September 24, 2025 • 29 mins
Is the market in a bubble? With US exchanges seeing record highs, AI hype still soaring, and a recent US Federal Reserve rate cut, it’s a question some investors are asking. In this episode, we get Scott Phillips’ views on identifying an expensive share price vs a worthy buy—based on his experience as The Motley Fool’s Chief Investment Officer, Advisor, and Portfolio Manager.
Scott explains why a record high isn't always a red flag, and his strategy for distinguishing between a bubble and justifiable optimism. We discuss the current state of the market against first hand lessons from the dot-com bubble and the COVID crash. Scott shares the perils of trying to catch the bottom—and how even the best business in the world may be overpriced.
Plus, Scott’s take on assessing investments, weighing up reasonable probabilities against downside and upside risks.
For more or to watch on YouTube—check out http://linktr.ee/sharedlunch
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Curakoto. Welcome to Shared Lunch. I'm Garth Bray. With all
of the hype around AI and tech stocks, with all
of that hype building up, maybe now is a perfect
time to get a realistic take from someone who's been
in the market long enough to remember other times when
it was a little frothy, to know the difference between
a bargain and a bubble. That person is Scott Phillips
(00:26):
from the Motley Fall and Australia legendary stockpicker. But before
we hear from Scott hes some important information that you
should always consider when investing.
Speaker 2 (00:36):
Investing involves the risk you might lose the money you
start with. We recommend talking to a licensed financial advisor.
We also recommend breading product disclosure documents before deciding to invest.
Everything you're about to see and here is current at
the time of recording.
Speaker 3 (00:50):
Hi, Scott good A, Thanks for having me on Shared Lunch.
Speaker 1 (00:53):
Look, we've just had a US federal reserve rate cuts,
first one in nine months, like waiting for baby to
be born. Would tell us that after that length of
time between changes and the policy rate in the US,
the price of money they will typically see a bit
of a bounce in the s and P five hundred
the market and so on, and that's already to record high, right,
(01:14):
So how is this not a bubble?
Speaker 3 (01:18):
How have you got? Look, let's go with the rate
cuts first and come back to the bubble. The thing
about rate cuts these are any economic indicators, is the
market tends to only react when it doesn't expect what happens.
Jerome Power, the US Federal Reserve Chair, had written this
almost in blood, and so we will cut rates, and
so it was no surprise to the market that had happened.
So part of what you're talking about about that increase
(01:40):
on the back of rates is true. But I think
someone's already happened. That idea of market anticipating the announcement,
and that's why we saw almost no move on the day,
was because it was already built into share prices. That
being said, your question about the bubble is a really
good one, and I'm going to try and separate out
a record high from a bubble, because the market always
(02:00):
hits record highs. It's the story of the last century
plus on the ASX, the New Zealand stocking chains, the
US markets, we hit new highs all the time because
capitalism finds ways to solve new and old problems. And
so that process, that literally the creative destruction that we
talk about all the time, is what happens, whether that's
(02:21):
a new way of doing something or a brand new thing.
Think about the iPhone that's now not even still twenty
years old. Now, think about any technology before or after
that period of time that makes us more productive, makes
us happier, makes us smarter, makes us richer. Those things
happen anyway, and so what's really really important to know
upfront is a bubble is sometimes absolutely a bubble. More
(02:42):
often than not, a record high is simply the last
high when we get to the next one. And we
have set record highs for as I said, literally decades,
more than a century. We've gone to new highs and
new highs, and new highs and new highs because of
that creditive destruction, because human ingenuity, human productivity continues to advance.
So differentiating between a record high and a bubble not easy,
(03:04):
but that is the job of the investor, particularly right
now when we are, as you say, at those record highs.
Speaker 1 (03:10):
So I guess if I think I'd read somewhere else
that there'd been studies of when there are these rate
cuts when there's been some time, and one of them
sort of said, look, you know the last twenty two
times has happened. The market was high twelve months later. Well,
you're sort of saying it would have been higher twelve
months later probably in any case, because it just keeps
going up.
Speaker 3 (03:29):
Well, we're both right, it would have gone up anyway probably.
I mean, twelve months is too short to say absolutely,
but over any five year period, very very very rare,
you don't have a higher point at the end of
the five years than before it. So yeah, do your point.
It would have gone up there in a bubble and exuberance.
By the way, So market's always overshoot, overshooting the upside,
they overshooting the downside. Just what they do because humor
(03:50):
is a human and for your viewers, remembering that is
so incredibly important. I wrote to our readers literally only
today as we're recording this, I wrote to them and said,
be my full of the fact that sometimes the market
is just irrational and you've just got to deal with it.
You can't time the market. Now you can see potentially bubbles,
you can potentially see overreactions on the downside. I've spoken
(04:12):
before on Shared Lunch about the COVID crash. Thirty eight
percent in a month and four days now. I was
buying right through, and I actually think I bought roughly
at the bottom because I knew it was the bottom.
By the way, I'm not that smart and I'm not
that clever, But I bought at the bottom. Why Because
I kept buying because I looked at it and thought,
hang on, it is the future of our planet. Really,
thirty eight percent worse than it was thirty five days ago,
(04:36):
of course not. It was a massive overreaction. So, yes,
markets go higher over time. Yes, rate cuts make assets
worth more the maths of asset pricing and we won't
go I promise, but your viewers will have discounted cash
flows or net present values. We love three letter acronyms,
right tla's. So the reality is, when intro it's go down,
(04:58):
assets are worth more. They just are. So you should
see prices increase. By the way, then when rates go up,
ASTs are worthless. That's also true. But be careful about
cycles within that longer time story. At what point in
the last one hundred and seven ten years has been
a bad time to buy shares well. Between then and now,
the price has never been higher. Almost by definition, it's
(05:20):
never been a bad time to buy shares. If you've
got to sell them and own them today, you've done. You'
bought up cheaper prices, at least in terms of the
market indexes. So that's the long term story. It doesn't
mean they don't fluctuate in the meantime.
Speaker 4 (05:31):
It might have been a bad time to sell them, though.
Speaker 3 (05:33):
Yeah, yes, absolutely, buying when things are too high, be really,
really careful. I'm an optimist. I'm a diet in the
will optimist, but I have to say I'm very I'm
much happier being an optimistic wheneveryone else is a pessimistic.
Middle of April twenty twenty, I am like, you know what,
this feels awful, but I know things will get better
because they always does. So I'm happy to be the optis.
But everyone else is running around like chicken little when
(05:54):
everybody else saying, come in, the water's fine, come in
and fill your boots. You know this will never stop,
This goes on forever, this is the new normal, all
that kind of stuff. I'm still of optimistic, but I'm
less key to sort of throw my loading with everybody else.
I'm like, oh, I think the future is better than
it is now, but I reckon you guys getting a
bit carried away. That's kind of the That's the skill
of the art over time, is trying to delineate between
(06:16):
those two ideas.
Speaker 1 (06:17):
It's hard, though, right because I mean, like so much
coverage around just a couple of key stocks that sort
of spring to mind here for me, like a video obviously.
But I think this week they the Chinese said to
some of their companies, you can't buy their chips anymore. Boom,
three percent drop on the sheer value. Oh we're buying
some intel. Boom, We're back up again. This is a
(06:38):
stop that's trading it more than a fifty times multiple, right,
you know you're saying that it's you know, you're going
to pay fifty times its earnings pretty much to have
a piece of this action. That seems like an astonishing valuation.
Yet people are going for it.
Speaker 3 (06:54):
Yeah. So, and that's why I wanted. I wanted to
do wish beween the market and individual companies right when
the market sky there's still stuff to buy when the
market's bombed out, not everything's going to recover. Right there.
