April 9, 2025 • 31 mins
In the lead-up to the Australian election, we speak to Scott Phillips of The Motley Fool on markets, party politics—and of course, tariffs.
Scott believes that market volatility will run its course, reminding us of the roaring bull market that followed massive covid sell-offs. While he’s optimistic about the long-term, he also has sobering predictions for the near-term impact of tariffs on the Australian economy and beyond.
Is one particular party better for the economy? How much does the election outcome really affect the share market? Scott has thoughts on how both parties' proposed policies might affect Australia's budget deficit, and what really helps with long-term prosperity and a healthy economy.
Plus, a hopeful message for young Aussies about the power of time in the market.
For more or to watch on YouTube—check out http://linktr.ee/sharedlunch
Shared Lunch is brought to you by Sharesies Australia Limited (ABN 94 648 811 830; AFSL 529893) in Australia and Sharesies Limited (NZ) in New Zealand. It is not financial advice. Information provided is general only and current at the time it’s provided, and does not take into account your objectives, financial situation and needs. We do not provide recommendations and you should always read the disclosure documents available from the product issuer before making a financial decision. Our disclosure documents and terms and conditions—including a Target Market Determination and IDPS Guide for Sharesies Australian customers—can be found on our relevant Australian or NZ website.
Investing involves risk. You might lose the money you start with. If you require financial advice, you should consider speaking with a qualified financial advisor. Past performance is not a guarantee of future performance. Appearance on Shared Lunch is not an endorsement by Sharesies of the views of the presenters, guests, or the entities they represent. Their views are their own.
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Episode Transcript
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Speaker 1 (00:00):
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Speaker 2 (00:11):
But every company is, you know, going to survive and thrive.
But shares in general are very likely in my opinion,
because history tells us to go much higher from here
over the long term, and that's the only timeframe that
people should be worried about. Half of my brain is like,
I'm losing money. This sucks so much red. The other
part of my brain, and this is the important bit,
is the bit that says, but hang on, you knew
this was going to happen. You know what's happened before
(00:34):
you know it's going to happen again. Dollar cost averaging
for the winds. Buying shares on sales is what we
all think we want to do, except when they're on sale.
We pain.
Speaker 3 (00:43):
Welcome to shared Lunch, brought to you by Chas's. At Cheza's,
we're on a mission to create financial empowerment for everyone,
which is why we have these conversations. They're a big
part of being able to dig in to the different
topics that are affecting at vistas and to get experts
along to share their view on it. So I'm Sonya,
the co founders and co CEOs at Chairs Ease, and
today we're joined by Chief Investing Officer at the Montley
(01:05):
Full Scott Phillips. We're going to chat about all things
US tariffs and the upcoming election and how this is
impacting Australia.
Speaker 4 (01:12):
Before we get.
Speaker 3 (01:13):
Started, I want to acknowledge the Getigul people of the
or nation, the traditional custodians of the land when we're
coming to you from today and pay respects to elders, past,
present and emerging.
Speaker 5 (01:23):
Investing involves the risk you might lose the money you
start with. We recommend talking to a licensed financial advisor.
We also recommend reading product disclosure documents before deciding to invest.
Everything you're about to see and here is current at
the time of recording.
Speaker 4 (01:37):
Hi Scott, welcome to the show, Sonya, Thank you and
thank you for having me. Yeah, great to have you back.
Speaker 3 (01:42):
So I'm just going to jump straight into it is
now a good time to invest?
Speaker 2 (01:47):
Yes, absolutely a great time to invest, but with a
massive asteriskmote. The asterisk is I have no idea what
happens next. So I maybe the market force twenty percent,
maybe it rises twenty percent, maybe it goes nowhere for
a year. I have absolutely no idea. So how can
I say it's a great time to invest. That's a
really really simple one. Here's what history tells us, and
this is really important. The ASX, the US markets, developed
(02:11):
markets around the world have never yet failed to regain
then surpass a previous high. So here's the thing. If
that holds true, now it may not. I can't give
a promise or a guarantee. If it does hold true,
that means it upside from here to get back to
the last high and then more upside again. Shares, relatively
where they have been, are on special. So do I
(02:32):
know what's going to happen next? No? Do I know
which companies know. And by the way, when I say shares,
when you ask the question, shares, I'm talking about generically
generally across the market. Not every company will go up,
not every company is worth buying, not every company is
going to survive and thrive, But shares in general are
very likely in my opinion, because history tells us to
go much higher from here over the long term, and
that's the only timeframe that people should be worried about.
Speaker 3 (02:53):
You mentioned that you know things have been dropping over
the last week, while largely know one of the things
that's driving this is the tariffs that have been put
in place by the US. And so we're looking at
ten percent for Australia as a baseline. What impact are
these tariffs having on Australian companies.
Speaker 2 (03:12):
Let's work out what's going on. So the tariffs that
have been put in place. I'm going to be going
to be pretty honest here and I'm gonna be pretty upfront.
I'm going to ask your listeners to trust me on
the process here. I don't have a political dog in
this fight. Democrat, Republican, liberal, labor, I don't care. What
I will say to you is economically, these tariffs are
a terrible idea and a terrible solution to a reasonable problem.
(03:33):
And just because if identified a problem correctly, which is hoy,
there's some problems with the US manufacturing, doesn't mean the answer,
any answer is always going to be necessarily correct. I'm
sorry for the hardcore Trump finds that fans out that
it's not true. Again, it's not a personal view it's
not even a political view, it's just an economic view.
So what's happening is Donald Trumps announced tariffs on much
of the rest of the world. And I'll get back
to Australia and New Zealand by extension a minute. But
(03:55):
the impact of those tariffs are going to be almost
certainly higher prices for US consumers. Why because when we
say we're putting tariffs on Chinese products, we're not really
say we're paying putting traffs on tarifts on China. We're
saying American consumers or Donald Trump saying American consumer is
going to pay more for Chinese imports. Or by the way,
the newly competitive US made stuff that's more expensive than
(04:17):
it used to be but can now compete at those
higher prices. In other words, no matter which way you
cut the sausage, you're paying a higher price for those goods.
Higher prices mean inflation. Now, I don't have to explain
that we've been through five years of it over the
last half decade right around the world. High inflation is bad.
High inflation may also lead to and most economists, and frankly,
even the Atlanta branch of the US Federal Reserve are
(04:38):
expecting the US to enter a recession this year. If
the US enters a recession, the other world's largest economy
are the world's largest consumer economy by miles. If the
US has a recession, it's going to put meaningful downward
pressure on economic growth right around the rest of the world,
including down here at the bottom end of the globe
in Australia, in New Zealand. So that's the setup. But
it's important set up because when you say, what's going
(04:58):
to happen to companies here in Australia, Yeah, there's three
ways to think about it. The first is that global story,
the global recession risk. If the US demands less, Australian
companies may produce less. If Australian's companies produced less, their
profits are probably going to fall. Now that's a modest outcome.
It is a lot less. We may well see companies far,
we may well see job losses. And I'm an optimist
(05:19):
by the way, but I would also want to tell
it straight. So that is the possible outcome. That is
the worst case scenario probably if this does get to
that intergre So that's the first order impact. The second
order impact is, of course the impact on Australian companies directly.
We know there's twenty five percent on Australian aluminium and steel.
There is ten percent now and everything else going to
the US. If you have a meaningful proportion of your
(05:41):
sales that go to the US, they are going to
be harder sales to make. Maybe you absorb the increase
and make lower margins. Maybe you pass on the increase
and have lower sales. There'll be a few companies that
can pass on the increase and still sell the same amount.
That's the best case scenario, but it's probably a small group.
Because price elasticity matters. If you put prices up, people
buy less. So that's the second order for all those
businesses that are exporting to the US. And by the way,
(06:03):
those companies reliant on those other companies. If you're supplying
a company that's exporting to the US and they buy less,
are going to buy less from you, so that matters.
Further impact really quickly is China. Australia is China's so
China's Astralia's largest trading partner by heaps. There are ongoing
tit for tat reciprocal tariffs of the bullies, Bass each
other over the head. Trump said overnight recently a couple
(06:25):
of days ago, they are going to maybe put fifty
percent tariffs on Chinese goods on top or they've already
announced why because China had the too ready to basically
bash back at the US putting tariffs on at the
first place. And this is the silliness of what's going on.
But if China's economy slows and Chinese steel production slows,
guess what that's going to hurt austrain and own or
exports meaningfully. That's not a big economic impact, by the way,
(06:47):
because iron or impact. It doesn't employ a whole lot
of people, but big impact for share prices for those
iron or exporters they own shares and four descu for
full disclosure, bad news for those miners, bad news for
government revenues, and for gross domestic economic output. So there's
three kind of concentric circles, if you like, of potential
outcomes from the tariff or when it comes to what's
(07:07):
going to hit us here at home, are there.
