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North Perkulanoi.

0:40

Welcome to Motley Fool Money, the podcast that

0:42

is here and not here. At the same

0:44

time, at the moment, I am Scott Phillips.

0:46

At the moment, he is Andrew Page, the

0:49

founder, managing director, the chief cook and bottle

0:51

washer of strawman.com. Mr Page, how are you?

0:53

Very good, sir. How are you? I'm very,

0:55

very well. We are prerecording a couple of

0:57

podcasts. They're always prerecorded. A couple of our

0:59

listeners like to remind us we're doing this

1:02

one a week ahead, though. As this

1:04

goes to air, I'm somewhere on the New South

1:06

Wales Central or North Coast, I think. So,

1:09

mate, thank you for making it a bit of time the week before

1:12

normal to record this pod and get it out of the way. How's

1:14

your week, Ben? Week's

1:16

been very wet, as I was saying to

1:19

you off air. We had a ton of rain. I

1:21

think it was like 200 mls in the space

1:24

of a bit over 24 hours. Is that bad?

1:26

20 centimeters of water is like bang. Yeah,

1:28

so it was pretty wild. But, yeah,

1:31

I'm thankful for small miracles, no leaks or

1:34

major water damage. So that was pretty good.

1:36

We're actually on the side of a mountain.

1:38

So there's a lot of water channeled our

1:40

way, but it is effectively channeled. Nice, nice.

1:43

That's a win. That's a win. Well

1:45

done. That's been my week. Very good. I

1:48

had a similar wet night. I think it

1:51

was Saturday night, out of time, something like

1:53

that. And I might have mentioned before

1:55

on the pod, I think I have, I

1:57

had some insurance dramas and just we had some

1:59

fun. flooding a couple of years ago. And now every

2:01

time I know there's going to be rain, it's

2:04

just that kind of that instinctive response of like, oh God,

2:06

here we go again. I get

2:08

grumpy and I get annoyed. It's like, oh, it's going to

2:10

be bad. I hope it's not bad. I

2:12

will say, thankfully, as you did, we got away without

2:15

any damage, which is lovely. But just that kind of,

2:17

that instinctive sense of like it's flooded before, it's probably

2:19

going to happen again. Oh man, here they go. And

2:21

as you say, the warnings were pretty dire. You

2:24

know, the kind of the nori last words, they call the

2:26

thing it was supposed to be, you know, this horrible, horrible

2:28

thing. Not a lot of rain, as you say. But

2:31

yes, no, we avoided any damage touch

2:33

wood, which is lovely. I know there's

2:36

totally a grumpy old man outlook on

2:38

things. So I was, same thing, right?

2:40

I was just like, just my natural

2:42

peasantism. We were like, here we go.

2:44

What little surprise are we going to

2:46

discover? You know, it

2:49

turns out that three bedrooms have major leaks or

2:51

whatever. So I was afterwards like, you know, don't

2:54

be so negative, you know, things will work out. So you've

2:56

turned into your life. Let's

2:58

not get carried away. Let's not get carried away.

3:00

Fair enough, fair enough. Mates, because we are recording

3:02

this in advance, we thought we'd do

3:05

some, it's not evergreen, at least just not particularly

3:07

topical stuff, because there's no point doing things that

3:09

they'll wick in half-old by the time this podcast

3:11

goes to air. And what

3:13

kind of jumped out as we, again, as you

3:16

said, you know, we should probably record some

3:18

of this stuff, but you and I chat for about half an hour

3:20

before you record the part and occasionally go, oh, we should talk about

3:22

that. And so we had that moment where

3:27

the SMSF, Self-Managed Superfund came

3:29

up. And it came up, interesting

3:31

enough. You said, you know what? I'm gonna set up

3:33

an SMSF and I'm like, you know what?

3:35

I don't want to think about getting rid of mine.

3:38

So this is a really, really funny kind of, I

3:40

don't know that I will, but we will get into

3:42

it. Because I thought it was a nice chance to

3:44

step off into a discussion of,

3:46

now we're not tax advisors, we're certainly

3:48

not superannuation advisors, so I don't want

3:50

to get into the absolute arcana and

3:52

specific minutiae of Self-Managed Super, but the

3:54

fact that kind of we're both in

3:56

different spots now and kind of planning

3:58

switching, from where

4:01

you are and you go to where I am,

4:03

it's just a funny juxtaposition. We

4:05

figured we might just have a chat about that. Some

4:07

of, effectively, the pros and cons, and we're not going

4:09

to do a bullet list of this and that and

4:11

the other. But I thought what I might

4:13

get you to do is give a listener

4:15

a sense of why an SMSF might be right for you

4:18

guys. I thought I might then

4:20

talk about why I'm thinking about maybe getting rid of

4:22

mine. It's just to open up

4:24

some of that conversation because we've got a lot of

4:26

listeners. People have them, some won't have them, so I'm

4:28

trying to make the decision. I might just add some

4:30

value for those who are either contemplating or in the middle

4:33

of it or may actually want to make a change after

4:35

listening to this if something suits their circumstances. So let's

4:37

kick that off as long as you want.

4:41

What is the motivation? What is the thinking? Why

4:44

are you going, you know what? I've got the industry

4:46

fund superannuation as I understand now. You're going

4:48

to get an SMSF probably. What's that kind

4:50

of thought process been like and what's tip job the edge?

4:54

So through till now, I've had the Australian

4:56

super member direct option. Yeah. And

4:58

just to find out for me. Yeah. So I was

5:00

attracted to that because they have their default fund

5:03

so I can sort of say so much in

5:05

Australian shares, so much in international shares, whatever. But

5:07

there's a component that you can invest, you can

5:09

select shares. And I

5:11

always thought that was pretty cool because it kind of

5:13

gave you a lot of the benefits that I would

5:15

want from an SMSF without the admin burden and the

5:17

cost burden that came with it. But

5:20

as I sort of said to you off air, I've kind of

5:22

gravitated more towards the small cap end of

5:24

the ASX spectrum. And so

5:27

there's just, you've

5:29

got a much more choice than you would with a typical

5:31

fund but not as much choice as I would like. So

5:34

I guess that is what tipped me over the edge.

5:37

And also I wasn't

5:39

aware, I should have been

5:42

aware of this, but I wasn't aware you can pull it with

5:44

your partner as well. So it's kind of like, well, maybe it

5:46

makes sense to do all of this. Now I

5:48

am hesitant though because years ago,

5:50

almost exactly 10 years ago

5:52

in fact, we set up a family trust.

5:56

And that was suggested to me and the

5:58

great thing about trust is... that you

6:00

can split any profits

6:02

or income that's derived from that through capital gains or

6:04

dividends or whatever. And I thought, well, that's kind of

6:06

cool. Now back in the

6:09

day, I'm going way off topic here, back in the

6:11

day you could put the family dog and whatever on

6:13

it. And it was

6:15

in this egregious tax college. Streaming come to

6:17

the kids, working for the family company or

6:19

just getting, you know, all

6:21

kinds of like trustee companies and,

6:24

you know, corporate relations. To

6:28

the credit of the government, they patched

6:30

a lot of that up. So in hindsight, I

6:32

look at it thinking, I don't know if it

6:35

was worth doing. In the

6:37

sense that it was good because we have

6:39

thankfully had good capital gains and returns along

6:41

the way. And my wife, especially

6:44

having taken time off with the kids, earned less.

6:46

And so I could stream income towards her. But

6:49

then I think in hindsight, if we just had

6:51

it all in her name to begin with, like

6:54

she would have achieved the same end and

6:56

I would. And it costs money. You've got

6:58

to have this thing audited and submit its

7:00

own financials every year. And, you know, accountants

7:03

don't do that for free. So

7:05

it's just whole sort of pain in

7:07

the backside. So I was always reticent

7:09

with the SMSF. And generally

7:11

speaking, people advise you that you need at least $200,000

7:13

in super to make

7:16

it worthwhile. Because again, of the cost, you

7:18

need a certain return expectation that's reasonable that's

7:20

going to sort of justify all that extra

7:22

hassle. And

7:25

let me just get this out of the way. The main

7:27

driver really was I just wanted to hold some Bitcoin

7:29

in my super and I couldn't do it to a strong

7:31

super. So I just there and said,

7:33

So everything else was just a convenient cover for the

7:35

fact you want to buy some Bitcoin in your super.

7:38

I look, I'm not going to eight ball in,

7:40

obviously, but I did. I just end also small

7:42

caps as well. It just I felt I

7:45

felt as though I've been doing this long

7:47

enough that I just wanted the extra flexibility

7:49

that balances sufficient enough to justify the costs.

7:51

And I kind of It

7:54

really did. I just hadn't thought about it for a while.

7:56

And I did think about it. I think, well, maybe I

7:58

should. And I can do this. And that's kind of. What's

8:00

Let Me Die But when you said and as

8:02

as is at risk as is a bit on

8:04

their you said swans on thinking of switching away

8:06

rights definitely give me pause for thought. And this

8:08

is that. This is. I guess that the crux

8:10

of. Of what. We're getting at here is there

8:12

is no black and white. Answer. For this

8:14

I think too many people are you definitely have

8:16

to have one or you definitely don't a it

8:18

will depend And there are pros and cons with

8:20

H so you've got one. Are you have on

8:22

for a while? Tell me why you don't think

8:24

it's worthwhile yet. Look I'm a short while. I'm

8:26

also not worth lox. Ah not I'm not like

8:28

to change them. Definitely thinking about out what I

8:30

want to go back to my very quickly so

8:32

I can is just I a friendship or not

8:35

the only option most in industry fans I guess

8:37

lottery tough on for me to give you the

8:39

option of choosing your own share. Such one it

8:41

I want to say you've store at the smaller

8:43

into the market so I'm. Reading just from the

8:45

events of It's Different, Have a different experience. Tell

8:47

me on their website they slice. You can make

8:49

your own strategy by investing in your choice of.