Commings are bombed out during the bottom of COVID and
then went broke. An Australian company called Mosaic Brands great
example of that. Right we had the shutdowns, the lockdowns
and all that kind of stuff. When the lockdown stop,
(07:14):
everything else recovered. Mosaic Brands has died. Absolutely was just
literally died as a company went bankrupt. So just because
the market's low and over there will go up. Just
because some companies are in arguably bubble territy, I'll get
doing VideA in a second. Don I'm not saying everything's
worth buy them. As that exuberance has that optimism. As
that confidence continues to flow through, it's pushed some companies
up to a price or I'm like, all right, well
(07:35):
I like the company, but dude, no, I'm not paying
that price. I'm not trying to time the market. I'm
not saying, oh well, I know what's happening. This is
the top, and I know that in a month time's
gonna be lower, a year time's going to be I
have no idea, absolutely no idea. All I can do
is try and objectively value the companies that I want
to buy or that I own, and then workout of
that which ones do I buy, what do I own
that I should sell. There is absolutely a future in
(07:57):
which we look back and go, oh man, a video
is cheap and twenty twenty five and before people scoff
at that, I'm going to go back iron shares an
Amazon doesn't matter, but I should disclose it so your viewers. No.
Back in two thousand and two, two thousand and eight,
Back in ninety nine, by the way, barrens the I
think was all fortune one of the US business magazines
led with Amazon dot bomb. Right, think about Amazon today
(08:18):
versus twenty six years ago when it was Amazon dot
bomb allegedly was it No, it'll doesn't look expensive yet
you bet a thousand times earnings at one point, Like, seriously,
who pays that? Now, I'm not saying video as Amazon.
I'm not saying Amazon's video. What I'm saying is there
were times when stuff looked really expensive and it's absolutely
worth paying. If you'd have paid a thousand times earnings
on Amazon at ten bucks, then out three hundred bucks
(08:39):
a share. So you know, I'm not saying no by
stuff that looks expensive. But to your point, when stuff
is that expensive. In video is the most and by
the way, Amazon was still tiny at that point, right,
thousand times earnings, but small in video is fifty times
earnings and huge, probably the most valuable company in the
US stock market, if not pretty close at the moment
at that point. Fifty times earnings for the most valuable
(09:00):
in the world. That's asking a lot. That's all of
a sudden saying, hang on, guys, this thing's got to
grow at massive rates just to justify the current price.
Let alone get gains from this price. Right, even if
the price but nowhere, it's still going to grow like
topsy just to justify today's price. Do you want a
ten percent return twenty percent return from here, Well, then
you need to go plus plus plus plus. So yes,
(09:22):
I agree with you. I think the video looks really expensive.
I'll say EXPENSI about absolutely yeah, I'll shot up in
a second. Le's trust another question, but really quickly. The
job of the investor is not to be right or wrong.
Sounds silly, right, The job of the investor is not
to be rather why because you can't know in advance
my crystal ball's broken, Your crystal ball's broken. Everybody watching.
(09:44):
If you think your crystal ball's working, go and check
yourself in somewhere you know it's not. I promise you.
You don't know what the future holds. What you can do,
what you should do as an investor is work on probabilities, right,
In other words, what is the risk of a downside?
What is the chance of the upside? And when you
do that that, you're looking at the video at fifty
times earnings and say, well, is there some circumstances in
which it's worth today's price? Yes? Absolutely? How probable is
(10:09):
that outcome? Relative too, maybe it's not worth today's price?
How probable is that outcome? When you put those side
by side. So I'll be really clear about that. I
look at that and go I can absolutely make a
case for it being worth today's price. AI becomes massively,
massively bigger. No one ever comes up with a chip
that rivals in VideA. There's a chip shortage for the
next twenty five years. The VIDIA can set its own
(10:29):
prices and it goes to the moon. That's very very
very possible, very possible. Right, is it likely? No? What's
more likely is other chip makers catch up. Other chip
makers have anything that may be worse than a video,
but about half the price. Okay, now we're talking maybe
the hour of revolution doesn't grow quite as quickly as
we think. Maybe venture capitalists run out of money. Maybe
we talked about rates they go back up. We saw
(10:49):
when rates started to go back up after COVID a
whole lot of Australian businesses went broke. The one hour
grocery delivery mobs, that was four or five of them
at one point. They all went broke because the venture
capital money dried up, because all of a sudden money
was worth something again. So in those circumstances, in video
isn't worth today's price. And you've got, as an investor,
say what are the odds that I'm right? And if
I am right, what am I going to get? What
are the odds that I'm wrong? And if I am wrong?
(11:11):
How much do I lose? Put those together and say,
now do I really want to buy in video? Or
if I own it, do I want to hold it
for me? The answer is absolutely not, not because it
can't happen, because it's not likely to happen, and probability
is the investor's friend if you really think it through
and try and be as rational as you can to
work out what you should buy and what you should pay.
Speaker 1 (11:30):
Do you when you're working that out, can you give
us some insight into what level is enough for you?
Like I've heard there are some people that say, I'll
work out the valuation and when it gets to about
ninety percent or eighty percent or ninety five, that's when
I'm out.
Speaker 4 (11:44):
I'll happily that money on the.
Speaker 1 (11:46):
Table and be wrong, because more often than not, I'll
be out in time. I mean, does it vary from
case to case or do you have a rule that
you follow.
Speaker 3 (11:54):
So I'm an investor who values quality first and foremost,
and one of the rules I try and live by
is I'm slow to buy, but even slower to sell.
Right now, what does that mean? Slow to buy a
means I want to make sure that I feel really,
really really good about what I'm buying, both from a
quality and a price perspective. And if I've done that
(12:14):
work properly, then i want to be even slower to
sell because if I've analyzed them, and I talked about
when I sell at different prices, if I've got a
quality business, I'm want to let that go really, really
really reluctantly, right, Warren Buffett says, it's better to pay
a fair price for a wonderful business than a wonderful
price for our fair business. So if I've got a
wonderful business in my back pocket, in my portfolio, I'm
(12:36):
going to let that go really reluctantly. I'll say one
of the businesses too. Of the businesses we sold from
out for our members or recommended they sell, got to
price earnings ratios of eighty and ninety times before we
recommended they sell right now, which is extraordinarily high. Why
do we not pull the trigger earlier? Because we kind
of went, well, the great business, I really really don't
want to sell us, I have to. Then we went, well, okay,
now I'm out. So we answer your question. I'm not
(12:58):
a value in I'm not a capital VVA you investor,
nor am I a capital G growth investor. I think
the distinction is really unhelpful. Frankly, people out there can
do their own thing, but for me, it's not very helpful.
So you asked the question. For me, it's probably one
hundred and twenty one hundred and thirty percent of the
value is where I sell. And someone said, hey, why
would you sell? Why would you wait for more than
it's worth to sell? Two things. One back quality, and
(13:19):
that's competitive tage of the business, the quality of management,
all the things that we talk about that another day,
about what quality investing looks like. So back quality. Secondly,
I don't want to be so arrogant as to believe
my calculation of value is so incredibly precise that I
know for sure arrogance and ego is the investor's absolute enemy. Right,
So the humility I try to bring to it is
(13:39):
I think this is roughly right. But all of the
sums I have to put in the discount rate, the
growth rates, the terminal values. Again we're talking about discount
of cash flows here, really boring on video format. But
all of that stuff is assumption, laid on assumption. If
I change a couple those numbers a little bit, I
can justify paying fifty percent more or fifty percent less
for the same company. Right. So that should tell you
that this is a really, really really inexact science. It's
(14:01):
an inexact art. It's a guess. It's a rough yardstick.
So for me, I buy hopefully well, if I've bought well,
I want to be slow to sell, and I want
to be really, really humble about how likely I'm going
to be exactly right than intrinsic value. And if that's
the case, let it have some rope and then yes, sell.
Now have I held stuff too long in hindsight, absolutely yes.
(14:23):
But if I added up every company I've held for
too long and compared it against every company I sold
too early, I'm still behind. Right. Great example, I'll rub
my nose my own problems. Domino's way back in the
day went from we bought recommended, don't members that eight bucks?
I think I went about thirteen bucks, right, and I thought, oh,
may a sixty percent gain. It was a couple of years.
