in trouble and the banks went, well, if you want to keep our debt, you're going to have to do this and this and this and this and this and this and this and this and this and this. I mean, okay fine.
So I can go, absolutely can go badly. Yep. Okay. Thank you, Joe.
That was a really good question. One from Dan. Hi, Scott and Ram. I hope this email finds you both well.
I recently finished listening to the audio book version of Ben Graham's The Intelligent Investor and I have to say it was quite an experience. I love to know what that's up. I found the book to be quite dense and it required my full attention, which is why I opted for the audio book form. As I was listening, I came across a suggestion that the average retail investor should have 90% of their funds in index funds and the rest of the individual stocks as the average investor can't expect to outperform the experts instead should seek a market return.
I'm not sure if this was written by Graham himself or if it was written in the chapter commentary but I wanted to reach out and ask if you both think this is still sound advice that is relevant today. In conclusion, you like this one. In conclusion, I wanted to let you know this email may be a podcast first. It was written by chat GPT.
I look forward to hearing back from you both and I hope to see you discuss this topic on a future episode. Best regards to Dan. Very cool. There you go.
How do you write that out? Well, it definitely wasn't Graham because index funds went around at the time. So it was something that was added in afterwards. I mean, either a Buffett forward or Jason's vlog, I think it's the current editor of the the company.
Yes. Yes. I think. And it is a dense book.
Despite its all its wisdom, you can really condense down to a lot of it. I reckon it's one of those books that everyone says. They've read but not many people. Not many people have read it or certainly finished it.
To the question itself, again, it depends. Ask anyone if they're an above average driver. Everyone's above average driver. Correct.
Ask a male investor if they're above average investor and they're all above average. No, no, no. That one. So the question is, should the average investor do something like that?
I probably largely agree actually. And then quietly lean back in my armchair and happily chortle to myself that I'm clearly above average. So I should definitely have a different ratio to that. I think I think I've always said this.
It's investing is easy, but not simple. It's it's that idea that if you don't have to be a genius to do well, it doesn't have to be a job that you slave over and hate. But if you put a bit of effort into learning and doing it and you're serious about it and you're risk averse, you're not doing silly things. In other words, I think that's 90% is a very high proportion.
And my point I always make too is if you enjoy it or if you get a bit of a kick out of it, if you're not, then definitely just go all ETFs. But if you want to, it's also a great pleasure and interest for me personally. No, because it's just about trying to make money. It's just how the world works and taking a view on the outlook of things and being able to sort of participate in it.
It's kind of a cool thing. And I think anyone that even if you had 80% of your money in direct stocks and you were managing that yourself, I don't think that is necessarily risky if it's something you do in a prudent wise fashion, even if you are relatively new in your investment journey. And it doesn't have to be something that you just jump to it. Maybe you start off at 90%.
And as you gain more experience and learn more, you just slowly adjust that. It's basically, you only have to get on average over a long period of time, an extra 2% or 3% out of the market for that to make a huge difference at retirement. Correct. So I think for me, give it a 10% out of time.
That's a big part of the appeal. But just take it seriously. That's the only thing I see. Just every one is in it for them.
Come for the money, but sort of stay for the long term wealth creation. It is something that you will need to take seriously. It's something you need to go in eyes wide open because you're going to have crappy periods along the way. Who you are.
You just are. It's a journey of self discovery. I think it's a really wonderful thing to do. So that's a lot of wisdom in that book.
I think it is a pretty good suggestion for someone who's not really that interested and not prepared to do it. But if you are, and if you're listening to this podcast, you probably are, I'd encourage you to go a little bit higher at the very least because there's great reward and satisfaction. Yeah. I agree almost entirely, mate.
I think the end of your answer, the end of your answer, kind of, is somewhat opposite ends of the spectrum. That's probably the depends version of the answer. The average investor by definition, investment ETF, literally by definition, because the average investor, that's exactly what you should do. Because paying fees can average what makes no sense.
So I've got to write this up more cleverly and clearly somewhere else. The paradox of investing is that as a group, none of us should pick stocks because we all get the average result, less fees. So you can avoid the fees, other than a really tiny ETF fee. And I get the average, which is, there's more value created by that than trying to do it yourself or pay some else to do it.
Always by definition. But everyone should accept people who can actually beat the market, who are above average, because if there isn't average, someone else will be above someone else to be below. Again, by definition, those who above average should do it. Like if you're talking to the woods and someone says, hey, do you want to play my golf tournament, there's a prize at stake.