Speaker 4 (07:09):
Any particular areas that benefit from the change?
Speaker 5 (07:13):
No.
Speaker 2 (07:15):
I mean, if you stretch and you squint really significantly,
you might find an opportunity to find one or two.
What you might see happen is Australian companies find other
markets for their products. For example, we saw when China
put massive tariffs on Australian wine. Australia wine makers found
other markets. It wasn't easy and found some something didn't
find any at all, by the way, I was going
to a massive wine glut in Australia. So is there upside
(07:35):
from that? No, If you are in an ASX listed
company that happens to a business only in the US
and somehow it is able to make more money because
it could prices up because inputs are more expensive, maybe
it's a little bit somewhere there in the nooks and crannies.
It's a really really small sliver of potential upside. And frankly,
even then, those companies are more likely to be hit
(07:56):
by US economic pain more broadly rather than tariffs. Particularly,
that is, if inflation goes up, if economic growth falls,
if unemployment rises, those companies that are based there are
probably going to hurt. And by the way, that's why
we're seeing US share markets fall. You kind of think
in the way that the simplistic version that Trump and
others like to present this tariffs go up, US business
(08:17):
gets better. US companies make a lot of money, US
people get employed. Therefore, it's all wine and roses. The
reality is the US market is absolutely tanked for a
couple of straight days late last week, earlier this week.
Why because those investor are worried about the profits of
those companies because of the economic harm that these tarifts
will do domestically. I'm looking long term, which, by the way,
is still why you go back to your first question.
Why I'm still massively optimistic. So if I think five,
(08:38):
if I investment prises five years plus out it is
that's post Trump's term. So again, thinking about what's happening now,
this week, this month, that's scary. It hurts your portfolio falls,
It just sucks because no one likes the uncertainty. But
if I'm a long term investor, and I am, I'm
looking at five years and going ah, if companies are
bigger and better than five years than they are now,
despite what they go through in the meantime, they're worth buying.
And so that's the lens I really want to impress
(09:01):
on people. Think about what's happening in those number of
years out there. Don'try about just the short term stuff between.
Speaker 3 (09:06):
Now and then, we track and sentiment through the quarters,
and over the last quarter we've seen it move from
what was pretty balanced into cautious territory. What are you
noticing from Invista sentiment and long term planning?
Speaker 5 (09:21):
Now?
Speaker 2 (09:22):
When we went through COVID almost exactly five years ago.
Weirdly enough, we've looked about the market fellow in Australia thirty
eight percent from top to bottom in a month and
four days. Now, that felt scary as heck. Right, that's
just really really scary. And I don't blame people feeling
scared because what if COVID was bigger than ended up being.
What if the death toll was massively higher, and that
would be obviously far more tragic than the financial impacts.
(09:43):
What if the economy's ground or hopeful longer? What if?
What if I get all those concerns right? Except in
hindsight we know it was the fastest bear market in
history and then the fastest recovery in history. So when
you think about people cautious, yes, absolutely, I'm seeing exactly
the same thing, mate, Just like I got to get
out of here. This is scary. One thing I want
to remind people is remember for every seller, for every
so called panic seller, there's a buyer. You can't sell
(10:04):
shares unless someone buys them from you. And so while
we say, oh, everyone's selling, well, it can't be because
everyone's also buying. There's always two sides to a trade.
So while we focus on the declines, and yes, there's
more panic in the sellers than there is excitement in
the buyers, otherwise the prices go back up. That's why
we get it with price falls, right, that the sellers
are keener than the buyers are. Everything finds its market,
finds its price, and someone ever a lot, millions and
(10:24):
minuses and millions of shares are changing hands, being bought
by people who are saying, hey, this is okay. So, yes,
there's cautiousness out there. There is fear out there is uncertainly.
I get why people are worried about it. So I
want to validate that because it's really really important, the
active investing through COVID. This is what I've told this
story before, son, you and I may have told anything
to you, guys, I hope I didn't. During COVID, there's
two sides of the investor's brain, right, there's a bit
(10:46):
that says, oh my god, what's happening out there? This
is ridiculous. And a policy perspective, I have very strong views,
as you've already heard, from an investment perspective, though, I've
got to have two parts of my brain. Half of
my brain is like, I'm losing money. This sucks so much,
red I'm down again. Maybe the market's right. What if
this is the time that it's different freaking out here?
What if it keeps falling? Maybe now is not the time.
(11:07):
Maybe I should wait till the coast is cleared. All
those fear emotions, all those uncertainty, all those worries they're
going to be there. What if I'm investing too early?
What if I'm wasting money? All that things through my head.
The other part of my brain, and this is the
important bit, is the bit that says, but hang on,
you knew this was going to happen. You know what's
happened before, you know what's going to happen again. Dollar
cost averaging for the wind. If you've got some money
(11:28):
to invest, if you can find great companies you think
they're going to better in five years time, then now
what that is a great thing to be able to do.
Buying shares on sale is what we all think we
want to do, except when they're on sale, we panic.
And so two parts of your brain acknowledge the fear,
acknowledge the uncertain, acknowledge the concern, and then say, but
I'm investing anyway, because I just have to confront it,
ignore it, do what if you need to do with
(11:48):
the fear, But invest anyway, because long term that's proven
over and over and over and over again to be
the right approach. Again, not in any company. Quality companies,
diversified companies, across currencies, across exchanges, across the industries, businesses
with good balance sheets, all the good things that we've
talked about before about good investing, keep doing that stuff.
Don't buy indiscriminately, but keep buying anyway.
Speaker 3 (12:09):
What are the key metrics that people should be keeping
an eye on to see how things are going?
Speaker 2 (12:15):
So I've got to say this is where there are
really easy bit wrong answers to that question.
Speaker 3 (12:20):
Right.
Speaker 2 (12:21):
And if you speak to short term trades, if you
speak to people who are going to try and sell
you a thing rather than hopefully educate you about an approach,
they'll give you lots of great metrics. I have exactly
zero metrics in the short term. Why because think about
think about think about every recession we've ever lived through,
and I've lived through a few. The market goes down,
share prices go down, say I always go down, profits
go down. If you're looking for the recovery to happen,
(12:43):
by the time of the recovery happens, that's too late.
I've told the story before about some really really smart,
wealthy investors who sold everything at the beginning of COVID
and said, I'm not going to buy back in until
the pandemic is over. Now, the pandemic took two years
to be over, and in fact got worse before it
got better. But as lockdowns happened, one tomy shrank. As
that happened, the stock market recovered. So if you're looking
(13:04):
out the rest of the world, this is way the
economy in the stock market up. The same thing. If
you're looking around the world, you're saying, well, tragically, deaths
have increased, illnesses have increased, hospitalizations have increased, lockdowns have happened.
People are barred from entering and leaving countries. Economic activity
has stalled. Governments are keeping US afloat with welfare money.
This feel it's getting worse, and yet the market recovered
(13:27):
and recovered and recovered up into the right. Not in
a straight line and not without doubts and concerns, but
it did. If you waited until a vaccine, you missed out.
If you waited until a pandemic was declared over, you
missed out even more. So I'm going to politely not
answer your question, because honestly, the only metrics you need
to be thinking about are I guess there are, but
they're not really metrics in terms of what data I'm
(13:47):
seeing happen. I'm trying to, as an investor, look forward
and say, in a pick a year in twenty thirty,
I'm going to pick a business in twenty thirty. Are
they going to have more stores? Are they going to
sell to more people? Are they going to find new
ways to add categories? They're going to keep their costs
under control? Probably yes, And if that's the case, they're
going to be mostly more profitable in twenty thirty than
they were. I'll say last year. Let's not include this
(14:09):
year because what happened the last year. Yeah, probably they will. Okay, Well,
if that's true, how much should I pay for that business?
And I can no matter what you've preached to evaluation
is you can pick a rough price or rough multiple
or rough whatever you want to base your evaluation one
to say worth buying or not buying now based on
where I think it'll be in twenty thirty. Let's say
think a year long recession that's says really bad year long,
and it goes from middle of twenty twenty five to
(14:29):
middle of twenty twenty six and sales four by fifty percent.