I'm a genius, but yeers looking expense, I better get out.
(14:45):
It went from thirteen to hold your breath one hundred
and forty dollars. Right, I missed a tenfold gain. I
could have ten other companies go to zero, and I
still would have been ahead if I'd held Dominoes. Don't
be too quick to sell. But if you own quality
and don't get caught up with your own hubris and
your own kind of you know, I picked the stock
and it's gone up, so I'm agenius. I'm gonna let
(15:06):
it keep going up. Be real with yourself, but don't
don't don't. There's a great sort of saying about watering
your weeds and cutting your flowers, right, don't cut your
flowers to a let a bloom at a time. Cut
them and put them into ours for sure, but give
it a little bit of time.
Speaker 1 (15:19):
So this sounds to me a wee bit like it's
also bubble protection. Getting back to what we were starting
to talk about there, if you're following that kind of
a strategy, you'd feel pretty confident that you're you can
have missed the bubble. You're not going to get caught
up in the exuberance. Anything that's rising is rising because
you can see a fundamental reason for it rather than
just the exuberance.
Speaker 4 (15:39):
Is am I getting.
Speaker 3 (15:39):
Close one hundred percent? And that's why when those companies
I talked about got two expenses like, well, I love
the business, I'm going to be slow to sell. But guys,
come on, I mean no, I'm not paying fifty times
zarning for a video. I'll tell you. One of the
companies we saw was real estate dot Com. Now that
one got to I was seven or eighty times earning
something ridiculous, right. I love that business. It has got
(16:00):
massive pricing power. It is the dominant game in town.
It's really capital light, lots of recurring revenue. It's customers
love spending money there. Because you're selling a million dollar house,
you want to spend five grand on marketing. That's an
easy decision. Rights such a small proportion. It's a great, great, great,
great business. But invest's record it's worth a squillion dollars
more than I think it is. So at that point,
(16:20):
now is it a bubble? The other thing I will
say for what it's worth is I think the bubble
label it's worth being aware of it. But it can
be a little bit unhelpful because we argue about is
it isn't a bubble. I don't know. All I know
is it's worth more than I think it should be.
And that's enough for me. I don't have to say
bubble tick. I just say, would I pay that price now?
No way in the world do I really want to
hold it at this price? No? Maybe it goes up,
maybe it goes out. I don't know. What I do
(16:42):
know is probabilistically, we started talking about a lot's got
to go right and nothing can go wrong. That's not
a good bet. So at that point you take some
money off the table. That is bubble protection, as you say,
because I'm not saying, well, ever it's going up, I'll
keep holding it, or the crowd must be right. So
I guess I should keep holding the shares. Or you know,
everyone's excited about it. I guess they know something I don't.
Don't try and keep up with the Joneses. Don't take
(17:03):
money from your don't take tips for your taxi driver,
don't list your brother law who's getting rich owning something
that no one else wants to own. Because, as you say,
we've been through it. The dot com boom and bust
was a great, great, great example. Another quick example, Warren
Buffett that the patron saint of investors way back in
ninety nine. I speak about magazine articles. A great article
(17:23):
you can still find on the Internet called What's Wrong Warren?
And the idea was Warren Buffet's missing out on this
boom and everyone saying, oh, Buffet's lost and it's all over.
What does he know? His old fashioned twenty six years later,
still on top, still doing his thing, still a very,
very very good investor. What was wrong? He saw the bubble,
he saw the fact that nothing wasn't worth buying. Everyone
else was saying, you're missing it, Warren, Look all the
(17:44):
price going up. Why aren't you playing our game? He said, Well,
I buy stuff whether it's worth buying. I sell it
when I want to sell it, and nothing to buy.
Ill stay in cash. It's not difficult, it's not sexy,
it's not fun. You don't get the headlines. You don't
feel excited because I own the new cool thing. But
it's a nice way to make money.
Speaker 1 (18:00):
I guess people might have said the same thing about
Larry Allison until about two weeks ago. Gosh, here's a
guy who had a pretty successful company, and he tried
to run a few America's Cup defenses as well.
Speaker 4 (18:09):
But so long see a.
Speaker 1 (18:10):
Lad off the basis of one earnings report basically saying
you know, we're we I think to read the press.
That's most of it's supplying capacity to open.
Speaker 4 (18:21):
Aye.
Speaker 1 (18:21):
So that's a pretty strong one way bit. The market
seems to love it. That seems to.
Speaker 4 (18:26):
Be pretty out of whack.
Speaker 1 (18:28):
Surely, if a stock can leaping value forty percent on
one earnings report.
Speaker 3 (18:33):
Great example, by the way, it was already up forty
percent for the year to date, so up forty percent
over the previous nine months, eight months, and then up
another forty percent top of that on one earnings report.
What I share price means, it's the value of every
dollar worth of cash flow from now to eternity, discounted
back to allow for the time value of money. And
I know that's complex, I'm going to live it there.
Other than to say which has got forty percent, what
(18:55):
you're actually saying is the value of all of the
future cash list now to eternity, and now we an
aggregate forty percent higher. Not this month, not this half,
not this year, not the last five years, over the
next five years, but from here to eternity, everything in
total is gonna be forty percent.
Speaker 1 (19:11):
More that Alls is going to win all of those
races from now on basically.
Speaker 3 (19:15):
At that elevator level, exactly right, it's up a weight
classes up all those things. Correct. And so if you
don't do that, and that's what I say. The results
were great, very good, and he was great announcement. All
things were good. But to imagine that is now permanently
and unequivocally be higher forever from here can't be again
I mentioned I mentioned a video. What if someone else
(19:37):
enters that that cloud, you know, cloud race, whereas I'll
take some share off Oracle, what happens to the share price?
Then let's take Microsoft. Microsoft in two thousand fell in
the dot com crash. It took fifteen years for the
share price to get back to where it was pre
dot com. It was a great business. It kept it
went on to even bigger and better things. It was
(19:57):
a fantastic success story. But you can't pay just any price.
There is such a thing as too high a price
for even the very best business in the world. So
making sure you're playing a good price for the company,
even if you know the future is bright. If if
Oracle is much bigger in ten years time, is it
forty percent bigger permanently, I don't know. Is that really
worth paying for? And do you want to take that
bet given there is risk that maybe it's not back
(20:19):
to probability. So be very very very careful getting caught
up in the euphoria. That's the thing about bubbles. You
ask about bubbles, I suppose the key thing to look
out for is actually not so much the companies, or
the share price or the results. It's the sentiment of
the crowd when everybody else is excited about it, when
you know the time is as I say that a
great story of the of the Great Depression, and I
can't remember who's who it's told of, and apparently it's
(20:41):
apocryphal anyway. But the idea was basically this particular you know,
Titan of Wall Street, when you had the taxi driver
pull him asides, I think you should buy these shares.
He's like, oh, this feels bad. I'm gonna sell now.
I'm not saying you should use that as the test
you go with. Everyone's a shaholder of these as everyone's
an investor, but to be very careful when everyone's excited,
with the tides all the way in, when euphoria is
(21:02):
at its peak, what could possibly go wrong? Well that's
the time we'll be a little bit concerned. Now I
will say, don't sell everything just because don't try and
time the market. A bubble can go on much longer
you think it can. Even if it is a bubble. Now,
it could have got fifty percent down twenty percent, in
which case you'll sure be thirty percent higher than it
is now. So don't try and trade the bubble, don't
try and time the market. But when you're buying and selling,
(21:25):
think about what you own, think about how good the
future is probabilistically, think about how much you're paying for
that future, and we're gonn if it's a reasonable price.
I mentioned we've sold half a dozen companies we have.
We've kept a heap more because we actually think, despite
some of the excitement in the market, these businesses are
likely to go on beating the market over the long
term despite what's going on right now. So got to
(21:47):
kind of keep both those things in mind at the
same time. It's not easy, but that's the skill you
need to develop as an investor.
Speaker 1 (21:52):
It sounds like you and the Motley Full community you're
the classic active investors. You are really getting in there
into the weeds. You're looking closely at what each company's performing.