8:52

Shares. In the I six three hundred

8:54

exchange try to funds list investment in these

8:56

or term deposits and so that's the oceans

8:58

they give you the you win some of

9:00

the smaller into the market to map com

9:02

is outside the isaac for hundreds you'll get

9:05

your investment strategy doesn't suit that one earning

9:07

hundred companies only I have six they won't

9:09

let you invest exactly exactly us or and

9:11

for reasons are public Tennessee partly to strip

9:13

took off pullback that the current a little

9:15

bits they don't try is yeah tried these

9:17

in the moment as you would on com

9:20

sec or your i broke all right you

9:22

does. When you press the button that they

9:24

make the tried for you at the profiling

9:26

bras yeah guys are their platform in the

9:28

face on grayling that riot and spray I'm

9:30

pretty sure the spreads on in your favor

9:32

realize it's I mean it's fine because I'm

9:34

not trading a I mean I'm buying and

9:36

I'm pretty much I very rarely to eat

9:38

things there. but but because of the facts

9:40

not done in real time and you can't

9:42

manage your own price, illiquidity or whatever on

9:45

the front is gonna go make the simple

9:47

for awesome friend members. ah that the the

9:49

process exactly choices if it dies it another

9:51

try.on this thing anyone as. it did the movement

9:53

of those of us process that the of the

9:55

influx of i saw some of them and a

9:57

fortress i might cause frankly if if it does

9:59

not members all want to place a trade, they

10:01

kind of roll them all up and say, oh

10:04

hang on, we got to buy this many shares of that

10:06

company. It doesn't trade very often or it's too small or

10:08

whatever. So there's reasons they do it, which is, as I

10:10

said, partly internalistic, partly just structural in terms of the way

10:12

they do these things. So,

10:15

you know, I guess for me, I

10:17

went to an SMSF because I wanted control. I wanted

10:19

to choose what to buy, how much to pay, all

10:21

that kind of stuff. And I think

10:23

that still makes a whole lot of sense.

10:25

And that's for me too. Yeah. Right. And

10:27

that's the most attractive part of it. The

10:29

paperwork I use, eSuperfund, there's others out there.

10:31

The paperwork's relatively mine. There's not a lot

10:33

to be done. Again, because I got shares

10:35

if I had managed funds or physical assets,

10:38

add some work, but that'd be added either

10:40

way. You can't have your own physical

10:42

assets in an industry starting fund or a retail

10:44

fund, right? So you need to have an SMSF if you

10:46

want to own property or art or cars or wine or

10:48

whatever else or, you know, gold

10:50

bars, I suppose. But it's one

10:53

of those things that I

10:55

don't. I only own shares. I only want to

10:58

own shares in my super fund. So it's one

11:00

of those things where I went for control and

11:02

I went for choice and I pay a yearly

11:04

fee. It's maybe a thousand bucks, I think, for

11:06

audit and accounting. But

11:09

I don't really do much. I'm not saying they rip me off,

11:11

but they don't do much of that money. It's all automated, right?

11:13

I'm a very, very profitable customer for them because I do

11:15

very little. I have very little in terms of range

11:18

of assets. It requires bugger all time and effort for them

11:20

at their end to do stuff. They have to pay filing

11:22

fees to ASIC and I pay those of course. But

11:25

for me, it's kind of, I'm looking at it going, oh

11:27

man, like for all of the hassle, all the drama, I

11:30

fill out the forms, upload this. It's not that much work,

11:32

but life's busy enough. And I'm kind

11:34

of thinking, if I could find a

11:37

low cost super fund where I could just, I want

11:39

to make my own choices. I still want to buy

11:41

and sell the shares I want to buy and sell.

11:43

So that's a non-negotiable. But as you

11:45

say, between member direct or Vanguard have this new

11:47

personal super thing where they can, you kind of,

11:49

it's more like a brokerage style account. It's not

11:52

exactly the same, it's closer. At some

11:54

point I'm looking at this going, it's a bit expensive right

11:56

now and it's a bit early and it's a little bit

11:58

clunky, but yeah, I can imagine it's something. point if

12:00

I didn't have to do a single form or sign

12:02

a single document and just gonna go thanks guys appreciate

12:04

looking after it for me here's the fee. I don't

12:08

know man I'm not entirely sure that

12:10

I want to come back and move. If I

12:12

was gonna do and by the way I think this

12:15

is probably the best

12:17

way to do it and I probably

12:19

should be doing this but if I

12:21

was going to just buy like say two or

12:23

three very broad based low-cost index ETFs

12:25

that's exactly the way to do it right like

12:27

definitely don't set up an SMSF in that context

12:30

you've kind of got everything there is you said

12:32

it right at the beginning if you

12:34

want that added control that's where

12:36

it sort of makes sense and there's no

12:38

point setting it up and then buying three

12:41

ETFs like that's just that's just

12:43

madness. And that's exactly

12:45

and that's kind of the and look

12:47

it up I have

12:49

an Australian super account default

12:52

one for work it's the way we their life insurance paid

12:54

work wise it's all kind of roll up with that in

12:56

a minute too but and

12:58

I could just do that I could just develop money in Australian

13:00

super and frankly again I would be overly disappointed most of my

13:02

purchases are probably in the ASX 300 I own some ETFs I

13:06

own some listed investment companies you know the way I invest

13:08

there's some art by the way so I don't I

13:11

don't want to artificially limit my choice but

13:14

at some point I'm gonna do the maths and go well if

13:16

the small companies are I don't know what they are might call

13:18

it 20% of my portfolio or something in super and

13:21

I'm paying a thousand bucks a month a year sorry

13:23

for the privilege of that the paperwork I'm like what's

13:25

the what's the increment on the stuff outside the 300

13:27

or the ETFs list the investment companies how much can

13:29

that really move by and at some point I'm going

13:31

to look at it and go I can

13:33

I can happily trade off you

13:35

know that the returns on the smaller portfolio maybe

13:38

for the ease and simplicity

13:40

and just take it away thanks very much by the way

13:42

I should say too and this is not a

13:44

scary not a big deal but there are some really

13:47

significant penalties that can

13:49

apply and obligations that you have as

13:51

a trustee of a self-managed super fund

13:53

it's kind of it's it's it's unnecessarily

13:56

complex I suppose or maybe it's

13:59

necessarily complex But as

14:01

a Superfund member, even

14:04

if I'm the same person, my roles as a

14:06

member of my roles as a trustee are very

14:08

different. I have to convince the ATO and anyone

14:10

else who asks legally that I have run the

14:12

fund appropriately. I've got to make sure everything's done

14:14

on time. I've got to make sure the investment strategy is up to date.

14:16

You can't just mail it in. You can't say, well, I'm okay. I think

14:18

I don't have to do it. There

14:21

are very real obligations that do impose

14:24

potential penalties on people. Now, innocent mistakes,

14:27

not so much, but

14:29

meaningful mistakes or consistent

14:31

mistakes or ongoing problems,

14:33

the ATO is going to knock on the door and say, dude, you're

14:36

not doing this properly. So it's

14:38

one of those words, well, it's fascinating. You're

14:40

moving potentially one way, I'm moving potentially the

14:42

other way. It's just because of all that

14:44

hassle and drama and everything else, I'm

14:48

pretty lazy by nature. I hope it's the easiest option. So

14:50

I'm not going to pay more in fees than I have

14:52

to, but I'm also not going to,

14:54

as you say, if you only

14:56

got three ETFs, an SMSF is not necessary. Now, my

14:58

portfolio is more complex than that. I've

15:01

got 20, 22-something companies, I suppose, including ETFs.

15:04

But yeah, at some point, I'm like, well, SMSFs

15:07

only exist really, I mean, originally for

15:09

kind of property investors, frankly, and the

15:11

opportunity for in-share market investors

15:13

and other assets, I guess, was to say, well,

15:15

we'll jump on that bandwagon. I

15:17

like control. I like having my own choices. But

15:20

at some point, it's like, if I

15:22

can get most of what I need inside a simpler

15:25

package, you know, I

15:27

think that's okay. Yep.

15:29

Yep, absolutely. So I mean, horses for courses

15:32

is the takeaway here. But

15:35

yeah, I would summarize as if you've

15:37

got, and again, I'll just go with, let's

15:39

dig in on this

15:41

a bit. So again, I've heard from numerous sources

15:43

that you could set up an SMSF and

15:46

put $1 in it if you wanted to. Yes. Because

15:48

it's going to cost you a lot more each year.

15:51

But you can. But you hear this bigger, you know, is it

15:53

$200,000, is it $250,000? Sort

15:55

of around there. And that

15:58

is to account for that administration.

16:00

fee which you want a

16:02

decent net return after all

16:04

is sort of said and done. And

16:07

where they come up with that number is

16:09

based on historical returns for a mix of

16:11

different asset classes. So

16:13

if you were going to

16:15

be more conservative, you

16:18

would probably want a higher pool of

16:20

funds to work

16:22

with because you're trading

16:25

off returns for safety. If

16:27

you want to be more aggressive and you're

16:29

confident in that you could get better returns

16:32

than perhaps what you have been getting with

16:34

the typical 60-40 whatever standard portfolio, you could

16:36

probably make the justification at 100, 150K, I

16:38

don't know. But

16:41

if it's getting to the point where it's

16:43

sort of like it's that much

16:45

of a line call, probably not worth

16:48

it, right? Again, we've often talked about it

16:50

on this podcast with investing, perfect being the

16:52

enemy of the good. This

16:55

comes up a lot in mailbag episodes because we've got

16:57

really smart listeners who really think about this stuff but

16:59

it's kind of like you're all generally right. When

17:03

you're in the general ballpark, there's no wrong

17:05

moves really so to speak.

17:07

There's a really wrong moves, but once

17:10

you sort of get to past all

17:12

the nonsense. And so yeah,

17:17

I would imagine if you've Scott Phillips, if you're

17:19

$10 million in super and you've got a really

17:21

great accountant, it's very proactive and those costs are

17:23

just a rounding error, why the hell wouldn't you

17:25

do it? If you're someone who's got 50K and

17:27

maybe you're very hubristic with some of the returns

17:30

and stuff, like, yeah, you could probably still make

17:32

the case for it, but be aware that you've

17:35

moved further along the risk spectrum. So I don't

17:37

know, hopefully all of that is something to, is

17:39

a bit of food for thought for anyone who's

17:41

thinking of doing it. Yeah, I hope so. And

17:43

just quickly, don't feel you're

17:46

missing out if you're not at that

17:48

stage yet. Like, just keep

17:50

with plan A, right? And just continue

17:52

to put whatever you can into it.