Give it a go. If they ask me, well, you know, they're not going to pick it. You know, they're not going to pick it. And he asked all of us and said, hey, do you want a hundred bucks and don't compete in my tournament or the chance of winning $10, but you're playing as Tiger Woods.
We should go like, well, I'll take every $100 because it makes sense, right? But because there is a Tiger Woods, there's a Warren Buffett. The average investor index, every one of the markets index, but for the market index, the market index, the market index, the market index, and he himself picks stocks, right? This is the absolute paradox as a total society.
We should all index because the ones who are below average are costing themselves money by not doing it. And if you don't know if you've got to be a Buffalo, they take the average. So it's 100% true. But as I said, because there is the Warren Buffett, the Tiger Woods, or even over the Buffett's Woods, the club pro who's playing off scratch, right?
This is the hacker, like me or Andrew, who are playing off, you know, a handicap 84. You know, we should know our place. Now, the club pro is going to do better than average, so the club pro should pay for money. Makes sense.
The rest of us should say, well, we'll have the average. Thank you very much. It is knowing where you are on that spectrum, Andrew's point that matters. And also, I have to expand on the club pro is in that position because they've put a lot of effort into that.
Yeah, and they know they're good by the way, too. They don't have to decide at 12. Am I going to be a club pro? I'll make money.
They're pretty good at it. They put more time in it. They get better. That betterness gives you better results.
Okay, well, now I have a reason to believe I should do this for a quit. So it makes a whole lot of sense. I actually think that that approach, probably as Joseph, I imagine who said that. Buffett's something similar.
He's, I think, I may even be Buffett's words. They're very close to what Buffett said. In fact, he's a state. He's going to invest in the SP500 and next fund.
That's what he's told his executives to do. So, you know, I think when Buffett says that you can pretty much take it to the bank. But what I like about the 90 plus 10 is the idea of saying, let's start with the ETFs plural. And then pick some stocks and say how good you are and then go from there.
Don't fall to arrogance. Don't believe you don't want to say for your credit or you did it for a year and you got like easily before I should keep doing it. If you're an energy investor last year, you're a genius. If you're taking the best of last year, you're an idiot.
If you look back over time, tech stock has done fantastically better than energy stocks. So who's the best investor? Well, you know, again, you can, you can take it, you make your choice. But broadly speaking, I think, I think same with ETFs plus something.
And if you're good at it, do more of a thing, you're good at. Makes a whole lot of sense. If you're not good at it, wind it back over the ETFs go fishing. So if this is podcast for fun and interesting and like men and enjoyment, but recognize if you suck at it, most people are going to be better than ever to get by definition.
Andrew said, then you know, you need to say, you're not that person and doing it over and over again, getting a terrible result. It's just kind of super counterproductive, right? You must have done $100 at the front of the house. So, you know, no, no, what, how will you do?
Know what you're good at? Know how you do it? And then choose your path accordingly. I just want to very, very quick follow up in regard to that book.
I said before there was only a couple of lessons or big, big ideas from. I think what Graham did was the first to really objectively look at what we would say called the fundamentals. He tied the financials, the operating fundamentals of the business to the share price. It kind of seems like, well, of course, but it was never, it was, he brought a more scientific sort of approach to that.
Buffett, you know, having him as his mentor obviously took that round with it further. Others have since evolved and the whole process has sort of gone that way. But that, that's, that for me is the key takeaway is that they're not just tickers. That's, I think the modern relevance to the substance of the book is that.
Would you add anything? I'm obviously I've missed a whole bunch of details. I think that's the only sweeping kind of like a Russian idea. Look, I think, so Buffett himself has said, read, he said, read particularly chapters eight and 20 in the intelligence investor.
So the chapter eight is basically about the behavioral investing, chapter 20, the margin of safety. So those are the two things that obviously, you know, it's one of those, you tell your best, all this fun, all these foundational books and ones that you kind of go, oh, you're going to go, oh, you're going to read it because it's just the fundamentals. You said we've all read it and we learn the fundamentals by reading it. So I'm, I'm loads of people don't bother or you don't need to.
You read these things and go, obviously it's easy. You tell them to understand this and this. Like you want to say it may be by reading. So I'm less inclined to say don't bother.
But if you want to grow it is a bit dense. At least read chapter 20. Why it's worth it just for that. Reading is a funny thing.
Reading is not just, every book can be written in a page. Here are the key issues. Here are the key points made. That's what we need to know.
The thing is we learn experientially. We're story based creatures as humans. And I think my, I've come back along my phrase. There's the four page excerpts of the key ideas or something.