We've seen obviously a trend towards automatic diversity is the
word I'm looking for here products like ETFs. I mean
that is that reducing the risk or would you say
(22:12):
there's some sort of concentration risk building up there that
people need to be careful of there when they're buying
those kinds of products.
Speaker 3 (22:19):
Now, I love passive ETFs. I'm an active investor just
I have a stockpicker. I don't mean active by the
way it's active. There's active, right, I'm not an active trader.
I don't buy cell by cell by cell. I'm active
in the sense that I'm trying to find companies that
I think will beat the index. If I buy company X,
I buy it so I think at five years time
it'll be worth more and hopefully grow faster than the market.
That's my version of active. But I love passive investing.
You see the fund manage out there. By the way
(22:41):
say the ETFs are destroying the market, absolute rubbish, complete
and other nonsense. Passive ETFs are wonderful, wonderful, wonderful things.
Just they are right mean less business for me, so
be it. Investors are much better off than they were
because a massive range of passive ETFs are available. A
couple things to answer your question. Firstly, not all ETFs
are the same. Now your viewers know that I really,
(23:04):
really really dislike thematic ETFs, not because individually some of
them can't do well, but because they're sold as panaceas
AI is going to be huge. Here's my AIETF, and
that the invitation is to say AI is big, therefore
AA ETFs are big, therefore I should buy the ATF.
Couldn't be further from the truth. So I despise the
matic ETF because of the way they're sold, and good
(23:26):
to w anyone's selling ETFs out there. I love the
Plane Vanilla index based low cost ETFs, the Jack Bogel
vanguard style ETFs ASX two hundred or three hundred s
and P five hundred MSCI Global. Those are the great,
great gray ETFs because they are low cost, because they
track the index. They're not trying to make bets. They're
not trying to get you to make a bet on
(23:46):
AI or robotics or lithium or bitcoin or goal.
Speaker 1 (23:51):
Even with the concentration that you're getting from Meg Siven,
I mean the Meg seven companies. Some of those companies
are bigger than entire sectors. Now, you know, I'm pretty
sure if you ended up the healthcare sectors or the
some parts of the industrials and you go to there
see kind of.
Speaker 3 (24:04):
Are so yes, absolutely, and you ask about diversification and concentration.
So I'm not saying don't pick individual socks. What I'm
saying is ETFs are a great base for a portfolio.
And anyone who said to me, is this enough, I
say yes absolutely. Do you think do I think you
do better by picking stocks? Yes? Absolutely? But is that enough?
If you're young enough, if you had regularly to a
handful of diversified index based ETFs, you'll retire very, very
(24:27):
very comfortably and be very happy you did. I have
no doubt. If I can't make promise, I'm not allowed to,
but I have no doubt you'll be very happy with
what you did. Right. So back to your point about concentration.
I wouldn't just own a US ETF, same as I
wouldn't have done an ASXCTF because we've got index four
banks and minors. But if I had a global ETF
or a range of ETFs, might an AX three hundred,
(24:49):
you might have a developing markets, you might have an
emerging developed markets. If you got that diversification by currency,
by geography, by industry, then yeah, you start to put
together a portfolio that it is. Here's the other thing.
When you buy an ETF, don't just put money in
a ETF once and be done with it. If your
dollar cost averaging adding regularly. Maybe in hindsight we say,
(25:09):
you know what, September twenty twenty five was a massive bubble.
But if you've been adding monthly over the last year,
two years, five years, ten years, add all that up.
People say to me sometimes, oh, the mike hasn't recovered
from the highs of twenty two thousand and seven, or
it's not as high as it was in whatever. If
you'd only bought chairs on that day, maybe I'll talk
to you about it. But if you did, you are
(25:30):
the unluckiest person in the world. If you'd have been
buying every month for the three years before and the
three years after, you are up massively on that point.
So is it diversified. Yes, If you buy one ETF
for one index and you buy it once, you're absolutely
rolling the dice. I still you'll do very well, by
the way, but maybe not as well if the market
was lower. If you're adding regularly to a range of
(25:51):
ETFs and you're adding to that regularly every payday or
every month or every quarter over five, ten, fifteen years,
I mean, think about it. If you do what ever
month fifteen years, what's that? If you've made one hundred
and eighty different transactions over that period of time. Have
you bought one of those is going to be at
a bubble? Probably, one of those is probably going to
be at an absolute low low, most somewhere in between.
(26:12):
But overall, I'll go back to the Vanguard index chart.
I know your viewers have seen it a million times.
Google Vanguard index chart. If you don't know what I'm
talking about, Yes, you might have bought it two thousand
and seven at the peak, then you brought in two
thousand and nine at the trough. You might have brought
it ninety ninety nine at the peak, and then at
two thousand and one in the trough. You're probably bought
in twenty twenty March twenty twenty at the peak, and
then again in April twenty twenty in the trough. And
where are we at record highs? Sometimes you'll buy at
(26:34):
high prices, sometimes at low prices. I'd love to know
which ones will which side can not do it, but
you can only do that in hindsight. And in hindsight,
by the way, where at record highs every point before
that was worth buying shares app.
Speaker 1 (26:46):
You touch on an important point about regularity and I think.
I know the people are always looking for a comparison
or a meter four, and people talk about it.
Speaker 4 (26:53):
The marathon approach.
Speaker 1 (26:54):
You know you're trying to but if you've ever actually
done any I don't know if you've done any running.
Speaker 4 (26:59):
I've done a little bit in my time.
Speaker 1 (27:01):
The hardest thing is just pulling on the shoes and
getting up and doing it three or four or five
times a week and sticking with that. And that's the
bit that pays off almost more than anything else. So
that is quite a crucial part, isn't it. It's just
getting that kind of regular habit built then so that
you're in that market.
Speaker 3 (27:18):
Can I go one step before above that? Actually putting
the shoes on five times a week is really really hard.
I absolutely feel that pain. Investing regular is even easier
than that. I decided the best to put the shoes on.
I've just got to put the shoes on. If I
decide I want to invest regularly, and I tell my payoffice,
my payroll manager, or my bank please do this for
(27:39):
me on this date, I'd have to pull on the shoes.
Someone else puts the shoes on for me, And that
is what's beautiful about pre commitment and automation. You automate
that process so that if you've got to company it
allows it. You tell your payroll manager, please put nonsent
on my pay into my savings account. Please put ten
percent of my pay in my investing account, and then
on payday just happens. You don't have to pull metaphorical
(27:59):
shoes on. But that's the beauty of pre commitment or
automation is you're a million percent right. You can actually
get out of your own way. And now, if you
pay all what office won't do it? Tell you bank
on I get paid on the fifteenth of the month,
or every two weeks or every week or whatever it is.
On those days, please take x dollars out of my
savings account and move it to my investing account. And
(28:20):
as long as you do that and let it happen,
by the way, you won't miss it, because it's never there.
It happens automaticly every time you get paid. Go well,
I really want to go and buy a pair of jeans,
or go out for dinner, or buy address or buy
a computer or do whatever your thing is. You've got
to choose to take that money out put over there. Idente.
If I want to next, I'll do it next month.
Do next month. You've done it automatically before you even
get to it. That's just beautiful and you can absolutely
(28:42):
make it happen. It's why superannuation for Australians particularly is
important because that happens to us. Literally the government says
you can't have it bad luck. Twelve cent of your
pay goes trade over there. So those kind of forced
savings or automated savings, it might suck at the time
you might want the money to buy X, Y and Z.
I have not heard a single person in Australia say, gee,
unhappy the government maybe saved my superannuation. Never ever, ever,
(29:03):
have I heard anyone say that. They're always like I
hated it at the time, but she I'm glad. And
that's That's a really nice lesson.
Speaker 1 (29:08):
It sounds like a great place to leave it, especially
if you want to go and pull your shoes on now.
Speaker 4 (29:12):
Scott and there.