17:56

And when it grows to a right amount and

17:58

you're ready for that flexibility. you're honest

18:00

with yourself and the administration and having to

18:02

select your investments and manage all of that.

18:05

That's the thing. Then you

18:07

can make that change, right? Yeah, you absolutely can.

18:09

There's probably a, I don't know, look, if you're 20 and

18:11

you were a finance

18:13

whiz and you saw yourself running an SMSF for

18:15

the next 50 years, you might even swallow the

18:17

early costs because you get the tax advantage compounding

18:19

for the whole period of time, you never have

18:21

to cash out and change. There might

18:23

be some slight benefit maybe depending on the assets

18:26

you hold and how frequently you buy and sell.

18:28

But broadly speaking, as you say, generally, ride

18:31

is close enough, wait till you've got

18:33

enough. In terms of fees, it's all still a bit

18:35

of a how

18:38

long is the piece of string question? Mine,

18:40

I think cost me a thousand bucks here, might be eleven hundred bucks

18:42

here now, everything's going up with inflation. You

18:45

want to think about what proportion of

18:47

your fund you want to incur in fees

18:50

because the reality is, this is by the

18:52

way, got social implications and other things. So

18:54

there is that. But if everyone with

18:56

a large, a bit like private schools, if everyone with a large super

18:58

balance pulls out of the industry funds, those that are

19:00

left to have to pay more as a proportion of their fees for the

19:02

fixed costs. So there is some kind

19:05

of, there's probably a word for it, but there's

19:07

some erosion there. At

19:10

some point, if my super fund gets big enough, eleven

19:12

hundred bucks as a proportion of my super fund

19:14

becomes smaller than the cost of

19:16

being involved in a completely spread cost industry

19:19

fund or retail fund. Because

19:21

I've got a big balance, you've got a small

19:23

balance or vice versa. If I got a small

19:25

balance, I mean, it's been much, much cheaper for

19:28

me to stick in a large fund, specifically because

19:30

those costs are defrayed across a much larger number

19:32

of accounts. So there is real

19:34

value there. The bigger your fund, the longer you've been

19:36

doing it, all that kind of stuff, it

19:39

does absolutely make more sense because

19:41

those, one of the great things about

19:43

SoftManage Super, I will say, and this is again, on one

19:46

level, selfish, there is a social reality. So I don't want to

19:48

kind of ignore that. But for

19:51

me, a fixed cost super fund means

19:53

that if I put two zeros on my super

19:56

fund, it costs me no more to administer.

19:58

As my super fund. grows over

20:00

time, it comes in literally the same dollar

20:02

amount. So my administration costs as

20:04

a percentage of my fee balance or fund balance,

20:06

sorry, fall over time. That's

20:09

a huge benefit. Think

20:11

about, you know, 1% of $100 and 1% of a million

20:13

dollars versus paying 100 bucks no matter

20:15

what. Okay, if you got 100 bucks, 100% of your

20:18

value, you got a million dollars, I can't do the maths in my head,

20:20

that's a tiny fraction of your value. So you

20:22

know, just to use some extreme examples, it makes

20:24

a whole lot more sense as your balance grows

20:26

financially, potentially to find a

20:28

fixed fee solution. I don't know of

20:30

any other funds that offer it because it's not really

20:33

in their interest to do so. But

20:35

as I said, at some point, it becomes that private school,

20:37

public school problem of who's left and what's left for them. That

20:40

is maybe something governments have to address as

20:42

and when self-managed super keeps growing. But

20:44

for now, there is a definite benefit

20:47

as your fund gets larger to go to

20:49

a fixed fee solution, which is almost entirely,

20:51

as far as I know, self-managed super. Yeah.

20:56

I have mixed thoughts on the idea

20:58

of having it all

21:00

consolidated in government run. On one hand, I

21:02

think it makes a huge amount of sense

21:04

because there's just so much waste and overlap.

21:07

And I mean, the economies of scale with

21:09

funds management is insane if you think about

21:11

it, right? So if you're taking 1%

21:13

of fees and you're managing $200 billion,

21:16

it doesn't sound like much, but it

21:18

sort of really sort of adds up

21:21

and the amount of work that's required, particularly

21:23

when you've still got very vanilla default kind

21:25

of options. They're

21:27

not highly specialized active

21:30

strategies here. These are just largely index

21:32

tracking and different buckets of asset allocation.

21:35

That work scales incredibly easily. So it

21:38

should be the kind of, in theory,

21:40

it should be the kind of business

21:42

that probably makes

21:44

sense to have somewhat of a government controlled monopoly,

21:46

which is purely focused on just like here's five

21:49

options, right? I don't care who you are. You're

21:51

going to find one of them. It's like they

21:53

can do other things outside of that. But

21:55

this is going to feel this is going to

21:58

cover all of your needs. And basically we. can

22:00

run it, you know, charging you,

22:02

you know, 10 basis points or five basis

22:04

points. And that easily covers out. But but

22:06

when you add up the amount of money

22:09

that the Australian financial, well, the finance sector

22:11

is a component of how GDP, I don't

22:13

know what it is, but it's embarrassingly large.

22:17

And and you could make the

22:19

case, I will make the case that I don't think a lot

22:21

of value is added for almost

22:24

literally by definition, that the

22:26

total financial market return is

22:30

no matter how many people work in it. I

22:32

mean, yeah, maybe a few are creating genuine value

22:34

by creating new investment opportunities for people. But you've

22:36

got to kind of think all

22:39

of the companies that benefit from or a

22:41

part of the financial services sector, how many of

22:43

those actually create value that wouldn't have otherwise been

22:45

there, almost none by definition, because companies still do

22:47

their thing and property still get built and find

22:50

wine gets drunk or bottled. The

22:53

layers of the layers of kind of consultants and advisors and whatever

22:55

that go in there, including by the way, you and me, you

22:58

know, the layers of kind of help in

23:00

quotes, have must attract from returns

23:02

by definition. Yeah, yeah, absolutely. I mean,

23:05

but as I said, I go back and forth on it.

23:07

The other one is is that when you have a centralized

23:10

government bureaucracy, bureaucracy running it, maybe

23:12

you don't get the best outcomes.

23:14

The free marketer inside me

23:16

thinks, oh, no, competition is good. I actually land

23:18

it's similar with banks and stuff. I know the

23:21

banks really push back on this, which tells you

23:23

all you need to know is the idea of

23:25

portable banking numbers. I imagine that if what you

23:27

did as a government you just made it just

23:30

virtually frictionless for you to press a

23:32

few buttons and switch funds that

23:36

in that scenario, I say, let the free market

23:38

have it, you know, have at it, you know,

23:40

and the reason why there is so much inertia

23:42

and so much grift and fat in the system

23:45

is because it's a pain in the backside to

23:47

change and we just slightly changing mortgages or bank

23:49

accounts. It's not impossible. It's not even really that

23:51

hard when you think about it, but it's

23:54

painful enough and the Benefits

23:57

aren't obvious and immediate enough for

23:59

you to. The doing it

24:01

so I'd such or yes,

24:03

that's that's it. So either

24:05

over and very effectively administered

24:07

government, central og a super

24:09

of investment body arm or

24:11

a are a much. More.

24:13

Frictionless free markets such where I have by

24:15

land I can almost guarantee and again defensive

24:17

runs and about their run. Are you going

24:20

to allow for politicians by politicians but I

24:22

can almost guarantee that I that us government

24:24

run fun would give you better results. Because

24:26

of skiles and again I'll I'll say and

24:28

because of so It's important to you design

24:30

these things as always or India is expected

24:33

to sign my career. It's if they haven't

24:35

covered the rousing glory and wells and or

24:37

know I suffer more fun as on spectacularly

24:39

well so there are examples and and of

24:41

easily fall us getting is my out open

24:43

for the new into the options are I

24:45

would I would effectively just sites you pull

24:47

the money you've run it in a preset

24:49

range of a T S run by Van

24:52

Gaal Blackrock I really care about it. No

24:54

answer. Is that are no lies that

24:56

know consultants or now advises, don't hosts and

24:59

manages. There were no fun selectors, there are

25:01

no. Whatever the pipe year old you literally

25:03

do is take a dollar from hundred page

25:05

and put it in the future fund. Which

25:07

is or yo the women not actual because of a

25:10

had them the fishpond a bit. That's why I don't

25:12

want to be fun while I seek it. because yes,

25:14

I'm Debbie the described pension fund exacerbation Fonda with you

25:16

call it's and you'd is. I would take it all

25:19

up and it goes. As. A

25:21

Thirty Percent Streisand say as Fifty

25:23

Percent Usa is to is a

25:25

global say as.it. At let ever

25:27

And and to stupid you buy Vanguards

25:30

Zero point zero four percent Monday a

25:32

fee for Us stocks and you piling.

25:34

Up. At and I imagine imagine it was a

25:36

lot of of on by miles if if was

25:39

almost ran governments if a to be half one

25:41

strand supercharge as they are administration two point five

25:43

twenty five bucks a week and point o four

25:45

percent of of the basement say like that's still

25:47

get it could it could not be but yeah

25:49

it has to be better off now if you

25:51

like governments he has featured on still has to

25:53

my mind why to me as a consultant and

25:55

managers and funds and on the fans on a

25:58

rubbish I think they're trying taxpayers get did. That

26:00

because yeah orthodox find it says oh you

26:02

did all these things and so we dollars

26:04

things but yeah I could or I will

26:06

I could I will absolutely everyday litter guarantee

26:08

that you could run a government run one

26:11

better and cheaper if you do the appropriate

26:13

the Arctic that would be these it into

26:15

the my will come up with life portfolios

26:17

ever a beer when I run a right

26:19

I am not not suck specific selection by

26:21

just sort of like that. it's it's only

26:23

going to have a selection of buckets. You

26:26

know there's a similarly in equities yeah us

26:28

equities emerging market. I were gold, whatever. Whatever

26:30

I would, it's whatever is going to be

26:32

and until you can always argue the toss

26:34

it final level of detail but it's broadly

26:36

not gonna be somebody. I read your salary

26:38

the you know exactly. I don't know why

26:40

I just tell us what is done yet

26:42

like it's if you do it for long

26:44

term investor which is the point you don't

26:46

incentive based on current Mosque editions or Bassett

26:48

process. Oh wise I will decide to forward

26:50

over forty five years. And. At that

26:53

we need to that that might lead

26:55

to a sweet. I got a slight

26:57

not too far but a slight tangent.