Now is the company going to survive that? If it's
got a good enough balance sheet, Yes, it's got good
enough cash flows. Yes, okay, if I'm comfortable they will,
And you shouldn't assume, by the way, do do the
work for yourself. In the middle of twenty twenty six,
they come out of recession and sales suck and they're
losing money, but they start to improve over time, and
over that period of time from twenty to twenty seven,
(14:50):
twenty eight, twenty nine, things get back to normal. And
again I look at it and go roight well by
twenty thirty, even if they've gone through a recession, even
if sales and profits did get really ugly for a while,
but they survived and then come out the other d
I think going to be bigger and better. Okay, what's
a fair price to pay for those businesses now? So
don't wait? Is my opinion? My us for the metrics
to come through start by saying, what do I think
about the business? Do I like it has got a
(15:12):
good brand, has got a good future? Will it have
those in five years time? Yes? Okay, what's it worth
paying today to get that benefit of five years time?
That's the entire lens I use for my investing.
Speaker 3 (15:22):
Yeah. Great. So alongside all of this, there's an election
coming up in Australia, so's what's again another moment of
uncertainty that does ripple through into the markets. What's been
most interesting to you so far and the lead out.
Speaker 2 (15:39):
Australia still has a very large budget deficit and it's
projected to get worse based on the most recent budget
handed down by the current incumbent government. And that's not
good for Australia. That's worse than the US by the way.
They've got massive foreign dead issues, massive government debt issues,
so fiscal kind of fiscal being tax and spend right,
the fancy where the economists use for government spending and taxation.
(16:00):
The tax and spend settings are misaligned, and how that
nets out does actually have an impact on the economy.
We're supposed to run service in the good times definit
at the bad time is supposed to offset each other.
The taxes, spen serting is actually really matter for long
term prosperity. So I'm keeping an eye on how much
they're spending. Really honestly, what is interesting too is the
focus on the short term. So we've got one side,
(16:21):
the incumbent government putting cost of living relief through extension
of energy subsidies. Electricity subsidies effectively a discount on your
energy bill. The oppositions promising a reduction of fuel excise
for six months twelve months. Sorry, these are really short
term solutions. So I got to say, from an economic perspective,
my view has always been that as an investor, I
(16:41):
care far more about the long term settings of the
country than about the short term opportunities or risks to
the individual businesses. Now I want to say risks, I
don't mean existential risks. If something's going to go broke,
I really care if it's like well, tax rates for
companies are slightly higher a lower, or tax rates to
individuals slightly hire a lower. But if I'm a long
term investor, what I care most about is my companies
had the opportunity to operate in a really really solid, healthy,
(17:02):
growing economy, and so I honestly want to look at
the election. I'm not looking at who's going to give
more money to this industry five bucks for that, ten
bucks for that. By the way, I'm not top that investor.
I do' a macro investor at all. But policy wise,
I would like to think the government that comes into
power post election is going to fix the budget bottom line.
They probably won't, but I'd like to think that, and
(17:22):
they're really genuinely thinking long term about setting the country
up for the best long term success so that we
can all thrive. And if we all do, companies have
well people to sell goods too, they have richer people
to sell goods to, and people on low incomes have
more money to spend on. I mean, it's a really
beautiful virtual circle if they get it right. The sugar
hit is exactly what it sounds like. It's good for
a little while and then goes away. So those are
kind of things I've been kind of focusing on. There's
(17:44):
not a lot specifically for individual companies or industries. I'll
have to wait and see kind of what comes from that.
What is interesting at the moment is both sides have
been reasonably restrained in terms of new spending announcements. I
think because they realize where the budget is. But there
also a lot of cost of living pre sure as
they call it, and the Polley's a laser focus on
make us feel better about ourselves so we'll vote for them.
Speaker 3 (18:05):
Yeah, on there.
Speaker 4 (18:06):
What do you think is top of mind for Australians
going in I'm not.
Speaker 2 (18:09):
Election aunt lost either, but it's been meaningfully different over
the past six months to the last two months. Even
the last month the government was on the nose, the
opposition was in the descendency. Government was getting tagged with
cost of living pressures. I have to say in the
last kind of couple of weeks, and again I make
no predictions, I no election analysts, but it's been what's
been really interesting is the government's clawed back some ground,
(18:29):
whether it's because the RBA started cutting rates, whether it's
because we've got used to inflation, frankly, whether it's because
the Trump stuff is so scary, we just want the
better the devil we know, I don't really know. And
again this could change between now and the election date.
But we've seen some meaningful swings back to the government
on a bit of a. It's gone from pure cost
of living to yes cost of living with a bit
of a. This feels a bit scary. Is it time
(18:51):
for a change? So if you asked people, I suspect
they would still say it's all about cost of living.
We know Australian real waves are actually really really poor.
They've they've fallen more than I think any other OECD country,
certainly much lower than the US, the UK and the
average for the OECD. I don't know the New Zealand
numbers that the moment I have to say, I should
know them, but I don't. So we've seen that kind
(19:11):
of happen, and the cost of living press are probably
worse in terms of real incomes, real being what you get.
Les's the increase for inflation. If I pay rose a
five percent flashes up six I've gone back as by
one percent of my real wages fallen one percent. That's
what that term means I know, you know that sony
bitch just fear listeners of yours. So yeah, we've gone
backwards in real terms more than almost any other country.
And that was really I think playing in the opposition's
(19:33):
hands cost of living, fix it for me, make it better,
I have say. In the last couple of weeks we've
also seen Peter Dutton the Opposition Letter, reverse his view
on working from home, for example, and sucking public servants.
They are two things that ordinarily would have played really
strongly to a right wing conservative voter base rightly wrong.
I make no value judgment, just an observation they've reversed
course on those because they're losing votes on them. And
(19:54):
I do wonder whether there's a bit more of a
band together in the circums sense we find ourselves is
kind of tough economic and geopolitical circumstances, rather than the
divide on partying policy lines. Again, I don't mean the
lymp's being devisive, both groups just kind of you know,
the tribes reverting to their corners. It does feel like
there's more of a considered middle to be won by
the major parties. And I suspect cost of living is
(20:16):
first and foremost, but also that idea of who is
best place to whether the storm that's coming from the US.
Speaker 3 (20:22):
As a result, what can retail the visitors expect or
you know, how do elections impact to the markets, So.
Speaker 2 (20:29):
What markets tend to respond to. We've seen this in
the last couple of weeks is markets respond to uncertainty,
but more importantly to the unexpected. And I guess what
I mean by that is this horrible phrash. Cool things
are priced in. Well, if the market knows there's going
to be tax cuts in a month time, just pick
an example, the market will say, we think people spend
more money then, and so the taxcat gets priced in.
(20:50):
People foresee that increase, and the price goes up in anticipation.
So the things that we know are already priced in,
at least in theory. The tar that were surprise announcements
are why the market fell because we all kind of thought, well,
Trump might do some cares. Maybe possibly, we'll see and
that's why we've seen it. At four. The election will
move markets only when either a party wins who is
(21:12):
expected to win, or a party unveils a policy or
set of policies the market's not expecting and so generally speaking,
we don't tend to see much movement in markets or
even individual industries most of the time if there is
either a change of government or a return of the
incumbent government because the things that differentiate those two parties.
There's also numbers from one of the big economists, Christ
(21:32):
original Shanelevel or can't remember who was, I think it
was Chris said ninety some of the ninety nine percent
of the spending of both parties exactly the same, ether
as they differ only a one percent of the government budget. Now,
those differences a matter if you a company is going
to get some money or you know individual is going
to get a tax cut or something, so it matters.
But most of the spending is the same across the board.
So unless you're in an industry specific or a company
that's going to benefit or be hurt by a policy
(21:54):
that's announced, and even then it's already probably priced in
unless the party is not expected to win and they
do so not much. The last thing I'll leave you with,
Sony is in the US have worked done by Morgan
House or like a great writer and expotly full employee
for the record is basically the over the life of
the US stock market nineteen hundred or so onwards, there's
(22:14):
been literally no significant difference between the party in power
and the average returns of the stock market during that
period in power. And so that's really important to think
of because we have plenty of if Trump's elected, he'll
do this. If doesn't selected, he'll do that. If Albo's liketed,
he'll do this. They'll do those things. But statistically, at
least the odds that the party in power make a
meaningful difference to the stock market subsequently, it's yeah, it's
(22:37):
lie ball. There is no meaningful difference. There's a lot
of people who have this view of if Party X wins,
then the market marke will do well, so I'll buy,
or they're going to wreck the party. Why I was
going to wrect the economy, so I'll sell everything. It
just isn't the case very often, and so I really
would encourage people separate your politics and your your you're
investing anything else.
Speaker 4 (22:54):
That we want to that we haven't covered about the
election or tariffs, really, I.