Speaker 3 (29:16):
Just behind me very here. Actually I won't go and
get a bike at all much routes. I really should
do that.
Speaker 4 (29:21):
Scott Villepsim and Motley.
Speaker 1 (29:22):
Phil thank you so much for giving us so much
your time and your wisdom, time in the market and
you've shared it with us today, and thanks everybody else
for listening and watching along with us. We'd love to
know what you thought of that and who we should
be talking to next for us Kumatu that shared lunch
for this week.
Curakoto. Welcome to Shared Lunch. I'm Garth Bray. With all
of the hype around AI and tech stocks, with all
of that hype building up, maybe now is a perfect
time to get a realistic take from someone who's been
in the market long enough to remember other times when
it was a little frothy, to know the difference between
a bargain and a bubble. That person is Scott Phillips
(00:26):
from the Motley Fall and Australia legendary stockpicker. But before
we hear from Scott hes some important information that you
should always consider when investing.
Speaker 2 (00:36):
Investing involves the risk you might lose the money you
start with. We recommend talking to a licensed financial advisor.
We also recommend breading product disclosure documents before deciding to invest.
Everything you're about to see and here is current at
the time of recording.
Speaker 3 (00:50):
Hi, Scott good A, Thanks for having me on Shared Lunch.
Speaker 1 (00:53):
Look, we've just had a US federal reserve rate cuts,
first one in nine months, like waiting for baby to
be born. Would tell us that after that length of
time between changes and the policy rate in the US,
the price of money they will typically see a bit
of a bounce in the s and P five hundred
the market and so on, and that's already to record high, right,
(01:14):
So how is this not a bubble?
Speaker 3 (01:18):
How have you got? Look, let's go with the rate
cuts first and come back to the bubble. The thing
about rate cuts these are any economic indicators, is the
market tends to only react when it doesn't expect what happens.
Jerome Power, the US Federal Reserve Chair, had written this
almost in blood, and so we will cut rates, and
so it was no surprise to the market that had happened.
So part of what you're talking about about that increase
(01:40):
on the back of rates is true. But I think
someone's already happened. That idea of market anticipating the announcement,
and that's why we saw almost no move on the day,
was because it was already built into share prices. That
being said, your question about the bubble is a really
good one, and I'm going to try and separate out
a record high from a bubble, because the market always
(02:00):
hits record highs. It's the story of the last century
plus on the ASX, the New Zealand stocking chains, the
US markets, we hit new highs all the time because
capitalism finds ways to solve new and old problems. And
so that process, that literally the creative destruction that we
talk about all the time, is what happens, whether that's
(02:21):
a new way of doing something or a brand new thing.
Think about the iPhone that's now not even still twenty
years old. Now, think about any technology before or after
that period of time that makes us more productive, makes
us happier, makes us smarter, makes us richer. Those things
happen anyway, and so what's really really important to know
upfront is a bubble is sometimes absolutely a bubble. More
(02:42):
often than not, a record high is simply the last
high when we get to the next one. And we
have set record highs for as I said, literally decades,
more than a century. We've gone to new highs and
new highs, and new highs and new highs because of
that creditive destruction, because human ingenuity, human productivity continues to advance.
So differentiating between a record high and a bubble not easy,
(03:04):
but that is the job of the investor, particularly right
now when we are, as you say, at those record highs.
Speaker 1 (03:10):
So I guess if I think I'd read somewhere else
that there'd been studies of when there are these rate
cuts when there's been some time, and one of them
sort of said, look, you know the last twenty two
times has happened. The market was high twelve months later. Well,
you're sort of saying it would have been higher twelve
months later probably in any case, because it just keeps
going up.
Speaker 3 (03:29):
Well, we're both right, it would have gone up anyway probably.
I mean, twelve months is too short to say absolutely,
but over any five year period, very very very rare,
you don't have a higher point at the end of
the five years than before it. So yeah, do your point.
It would have gone up there in a bubble and exuberance.
By the way, So market's always overshoot, overshooting the upside,
they overshooting the downside. Just what they do because humor
(03:50):
is a human and for your viewers, remembering that is
so incredibly important. I wrote to our readers literally only
today as we're recording this, I wrote to them and said,
be my full of the fact that sometimes the market
is just irrational and you've just got to deal with it.
You can't time the market. Now you can see potentially bubbles,
you can potentially see overreactions on the downside. I've spoken
(04:12):
before on Shared Lunch about the COVID crash. Thirty eight
percent in a month and four days now. I was
buying right through, and I actually think I bought roughly
at the bottom because I knew it was the bottom.
By the way, I'm not that smart and I'm not
that clever, But I bought at the bottom. Why Because
I kept buying because I looked at it and thought,
hang on, it is the future of our planet. Really,
thirty eight percent worse than it was thirty five days ago,
(04:36):
of course not. It was a massive overreaction. So, yes,
markets go higher over time. Yes, rate cuts make assets
worth more the maths of asset pricing and we won't
go I promise, but your viewers will have discounted cash
flows or net present values. We love three letter acronyms,
right tla's. So the reality is, when intro it's go down,
(04:58):
assets are worth more. They just are. So you should
see prices increase. By the way, then when rates go up,
ASTs are worthless. That's also true. But be careful about
cycles within that longer time story. At what point in
the last one hundred and seven ten years has been
a bad time to buy shares well. Between then and now,
the price has never been higher. Almost by definition, it's
(05:20):
never been a bad time to buy shares. If you've
got to sell them and own them today, you've done. You'
bought up cheaper prices, at least in terms of the
market indexes. So that's the long term story. It doesn't
mean they don't fluctuate in the meantime.
Speaker 4 (05:31):
It might have been a bad time to sell them, though.
Speaker 3 (05:33):
Yeah, yes, absolutely, buying when things are too high, be really,
really careful. I'm an optimist. I'm a diet in the
will optimist, but I have to say I'm very I'm
much happier being an optimistic wheneveryone else is a pessimistic.
Middle of April twenty twenty, I am like, you know what,
this feels awful, but I know things will get better
because they always does. So I'm happy to be the optis.
But everyone else is running around like chicken little when
(05:54):
everybody else saying, come in, the water's fine, come in
and fill your boots. You know this will never stop,
This goes on forever, this is the new normal, all
that kind of stuff. I'm still of optimistic, but I'm
less key to sort of throw my loading with everybody else.
I'm like, oh, I think the future is better than
it is now, but I reckon you guys getting a
bit carried away. That's kind of the That's the skill
of the art over time, is trying to delineate between
(06:16):
those two ideas.
Speaker 1 (06:17):
It's hard, though, right because I mean, like so much
coverage around just a couple of key stocks that sort
of spring to mind here for me, like a video obviously.
But I think this week they the Chinese said to
some of their companies, you can't buy their chips anymore. Boom,
three percent drop on the sheer value. Oh we're buying
some intel. Boom, We're back up again. This is a
(06:38):
stop that's trading it more than a fifty times multiple, right,
you know you're saying that it's you know, you're going
to pay fifty times its earnings pretty much to have
a piece of this action. That seems like an astonishing valuation.
Yet people are going for it.
Speaker 3 (06:54):
Yeah. So, and that's why I wanted. I wanted to
do wish beween the market and individual companies right when
the market sky there's still stuff to buy when the
market's bombed out, not everything's going to recover. Right there.
Commings are bombed out during the bottom of COVID and
then went broke. An Australian company called Mosaic Brands great
example of that. Right we had the shutdowns, the lockdowns
and all that kind of stuff. When the lockdown stop,
(07:14):
everything else recovered. Mosaic Brands has died. Absolutely was just
literally died as a company went bankrupt. So just because
the market's low and over there will go up. Just
because some companies are in arguably bubble territy, I'll get
doing VideA in a second. Don I'm not saying everything's
worth buy them. As that exuberance has that optimism. As
that confidence continues to flow through, it's pushed some companies
up to a price or I'm like, all right, well
(07:35):
I like the company, but dude, no, I'm not paying
that price. I'm not trying to time the market. I'm
not saying, oh well, I know what's happening. This is
the top, and I know that in a month time's
gonna be lower, a year time's going to be I
have no idea, absolutely no idea. All I can do
is try and objectively value the companies that I want
to buy or that I own, and then workout of
that which ones do I buy, what do I own
that I should sell. There is absolutely a future in
(07:57):
which we look back and go, oh man, a video
is cheap and twenty twenty five and before people scoff
at that, I'm going to go back iron shares an
Amazon doesn't matter, but I should disclose it so your viewers. No.