26:59

alternate life in Scotland's.dot switch off table

27:01

saw that best them as if some

27:03

lives insurance a hospice you hit The

27:05

big deal for helping you slaves were

27:07

was it would even quick bite rice

27:09

right it's of i I've says we

27:11

have arthritis podcasts Atlanta was his but

27:13

they more than on. I've

27:16

been, I've been toying with can fully my life

27:18

insurance. Guess and.

27:21

It's. One of those really we'd we'd we'd things.

27:23

now I don't I was. I'm in a different

27:25

position to most people. Are

27:27

ago as a supervisor. Massive. I'm still working.

27:29

done be wrong but at some point so

27:31

for my own us off from first principles

27:33

that was insured I think is really really

27:36

really important source I'm gonna cancel. I don't

27:38

I want to be really. Responsible.

27:40

And courses and and really clear outline

27:42

muscle such limited that know going to

27:44

my personal situation. Life. Insurance

27:47

is spectacularly right. He's.

27:49

You need to make sure your family we

27:52

okay if you're hit by the proverbial bus

27:54

tomorrow. so if i'm

27:56

twenty five with three kids under

27:58

three my part does not work, you're home

28:00

looking after the kids and I get hit by a bus, the

28:03

family's screwed, right? If I'm 65,

28:06

the kids are growing up

28:08

and left home, I have a million dollar

28:10

superannuation balance and my partner's still working full

28:12

time, then would a life insurance payout be

28:14

nice? Of course it would. Maybe she might

28:17

stop me for the life insurance, not

28:20

sure. But assuming not, does

28:22

that idea of, would it be nice? Yes.

28:25

Would it justify the premiums I might pay?

28:27

Well, that gets a bit more difficult because

28:29

I don't have independence. Again, the money's better

28:31

than no money, but how much do I

28:33

pay in premiums between now and then to

28:36

try and ward

28:39

off that risk? At some point, there's

28:41

a slighting continuum. At some point you say the

28:44

family is going to be okay. And so now any

28:46

money I'm paying on life insurance is

28:48

not necessarily the ROI or the return on investment it looks

28:50

like. And so I guess

28:52

I wanted to outline that because I really, really don't

28:54

want anyone under 30 with kids cancelled. That's a good

28:56

point because I think you'd ever hear anyone say, you

28:59

know, you don't need it. But well, if you're at

29:01

the point where you're not buying green bananas anymore, right?

29:03

Like you're 98, you're a heavy

29:05

smoker and you love like base jumping.

29:07

You're probably going to give it up.

29:09

Yeah, I don't know. So I think

29:11

there's almost certainly, I've

29:14

done no research, there's almost certainly not enough people

29:16

under 30 with life insurance and there's probably too

29:18

many people over 50 with life insurance in my

29:20

humble opinion for exactly those reasons. But

29:23

so I find myself not over 50 yet, but not that

29:25

far away from it. I

29:27

find myself having that conversation with myself at the moment of,

29:29

and by the way, every year your insurance premiums go up

29:32

because frankly, you're more likely to die and that's completely appropriate.

29:34

If you're 98, your life insurance premiums probably half a million

29:36

dollars a year. If you want to insure yourself for a

29:38

million bucks because the insurance is going to have done the

29:40

work and gone, okay, it's probably not going

29:43

to make it through this year. If they do, they're not

29:45

going to make it through next year. So if I'm going

29:47

to pay a million bucks out, I'm going to make sure

29:49

I get, you know, a premium that reconciles that. But

29:52

at some point, you know, as I get older, my insurance

29:54

premiums are going to keep going up and at some point,

29:56

my share portfolio gets larger and there's, you know, the company,

29:59

the family. is in better

30:03

financial straits, right, of time so that if

30:05

I was to fall off the perch tomorrow,

30:09

you know, we have less, the families have less discretionary

30:11

income, so that's still a thing. But

30:14

how much insurance policy premiums should

30:16

I pay every month for

30:18

that privilege versus putting that money, for example, aside of putting

30:20

in the shares? You know, I'm not buying shares with it,

30:22

but I'm, you know, I'm paying for

30:24

the future one way or the other. I'm investing in

30:26

the future of my portfolio or I'm investing in the

30:28

chance that I get hit by a bus. Now,

30:31

if I don't get hit by the bus, then I'm wasting that money, I'm just going

30:33

down the road and never get a return on it. But

30:36

eventually, I might, you know, I don't

30:38

know, I might touch wood to diagnose with cancer tomorrow or, you

30:40

know, fall down a flood of stairs or, you know, the wife

30:42

knocks me on up, I'm kidding. But,

30:44

you know, those things can happen and it's

30:47

a real, it's a, it messes with your head,

30:49

mate. There's a phrase for it that

30:51

I won't use in a PG-RED podcast, but it messes with

30:53

your head because you think, well, I'm paying

30:55

a lot of money every month and that's just really annoying.

30:58

And if I had I could invest in shares, but

31:00

I also think, am I not, I

31:03

don't necessarily have a jinx, we all kind of do

31:05

a little bit sometimes, sometimes I think, but, you know,

31:07

am I being a little bit too reckless saying, hang

31:09

on, I'm saving X hundred dollars a month. But

31:12

if I do happen to fall off the perch, Peter,

31:15

I think I've used about every death metaphor so far, fall

31:17

off the perch. If I do

31:19

fall off the perch, you know, I'm doing my

31:21

wife and family out of a six

31:23

figure payout and it's like, that's, that's

31:25

a really difficult thing to try and

31:27

reconcile. Yeah. Well, I mean, you

31:30

don't, you don't know, right? And

31:32

like, exactly. If you

31:34

knew the date of your death, this is

31:37

a very easy, very easy conversation. But yeah,

31:39

either way I think about it is I

31:42

ask myself, what's the worst

31:44

case scenario and am I happy with that?

31:46

So like, just take your situation. Like you

31:48

get, you fall off the perch and then get hit by the bus on the

31:50

way down. So it's your metaphor.

31:53

Exactly. And you

31:55

don't have insurance. So the family misses out

31:57

on whatever they pay out to on your

31:59

grand. or something like that and they

32:03

would regret not having that money but

32:05

are they on the street? No,

32:07

they're not. Right, right. And again

32:09

for some people it would be well actually yes well

32:11

I don't know how we would get by then it's

32:13

sort of like I think when that's the situation or

32:15

whatever that situation wherever that needle is for you on

32:19

that gauge then yeah because

32:21

you don't know but it's just insurance is always

32:23

a thing you regret paying until you need it.

32:25

It's the most expensive thing the world tilts the

32:27

cheapest thing in the world. And then it's like

32:29

thank goodness we've got this so but

32:32

again it's like yeah there's different kinds

32:34

of disappointment but the disappointment of oh

32:36

jeez you know Scott's no longer around

32:38

and we

32:42

but we don't even have you know an extra 200k it's

32:45

just or he's got around and I guess

32:47

we're living in mum's garage from now on

32:49

or something like that there's yeah

32:53

and there's no I guess it's like

32:55

the SMS thing it depends is the

32:57

frustrating answer with you. Yeah I

33:00

think life insurance is

33:02

a very quick aside I was chatting about

33:04

life insurance with someone the other day it's

33:08

it's the best part of insurance because it is

33:10

the most predictable. Yeah that's right. So I don't

33:12

know when you're going to die you don't know

33:14

when you're going to die but I

33:17

know with extraordinary precision your

33:19

odds of dying. Yes right.

33:23

Right like the guarantee the actuarial tables

33:26

when you're dealing with large numbers are

33:28

so scarily accurate right so that

33:30

they the maths behind

33:33

life insurance is fascinating it's just guaranteed that

33:35

they will they will bring in more than

33:37

they pay out if they're running it effectively

33:39

and we could have a whole conversation about

33:41

that. It's very different it came up because

33:43

of talking about climate change and this kind

33:45

of stuff and the impact that we've seen

33:48

to those that ensure against weather

33:50

related damage and stuff that's different

33:52

because I don't I mean

33:54

again I've got models I've got actuarial yeah

33:56

sort of I've got data that's

33:59

there based on the past. But if things are

34:01

indeed changing then it's sort of like those models

34:03

all sort of go out the window and the

34:05

mass breaks down And maybe I end up having

34:07

to pay out far more than I've brought in

34:11

The reason why and just to go full circle

34:13

the reason why health insurance Life

34:16

insurance isn't as the bigger gravy train

34:18

as it otherwise Potentially

34:20

would be because it's so competitive at the

34:22

same time so they run on very thin

34:25

margins And I'm slowly meandering my way back

34:27

to Warren Buffett because he hasn't had a mention We

34:31

brought into the picture What

34:33

they do have is a float and the float is

34:35

all of the money that they collected They just hold

34:38

on to until they needs to be paid out, and

34:40

they don't just leave it in the in the vault

34:42

They invest that and if

34:44

you were like Warren Buffett, and you can

34:46

invest that really well that can be really profitable

34:48

in fact You can afford to run a very

34:51

very thin very marginal the marginal Marginally

34:54

profitable life insurance business

34:56

or insurance business as

34:58

long as you can invest that float to great

35:00

effect and As I

35:03

say that's way off topic Yeah,

35:06

but I do find I do find the insurance

35:08

industry fascinating, but I I Think

35:12

that they wouldn't watch What

35:14

you're saying to get out too much that

35:16

basically at a certain point you don't need

35:18

this if you're in a certain situation Well,

35:20

it's funny too right because to your point

35:22

the price is I mean and here's the

35:24

other thing by the way insurance people They make a

35:27

squillion dollars. They tend not to because they it's a

35:29

very competitive market And so if you

35:31

can't take the all the insurance Results

35:33

over the past and our 10 years I

35:36

would suspect there's a very modest incredibly

35:38

modest margin of maybe a couple of

35:40

percentage points Because they generally

35:42

they are complete each other you know the difference of

35:44

my buffer runs insurance He's not gonna be profitable

35:46

don't write it now if I AG or QBE or

35:49

one of the big insurers that actually we're gonna

35:51

have our Insurance float fluctuate by 10 or 20 or

35:53

30 percent a year and possibly all over the

35:55

place But trust us the investors go mad and so

35:57

these crucial imperative at most and this is by the

35:59

way way Buffett's so great at not

36:01

only buying businesses but running the ones

36:03

he runs is he just says,

36:06

look, don't, don't, I don't want, I don't

36:08

want predictable, steady earnings, you know,

36:10

don't, don't try to, to make

36:12

up for things if pricing is

36:14

not attractive, don't write the policy.