Speaker 2 (22:58):
Think so a couple of things. The people who are
the supportive of Trump's tariffs say, well, other countries have
done on the country's done it before. You know, Yes,
they've always been around, and I guess I kind of
hap him back a little bit on what I said
about the tariffs. But if you kind of go back
and say, so what you know? And then what and
then what? The best way to inoculate yourself, by the way,
against the stuff is learn some history. And I don't
(23:19):
mean boring history. I've ever mean economic history. I just
mean history history. Things improve over time despite stuff. So
the Australians share market's gone up nine percent a year
on average, eight nine percent since about nineteen oh six.
Credit Squiz put some numbers out. By the way, the
ASEX was the best performing stock market over that period
of time, which is pretty good, but only by a
hairsbreadth against the US now roughly nine percent a year.
(23:40):
They say six pp in a year, six point something
six point four. I think it was before inflation, so
you aduflation back, you're roughly nine, give or take. And
that happened despite all these things. Two World wars, the
Korean War, the Vietnam War, two Iraq War was the
war in Afghanistan, the Great Depression, recessions before the Great Depressions,
right after the Great Depression before the Baby Boom, and
then for every seven or ten years after oil shocks
(24:02):
in the seventies, the GFC, the dot com crash, the
eighty seven stock market crash, stagflation in the early eighties.
If I feel like I'm giving a laundry list, I
haven't bet a live that long. But I've done the history.
My point is that over time things go on to
do better and big at Why because human ingenuity you
mentioned this before, Sonya. Unless we've hit peak ingenuity, unless
we've hit peak human development, human capacity, human potential. I
(24:23):
haven't even talked about AI. We won't. But man, I mean,
think about the opportunities that are coming for companies and
for people in a world where computer power is just
phenomenally large than it ever has been. If you're a
brave person to say, yeah, we hit peak capitalists, we
hit peak ingenuity, we hit peak development in twenty twenty four,
it's gonna be rubbish ever after. I mean, maybe it
will be, but jeers, there's a much chance of that
not really, So really, please please please look through the tariffs,
(24:46):
invest well, investing quality business. We talked about that, but
please do that. That's the point of the biggest takeaway
of the TARFFS. I hope so all the time we
spent on it is in hindsight they will think not
be as consequential to your wealth as you might think
fear looking forward because you can't see through them yet right,
so dot com crash, natact like eighty five percent. It
(25:06):
was an enormous wipeout right huge, and yet NAS it
went on a new Hives. The now the es people
in New Highs Yx went on New Hives. It wasn't
the Bill and end all. Now don't I don't like them,
I don't want them. I'm not saying we shouldn't have them.
If we didn't could avoid them, of course we shouldn't.
But if you can't avoid them, the nextperst thing is
to say they're here. What's the best way to make
the best of them? And there's likely to invest anyway.
(25:26):
I think on the lecture, I've probably cover enough of that. Mate.
The best thing, as I said, is to separate your
policy or your political brain from your investing brain. Don't
overthink it, don't extrapolate too much. I've seen plenty of
commentary on Twitter. Ah, this this, this party will kill
the economy, this party will kill it, and that, by
the way, both say about each other, because that's just
what we do. It's not going to happen. Right. Are
some better or worse than the economy? Maybe? Probably? Do
(25:47):
we know that yet? I don't even know if we
know that yet. But you know, more more broadly, despite governments,
despite crashes, despite tariffs, despite all this stuff, human engineering
works right. Churchill said, democracy is the worst system except
for every other system that's been tried. My versionay, is
democratic capitalism right for all of its flaws, for all
of its problems, and I would fix them if I
had the choice. Maybe treasurer for six months is all
they'd need. But despite all those things, it still goes
(26:10):
on to create enormous wealth for people if you are
part of the system. Why, because it harnesses all that
human capacity and potential.
Speaker 4 (26:17):
I think that people are really you know, the wealth
of experience.
Speaker 3 (26:20):
Now that we have been through a few of these things,
I mean, we've caught up over the years about the
different periods of market volatility. So I mean, is there
anything you want to want to leave people with before
we wrap today?
Speaker 2 (26:32):
The future is bright. The future is bright, and wins
for all the doom say. It's for all the doom
and gloomers, for all the perma bears, for all the
people who are Oh it's raining, it's raining. The skies falling,
Chicken little style, you know what. Bits of the sky
fall all the time, but the sky hasn't falling. The
future is bright. We will go on to bigger and
better and brighter things. You and I be talking in
five years time, Sonya and I we bet a reasonal
amount of money. The A six has hit another high,
(26:53):
probably another two or three on the way through. Maybe
it's even fallen out of ten percent on that journey
and come back up again. Vanguard have a great chart.
I've banged on about it before. It's called their thirty
year Index chart. Ten thousand dollars invested in nineteen ninety
four was one hundred and thirty thousand dollars. Hypothetical amount
ten grand became one hundred and thirty thousand dollars. Despite
all these things I talked about, it happened over that
thirty year period, right, a thirty fold increase. It's about
(27:15):
the wars and the terrorisms and the recessions and the
Covids and the all this stuff. Now, if you're added
money regularly, you're going to have even more than that.
Now I'm not saying that'll be the next thirty years,
who knows. But also that average radar of that thirty
year period not dis similar to thirty years and the
thirties and thirty years before that. So the future is bright.
Optimism wins. Look through the clouds and make sure you
can see the long term value being built by companies
(27:36):
and people right across the world and particularly on our
stock exchanges.
Speaker 3 (27:40):
So one thing that did stand out from the data
was around optimism for Australians and a group that felt
least optimistic, we're younger Australians. Do you have anything to
kind of share on that or what might be factoring
in the air.
Speaker 2 (27:54):
I honestly, I started investing relatively early, but not as
early as I should have. And I hate you because
we have our own podcast. I regularly abuse and when
they very very good naturedly when they ride in because
they've got things. I want their time right. I want
to go back thirty years. I want to go and
invest more. I want to. I want to. I want
to set myself up even better because I know what
not because I know what the future did. Hat did bring,
(28:16):
but I know what the future can bring. If you're
a young person, I get By the way, why do
you feel Why do you feel bad? Housing is ridiculously expensive?
You've just seen the superannuation of fall. You haven't been
through these market cycles before, and you're like, oh my god,
this is investing. What are you people mad? Why would
I do this thing right? Why would I feel good
about this? So I get that. I absolutely get it,
because you know, again, the one benefit of age other
(28:36):
than dodgy knees and less hair is is you kind
of have been there before and you see it saying
to happen. So yeah, I'm incredibly envious with young people
because they've got all the time in the world, whether
it's through superannuational, compulsory savings, whether I said, their ownly investing,
just the passing of time, right, I am. I am
so optimistic. I've got a twenty nine year old, an
eleven year old, twelve year old now, and I am
(28:57):
so jealous of their future because they have got an
amazing future ahead. And think about the technological changes. What's
going to happen in the world. Man, can you imagine it,
and yet they've got the time to actually enjoy that
and invest now. So what I want to say to
young people is retirement feels a very long time away.
That's why super is so great, because it makes you say,
when you're nineteen, you don't want to And I'm yet
to hear someone who's retired who hates superannuation. Please, people
(29:19):
working new, I want to have to put this money away.
If this is terrible, as horrible, I don't. I would
rather spend it. They get the hirement and go, oh man,
I am so glad there's superannuation. So if you're a
young person listening, please say the course. Please believe that
the future is bright. Please believe that we have a
system of democratic capitalism for all its failings, and we're
failing you on house prices right now, and change that
if I was in the Treasurer's chair for a while.
(29:41):
But investing will work for you. It will build wealth
over time. I can't give your carriage and allowed to
give you promises because otherwise the regulator will yell at me.
Let me just say, in my very very very very
very strong opinion, the future is very bright. You have
so much time on your hands. The last message is
please keep contributing, whether it's adding to your own super
or tributing, investing in your own name through chases or otherwise.
(30:03):
Please keep investing because the compound returns you get over time.
If you're listening to your twenty five now, you're probably
gonna live to your ninety five. And no retirement's at
the end. The retirement date is not the end of
your investing, right, it's about two thirds of the way
through your life. So you've got seventy five years to compound.
That is, do the mats on that, by the way,
it will blow your mind. And so yes, please be positive,
(30:23):
Please be optimistic. I know it feels like it sucks.
Take it for an old person. Things will get better.
They will deliver plenty of returns. Your compound returns will
be spectacular. Stay the course, keep investing. It'd be absolutely
worth it. Your retired self, well, thank you, and maybe
you might have been think of me when I'm long
dead and in the grove.