Back in two thousand and two, two thousand and eight,
Back in ninety nine, by the way, barrens the I
think was all fortune one of the US business magazines
led with Amazon dot bomb. Right, think about Amazon today
(08:18):
versus twenty six years ago when it was Amazon dot
bomb allegedly was it No, it'll doesn't look expensive yet
you bet a thousand times earnings at one point, Like, seriously,
who pays that? Now, I'm not saying video as Amazon.
I'm not saying Amazon's video. What I'm saying is there
were times when stuff looked really expensive and it's absolutely
worth paying. If you'd have paid a thousand times earnings
on Amazon at ten bucks, then out three hundred bucks
(08:39):
a share. So you know, I'm not saying no by
stuff that looks expensive. But to your point, when stuff
is that expensive. In video is the most and by
the way, Amazon was still tiny at that point, right,
thousand times earnings, but small in video is fifty times
earnings and huge, probably the most valuable company in the
US stock market, if not pretty close at the moment
at that point. Fifty times earnings for the most valuable
(09:00):
in the world. That's asking a lot. That's all of
a sudden saying, hang on, guys, this thing's got to
grow at massive rates just to justify the current price.
Let alone get gains from this price. Right, even if
the price but nowhere, it's still going to grow like
topsy just to justify today's price. Do you want a
ten percent return twenty percent return from here, Well, then
you need to go plus plus plus plus. So yes,
(09:22):
I agree with you. I think the video looks really expensive.
I'll say EXPENSI about absolutely yeah, I'll shot up in
a second. Le's trust another question, but really quickly. The
job of the investor is not to be right or wrong.
Sounds silly, right, The job of the investor is not
to be rather why because you can't know in advance
my crystal ball's broken, Your crystal ball's broken. Everybody watching.
(09:44):
If you think your crystal ball's working, go and check
yourself in somewhere you know it's not. I promise you.
You don't know what the future holds. What you can do,
what you should do as an investor is work on probabilities, right,
In other words, what is the risk of a downside?
What is the chance of the upside? And when you
do that that, you're looking at the video at fifty
times earnings and say, well, is there some circumstances in
which it's worth today's price? Yes? Absolutely? How probable is
(10:09):
that outcome? Relative too, maybe it's not worth today's price?
How probable is that outcome? When you put those side
by side. So I'll be really clear about that. I
look at that and go I can absolutely make a
case for it being worth today's price. AI becomes massively,
massively bigger. No one ever comes up with a chip
that rivals in VideA. There's a chip shortage for the
next twenty five years. The VIDIA can set its own
(10:29):
prices and it goes to the moon. That's very very
very possible, very possible. Right, is it likely? No? What's
more likely is other chip makers catch up. Other chip
makers have anything that may be worse than a video,
but about half the price. Okay, now we're talking maybe
the hour of revolution doesn't grow quite as quickly as
we think. Maybe venture capitalists run out of money. Maybe
we talked about rates they go back up. We saw
(10:49):
when rates started to go back up after COVID a
whole lot of Australian businesses went broke. The one hour
grocery delivery mobs, that was four or five of them
at one point. They all went broke because the venture
capital money dried up, because all of a sudden money
was worth something again. So in those circumstances, in video
isn't worth today's price. And you've got, as an investor,
say what are the odds that I'm right? And if
I am right, what am I going to get? What
are the odds that I'm wrong? And if I am wrong?
(11:11):
How much do I lose? Put those together and say,
now do I really want to buy in video? Or
if I own it, do I want to hold it
for me? The answer is absolutely not, not because it
can't happen, because it's not likely to happen, and probability
is the investor's friend if you really think it through
and try and be as rational as you can to
work out what you should buy and what you should pay.
Speaker 1 (11:30):
Do you when you're working that out, can you give
us some insight into what level is enough for you?
Like I've heard there are some people that say, I'll
work out the valuation and when it gets to about
ninety percent or eighty percent or ninety five, that's when
I'm out.
Speaker 4 (11:44):
I'll happily that money on the.
Speaker 1 (11:46):
Table and be wrong, because more often than not, I'll
be out in time. I mean, does it vary from
case to case or do you have a rule that
you follow.
Speaker 3 (11:54):
So I'm an investor who values quality first and foremost,
and one of the rules I try and live by
is I'm slow to buy, but even slower to sell.
Right now, what does that mean? Slow to buy a
means I want to make sure that I feel really,
really really good about what I'm buying, both from a
quality and a price perspective. And if I've done that
(12:14):
work properly, then i want to be even slower to
sell because if I've analyzed them, and I talked about
when I sell at different prices, if I've got a
quality business, I'm want to let that go really, really
really reluctantly, right, Warren Buffett says, it's better to pay
a fair price for a wonderful business than a wonderful
price for our fair business. So if I've got a
wonderful business in my back pocket, in my portfolio, I'm
(12:36):
going to let that go really reluctantly. I'll say one
of the businesses too. Of the businesses we sold from
out for our members or recommended they sell, got to
price earnings ratios of eighty and ninety times before we
recommended they sell right now, which is extraordinarily high. Why
do we not pull the trigger earlier? Because we kind
of went, well, the great business, I really really don't
want to sell us, I have to. Then we went, well, okay,
now I'm out. So we answer your question. I'm not
(12:58):
a value in I'm not a capital VVA you investor,
nor am I a capital G growth investor. I think
the distinction is really unhelpful. Frankly, people out there can
do their own thing, but for me, it's not very helpful.
So you asked the question. For me, it's probably one
hundred and twenty one hundred and thirty percent of the
value is where I sell. And someone said, hey, why
would you sell? Why would you wait for more than
it's worth to sell? Two things. One back quality, and
(13:19):
that's competitive tage of the business, the quality of management,
all the things that we talk about that another day,
about what quality investing looks like. So back quality. Secondly,
I don't want to be so arrogant as to believe
my calculation of value is so incredibly precise that I
know for sure arrogance and ego is the investor's absolute enemy. Right,
So the humility I try to bring to it is
(13:39):
I think this is roughly right. But all of the
sums I have to put in the discount rate, the
growth rates, the terminal values. Again we're talking about discount
of cash flows here, really boring on video format. But
all of that stuff is assumption, laid on assumption. If
I change a couple those numbers a little bit, I
can justify paying fifty percent more or fifty percent less
for the same company. Right. So that should tell you
that this is a really, really really inexact science. It's
(14:01):
an inexact art. It's a guess. It's a rough yardstick.
So for me, I buy hopefully well, if I've bought well,
I want to be slow to sell, and I want
to be really, really humble about how likely I'm going
to be exactly right than intrinsic value. And if that's
the case, let it have some rope and then yes, sell.
Now have I held stuff too long in hindsight, absolutely yes.
(14:23):
But if I added up every company I've held for
too long and compared it against every company I sold
too early, I'm still behind. Right. Great example, I'll rub
my nose my own problems. Domino's way back in the
day went from we bought recommended, don't members that eight bucks?
I think I went about thirteen bucks, right, and I thought, oh,
may a sixty percent gain. It was a couple of years.
I'm a genius, but yeers looking expense, I better get out.
(14:45):
It went from thirteen to hold your breath one hundred
and forty dollars. Right, I missed a tenfold gain. I
could have ten other companies go to zero, and I
still would have been ahead if I'd held Dominoes. Don't
be too quick to sell. But if you own quality
and don't get caught up with your own hubris and
your own kind of you know, I picked the stock
and it's gone up, so I'm agenius. I'm gonna let
(15:06):
it keep going up. Be real with yourself, but don't
don't don't. There's a great sort of saying about watering
your weeds and cutting your flowers, right, don't cut your
flowers to a let a bloom at a time. Cut
them and put them into ours for sure, but give
it a little bit of time.