36:17

Whereas most insurance companies say, well, it sucks, but I guess you got to write

36:19

the policy anyway, because we've got to have market share, we've got to keep up,

36:21

we've got to do this, got to do that. And

36:23

so the, the issue is imperative takes over. But

36:27

the reality is on life insurance, I would suspect I

36:29

haven't done the numbers by, by insurance type. But

36:31

largely that kind of, as you said, they know

36:33

the math, right? So they say, well, this may

36:35

be going to die this year and in this

36:37

age package. And so for the average 55 year

36:39

old, I've got to collect,

36:41

you know, premiums of this much if the pay is

36:43

that much, it's just math, it literally is just the

36:46

actuaries are really smart, but the, the other is

36:48

just still math. And so that idea of let's

36:50

just work this out, I think

36:52

is, is, is kind of really important

36:54

in that context. That's where

36:57

it makes that that's why frankly, I'm having

36:59

second thoughts about my own policy and not

37:01

canceling it is because if it

37:03

is priced roughly appropriately, then I'm kind of

37:06

paying exactly what I should be paying by

37:08

sort of eventual payout, like that kind of

37:10

almost by definition, right? And as a society,

37:13

every 55 year old, 28 year

37:15

old 32 year old with life insurance is paying the

37:17

right amount for their cohort, because certain numbers have been

37:20

going to die. And so as a group,

37:22

but you know, the money that they all pay gets paid

37:24

out with a little bit for the insurance companies

37:27

profit, but not all that much. And so

37:30

there is, you know, if it's massively missed price, so

37:32

I'm getting screwed on this one, this is not worth

37:34

money, not worth paying, but I'm kind of like, well,

37:36

it's kind of statistically probably exactly what I

37:38

should be paying. If I wanted to have

37:40

that payout, the question for me is, not

37:43

do I want the payout, but is the payout likely to

37:45

be statistically, sorry, necessary. And

37:49

that's why it's such a mess because you're betting

37:51

against the insurance company, which generally is not a

37:53

good idea. Yeah. Yeah. Yeah. So

37:56

I just put a bow on up by sort of saying

37:58

I totally think your rationale is right. But I would probably

38:01

guess it for the majority of people keep

38:03

your life insurance. Yeah, they could you know

38:06

It's just depending on your age and circumstances obviously

38:08

But it is it's one of those things as

38:11

we said you don't need it until you need

38:13

it and yeah shop around and all that Kind

38:15

of good stuff, but maybe this is something else

38:17

that they should be you could make the case

38:19

of a centralized sort of government run Pooling

38:23

is by definition exactly that right I mean government didn't

38:26

have the facilities do this years ago when they're all

38:28

the first friendly societies and that kind of stuff started

38:30

up, but I mean you're right at some point

38:32

it's you know, that's kind of Yeah,

38:35

there is it's the ultimate pooling there is no need

38:37

for anything else as long as again as long as

38:39

run properly I'm it's a

38:42

big it's a big long as that's where I always

38:44

hesitate But yes in theory, you know, I'm kind of

38:46

what they were you they used to be I mean

38:48

GIO is government insurance office They used to write and

38:50

they privatized them because they want to sell off and

38:53

spend the money on buying elections But

38:55

but you know it makes it I'm you

38:58

don't get super before and one fund and many

39:00

in free marketing I I've

39:02

always kind of liked people don't like the states right the

39:04

idea of having states It's a bit of a tangent not too much

39:07

Because like the sexual a bureaucracy in Australia is really

39:09

small and whatever and I kind of think

39:12

my general response is Yes But at least the

39:14

major newspapers and television stations do a decent job

39:16

of keeping state governments honest if you got only

39:19

local councils and the federal Governments we

39:21

have no oversight of those federal those local councils

39:24

Like who knows what the local council is doing you should

39:26

have it's not you imagine having giving them more power and

39:28

not having a state government like oh, that's scary but

39:30

but what's up the other like about states though and

39:32

thinks about think about law enforcement education or

39:35

That kind of stuff there is kind of in

39:38

Australia at least eight natural experiments going on any

39:40

one point in time Because

39:43

we have those eight states trying to do the

39:45

best for their own citizens And

39:47

so you kind of get to see and so part

39:49

of me is like wouldn't be she was one set

39:51

of row rules Yeah, one education system. Yeah one lot

39:53

of police. Yeah, cuz that you know, what why do

39:55

you put a good point you make? Yeah, I really

39:57

like it's been any fragile too because if there's corruption

40:00

like the Queensland issues years ago, you have

40:02

someone for some other state come and you

40:04

know kind of solve the problem. So there

40:06

is some benefit in that just from a

40:08

fragility perspective but even just a that natural

40:11

experiments I'd probably take the old insurance system

40:13

back I probably say you know what I

40:15

don't want one federal government one but I'd

40:17

probably take I don't know four or five state

40:20

or regional you know maybe you have to put

40:22

the smaller states together and maybe there's a victaz

40:24

you know maybe there's an SAAWI Northern Territory maybe

40:26

there's a coins and you stuff files or something

40:28

but a group of them or

40:31

a subset of kind of government owned corporations

40:33

I think would do probably a much better

40:35

job frankly because I wouldn't have that institutional

40:37

imperative of right at any price you'd end

40:39

up with hopefully more rational reasonable pricing. It's

40:42

a competition of sorts it's a yeah I really

40:44

like that idea I think what you're getting at

40:46

there is obvious is well it's in the name

40:48

the United States of America right like they they

40:51

play that out to a much bigger degree

40:53

there is vast differences that was what the

40:55

times that I've been to the US that's

40:57

always what struck me I mean Australia I

40:59

love it it but it's yeah

41:02

I don't know I might I might annoy some people here

41:04

but I don't know I can meet someone

41:07

from from to Wumba from

41:09

Perth from Adelaide from Melbourne

41:11

like we're all we're not

41:13

that far apart I would say you

41:15

know there is an Australian miss that

41:18

is anyone

41:20

outside of Australia would struggle to guess where you

41:22

were from within Australia just by having a chat

41:24

with you but you know a Texan when you

41:26

meet a Texan you know someone from California when

41:28

you know you're nothing like that was the thing

41:30

that I just thought wow there is really a

41:34

difference there and they have very different tax

41:36

systems and incentives and that and it's a

41:38

good thing it they

41:41

are in a competition of sorts yeah

41:43

but for talent and people because if

41:46

you're living in I know

41:48

downtown Omaha and you look across at the

41:50

next state my geography is terrible so I

41:52

don't know And

42:00

you wait a second, our rate of

42:02

tax is lower, we get more benefits

42:05

in whatever type of form, you'll move

42:07

there. And like that key, it's

42:10

a sort of a free market check

42:12

and balance, I guess. Mate,

42:15

you're not that far wrong, but you're miles out.

42:18

Omaha was 21 hours drive or 1300 miles

42:20

from Nevada. You

42:23

have to cross, you're starting very, very east

42:25

in Nebraska in Omaha. You cross the entire

42:27

state of Nebraska, then through Wyoming, through the

42:29

top of Utah and eventually you hit Nevada.

42:32

So, you're not my old home. Not in

42:34

the Volta, I can't say. Yeah,

42:36

exactly. I couldn't guess either, by

42:38

the way. I've always wanted to go to Wyoming. I think

42:40

it's the Yellowstone that's done there. At

42:42

least, so, yeah. I want to go and check that

42:44

out. I've been to Nebraska a few times, I've been to Omaha, you and I

42:46

have been there as well, which was awesome.

42:48

Can I just say, just another thing, tangentially

42:51

related to investing and the rest of

42:53

it is, America is

42:55

such a powerhouse, obviously, economically. In

42:58

so many different ways. Part of it, I think, is that

43:00

structure that they have.

43:03

But the other thing, the geography is, I think, fascinating

43:05

as well. Okay, well, this is more than a tangent,

43:07

it's a well off topic. When

43:10

you look at Australia, you get overlay Australia

43:12

onto the continental US and we're bigger, I

43:14

think. But

43:17

broadly speaking, it's just like there's 10 times as many

43:19

people. When you look at a satellite, like a nighttime

43:21

image of the US, it is just lit up from

43:23

coast to coast because there is fertile

43:25

ground, you know, all in

43:28

between that. The natural abundance and wealth that

43:30

they have is a big part historically of

43:32

how they came to rise to dominance.

43:37

And yeah, for Australia, we've done incredibly well. But

43:40

we don't have, there's a whole bunch of desert

43:42

in the middle there, right? And

43:45

I don't think it's going to be any time soon that

43:47

we're threatening the power and significance of the US. I

43:51

forget the book I was reading, but it's just like

43:53

the geographical advantage

43:56

slash disadvantage that you have. I think it was

43:58

actually first written about in Gundis, yeah. and

44:00

steel when you really want to go back and

44:02

look at the evolution of man and civilization and

44:04

the rest of it. But it is sort of,

44:06

why is it that this one area over here

44:09

were building castles and this other area wasn't? And

44:11

it largely, it's geography, right? Yeah, geography and weather.

44:14

And just to bring it, make it a bit

44:16

more relevant, we saw that even

44:19

more recent decades play out with the

44:22

coal seam gas boom in the US.

44:24

Fracking is what they called it

44:26

there. And here was

44:29

a country that was dependent wholly and

44:31

solely on foreign markets and not the

44:34

best friendliest of markets. You

44:36

know, it was an interesting relationship there. And

44:39

then this new approach was developed

44:41

and they became self-sufficient and a net exporter

44:43

of oil, right? Like it's

44:45

amazing. And again, you think, what are

44:48

the geopolitical strengths and advantages and economic

44:50

advantages in all of that? You spoke

44:52

of Norway before. Why is it tiny?

44:54

What is that? 6 million people? It's

44:56

a tiny, tiny country. It's like one

44:59

of the world's biggest sovereign funds because

45:01

of that advantage. And so it's

45:03

just, I feel as though this

45:05

is where I lament so much with Australia because

45:07

we are so, so gift despite that, you know,

45:09

agriculturally in the middle, there's a lot of desert.