Speaker 3 (30:39):
I love that, and it gives me a chance to
slip in my favorite or on buffet quote, which is
someone sitting in the shade because they've planted a tree
many years ago.
Speaker 2 (30:46):
So I get a T shirt with that on it, Sonia,
I wear a T shirt with that quote. I love
that quote.
Speaker 1 (30:51):
It's so good but just.
Speaker 3 (30:53):
Exactly what you're talking about, right, Like you don't know
it at the time, but you know over time it plays.
Speaker 2 (30:58):
Off plant the tree, baby, plant the thure, you know.
Speaker 4 (31:01):
Thanks Scott, and thanks everyone for tuning in.
Speaker 3 (31:04):
You can watch the episode on YouTube or listen in
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Speaker 2 (00:11):
But every company is, you know, going to survive and thrive.
But shares in general are very likely in my opinion,
because history tells us to go much higher from here
over the long term, and that's the only timeframe that
people should be worried about. Half of my brain is like,
I'm losing money. This sucks so much red. The other
part of my brain, and this is the important bit,
is the bit that says, but hang on, you knew
this was going to happen. You know what's happened before
(00:34):
you know it's going to happen again. Dollar cost averaging
for the winds. Buying shares on sales is what we
all think we want to do, except when they're on sale.
We pain.
Speaker 3 (00:43):
Welcome to shared Lunch, brought to you by Chas's. At Cheza's,
we're on a mission to create financial empowerment for everyone,
which is why we have these conversations. They're a big
part of being able to dig in to the different
topics that are affecting at vistas and to get experts
along to share their view on it. So I'm Sonya,
the co founders and co CEOs at Chairs Ease, and
today we're joined by Chief Investing Officer at the Montley
(01:05):
Full Scott Phillips. We're going to chat about all things
US tariffs and the upcoming election and how this is
impacting Australia.
Speaker 4 (01:12):
Before we get.
Speaker 3 (01:13):
Started, I want to acknowledge the Getigul people of the
or nation, the traditional custodians of the land when we're
coming to you from today and pay respects to elders, past,
present and emerging.
Speaker 5 (01:23):
Investing involves the risk you might lose the money you
start with. We recommend talking to a licensed financial advisor.
We also recommend reading product disclosure documents before deciding to invest.
Everything you're about to see and here is current at
the time of recording.
Speaker 4 (01:37):
Hi Scott, welcome to the show, Sonya, Thank you and
thank you for having me. Yeah, great to have you back.
Speaker 3 (01:42):
So I'm just going to jump straight into it is
now a good time to invest?
Speaker 2 (01:47):
Yes, absolutely a great time to invest, but with a
massive asteriskmote. The asterisk is I have no idea what
happens next. So I maybe the market force twenty percent,
maybe it rises twenty percent, maybe it goes nowhere for
a year. I have absolutely no idea. So how can
I say it's a great time to invest. That's a
really really simple one. Here's what history tells us, and
this is really important. The ASX, the US markets, developed
(02:11):
markets around the world have never yet failed to regain
then surpass a previous high. So here's the thing. If
that holds true, now it may not. I can't give
a promise or a guarantee. If it does hold true,
that means it upside from here to get back to
the last high and then more upside again. Shares, relatively
where they have been, are on special. So do I
(02:32):
know what's going to happen next? No? Do I know
which companies know. And by the way, when I say shares,
when you ask the question, shares, I'm talking about generically
generally across the market. Not every company will go up,
not every company is worth buying, not every company is
going to survive and thrive, But shares in general are
very likely in my opinion, because history tells us to
go much higher from here over the long term, and
that's the only timeframe that people should be worried about.
Speaker 3 (02:53):
You mentioned that you know things have been dropping over
the last week, while largely know one of the things
that's driving this is the tariffs that have been put
in place by the US. And so we're looking at
ten percent for Australia as a baseline. What impact are
these tariffs having on Australian companies.
Speaker 2 (03:12):
Let's work out what's going on. So the tariffs that
have been put in place. I'm going to be going
to be pretty honest here and I'm gonna be pretty upfront.
I'm going to ask your listeners to trust me on
the process here. I don't have a political dog in
this fight. Democrat, Republican, liberal, labor, I don't care. What
I will say to you is economically, these tariffs are
a terrible idea and a terrible solution to a reasonable problem.
(03:33):
And just because if identified a problem correctly, which is hoy,
there's some problems with the US manufacturing, doesn't mean the answer,
any answer is always going to be necessarily correct. I'm
sorry for the hardcore Trump finds that fans out that
it's not true. Again, it's not a personal view it's
not even a political view, it's just an economic view.
So what's happening is Donald Trumps announced tariffs on much
of the rest of the world. And I'll get back
to Australia and New Zealand by extension a minute. But
(03:55):
the impact of those tariffs are going to be almost
certainly higher prices for US consumers. Why because when we
say we're putting tariffs on Chinese products, we're not really
say we're paying putting traffs on tarifts on China. We're
saying American consumers or Donald Trump saying American consumer is
going to pay more for Chinese imports. Or by the way,
the newly competitive US made stuff that's more expensive than
(04:17):
it used to be but can now compete at those
higher prices. In other words, no matter which way you
cut the sausage, you're paying a higher price for those goods.
Higher prices mean inflation. Now, I don't have to explain
that we've been through five years of it over the
last half decade right around the world. High inflation is bad.
High inflation may also lead to and most economists, and frankly,
even the Atlanta branch of the US Federal Reserve are
(04:38):
expecting the US to enter a recession this year. If
the US enters a recession, the other world's largest economy
are the world's largest consumer economy by miles. If the
US has a recession, it's going to put meaningful downward
pressure on economic growth right around the rest of the world,
including down here at the bottom end of the globe
in Australia, in New Zealand. So that's the setup. But
it's important set up because when you say, what's going
(04:58):
to happen to companies here in Australia, Yeah, there's three
ways to think about it. The first is that global story,
the global recession risk. If the US demands less, Australian
companies may produce less. If Australian's companies produced less, their
profits are probably going to fall. Now that's a modest outcome.
It is a lot less. We may well see companies far,
we may well see job losses. And I'm an optimist
(05:19):
by the way, but I would also want to tell
it straight. So that is the possible outcome. That is
the worst case scenario probably if this does get to
that intergre So that's the first order impact. The second
order impact is, of course the impact on Australian companies directly.
We know there's twenty five percent on Australian aluminium and steel.
There is ten percent now and everything else going to
the US. If you have a meaningful proportion of your
(05:41):
sales that go to the US, they are going to
be harder sales to make. Maybe you absorb the increase
and make lower margins. Maybe you pass on the increase
and have lower sales. There'll be a few companies that
can pass on the increase and still sell the same amount.
That's the best case scenario, but it's probably a small group.
Because price elasticity matters. If you put prices up, people
buy less. So that's the second order for all those
businesses that are exporting to the US. And by the way,
(06:03):
those companies reliant on those other companies. If you're supplying
a company that's exporting to the US and they buy less,
are going to buy less from you, so that matters.
Further impact really quickly is China. Australia is China's so
China's Astralia's largest trading partner by heaps. There are ongoing
tit for tat reciprocal tariffs of the bullies, Bass each
other over the head. Trump said overnight recently a couple
(06:25):
of days ago, they are going to maybe put fifty
percent tariffs on Chinese goods on top or they've already
announced why because China had the too ready to basically
bash back at the US putting tariffs on at the
first place. And this is the silliness of what's going on.
But if China's economy slows and Chinese steel production slows,
guess what that's going to hurt austrain and own or
exports meaningfully. That's not a big economic impact, by the way,
(06:47):
because iron or impact. It doesn't employ a whole lot
of people, but big impact for share prices for those
iron or exporters they own shares and four descu for
full disclosure, bad news for those miners, bad news for
government revenues, and for gross domestic economic output. So there's
three kind of concentric circles, if you like, of potential
outcomes from the tariff or when it comes to what's
(07:07):
going to hit us here at home, are there.
Speaker 4 (07:09):
Any particular areas that benefit from the change?
Speaker 5 (07:13):
No.
Speaker 2 (07:15):
I mean, if you stretch and you squint really significantly,
you might find an opportunity to find one or two.
What you might see happen is Australian companies find other
markets for their products. For example, we saw when China
put massive tariffs on Australian wine. Australia wine makers found
other markets. It wasn't easy and found some something didn't
find any at all, by the way, I was going
to a massive wine glut in Australia. So is there upside
(07:35):
from that? No, If you are in an ASX listed
company that happens to a business only in the US
and somehow it is able to make more money because
it could prices up because inputs are more expensive, maybe
it's a little bit somewhere there in the nooks and crannies.