Speaker 1 (15:19):
So this sounds to me a wee bit like it's
also bubble protection. Getting back to what we were starting
to talk about there, if you're following that kind of
a strategy, you'd feel pretty confident that you're you can
have missed the bubble. You're not going to get caught
up in the exuberance. Anything that's rising is rising because
you can see a fundamental reason for it rather than
just the exuberance.
Speaker 4 (15:39):
Is am I getting.
Speaker 3 (15:39):
Close one hundred percent? And that's why when those companies
I talked about got two expenses like, well, I love
the business, I'm going to be slow to sell. But guys,
come on, I mean no, I'm not paying fifty times
zarning for a video. I'll tell you. One of the
companies we saw was real estate dot Com. Now that
one got to I was seven or eighty times earning
something ridiculous, right. I love that business. It has got
(16:00):
massive pricing power. It is the dominant game in town.
It's really capital light, lots of recurring revenue. It's customers
love spending money there. Because you're selling a million dollar house,
you want to spend five grand on marketing. That's an
easy decision. Rights such a small proportion. It's a great, great, great,
great business. But invest's record it's worth a squillion dollars
more than I think it is. So at that point,
(16:20):
now is it a bubble? The other thing I will
say for what it's worth is I think the bubble
label it's worth being aware of it. But it can
be a little bit unhelpful because we argue about is
it isn't a bubble. I don't know. All I know
is it's worth more than I think it should be.
And that's enough for me. I don't have to say
bubble tick. I just say, would I pay that price now?
No way in the world do I really want to
hold it at this price? No? Maybe it goes up,
maybe it goes out. I don't know. What I do
(16:42):
know is probabilistically, we started talking about a lot's got
to go right and nothing can go wrong. That's not
a good bet. So at that point you take some
money off the table. That is bubble protection, as you say,
because I'm not saying, well, ever it's going up, I'll
keep holding it, or the crowd must be right. So
I guess I should keep holding the shares. Or you know,
everyone's excited about it. I guess they know something I don't.
Don't try and keep up with the Joneses. Don't take
(17:03):
money from your don't take tips for your taxi driver,
don't list your brother law who's getting rich owning something
that no one else wants to own. Because, as you say,
we've been through it. The dot com boom and bust
was a great, great, great example. Another quick example, Warren
Buffett that the patron saint of investors way back in
ninety nine. I speak about magazine articles. A great article
(17:23):
you can still find on the Internet called What's Wrong Warren?
And the idea was Warren Buffet's missing out on this
boom and everyone saying, oh, Buffet's lost and it's all over.
What does he know? His old fashioned twenty six years later,
still on top, still doing his thing, still a very,
very very good investor. What was wrong? He saw the bubble,
he saw the fact that nothing wasn't worth buying. Everyone
else was saying, you're missing it, Warren, Look all the
(17:44):
price going up. Why aren't you playing our game? He said, Well,
I buy stuff whether it's worth buying. I sell it
when I want to sell it, and nothing to buy.
Ill stay in cash. It's not difficult, it's not sexy,
it's not fun. You don't get the headlines. You don't
feel excited because I own the new cool thing. But
it's a nice way to make money.
Speaker 1 (18:00):
I guess people might have said the same thing about
Larry Allison until about two weeks ago. Gosh, here's a
guy who had a pretty successful company, and he tried
to run a few America's Cup defenses as well.
Speaker 4 (18:09):
But so long see a.
Speaker 1 (18:10):
Lad off the basis of one earnings report basically saying
you know, we're we I think to read the press.
That's most of it's supplying capacity to open.
Speaker 4 (18:21):
Aye.
Speaker 1 (18:21):
So that's a pretty strong one way bit. The market
seems to love it. That seems to.
Speaker 4 (18:26):
Be pretty out of whack.
Speaker 1 (18:28):
Surely, if a stock can leaping value forty percent on
one earnings report.
Speaker 3 (18:33):
Great example, by the way, it was already up forty
percent for the year to date, so up forty percent
over the previous nine months, eight months, and then up
another forty percent top of that on one earnings report.
What I share price means, it's the value of every
dollar worth of cash flow from now to eternity, discounted
back to allow for the time value of money. And
I know that's complex, I'm going to live it there.
Other than to say which has got forty percent, what
(18:55):
you're actually saying is the value of all of the
future cash list now to eternity, and now we an
aggregate forty percent higher. Not this month, not this half,
not this year, not the last five years, over the
next five years, but from here to eternity, everything in
total is gonna be forty percent.
Speaker 1 (19:11):
More that Alls is going to win all of those
races from now on basically.
Speaker 3 (19:15):
At that elevator level, exactly right, it's up a weight
classes up all those things. Correct. And so if you
don't do that, and that's what I say. The results
were great, very good, and he was great announcement. All
things were good. But to imagine that is now permanently
and unequivocally be higher forever from here can't be again
I mentioned I mentioned a video. What if someone else
(19:37):
enters that that cloud, you know, cloud race, whereas I'll
take some share off Oracle, what happens to the share price?
Then let's take Microsoft. Microsoft in two thousand fell in
the dot com crash. It took fifteen years for the
share price to get back to where it was pre
dot com. It was a great business. It kept it
went on to even bigger and better things. It was
(19:57):
a fantastic success story. But you can't pay just any price.
There is such a thing as too high a price
for even the very best business in the world. So
making sure you're playing a good price for the company,
even if you know the future is bright. If if
Oracle is much bigger in ten years time, is it
forty percent bigger permanently, I don't know. Is that really
worth paying for? And do you want to take that
bet given there is risk that maybe it's not back
(20:19):
to probability. So be very very very careful getting caught
up in the euphoria. That's the thing about bubbles. You
ask about bubbles, I suppose the key thing to look
out for is actually not so much the companies, or
the share price or the results. It's the sentiment of
the crowd when everybody else is excited about it, when
you know the time is as I say that a
great story of the of the Great Depression, and I
can't remember who's who it's told of, and apparently it's
(20:41):
apocryphal anyway. But the idea was basically this particular you know,
Titan of Wall Street, when you had the taxi driver
pull him asides, I think you should buy these shares.
He's like, oh, this feels bad. I'm gonna sell now.
I'm not saying you should use that as the test
you go with. Everyone's a shaholder of these as everyone's
an investor, but to be very careful when everyone's excited,
with the tides all the way in, when euphoria is
(21:02):
at its peak, what could possibly go wrong? Well that's
the time we'll be a little bit concerned. Now I
will say, don't sell everything just because don't try and
time the market. A bubble can go on much longer
you think it can. Even if it is a bubble. Now,
it could have got fifty percent down twenty percent, in
which case you'll sure be thirty percent higher than it
is now. So don't try and trade the bubble, don't
try and time the market. But when you're buying and selling,
(21:25):
think about what you own, think about how good the
future is probabilistically, think about how much you're paying for
that future, and we're gonn if it's a reasonable price.
I mentioned we've sold half a dozen companies we have.
We've kept a heap more because we actually think, despite
some of the excitement in the market, these businesses are
likely to go on beating the market over the long
term despite what's going on right now. So got to
(21:47):
kind of keep both those things in mind at the
same time. It's not easy, but that's the skill you
need to develop as an investor.
Speaker 1 (21:52):
It sounds like you and the Motley Full community you're
the classic active investors. You are really getting in there
into the weeds. You're looking closely at what each company's performing.
We've seen obviously a trend towards automatic diversity is the
word I'm looking for here products like ETFs. I mean
that is that reducing the risk or would you say
(22:12):
there's some sort of concentration risk building up there that
people need to be careful of there when they're buying
those kinds of products.
Speaker 3 (22:19):
Now, I love passive ETFs. I'm an active investor just
I have a stockpicker. I don't mean active by the
way it's active. There's active, right, I'm not an active trader.