45:12

We do have a lot of

45:14

very valuable rocks in our backyard.

45:16

And I think that why we

45:18

might like to sort of ascribe our wealth and

45:21

prosperity to our genius, I think

45:24

that explains a lot of it. Oh,

45:26

of course, yeah. I think, you know,

45:28

and the colonisation itself was an issue.

45:31

But you think about the waves of prosperity

45:33

in Australia. There's a whole lot

45:35

of land that was taken over to be used for

45:37

sheep grazing and send back what was then very valuable

45:39

wool. We found gold and for a while Melbourne was

45:41

the richest city in the world. It

45:43

was. And then iron ore, of course, becomes a big

45:45

deal because China wants a lot of it. Australia

45:48

is genuinely the lucky country for all of.

45:51

And I think that's important. I think, you know,

45:53

to bring back to investing a little bit, the

45:57

difference between luck and skill. One

46:01

of my favorite podcasts, I'm listening to Age of the Year, how I

46:04

built this. I go right into the

46:06

end of that every time you ask the successful

46:08

person who's built a billion dollar fortune, how much

46:10

your success is like and how much is skill.

46:13

And I always cringe because there's a group who say,

46:15

oh look, it's all luck. There's so many sliding doors

46:17

moments, of course it's luck. And the group say, no,

46:19

no, it's all my skill. If I hadn't noticed, I

46:21

wouldn't have made it successful. I built this myself. And

46:23

I just, I really cringe at

46:25

the hubris, I'm lucky with humility

46:27

and that kind of answer because everything

46:30

is luck. I mean, frankly,

46:32

the skill you were born with was luck. There

46:35

is your ability to work hard. The parents that you had.

46:37

Right, your ability to work hard, genetics and- Let it go,

46:39

just to make it work in. Yep, yep,

46:41

yep. So anyway, but yeah, even though I think, so the reason

46:44

I got a point on what trying to make on top of

46:46

that though was there's the stuff you're born

46:48

into, but the

46:50

genes that you have that determine your general

46:53

ability to do whatever you do, whether that's

46:56

skill with your hands, skill with your brain,

46:58

whether it's your ability to work hard, discipline,

47:00

that kind of stuff. Those who

47:02

want to tell themselves it's all about them, the

47:04

ego that says, no, no, I

47:06

made this all myself. Anyone could have done it,

47:08

I've just done it better than them. There

47:10

is just such a wrongheaded

47:12

approach because my

47:16

ability to work with numbers is

47:18

just a fluke of my brain wiring that

47:21

people who live next door to me don't have. That's

47:24

not, I didn't do anything to deserve that I'll get that. Have

47:27

I worked hard on other people? Probably not. There's

47:29

pros out there who are working all day every day, much, much

47:31

harder than me. There are people in my job who are working

47:33

harder than me. It's

47:35

just luck. I'm not saying you shouldn't be thankful

47:37

for luck and take advantage of the luck for

47:39

sure, go for it. But the hubris

47:41

of saying that's how it's all my skill is amazing. Back

47:44

to Australia, I think that's, your Norway example is

47:46

why I am so incredibly frustrated about the lack

47:48

of a sovereign wealth fund in Australia. Did

47:51

you see, very quickly, did you see that viral

47:53

video this week? Oh no. He

47:56

was doing that thing of Australia sold

47:58

more gas than. anywhere

48:00

else whatever and it was personifying

48:03

Norway and somewhere else they're saying like how

48:05

much how much money did you make? I

48:09

made three billion dollars like three

48:11

billion we made like 70 billion

48:13

dollars you know it's sort of yeah

48:16

despite our great abundance and good fortune and

48:18

yeah I guess the numbers sound big when

48:20

you hear them but what we are we

48:23

are giving that stuff away. Oh

48:25

man we're doing our best to wreck the luck we've been

48:27

given. Sorry

48:29

I interrupt you. That was no no no

48:31

that's good Jewish anyway. That's insurance. So

48:34

my... Yeah insurance that's where we started. I want

48:37

to underscore your point actually because I really really

48:39

really really really don't even listen to this and

48:41

cancel insurance they need. I think anyone with dependents

48:43

who would struggle if their income and their life

48:45

should have life insurance. Very very very very simple.

48:48

Let's just do as you say mate do the

48:50

maths. If your income stopped tomorrow what would

48:52

happen? Could your

48:54

family survive on what they otherwise make?

48:58

Probably not. Could your partner go back to work

49:00

yet? Do you want them to have to? Is

49:02

it worth putting a couple hundred bucks up on

49:04

insurance to make sure they can not do that?

49:06

I might not even be aggressive go back to

49:08

work. I am not working. I'm working already. We

49:10

need to do a constant pay rank in Melbourne

49:12

for God's sake. Exactly. So there's all that. So

49:15

I think absolutely. I will say just to add in

49:17

quickly my income protection insurance I reckon is also as

49:20

valuable as necessary as life insurance

49:23

for similar reasons. And particularly because

49:25

if you are struck and you can't work you've

49:27

probably got needs that they need to be paid

49:29

for. So you go from a net earner of

49:31

cash to a net user of

49:34

cash for your

49:36

family again whether you've got a partner who's working or

49:38

not with their already working full time or not. The

49:41

lack of income and the additional costs probably

49:44

add meaningfully to the burden for

49:46

the household. So for me I'm

49:48

less single. Total disability

49:50

again I'm no insurance expert. I'm certainly no medical

49:53

expert. That one I can kind of take or

49:55

leave. Sorry. Critical illness I mean. But

49:57

income protection insurance for sure. insurance

50:00

for sure. I'd have income protection up

50:02

until I stopped working, frankly. I'd have

50:04

life insurance until I had no dependence

50:06

or the store of wealth

50:08

that you'd be able to accumulate would take care

50:11

of those dependents should you... Let's

50:13

go drop off this mortal coil to throw a third one

50:15

for you. Just for your benefit. What's

50:19

your thoughts on income protection and other?

50:22

I've not looked at it

50:24

closely. I just went tick

50:26

the boxes that I thought were

50:28

appropriate and gritted my teeth. This sucks. It is

50:30

my benefit though of superannuation. Just quickly back to

50:33

super. A lot of super funds included by default.

50:35

People who are doing SMSFs, just be aware of

50:37

that because it may not be an extra... You

50:41

don't have to incur the extra cost, but

50:43

don't see it as a benefit. Look at

50:45

how much money I'm saving by changing. It's like, well,

50:47

you are, but you're dropping insurance policies, which is fine

50:49

if you choose to, but just

50:51

make sure you allow for the fact that if you want

50:53

to replace that policy, you probably should, as we just said,

50:56

that'll cost you more money than maybe you realise you're paying

50:58

now. For

51:01

me, I tend to be very much

51:03

just give me the most basic no

51:05

frills version. Because I know that I

51:07

would want the fully featured kind of

51:09

expensive insurance should I need it, but

51:11

I just want something. I'm really just

51:13

planning for the worst case here. Just

51:15

like no frills, lowest cost. I just

51:17

want a bit of cash should the

51:19

worst kind of thing happen. I think

51:21

like any industry, there's always the upsell.

51:23

Insurance companies are very

51:25

different from others. They have high margin products and they

51:28

have low margin products. And guess what? They want you

51:30

to buy the high margin products, which is why some

51:32

insurers will give you free

51:34

yoga lessons and a visit to

51:36

chiropractors. Don't get me started

51:41

on that. Whereas

51:44

kind of like, yeah, but they're

51:46

making more money from this by offering

51:48

these things. Just, I would go nice,

51:50

easy, vanilla, basic, cheap. That's me

51:52

in a nutshell.

51:55

Not just to insurance policy, exactly. We'll put on

51:57

your gravestones speaking of debt. Full

52:00

Money. For more, subscribe

52:02

to the free newsletter

52:04

at full.com.au/listener. Macon,

52:10

I want to change tech entirely, actually

52:12

talk about something that's coming up, but

52:15

not so much of the thing that's coming up, but

52:17

how we think about it. So with that vague introduction,

52:22

dividend aristocrats. It's

52:24

a phrase used in the US, frankly, because I don't have

52:27

them. We don't have any yet. And

52:29

it talks about the companies that have

52:31

been able to for 25 years pay,

52:34

I think it's increasing dividend. I think that's right.

52:36

Or having gone backwards. I haven't gone backwards. Okay.

52:38

Yeah, I believe. There you go. Over,

52:42

no, it increased apparently according to NASDAQ. Oh, increased. Yeah,

52:45

apparently dividend aristocrats, I'm quoting from the NASDAQ

52:47

website, are companies that are part of the

52:49

S&P 500 and have increased their dividends in

52:51

each of the past 25 years. And

52:55

that sounds really, really attractive. It looks like on this

52:58

list, there's probably 20 or so. It

53:00

doesn't. Okay. I'll read the names actually just

53:02

for a lot. No, we don't cover US companies

53:04

a lot. A lot of our listeners won't cover them, but you'll know

53:06

some of these names. 3M, Walgreens,

53:10

one of the US chemists

53:13

for mobs. What

53:15

else we got? Chevron, the oil company. Kimberly Clark

53:17

makes toilet paper and toiletries and stuff like that.