And the key is to find you can actually get them. Go to a missing yourself in a book and reading. Watching someone or listening to someone, reading someone describes something to you. And actually kind of experiencing that learning by the description of the story that goes with it.
I think it's really, really powerful. So I would, I used to be, I want to read the brief, cliff notes version. It's five of your own exam. If you want to get good at something particular, I would recommend reading the book.
But at least chap is eight in 20. Yep. Any more on that? When he said we're storytelling animals, I remind me of that, I forget who said it now.
I quote it was this, like, humans are storytelling status seeking monkeys. And I've always stuck with me. Like you look at our core drivers and how are sort of special. I think it's a lot to be said in that.
And I just think it's really, again, I don't want to overdo it. But there's a view, and it's completely perfect. You can get the key tense in that. And I'm not sure.
I'm not sure. I'm not sure. I'm not sure. I'm not sure.
Maybe I'm not sure. Cause if you're so lucky, there's a view, and it's completely perfect, you can get the key tense of any book in a page, a full page. But if you really, really want us to understand it's the examples, it's the lessons, it's the journey they take you on of. Here's the thing.
Here's this thing. Here's what it is. Here's some examples. Here's what's relevant.
I really get other than are someone. So since I said, March of Safety's great, right? We should have a March of Safety. Okay, that makes sense.
What's that really mean? Show me the example. Tell me the story. When you do really say a little bit of a time, learning about it, it hooks in our brains better.
We love stories we learn from stories in a really fundamental way. So I would be a big fan of that personally. Yeah. Motley for money.
For more, subscribe to the free newsletter at full.com.au forward slash listener. All right, my question from anonymous probably for a very good reason. I'm going to hold you on a short list on this one. I was going to end it.
Thanks for the honest reality check each week regarding investing. And the reminder that it's a long term journey rather than a short sprint. Unfortunately, Scott, this is a Bitcoin question. I hope you're in a new situation.
I think you were. You're both in the kind of your reality positions on Bitcoin before with Andrew being the most bullish. Until I heard the pros and cons in the recent podcast, I'd be very skeptical. But Andrew's commented investing a very small portion of his portfolio with a heads open.
Tails that don't lose too much approach. Give me to reevaluate my stance also on a very small proportion of my portfolio. Unfortunately, says anonymous. I made the mistake of investing with one of the quotes industry recommended.
Close quotes, Australian exchanges. That was not FTX. But unbeknownst to me, it was purchasing Bitcoin via FTX. The collapse of FTX has sent the Aussie exchange into administration too, with a potential 65% return of funds invested over the next five years.
So I'm one third, launching away five years to get the money back. My question, while specific to Bitcoin here, might extend ETFs or funds too. As an investor, how far should we dig into how these exchanges or ETFs are run? Well, the companies they invest in or with.
How would you inform yourself that the vehicle or organization or ETF was legitimate and worth investing in? To Scott's human psychology interest, the lesson hurts. Again, but at least I didn't lose too much. Kind of regards.
That's from Dee. Not Dee is in the name of the name. Dee who wants to remain anonymous, which is fine with me. It's a good question.
I'm going to have a first thing. This is because you're a Bitcoin aficionado. I'll take the other angle of this one. I won't talk about Bitcoin or crypto generally.
The same thing as everyone knows. It's like crypto and trigger me. It's a really, really, really, really good question. What's important about shares, which is still coming to other asset classes in different degrees, is that there is much, much better regulation for the exchanges, the funds, the way you go about buying and selling shares or ETFs directly.
They use trust structures. The regulator requires things called responsible entities. It's a very, very well regulated circumstance. Now, with an exception.
So if you buy shares in a Vanguard ETF, a better shares ETF, I think that's about as safe as houses. There's a lot of scenarios in which some sort of horrible, horrible, mismanagement, malfeasance could maybe possibly do something. But the chances are so incredibly, incredibly small. It's not worth thinking about it.
Similarly, if you have your shares invested with chess or the chess registered for your broker, again, a chance in some way, common circumstances could possibly have the circumstances, which I can imagine. Yeah. Kind of just because nothing is perfect and whatever. But it's as good as you're going to get in a mile, mile, mile, than anything else.
The wrinkle here, why I want to make this distinction on shares for a revenue with Bitcoin and crypto and do is if your broker holds shares in what they're called a straight name. That means that is their legal property. And you are the person who is nominally owns those assets. In other words, if I took Andrew's money and Alice's money, put it all together, so I'm going to invest so many dollars in total for all of yours.
And look, Andrew put in 10 grand. So he's he's nominally worth 10 grand. But the money's in my name. I'm going to go and invest it over here.