It's a really really small sliver of potential upside. And frankly,
even then, those companies are more likely to be hit
(07:56):
by US economic pain more broadly rather than tariffs. Particularly,
that is, if inflation goes up, if economic growth falls,
if unemployment rises, those companies that are based there are
probably going to hurt. And by the way, that's why
we're seeing US share markets fall. You kind of think
in the way that the simplistic version that Trump and
others like to present this tariffs go up, US business
(08:17):
gets better. US companies make a lot of money, US
people get employed. Therefore, it's all wine and roses. The
reality is the US market is absolutely tanked for a
couple of straight days late last week, earlier this week.
Why because those investor are worried about the profits of
those companies because of the economic harm that these tarifts
will do domestically. I'm looking long term, which, by the way,
is still why you go back to your first question.
Why I'm still massively optimistic. So if I think five,
(08:38):
if I investment prises five years plus out it is
that's post Trump's term. So again, thinking about what's happening now,
this week, this month, that's scary. It hurts your portfolio falls,
It just sucks because no one likes the uncertainty. But
if I'm a long term investor, and I am, I'm
looking at five years and going ah, if companies are
bigger and better than five years than they are now,
despite what they go through in the meantime, they're worth buying.
And so that's the lens I really want to impress
(09:01):
on people. Think about what's happening in those number of
years out there. Don'try about just the short term stuff between.
Speaker 3 (09:06):
Now and then, we track and sentiment through the quarters,
and over the last quarter we've seen it move from
what was pretty balanced into cautious territory. What are you
noticing from Invista sentiment and long term planning?
Speaker 5 (09:21):
Now?
Speaker 2 (09:22):
When we went through COVID almost exactly five years ago.
Weirdly enough, we've looked about the market fellow in Australia thirty
eight percent from top to bottom in a month and
four days. Now, that felt scary as heck. Right, that's
just really really scary. And I don't blame people feeling
scared because what if COVID was bigger than ended up being.
What if the death toll was massively higher, and that
would be obviously far more tragic than the financial impacts.
(09:43):
What if the economy's ground or hopeful longer? What if?
What if I get all those concerns right? Except in
hindsight we know it was the fastest bear market in
history and then the fastest recovery in history. So when
you think about people cautious, yes, absolutely, I'm seeing exactly
the same thing, mate, Just like I got to get
out of here. This is scary. One thing I want
to remind people is remember for every seller, for every
so called panic seller, there's a buyer. You can't sell
(10:04):
shares unless someone buys them from you. And so while
we say, oh, everyone's selling, well, it can't be because
everyone's also buying. There's always two sides to a trade.
So while we focus on the declines, and yes, there's
more panic in the sellers than there is excitement in
the buyers, otherwise the prices go back up. That's why
we get it with price falls, right, that the sellers
are keener than the buyers are. Everything finds its market,
finds its price, and someone ever a lot, millions and
(10:24):
minuses and millions of shares are changing hands, being bought
by people who are saying, hey, this is okay. So, yes,
there's cautiousness out there. There is fear out there is uncertainly.
I get why people are worried about it. So I
want to validate that because it's really really important, the
active investing through COVID. This is what I've told this
story before, son, you and I may have told anything
to you, guys, I hope I didn't. During COVID, there's
two sides of the investor's brain, right, there's a bit
(10:46):
that says, oh my god, what's happening out there? This
is ridiculous. And a policy perspective, I have very strong views,
as you've already heard, from an investment perspective, though, I've
got to have two parts of my brain. Half of
my brain is like, I'm losing money. This sucks so much,
red I'm down again. Maybe the market's right. What if
this is the time that it's different freaking out here?
What if it keeps falling? Maybe now is not the time.
(11:07):
Maybe I should wait till the coast is cleared. All
those fear emotions, all those uncertainty, all those worries they're
going to be there. What if I'm investing too early?
What if I'm wasting money? All that things through my head.
The other part of my brain, and this is the
important bit, is the bit that says, but hang on,
you knew this was going to happen. You know what's
happened before, you know what's going to happen again. Dollar
cost averaging for the wind. If you've got some money
(11:28):
to invest, if you can find great companies you think
they're going to better in five years time, then now
what that is a great thing to be able to do.
Buying shares on sale is what we all think we
want to do, except when they're on sale, we panic.
And so two parts of your brain acknowledge the fear,
acknowledge the uncertain, acknowledge the concern, and then say, but
I'm investing anyway, because I just have to confront it,
ignore it, do what if you need to do with
(11:48):
the fear, But invest anyway, because long term that's proven
over and over and over and over again to be
the right approach. Again, not in any company. Quality companies,
diversified companies, across currencies, across exchanges, across the industries, businesses
with good balance sheets, all the good things that we've
talked about before about good investing, keep doing that stuff.
Don't buy indiscriminately, but keep buying anyway.
Speaker 3 (12:09):
What are the key metrics that people should be keeping
an eye on to see how things are going?
Speaker 2 (12:15):
So I've got to say this is where there are
really easy bit wrong answers to that question.
Speaker 3 (12:20):
Right.
Speaker 2 (12:21):
And if you speak to short term trades, if you
speak to people who are going to try and sell
you a thing rather than hopefully educate you about an approach,
they'll give you lots of great metrics. I have exactly
zero metrics in the short term. Why because think about
think about think about every recession we've ever lived through,
and I've lived through a few. The market goes down,
share prices go down, say I always go down, profits
go down. If you're looking for the recovery to happen,
(12:43):
by the time of the recovery happens, that's too late.
I've told the story before about some really really smart,
wealthy investors who sold everything at the beginning of COVID
and said, I'm not going to buy back in until
the pandemic is over. Now, the pandemic took two years
to be over, and in fact got worse before it
got better. But as lockdowns happened, one tomy shrank. As
that happened, the stock market recovered. So if you're looking
(13:04):
out the rest of the world, this is way the
economy in the stock market up. The same thing. If
you're looking around the world, you're saying, well, tragically, deaths
have increased, illnesses have increased, hospitalizations have increased, lockdowns have happened.
People are barred from entering and leaving countries. Economic activity
has stalled. Governments are keeping US afloat with welfare money.
This feel it's getting worse, and yet the market recovered
(13:27):
and recovered and recovered up into the right. Not in
a straight line and not without doubts and concerns, but
it did. If you waited until a vaccine, you missed out.
If you waited until a pandemic was declared over, you
missed out even more. So I'm going to politely not
answer your question, because honestly, the only metrics you need
to be thinking about are I guess there are, but
they're not really metrics in terms of what data I'm
(13:47):
seeing happen. I'm trying to, as an investor, look forward
and say, in a pick a year in twenty thirty,
I'm going to pick a business in twenty thirty. Are
they going to have more stores? Are they going to
sell to more people? Are they going to find new
ways to add categories? They're going to keep their costs
under control? Probably yes, And if that's the case, they're
going to be mostly more profitable in twenty thirty than
they were. I'll say last year. Let's not include this
(14:09):
year because what happened the last year. Yeah, probably they will. Okay, Well,
if that's true, how much should I pay for that business?
And I can no matter what you've preached to evaluation
is you can pick a rough price or rough multiple
or rough whatever you want to base your evaluation one
to say worth buying or not buying now based on
where I think it'll be in twenty thirty. Let's say
think a year long recession that's says really bad year long,
and it goes from middle of twenty twenty five to
(14:29):
middle of twenty twenty six and sales four by fifty percent.
Now is the company going to survive that? If it's
got a good enough balance sheet, Yes, it's got good
enough cash flows. Yes, okay, if I'm comfortable they will,
And you shouldn't assume, by the way, do do the
work for yourself. In the middle of twenty twenty six,
they come out of recession and sales suck and they're
losing money, but they start to improve over time, and
over that period of time from twenty to twenty seven,
(14:50):
twenty eight, twenty nine, things get back to normal. And
again I look at it and go roight well by
twenty thirty, even if they've gone through a recession, even
if sales and profits did get really ugly for a while,
but they survived and then come out the other d
I think going to be bigger and better. Okay, what's
a fair price to pay for those businesses now? So
don't wait? Is my opinion? My us for the metrics
to come through start by saying, what do I think
about the business? Do I like it has got a
(15:12):
good brand, has got a good future? Will it have
those in five years time? Yes? Okay, what's it worth
paying today to get that benefit of five years time?
That's the entire lens I use for my investing.