53:19

IBM, interestingly enough, Coca Cola,

53:23

Clorox, Exxon

53:25

Mobil, Johnson & Johnson. Yeah,

53:28

PepsiCo. There you go. I bet you those

53:30

as a basket of companies on a total

53:32

return basis have outperformed the market. So

53:34

here's where this is fascinating. I think I would

53:37

imagine you'd be right. Maybe I said that. Maybe

53:39

it was a surprise reveal. I would suspect

53:41

you're right. No, I don't have a reveal

53:44

for it. What I wanted to talk about, so Stolpat,

53:46

a business I own, we've talked about a lot, is

53:49

in line to hit that benchmark I think

53:51

at some point next year or so, which

53:54

will be a big deal. They'll talk about

53:56

it. The media will talk about it. We'll talk about it. I

53:58

will probably write about it. And

54:00

it's important. It's important. I should

54:02

celebrate that. Well, yeah, right. It's

54:04

very rare. Accept

54:06

that. So yes, and I have, I want to

54:09

be very clear. This is where it stops me

54:11

about saltpats at all. And even about dividend aristocrats

54:13

generally, there was a time way back in the

54:15

day, not that long ago, when General

54:18

Electric, run by Jack Welch at the time, who

54:20

was lionized as one of the great managers in

54:22

corporate America, used to beat earnings

54:25

forecast by one cent per share, almost

54:27

every single time. But you can't

54:29

do that unless you're managing the books, not cooking the

54:31

books. I'm not alleging anything wrong at all. But

54:34

accounting has lots and lots of different options and

54:36

different rules and different tools

54:39

you can use to increase or decrease earnings or

54:41

report earnings as you wish. Now, someone who's doing

54:43

it now, Jack Welch at the time was lionized

54:45

and told he was great and look, he's dependable

54:48

and they're reliable and gee, he's a great stock

54:50

because it always does this. And there

54:52

was kind of that sense and it wasn't unreasonable

54:54

for the first little while of this

54:56

is what we're looking for. You and I

54:58

might say in a different conversation, I

55:01

don't think actually the other of us would in the event because we're going

55:03

to talk about nuance and why not. But

55:08

that will be seen as positive and

55:10

good and desirable. And people who

55:12

are risk averse would say, that's exactly what I

55:14

want. I don't want volatile earnings. I don't want

55:16

volatile dividends. What I want is reliable rising dividends

55:19

over time so I can always take this to

55:21

the bank. And that's

55:24

not unreasonable to ask for. And

55:26

that's where it kind of creates potentially perverse

55:28

incentives for good people or frankly outright

55:31

fraud opportunities or not moving that bad,

55:33

just kind of take people for a

55:35

ride opportunities for those who want

55:37

to take advantage of that. If I

55:39

know as a business manager or a shyster

55:42

that regular reliable rising dividends is good and

55:44

people like it and I can

55:46

manufacture that, I can use that as a selling point. Now

55:50

again, as you say, we should want 25 years of

55:52

rising dividends except that in some cases,

55:55

it's probable one of those companies on this list of those

55:57

I've mentioned, those I haven't mentioned, some

55:59

of them. are probably paying more dividends than

56:02

they should be, probably jeopardizing the company's balance

56:04

sheet. Or sometimes not enough. Right. So

56:06

they can remain on this list. I

56:08

can't really afford to pay the dividend, but if I don't, I'm

56:10

going to drop off the list. If

56:12

I drop off the list, people won't call me a divider to restacrate anymore. And if they

56:15

don't do that, then people might buy my shares

56:17

and the share price might fall. So

56:19

I'm going to, and sometimes outright, you

56:22

know, mischievously, sometimes with every intent that I'll make

56:24

it back next year, because hope springs eternal, you

56:26

do that sort of stuff. That's

56:29

not just dividends. That's why I wanted to raise it. I want

56:31

to talk about it particularly was you

56:33

talked about kind of some red flags and

56:35

things that we think we like about businesses

56:37

that, you know, we

56:39

absolutely do. I want Saltpats to be a

56:41

dividend risk graph for the next 45 years. And frankly, it's

56:44

probably got a pretty good chance because internally the culture is

56:46

what it is. But if there's another business

56:48

that was doing inappropriate

56:50

things or a company, for example,

56:52

that had a volatile earnings stream or to pretend it had

56:54

flat dividends or rising dividends, sorry,

56:56

to earn a title and you say, no, they

56:58

just not paying enough dividends. You know, Dickadatta is a

57:00

great little business. I don't own shares. It

57:03

pays about 100% of its earnings as dividends. Why?

57:06

Because it doesn't need the cash, but earnings rise and

57:08

fall. So it's paying out five or five and up

57:10

to dividend yield. But it goes up and down

57:13

every year based on the earnings of the business.

57:15

Now, it'll never, unless it changes, be a dividend

57:17

aristocrat. But if it paid

57:19

2% every year and kept the cash

57:22

in an unproductive way just because it wanted to earn that

57:24

title, as you say, maybe it should be

57:26

paying more. Some of these companies should have paid more last year

57:28

and paid less this year. Shelly's

57:30

would be better off, but they didn't because they

57:32

wanted to keep this title of dividend aristocrat for,

57:34

I don't know, ego reasons. Maybe because they like

57:37

to be that because the shells think they want

57:39

that. It's just a

57:41

reminder not to dig a little bit

57:43

deeper. The second order impact of some of these things

57:45

are really, really important. Yeah. Yes.

57:48

And just to complicate it even more. Please. I

57:51

would say while that is

57:53

all true, the great thing about

57:56

these companies is that it.

58:00

Enforces a real discipline with capital

58:02

expenditure decisions. So you're a profitable

58:04

established business, you make so much

58:06

money each year. And for

58:09

better or worse, you've just committed to paying it out and the

58:11

market is expected you to pay a little bit more out. And

58:14

obviously by doing that, there's less money at

58:16

your fingertips. Now the

58:19

counterfactual here is let's say you keep it

58:21

all, you just don't pay a dividend. Now

58:23

you will invest that and hopefully invest that

58:25

for good returns. But we know, I mean,

58:27

business is hard. You've got to keep making

58:29

this point and it's a complex challenging world

58:32

that's out there and most a majority, more

58:34

often than not, most capital expenditure

58:36

growth projects and new initiatives just don't work out.

58:38

And it's not a bad thing. It's not a

58:40

feature. It's not a bargain. It's a feature, right,

58:42

of capitalism. We're trying new things and sometimes things

58:44

stick and we're all richer for it. But

58:48

when you are forced to pay out money,

58:50

you will have some left and you are

58:52

required to be more

58:54

disciplined with those kinds of decisions. So okay,

58:58

to do this, we're going to have to borrow some money

59:00

or raise some capital. It's going to be all just wait

59:02

a bit longer until we save up more money. We're going

59:04

to have to be more certain of it. I

59:06

would almost go out to

59:09

this extent and say that there is nothing

59:11

more dangerous than a CEO on

59:13

a board with lots of

59:15

money sloshing around the bank account, you know, and

59:18

a market that's hungry for growth because

59:20

you will do acquisitions is basically what you'll do. And

59:23

acquisitions, as we've said many times before, statistically

59:25

don't – sometimes they're brilliant, but

59:28

they don't always sort of work out. So

59:30

there is that element to it as well.

59:34

And it would depend – like there are some

59:36

companies where it's just like – you know, Wal-Mart's

59:39

is a good example where their earnings are so

59:41

reliable. They will fluctuate like any company but they're

59:43

not going to move around massively. And

59:45

it makes – it's more appropriate for those companies

59:47

to try to commit to a certain dividend policy

59:50

and sustain that. If you're something

59:52

that is just not in a business, if

59:55

you're not in an industry where that is

59:57

any reasonable expectation, then it is a recipe

59:59

for – for disaster to even try

1:00:01

and do that. I always appreciate CEO's

1:00:04

are very forthright and honest and it's like well we'll pay

1:00:06

it if we can if we won't we won't. Don't

1:00:08

buy my stock if

1:00:10

you're expecting a nice even dividend payment each year.

1:00:12

And a lot of that'll

1:00:14

be a real turnoff to a lot of people but

1:00:17

to me it's just sort of like no here's someone

1:00:19

who gets it right. Like it

1:00:22

is, think about it if

1:00:24

you have your own business right. You make money

1:00:27

after you pay your bills and your

1:00:29

corporate taxes a company profit that's left over there. How are

1:00:31

you going to get it out? Pay

1:00:34

yourself a salary or you can pay yourself a

1:00:36

dividend and most people who own their

1:00:38

own business will pay themselves a dividend because you

1:00:40

get the franking credits that come with that. But

1:00:42

you only do it right. If there is your

1:00:44

business is going gangbusters and it's like I can

1:00:46

open up another office in Adelaide or something. You're

1:00:49

like why would you do that? And sometimes like

1:00:51

I've actually got no use for the money. It's

1:00:53

sitting here. It's in a business bank account earning

1:00:55

2%. I'm going to pay it

1:00:57

out right. And I don't think you would

1:00:59

say oh I'm definitely going to do this

1:01:01

every year. That would just be stupid to

1:01:03

do. So it's exactly the same kind of thing

1:01:05

just at a different kind of scale. And

1:01:08

I think

1:01:13

the data will back me up but these dividend

1:01:15

aristocrats, at least the index that used to track

1:01:17

them and on a total return basis pretty much

1:01:19

outperform the market. So these are generally not many

1:01:21

companies can do it. Those that can do it

1:01:24

for the most part and have been able to…

1:01:26

Here's the key I think in the way they

1:01:28

measure the index. 25 years. You can be a

1:01:30

bit sneaky for a little while but it's hard

1:01:32

to do it over 25 years. So it's

1:01:35

a good thing and I don't want to suggest that

1:01:37

it's a bad thing but I do want to say

1:01:39

it's the exception to the rule and even as someone

1:01:41

who's a dividend and

1:01:44

income focused investor. Don't

1:01:46

be too upset if you don't see that

1:01:49

steady rise each year. Sometimes it's entirely appropriate.

1:01:51

In fact, sorry, a

1:01:53

lot of thoughts here. But I

1:01:55

have seen this more

1:01:58

often than I care to admit which is where company

1:02:00

pays out a dividend and then raises

1:02:02

capital like three months later. It's

1:02:05

like, well, we've committed to paying the dividend to investors,

1:02:07

so we're doing it. But

1:02:09

we've got this acquisition of it. It's like, yeah, but

1:02:11

I would rather you just didn't pay me. The dividend

1:02:13

is nice. It's not life changing. Keep that. Keep

1:02:15

that money. If you've got somewhere to invest it,

1:02:18

invest it. Don't give me money and

1:02:20

then turn around and say, oh, we're raising more money. Do you

1:02:22

want to put some more in? It's like, well, you just pay.

1:02:26

It's as crazy as it sounds to me. Hey,

1:02:28

by the way, over the last 10 years, the dividend aristocrats

1:02:30

have actually underperformed the market. But

1:02:33

I would suspect that. On a total return basis? Yeah.