And it goes badly. If I go broke and use my shares to pay that off, Andrew's got no particular legal recourse to that. There's no specific issue. It says no, though.
She's actually Andrew's. And she's got a nominal interest in this. We've seen businesses like Opus Prime. You might remember that name from the Dim Distance Past.
It went broke, taking risks on its own account. And the shares that are owned that actually the customers thought they owned were actually owned by Opus Prime. And so when it goes in strife, those shares, those assets were actually taken firstly used in the business and then taken by creditors. Now, if you have chess, that doesn't work that way.
I would always, always, always use a chess broker for that reason. So if you do, again, there's always everything, so I'm not going to say everything's risk-free. If you have an ETF with a very large known British shares or Vanguard, I think you're about a safety centre. If you have a stock broker that uses a chess, you're a safety who could possibly be.
If you're a broker, put your shares in a street name. If you're not chest-sponsored, I wouldn't do it. I'm not saying it. We'll go broke, just it's just unnecessary risk-taking.
So don't do it, because, like Opus Prime and others, there are circumstances in which your assets could disappear. Despite the fact you think you legally, theoretically, own them, you don't, at least in that context. So just be really, really, really careful there. There'll be some listeners who use street name brokers and happy with them.
That's cool. You couldn't panic do it. The equivalent cost of using chess is just insurance. It's just the cheapest insurance in the world.
So I would personally do that. Now, other asset classes don't have the same degree of regulation. Are you someone like an asset making them do stuff? Not necessarily the industry level background or systems and circumstances to support or protect their customers.
And I'm not a blek that really crypto is specific to anything else. There's art dealers out there. There's wine dealers. There's, you know, you saw your wine in particular.
Yeah, exactly. The property is not covered at all, biastic, at least in the context of advice. So other asset classes across the board, Roe will be much, much more careful. If you store your wine in pages, wine storage incorporated, what happens if he gets an official trouble?
Here's the wine definitely yours. Who owns the gold? Who owns the gold if things go badly? So you need to know those things, but also probably crypto.
And you can take this one away. You actually, what you described there with Opus Prime is exactly FTX. Yeah, that's exactly what happened. People thought that were buying it.
Yeah, we've got some for you. He's a stream. We'll show you a stream with your balance on it. But it wasn't there.
You know, gambling on it. And it's sort of such a tragedy. And so yeah, the reason that the share market and ETFs are different is not because they are more moral. But we've already been through that.
That's right. Humanity had that experiment and then realized, wait a sec, we need some adults in the room, we need some regulation. And that's the regulation that we enjoyed today because we're dumb. And we had to learn the hard way.
And the quote unquote crypto industry just just learned it the hard way. It was always going to happen. And now hopefully they've learned from it. And hopefully the regulator's seen to be taking action.
And hopefully they will do it. But my condolences because it really does suck. And this is what happens when the Cowboys and the Griffiths and that get involved. So the saying is not your keys, not your coins.
And here's one of the sort of mind blows with this kind of stuff is that when you actually really think about it and you look at the assets that you own, I mean, do you really own it? I can show you a screenshot of when I log into my bank account. I can show you my chess account and show you what shares I've got in here. But one of the cool things about Bitcoin is that it's a bare asset.
I actually own it. There is nothing in the world that you can do to take it off me. No one can. Short of holding a gun to my head and putting my thumb in the thumb screws and torturing it out of me.
That is literally the only way you'll get it. And so that's one of the big ideas. And so I've said this before. One of the great ironies of this whole crypto blow up is that someone invented that.
And then we all said, yeah, cool. Can you custody it for me? And do it in an unregulated environment? And gamble on it.
It's like crazy. Like these are the problems that we're trying to sort of get away from. So if you are going to buy some Bitcoin, don't buy. We can't give advice.
But I'm going to say, don't buy crypto. If you like money, don't buy crypto. If you're going to buy Bitcoin on the other hand, I'll just say, listen to the episode rather than repeat it. OK, see you.
If it's any material amount, buy a hardware wallet, buy it, and store it there, put your keys in a safe place. And it's a safe as hell. It's safer than houses. It really is.
Yes. Unless you lose the kitty house. Yeah, but you know, that's the same with gold, right? I could give you a massive lump of gold.
Here you go. Is it valuable? Do you want it? Yes, please.
If you lose it, it's gone. OK, I'll take, you know, if it's 100 bucks, OK, maybe you'll lose it somewhere. If you've got like any material part of your life savings and I'm pretty sure any capable person could look after that. The other thing, of course, is that there's a whole bunch of custodial solutions that range across the spectrum.