I don't buy cell by cell by cell. I'm active
in the sense that I'm trying to find companies that
I think will beat the index. If I buy company X,
I buy it so I think at five years time
it'll be worth more and hopefully grow faster than the market.
That's my version of active. But I love passive investing.
You see the fund manage out there. By the way
(22:41):
say the ETFs are destroying the market, absolute rubbish, complete
and other nonsense. Passive ETFs are wonderful, wonderful, wonderful things.
Just they are right mean less business for me, so
be it. Investors are much better off than they were
because a massive range of passive ETFs are available. A
couple things to answer your question. Firstly, not all ETFs
are the same. Now your viewers know that I really,
(23:04):
really really dislike thematic ETFs, not because individually some of
them can't do well, but because they're sold as panaceas
AI is going to be huge. Here's my AIETF, and
that the invitation is to say AI is big, therefore
AA ETFs are big, therefore I should buy the ATF.
Couldn't be further from the truth. So I despise the
matic ETF because of the way they're sold, and good
(23:26):
to w anyone's selling ETFs out there. I love the
Plane Vanilla index based low cost ETFs, the Jack Bogel
vanguard style ETFs ASX two hundred or three hundred s
and P five hundred MSCI Global. Those are the great,
great gray ETFs because they are low cost, because they
track the index. They're not trying to make bets. They're
not trying to get you to make a bet on
(23:46):
AI or robotics or lithium or bitcoin or goal.
Speaker 1 (23:51):
Even with the concentration that you're getting from Meg Siven,
I mean the Meg seven companies. Some of those companies
are bigger than entire sectors. Now, you know, I'm pretty
sure if you ended up the healthcare sectors or the
some parts of the industrials and you go to there
see kind of.
Speaker 3 (24:04):
Are so yes, absolutely, and you ask about diversification and concentration.
So I'm not saying don't pick individual socks. What I'm
saying is ETFs are a great base for a portfolio.
And anyone who said to me, is this enough, I
say yes absolutely. Do you think do I think you
do better by picking stocks? Yes? Absolutely? But is that enough?
If you're young enough, if you had regularly to a
handful of diversified index based ETFs, you'll retire very, very
(24:27):
very comfortably and be very happy you did. I have
no doubt. If I can't make promise, I'm not allowed to,
but I have no doubt you'll be very happy with
what you did. Right. So back to your point about concentration.
I wouldn't just own a US ETF, same as I
wouldn't have done an ASXCTF because we've got index four
banks and minors. But if I had a global ETF
or a range of ETFs, might an AX three hundred,
(24:49):
you might have a developing markets, you might have an
emerging developed markets. If you got that diversification by currency,
by geography, by industry, then yeah, you start to put
together a portfolio that it is. Here's the other thing.
When you buy an ETF, don't just put money in
a ETF once and be done with it. If your
dollar cost averaging adding regularly. Maybe in hindsight we say,
(25:09):
you know what, September twenty twenty five was a massive bubble.
But if you've been adding monthly over the last year,
two years, five years, ten years, add all that up.
People say to me sometimes, oh, the mike hasn't recovered
from the highs of twenty two thousand and seven, or
it's not as high as it was in whatever. If
you'd only bought chairs on that day, maybe I'll talk
to you about it. But if you did, you are
(25:30):
the unluckiest person in the world. If you'd have been
buying every month for the three years before and the
three years after, you are up massively on that point.
So is it diversified. Yes, If you buy one ETF
for one index and you buy it once, you're absolutely
rolling the dice. I still you'll do very well, by
the way, but maybe not as well if the market
was lower. If you're adding regularly to a range of
(25:51):
ETFs and you're adding to that regularly every payday or
every month or every quarter over five, ten, fifteen years,
I mean, think about it. If you do what ever
month fifteen years, what's that? If you've made one hundred
and eighty different transactions over that period of time. Have
you bought one of those is going to be at
a bubble? Probably, one of those is probably going to
be at an absolute low low, most somewhere in between.
(26:12):
But overall, I'll go back to the Vanguard index chart.
I know your viewers have seen it a million times.
Google Vanguard index chart. If you don't know what I'm
talking about, Yes, you might have bought it two thousand
and seven at the peak, then you brought in two
thousand and nine at the trough. You might have brought
it ninety ninety nine at the peak, and then at
two thousand and one in the trough. You're probably bought
in twenty twenty March twenty twenty at the peak, and
then again in April twenty twenty in the trough. And
where are we at record highs? Sometimes you'll buy at
(26:34):
high prices, sometimes at low prices. I'd love to know
which ones will which side can not do it, but
you can only do that in hindsight. And in hindsight,
by the way, where at record highs every point before
that was worth buying shares app.
Speaker 1 (26:46):
You touch on an important point about regularity and I think.
I know the people are always looking for a comparison
or a meter four, and people talk about it.
Speaker 4 (26:53):
The marathon approach.
Speaker 1 (26:54):
You know you're trying to but if you've ever actually
done any I don't know if you've done any running.
Speaker 4 (26:59):
I've done a little bit in my time.
Speaker 1 (27:01):
The hardest thing is just pulling on the shoes and
getting up and doing it three or four or five
times a week and sticking with that. And that's the
bit that pays off almost more than anything else. So
that is quite a crucial part, isn't it. It's just
getting that kind of regular habit built then so that
you're in that market.
Speaker 3 (27:18):
Can I go one step before above that? Actually putting
the shoes on five times a week is really really hard.
I absolutely feel that pain. Investing regular is even easier
than that. I decided the best to put the shoes on.
I've just got to put the shoes on. If I
decide I want to invest regularly, and I tell my payoffice,
my payroll manager, or my bank please do this for
(27:39):
me on this date, I'd have to pull on the shoes.
Someone else puts the shoes on for me, And that
is what's beautiful about pre commitment and automation. You automate
that process so that if you've got to company it
allows it. You tell your payroll manager, please put nonsent
on my pay into my savings account. Please put ten
percent of my pay in my investing account, and then
on payday just happens. You don't have to pull metaphorical
(27:59):
shoes on. But that's the beauty of pre commitment or
automation is you're a million percent right. You can actually
get out of your own way. And now, if you
pay all what office won't do it? Tell you bank
on I get paid on the fifteenth of the month,
or every two weeks or every week or whatever it is.
On those days, please take x dollars out of my
savings account and move it to my investing account. And
(28:20):
as long as you do that and let it happen,
by the way, you won't miss it, because it's never there.
It happens automaticly every time you get paid. Go well,
I really want to go and buy a pair of jeans,
or go out for dinner, or buy address or buy
a computer or do whatever your thing is. You've got
to choose to take that money out put over there. Idente.
If I want to next, I'll do it next month.
Do next month. You've done it automatically before you even
get to it. That's just beautiful and you can absolutely
(28:42):
make it happen. It's why superannuation for Australians particularly is
important because that happens to us. Literally the government says
you can't have it bad luck. Twelve cent of your
pay goes trade over there. So those kind of forced
savings or automated savings, it might suck at the time
you might want the money to buy X, Y and Z.
I have not heard a single person in Australia say, gee,
unhappy the government maybe saved my superannuation. Never ever, ever,
(29:03):
have I heard anyone say that. They're always like I
hated it at the time, but she I'm glad. And
that's That's a really nice lesson.
Speaker 1 (29:08):
It sounds like a great place to leave it, especially
if you want to go and pull your shoes on now.
Speaker 4 (29:12):
Scott and there.
Speaker 3 (29:16):
Just behind me very here. Actually I won't go and
get a bike at all much routes. I really should
do that.
Speaker 4 (29:21):
Scott Villepsim and Motley.
Speaker 1 (29:22):
Phil thank you so much for giving us so much
your time and your wisdom, time in the market and
you've shared it with us today, and thanks everybody else
for listening and watching along with us. We'd love to
know what you thought of that and who we should
be talking to next for us Kumatu that shared lunch
for this week.
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