Speaker 3 (15:22):
Yeah. Great. So alongside all of this, there's an election
coming up in Australia, so's what's again another moment of
uncertainty that does ripple through into the markets. What's been
most interesting to you so far and the lead out.
Speaker 2 (15:39):
Australia still has a very large budget deficit and it's
projected to get worse based on the most recent budget
handed down by the current incumbent government. And that's not
good for Australia. That's worse than the US by the way.
They've got massive foreign dead issues, massive government debt issues,
so fiscal kind of fiscal being tax and spend right,
the fancy where the economists use for government spending and taxation.
(16:00):
The tax and spend settings are misaligned, and how that
nets out does actually have an impact on the economy.
We're supposed to run service in the good times definit
at the bad time is supposed to offset each other.
The taxes, spen serting is actually really matter for long
term prosperity. So I'm keeping an eye on how much
they're spending. Really honestly, what is interesting too is the
focus on the short term. So we've got one side,
(16:21):
the incumbent government putting cost of living relief through extension
of energy subsidies. Electricity subsidies effectively a discount on your
energy bill. The oppositions promising a reduction of fuel excise
for six months twelve months. Sorry, these are really short
term solutions. So I got to say, from an economic perspective,
my view has always been that as an investor, I
(16:41):
care far more about the long term settings of the
country than about the short term opportunities or risks to
the individual businesses. Now I want to say risks, I
don't mean existential risks. If something's going to go broke,
I really care if it's like well, tax rates for
companies are slightly higher a lower, or tax rates to
individuals slightly hire a lower. But if I'm a long
term investor, what I care most about is my companies
had the opportunity to operate in a really really solid, healthy,
(17:02):
growing economy, and so I honestly want to look at
the election. I'm not looking at who's going to give
more money to this industry five bucks for that, ten
bucks for that. By the way, I'm not top that investor.
I do' a macro investor at all. But policy wise,
I would like to think the government that comes into
power post election is going to fix the budget bottom line.
They probably won't, but I'd like to think that, and
(17:22):
they're really genuinely thinking long term about setting the country
up for the best long term success so that we
can all thrive. And if we all do, companies have
well people to sell goods too, they have richer people
to sell goods to, and people on low incomes have
more money to spend on. I mean, it's a really
beautiful virtual circle if they get it right. The sugar
hit is exactly what it sounds like. It's good for
a little while and then goes away. So those are
kind of things I've been kind of focusing on. There's
(17:44):
not a lot specifically for individual companies or industries. I'll
have to wait and see kind of what comes from that.
What is interesting at the moment is both sides have
been reasonably restrained in terms of new spending announcements. I
think because they realize where the budget is. But there
also a lot of cost of living pre sure as
they call it, and the Polley's a laser focus on
make us feel better about ourselves so we'll vote for them.
Speaker 3 (18:05):
Yeah, on there.
Speaker 4 (18:06):
What do you think is top of mind for Australians
going in I'm not.
Speaker 2 (18:09):
Election aunt lost either, but it's been meaningfully different over
the past six months to the last two months. Even
the last month the government was on the nose, the
opposition was in the descendency. Government was getting tagged with
cost of living pressures. I have to say in the
last kind of couple of weeks, and again I make
no predictions, I no election analysts, but it's been what's
been really interesting is the government's clawed back some ground,
(18:29):
whether it's because the RBA started cutting rates, whether it's
because we've got used to inflation, frankly, whether it's because
the Trump stuff is so scary, we just want the
better the devil we know, I don't really know. And
again this could change between now and the election date.
But we've seen some meaningful swings back to the government
on a bit of a. It's gone from pure cost
of living to yes cost of living with a bit
of a. This feels a bit scary. Is it time
(18:51):
for a change? So if you asked people, I suspect
they would still say it's all about cost of living.
We know Australian real waves are actually really really poor.
They've they've fallen more than I think any other OECD country,
certainly much lower than the US, the UK and the
average for the OECD. I don't know the New Zealand
numbers that the moment I have to say, I should
know them, but I don't. So we've seen that kind
(19:11):
of happen, and the cost of living press are probably
worse in terms of real incomes, real being what you get.
Les's the increase for inflation. If I pay rose a
five percent flashes up six I've gone back as by
one percent of my real wages fallen one percent. That's
what that term means I know, you know that sony
bitch just fear listeners of yours. So yeah, we've gone
backwards in real terms more than almost any other country.
And that was really I think playing in the opposition's
(19:33):
hands cost of living, fix it for me, make it better,
I have say. In the last couple of weeks we've
also seen Peter Dutton the Opposition Letter, reverse his view
on working from home, for example, and sucking public servants.
They are two things that ordinarily would have played really
strongly to a right wing conservative voter base rightly wrong.
I make no value judgment, just an observation they've reversed
course on those because they're losing votes on them. And
(19:54):
I do wonder whether there's a bit more of a
band together in the circums sense we find ourselves is
kind of tough economic and geopolitical circumstances, rather than the
divide on partying policy lines. Again, I don't mean the
lymp's being devisive, both groups just kind of you know,
the tribes reverting to their corners. It does feel like
there's more of a considered middle to be won by
the major parties. And I suspect cost of living is
(20:16):
first and foremost, but also that idea of who is
best place to whether the storm that's coming from the US.
Speaker 3 (20:22):
As a result, what can retail the visitors expect or
you know, how do elections impact to the markets, So.
Speaker 2 (20:29):
What markets tend to respond to. We've seen this in
the last couple of weeks is markets respond to uncertainty,
but more importantly to the unexpected. And I guess what
I mean by that is this horrible phrash. Cool things
are priced in. Well, if the market knows there's going
to be tax cuts in a month time, just pick
an example, the market will say, we think people spend
more money then, and so the taxcat gets priced in.
(20:50):
People foresee that increase, and the price goes up in anticipation.
So the things that we know are already priced in,
at least in theory. The tar that were surprise announcements
are why the market fell because we all kind of thought, well,
Trump might do some cares. Maybe possibly, we'll see and
that's why we've seen it. At four. The election will
move markets only when either a party wins who is
(21:12):
expected to win, or a party unveils a policy or
set of policies the market's not expecting and so generally speaking,
we don't tend to see much movement in markets or
even individual industries most of the time if there is
either a change of government or a return of the
incumbent government because the things that differentiate those two parties.
There's also numbers from one of the big economists, Christ
(21:32):
original Shanelevel or can't remember who was, I think it
was Chris said ninety some of the ninety nine percent
of the spending of both parties exactly the same, ether
as they differ only a one percent of the government budget. Now,
those differences a matter if you a company is going
to get some money or you know individual is going
to get a tax cut or something, so it matters.
But most of the spending is the same across the board.
So unless you're in an industry specific or a company
that's going to benefit or be hurt by a policy
(21:54):
that's announced, and even then it's already probably priced in
unless the party is not expected to win and they
do so not much. The last thing I'll leave you with,
Sony is in the US have worked done by Morgan
House or like a great writer and expotly full employee
for the record is basically the over the life of
the US stock market nineteen hundred or so onwards, there's
(22:14):
been literally no significant difference between the party in power
and the average returns of the stock market during that
period in power. And so that's really important to think
of because we have plenty of if Trump's elected, he'll
do this. If doesn't selected, he'll do that. If Albo's liketed,
he'll do this. They'll do those things. But statistically, at
least the odds that the party in power make a
meaningful difference to the stock market subsequently, it's yeah, it's
(22:37):
lie ball. There is no meaningful difference. There's a lot
of people who have this view of if Party X wins,
then the market marke will do well, so I'll buy,
or they're going to wreck the party. Why I was
going to wrect the economy, so I'll sell everything. It
just isn't the case very often, and so I really
would encourage people separate your politics and your your you're
investing anything else.
Speaker 4 (22:54):
That we want to that we haven't covered about the
election or tariffs, really, I.
Speaker 2 (22:58):
Think so a couple of things. The people who are
the supportive of Trump's tariffs say, well, other countries have
done on the country's done it before. You know, Yes,
they've always been around, and I guess I kind of
hap him back a little bit on what I said
about the tariffs. But if you kind of go back
and say, so what you know? And then what and
then what? The best way to inoculate yourself, by the way,
against the stuff is learn some history. And I don't
(23:19):
mean boring history. I've ever mean economic history. I just
mean history history. Things improve over time despite stuff. So
the Australians share market's gone up nine percent a year
on average, eight nine percent since about nineteen oh six.
Credit Squiz put some numbers out. By the way, the
ASEX was the best performing stock market over that period
of time, which is pretty good, but only by a
hairsbreadth against the US now roughly nine percent a year.