1:02:36

I would suspect that's got more to do with the... Think

1:02:38

about the gainers of the last five or seven years have

1:02:40

been the Apples and Amazons and Googles. The

1:02:44

sheer share price and appreciation of some of those non-dividend

1:02:46

payers, well, it has frankly been around less than 25

1:02:48

years, let alone pay the dividend for that long. So

1:02:52

it was line ball up until about

1:02:54

early 2023. That's going

1:02:56

to fade. I

1:02:58

horrible to do this on radio

1:03:01

or whatever passes for radio. If you look at

1:03:03

over the last 10 years, the... So

1:03:06

during the boom pre... Or

1:03:09

the tech boom coming out of COVID, it jumped. And then

1:03:11

of course, tech stocks fell back again. So it was line

1:03:13

ball again by the beginning of 2023. Then

1:03:15

since then you've had Amazon. Amazon's up. Iron

1:03:18

shares, by the way, start this kind of end up being a humble

1:03:20

break. It's not supposed to be. I just know because I looked at

1:03:22

it up 80% over the past year and

1:03:24

had gone nowhere for like the two years before that. So

1:03:26

yeah, I think it's probably more to do with the current

1:03:28

market dynamics than the dividend

1:03:32

restocrats necessarily. Yeah. I

1:03:34

mean, again, horses for courses. I

1:03:37

will say this, if you are a dividend investor, there's

1:03:39

a great place to start. I wouldn't just say go

1:03:42

out and buy everyone, but like, it's a great place

1:03:44

to start. And I tell you what,

1:03:46

just going back to Solpats, it's like it is on my

1:03:49

list of positives for the company. It's

1:03:51

like that they have done that. I'm going in expecting

1:03:53

that. And I think that they'll be very clear on

1:03:55

maintaining that. And it's just like that. And

1:03:58

they may even, and actually they're pretty forth. right

1:04:01

people. I recommend even admit that it

1:04:23

is worth calling out for those that find

1:04:25

that aspect appealing. Yeah, I think that's a

1:04:27

really, really good point, mate. I think you...

1:04:33

It's one of those I struggle sometimes with.

1:04:35

We've talked a little bit before about demergers creating

1:04:37

value or not creating value. And

1:04:39

they don't create value in any real

1:04:42

physical sense, but different shareholder bases

1:04:44

do pay different prices for different types of assets. The

1:04:47

people who own SoPats aren't going to all of a

1:04:49

sudden abandon that and go and buy shares in whatever

1:04:52

the most recent tech or biotech, whatever

1:04:54

it is. So there's some value in them

1:04:56

saying, I will pay for this.

1:04:58

And each shareholder chooses, which is

1:05:00

about to start by talking about Super will end up with the same kind of

1:05:02

idea. The way you create

1:05:04

your portfolio, I create my portfolio, someone creates

1:05:06

their portfolio, means we will pay independently more

1:05:09

for those companies. We don't pay for them

1:05:11

at all because we see different potential or

1:05:13

we want different things or we value different

1:05:15

things. To your point, SoPats

1:05:17

could pay a higher dividend should

1:05:19

they choose out of their earnings. But they kept

1:05:22

it low personally because they're reinvesting some of the

1:05:24

money, which you just talked about. Secondly, I'm absolutely

1:05:26

sure they're trying to increase the dividend every year.

1:05:29

So if they go too hard in the next couple of years, it makes

1:05:31

it harder like GE, makes it harder the year after that to

1:05:33

then keep increasing it. If you had a bad year, you go,

1:05:35

oh, what have we done? We've kind of put ourselves into a

1:05:37

bit of a hole here, running it for the

1:05:40

long term. This is back to kind

1:05:42

of the illusion I made at the beginning. Running

1:05:46

these things for the long term, we kind

1:05:48

of like to find metrics because we're humans like heuristics.

1:05:51

We like to find metrics. Okay, dividend increasing every year for

1:05:53

20 years. That must be good. That tells me something about

1:05:55

the company. And other things

1:05:57

besides, those things matter. far

1:06:00

more I think what matters is understanding

1:06:04

not just the decisions being made, it's like inside of

1:06:06

selling. Same thing, we talk about that all the time.

1:06:08

Some people say, well, it's just always bad. Well, maybe

1:06:10

it is or maybe it's not. The rules

1:06:13

are made for the lowest common denominator.

1:06:15

They are made because you can't

1:06:17

know and metrics are the same. It

1:06:19

might be, I'm going to pick Woldy's for the

1:06:21

fun of it. They went through some grief, how

1:06:23

long ago? About 10 years ago, maybe eight years

1:06:25

ago, something like that. Well, they did the masters

1:06:27

thing at all. I haven't looked at

1:06:29

their numbers at all, but I would suspect the last 25

1:06:31

years, they probably increased the dividend 22 or 23 years of

1:06:33

that. Because they

1:06:36

had a really bad stuff up, one year they lost it.

1:06:38

Now, you can say, I'm going to

1:06:40

ignore Woldy's until it's a dividend aristocrat in 15 years time. I'm

1:06:42

not saying it's a good investment now either, by the way. What

1:06:44

I am saying is, as you

1:06:46

said, it's a great place to

1:06:49

start. Don't exclude companies that don't quite make it. Don't

1:06:51

include companies that make it just because they've made it. Part

1:06:53

of the thing about dividends, the flip side of

1:06:57

what you said before is not having opportunities

1:06:59

to grow and invest that money. Maybe you're

1:07:01

in a mature business with a less attractive

1:07:03

future. Maybe it is true that

1:07:06

at some point, a mature dividend-paying business,

1:07:08

depending on what the share price is,

1:07:11

doesn't give you the opportunities for great long-term

1:07:13

return. It's that kind of combination, I think,

1:07:15

that makes a difference. I just

1:07:17

encourage people to dig a tiny bit deeper, scratch

1:07:20

the surface and say, what are they doing? Why

1:07:22

are they doing it? How have they got here?

1:07:24

How much of that is explainable, excusable, justifiable? Frankly,

1:07:29

how much is

1:07:31

supported by activities

1:07:34

that comes outside management's control? One

1:07:38

final point I'll make just a while for those that

1:07:40

are looking at dividends. Back

1:07:43

when I was at the pool, around the dividend

1:07:45

service, I often made the point that don't focus

1:07:48

too much on the yield either because a company

1:07:50

that's – I'm going to make up the numbers

1:07:52

as I go here – but a company that's

1:07:54

paying 5%, all it takes is pay is a

1:07:56

10 cent dividend each and every year and just

1:07:58

does that for the next – 10 years and

1:08:01

even you might be buying it at a current yield of 5%.

1:08:04

That will give you less income than a

1:08:06

company that's paying a 3% yield but whose

1:08:08

dividend is growing 10% per year. Yes, exactly.

1:08:11

That's absolutely true. And there's a lovely rule of

1:08:13

thumb based on the Gordon growth model or something

1:08:15

like that which is just a really easy heuristic

1:08:17

way to figure it out. So you just basically

1:08:19

take the starting yield and you add to that

1:08:21

your expected average annual growth

1:08:23

rate in the dividend. So

1:08:27

for example with Solpats, I'm just looking

1:08:29

at the forecast, their forecast, the forecast

1:08:31

I will say but they've traditionally lifted

1:08:33

their dividend sort of up a single

1:08:35

digit, low double digit rates for a

1:08:38

long time there. And they're offering you a 2.7% yield. So

1:08:41

if you add that together, roughly speaking,

1:08:44

maybe my total average annual return dividends

1:08:47

all thrown in reinvested to be about 12% per

1:08:49

year. If I look at another company that's

1:08:51

paying me 8% per year but is

1:08:53

only growing its dividend at 1% or 2% per

1:08:55

year, I'm actually getting a less return. Again,

1:08:57

not in year one, not in year two but

1:08:59

again if you're looking at this over a cycle

1:09:01

that tends to be the way. So just a

1:09:03

bit off topic but if you are looking at

1:09:06

yields, don't just

1:09:08

say I'm an income investor so I don't

1:09:10

care about growth. Growth always matters. Not

1:09:13

every company is a 30% per annum grower

1:09:15

but even the most big established boring businesses

1:09:17

need to grow 2% or 3% per year

1:09:20

just to stay in the same space and

1:09:22

just really to

1:09:25

make the return profile worthwhile because otherwise you

1:09:27

just bleed out and inflation eats you away.

1:09:30

Yeah, that's a good point. It's actually the key

1:09:32

one I think because Telstra is a great example. I'm

1:09:34

not sure when they last increased it even though they

1:09:36

cut it more recently. The

1:09:39

purchasing power. That's an excellent example. Yeah, I heard

1:09:41

Telstra as I said before for different reasons but

1:09:44

you made the argument before

1:09:46

about the fact that prices never go back down. So

1:09:48

you start with a 7% dividend

1:09:50

yield which I think it probably was way

1:09:52

back in the day. I'm going to pick some numbers. I

1:09:54

apologize for doing this in advance. Probably

1:09:56

15 years ago, 7% dividend. So

1:09:59

think about inflation of that 15 years. You're not just the last three

1:10:01

or four years which have been extraordinary. Grocery prices up

1:10:03

20% that we've talked about before in the last four

1:10:05

years. Add that to the previous

1:10:07

decade of inflation. You're 7%,

1:10:09

it's still 7% of what you paid, but

1:10:12

your purchasing power's gone backwards in a really big way

1:10:14

over that period of time because the dividend hasn't grown.

1:10:16

Doesn't have to keep up every year with inflation. Doesn't

1:10:19

have to keep up with inflation in years like the

1:10:21

last couple of years because you're not gonna get the

1:10:23

sort of growth for most dividend-paying companies and that kind

1:10:25

of needs to be okay. But in

1:10:28

large part, well for saltpats it has, but in large part, that

1:10:31

idea of just making sure you get some growth

1:10:33

in the dividend. Because as you said, you want

1:10:35

the company to grow as well. Yeah.

1:10:37

Yep. I think that's a great

1:10:40

place for us to finish, but I gotta get back

1:10:42

on the road now, recording this event. But thank you

1:10:44

for doing this. We will come back with another Sunday

1:10:46

Mailbag episode as we always do. I assume you'll come

1:10:48

back on Sunday. Absolutely will. Try and stop me. Well,

1:10:52

the only good stop you came back on Sunday, mate,

1:10:54

is a horrible marathon injury that you may, you may

1:10:56

have made before. Anything's possible. Let's assume that doesn't happen.

1:10:59

And if it doesn't, we'll see you on Sunday. Full on. Cheers.

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