(23:40):
They say six pp in a year, six point something
six point four. I think it was before inflation, so
you aduflation back, you're roughly nine, give or take. And
that happened despite all these things. Two World wars, the
Korean War, the Vietnam War, two Iraq War was the
war in Afghanistan, the Great Depression, recessions before the Great Depressions,
right after the Great Depression before the Baby Boom, and
then for every seven or ten years after oil shocks
(24:02):
in the seventies, the GFC, the dot com crash, the
eighty seven stock market crash, stagflation in the early eighties.
If I feel like I'm giving a laundry list, I
haven't bet a live that long. But I've done the history.
My point is that over time things go on to
do better and big at Why because human ingenuity you
mentioned this before, Sonya. Unless we've hit peak ingenuity, unless
we've hit peak human development, human capacity, human potential. I
(24:23):
haven't even talked about AI. We won't. But man, I mean,
think about the opportunities that are coming for companies and
for people in a world where computer power is just
phenomenally large than it ever has been. If you're a
brave person to say, yeah, we hit peak capitalists, we
hit peak ingenuity, we hit peak development in twenty twenty four,
it's gonna be rubbish ever after. I mean, maybe it
will be, but jeers, there's a much chance of that
not really, So really, please please please look through the tariffs,
(24:46):
invest well, investing quality business. We talked about that, but
please do that. That's the point of the biggest takeaway
of the TARFFS. I hope so all the time we
spent on it is in hindsight they will think not
be as consequential to your wealth as you might think
fear looking forward because you can't see through them yet right,
so dot com crash, natact like eighty five percent. It
(25:06):
was an enormous wipeout right huge, and yet NAS it
went on a new Hives. The now the es people
in New Highs Yx went on New Hives. It wasn't
the Bill and end all. Now don't I don't like them,
I don't want them. I'm not saying we shouldn't have them.
If we didn't could avoid them, of course we shouldn't.
But if you can't avoid them, the nextperst thing is
to say they're here. What's the best way to make
the best of them? And there's likely to invest anyway.
(25:26):
I think on the lecture, I've probably cover enough of that. Mate.
The best thing, as I said, is to separate your
policy or your political brain from your investing brain. Don't
overthink it, don't extrapolate too much. I've seen plenty of
commentary on Twitter. Ah, this this, this party will kill
the economy, this party will kill it, and that, by
the way, both say about each other, because that's just
what we do. It's not going to happen. Right. Are
some better or worse than the economy? Maybe? Probably? Do
(25:47):
we know that yet? I don't even know if we
know that yet. But you know, more more broadly, despite governments,
despite crashes, despite tariffs, despite all this stuff, human engineering
works right. Churchill said, democracy is the worst system except
for every other system that's been tried. My versionay, is
democratic capitalism right for all of its flaws, for all
of its problems, and I would fix them if I
had the choice. Maybe treasurer for six months is all
they'd need. But despite all those things, it still goes
(26:10):
on to create enormous wealth for people if you are
part of the system. Why, because it harnesses all that
human capacity and potential.
Speaker 4 (26:17):
I think that people are really you know, the wealth
of experience.
Speaker 3 (26:20):
Now that we have been through a few of these things,
I mean, we've caught up over the years about the
different periods of market volatility. So I mean, is there
anything you want to want to leave people with before
we wrap today?
Speaker 2 (26:32):
The future is bright. The future is bright, and wins
for all the doom say. It's for all the doom
and gloomers, for all the perma bears, for all the
people who are Oh it's raining, it's raining. The skies falling,
Chicken little style, you know what. Bits of the sky
fall all the time, but the sky hasn't falling. The
future is bright. We will go on to bigger and
better and brighter things. You and I be talking in
five years time, Sonya and I we bet a reasonal
amount of money. The A six has hit another high,
(26:53):
probably another two or three on the way through. Maybe
it's even fallen out of ten percent on that journey
and come back up again. Vanguard have a great chart.
I've banged on about it before. It's called their thirty
year Index chart. Ten thousand dollars invested in nineteen ninety
four was one hundred and thirty thousand dollars. Hypothetical amount
ten grand became one hundred and thirty thousand dollars. Despite
all these things I talked about, it happened over that
thirty year period, right, a thirty fold increase. It's about
(27:15):
the wars and the terrorisms and the recessions and the
Covids and the all this stuff. Now, if you're added
money regularly, you're going to have even more than that.
Now I'm not saying that'll be the next thirty years,
who knows. But also that average radar of that thirty
year period not dis similar to thirty years and the
thirties and thirty years before that. So the future is bright.
Optimism wins. Look through the clouds and make sure you
can see the long term value being built by companies
(27:36):
and people right across the world and particularly on our
stock exchanges.
Speaker 3 (27:40):
So one thing that did stand out from the data
was around optimism for Australians and a group that felt
least optimistic, we're younger Australians. Do you have anything to
kind of share on that or what might be factoring
in the air.
Speaker 2 (27:54):
I honestly, I started investing relatively early, but not as
early as I should have. And I hate you because
we have our own podcast. I regularly abuse and when
they very very good naturedly when they ride in because
they've got things. I want their time right. I want
to go back thirty years. I want to go and
invest more. I want to. I want to. I want
to set myself up even better because I know what
not because I know what the future did. Hat did bring,
(28:16):
but I know what the future can bring. If you're
a young person, I get By the way, why do
you feel Why do you feel bad? Housing is ridiculously expensive?
You've just seen the superannuation of fall. You haven't been
through these market cycles before, and you're like, oh my god,
this is investing. What are you people mad? Why would
I do this thing right? Why would I feel good
about this? So I get that. I absolutely get it,
because you know, again, the one benefit of age other
(28:36):
than dodgy knees and less hair is is you kind
of have been there before and you see it saying
to happen. So yeah, I'm incredibly envious with young people
because they've got all the time in the world, whether
it's through superannuational, compulsory savings, whether I said, their ownly investing,
just the passing of time, right, I am. I am
so optimistic. I've got a twenty nine year old, an
eleven year old, twelve year old now, and I am
(28:57):
so jealous of their future because they have got an
amazing future ahead. And think about the technological changes. What's
going to happen in the world. Man, can you imagine it,
and yet they've got the time to actually enjoy that
and invest now. So what I want to say to
young people is retirement feels a very long time away.
That's why super is so great, because it makes you say,
when you're nineteen, you don't want to And I'm yet
to hear someone who's retired who hates superannuation. Please, people
(29:19):
working new, I want to have to put this money away.
If this is terrible, as horrible, I don't. I would
rather spend it. They get the hirement and go, oh man,
I am so glad there's superannuation. So if you're a
young person listening, please say the course. Please believe that
the future is bright. Please believe that we have a
system of democratic capitalism for all its failings, and we're
failing you on house prices right now, and change that
if I was in the Treasurer's chair for a while.
(29:41):
But investing will work for you. It will build wealth
over time. I can't give your carriage and allowed to
give you promises because otherwise the regulator will yell at me.
Let me just say, in my very very very very
very strong opinion, the future is very bright. You have
so much time on your hands. The last message is
please keep contributing, whether it's adding to your own super
or tributing, investing in your own name through chases or otherwise.
(30:03):
Please keep investing because the compound returns you get over time.
If you're listening to your twenty five now, you're probably
gonna live to your ninety five. And no retirement's at
the end. The retirement date is not the end of
your investing, right, it's about two thirds of the way
through your life. So you've got seventy five years to compound.
That is, do the mats on that, by the way,
it will blow your mind. And so yes, please be positive,
(30:23):
Please be optimistic. I know it feels like it sucks.
Take it for an old person. Things will get better.
They will deliver plenty of returns. Your compound returns will
be spectacular. Stay the course, keep investing. It'd be absolutely
worth it. Your retired self, well, thank you, and maybe
you might have been think of me when I'm long
dead and in the grove.
Speaker 3 (30:39):
I love that, and it gives me a chance to
slip in my favorite or on buffet quote, which is
someone sitting in the shade because they've planted a tree
many years ago.
Speaker 2 (30:46):
So I get a T shirt with that on it, Sonia,
I wear a T shirt with that quote. I love
that quote.
Speaker 1 (30:51):
It's so good but just.
Speaker 3 (30:53):
Exactly what you're talking about, right, Like you don't know
it at the time, but you know over time it plays.
Speaker 2 (30:58):
Off plant the tree, baby, plant the thure, you know.
Speaker 4 (31:01):
Thanks Scott, and thanks everyone for tuning in.
Speaker 3 (31:04):
You can watch the episode on YouTube or listen in
on your favorite podcast at Leave us a message or
comment about what you'd like to hear in future episodes.
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