We’re back with live events in 2024 - get your tickets to Equity Mates Live – Ask An Advisor here.

Expert Investor: Paul Bennetts, CEO Of Spaceship

HOSTS Alec Renehan & Bryce Leske|30 March, 2017

Episode 8 is a cracker! We bring you our second Expert Investor interview, with the visionary Paul Bennetts – CEO of Spaceship. We discuss tech investing, and how you can invest your superannuation in line with where the world is going, not where it has been. Thinking about how your superannuation is invested now can have significant benefits for you in years to come. With some of the world’s largest companies now tech companies it makes sense to have some skin in the game, and doing so through your superannuation is a fantastic way. What you will learn in this episode: • How Paul went from selling computer parts to becoming CEO of a superannuation start-up • Why Australian superannuation needs a shake-up, and what Spaceship are doing about it • Snap Inc’s (Snapchat) Initial Public Offering – will it be a success? • The advantages of thinking about your superannuation as a millenial • Investing where the world is going, not where it has been Stocks and resources discussed: • Spaceship • Snap Inc (NYSE: SNAP)


*******

If you want to let Alec or Bryce know what you think of an episode, contact them here

*****

Some of our favourite resources and offers to help you during your journey:

*****

Make sure you don’t miss anything Equity Mates related by signing up to our email list. And visit this page if you love everything Equity Mates and want to support our work.

*****

Equity Mates Investing Podcast is a product of Equity Mates Media. 

All information in this podcast is for education and entertainment purposes only. Equity Mates gives listeners access to information and educational content provided by a range of financial services professionals. It is not intended as a substitute for professional finance, legal or tax advice. 

The hosts of Equity Mates Investing Podcast are not financial professionals and are not aware of your personal financial circumstances. Equity Mates Media does not operate under an Australian financial services licence and relies on the exemption available under the Corporations Act 2001 (Cth) in respect of any information or advice given.

Before making any financial decisions you should read the Product Disclosure Statement and, if necessary, consult a licensed financial professional. 

Do not take financial advice from a podcast. 

For more information head to the disclaimer page on the Equity Mates website where you can find ASIC resources and find a registered financial professional near you. 

In the spirit of reconciliation, Equity Mates Media and the hosts of Equity Mates Investing Podcast acknowledge the Traditional Custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders past and present and expend that respect to all Aboriginal and Torres Strait Islander people today. 

*****

Have you just started your investing journey? Head over to Get Started Investing – Equity Mates 12-part series with all the fundamentals you need to feel confident to start your investing journey.

Want more Equity Mates? Subscribe to our social media channels (@equitymates), Thought Starters * Get Started Investing mailing list and more, or check out our Youtube channel.

Equity Mates Investing Podcast is part of the Acast Creator Network. 

Bryce: [00:01:30] Equity Mates, so right here we are back again, really excited for this episode. We've got our whole business of spaceship on as our second interview for expert investors. [00:01:42][11.4]

Alec: [00:01:42] Paul Bennett, I'm sure you would have seen his company advertising all over Facebook. It's called spaceship. It's a super fund. And they've been really getting after the Facebook ads recently. [00:01:52][9.3]

Bryce: [00:01:52] So we're kicking it off. As always. We've got some news for you guys and then we'll jump in to the interview. Sorry, first news cab off the rank, [00:02:05][13.0]

Alec: [00:02:08] first is boss of the rank, you could say, [00:02:11][2.8]

Bryce: [00:02:11] yeah, nice. What are you got for us? [00:02:13][1.5]

Alec: [00:02:13] So it's about Borussia Dortmund. Now, for those of you who don't know, they're probably the second biggest soccer team in Germany after buying Munich, and they're actually publicly traded on the German stock exchange. [00:02:25][11.3]

Bryce: [00:02:25] Very interesting. I didn't know soccer team so well. [00:02:28][2.5]

Alec: [00:02:29] Yeah, and they did it all. Apparently, even the Brisbane Broncos in the rugby league traded on the ASX. Wow. So if you're a big Broncos fan and you love your team, you can own your team as well. I don't think you make much money off them, but yeah, I just don't understand it. Yeah, but but the difference is. So Brisbane Broncos, you might not make a lot of money, but these big European football clubs, they do quite well for themselves. So I mean, I'm sure most of the owners aren't in it for the money, but there's a bit more there's a bit more financial incentive over in Europe. [00:03:00][31.4]

Bryce: [00:03:01] So what do the shareholders have voting rights for, I wonder? Or do they at all like what do they vote for in a soccer team? [00:03:06][5.0]

Alec: [00:03:07] I assume it would be the same day they could appoint the board. The board appoints a CEO and the CEO is the head of the soccer team. So they may they decide who the coaches, they decide how much the manager can spend. Yeah, I guess it's think of it like a company. But rather than, you know, selling computers or selling cans of baked beans, the company's goal is to win the Champions League. So that's money doing it. Yeah, there's a lot of money in it like sports these days. Multi-billion dollar business with, you know, the TV rights deals and stuff like that. So I haven't looked into it much at all. But it could be could be a good investment if people are interested. [00:03:46][39.6]

Bryce: [00:03:47] But anyway. Anyway, keep going. [00:03:48][1.2]

Alec: [00:03:49] Yeah. Yeah. One investor had a different idea and what they did was they bought a bunch of put options. And what that is, is essentially it's a way to bet against a company's share price. So if you buy put options in Brazil, Dortmund, you're basically you stand to make money if the share price falls. And so what this investor did was he bought 15000, put options in Dortmund and stood to make four million euro on the fall of the share price. Then what he did was he planted a bomb on the Borussia Dortmund bus and it detonated and it injured one of their players. Luckily, no one was killed. But this guy has just been arrested and he's been charged with attempted murder and a bunch of other offences. And it's all come out that well, the German police are alleging that the reason he did it was to try and make some money. [00:04:46][57.1]

Bryce: [00:04:47] Unbelievable story. It does. It certainly doesn't paint this in a good light. [00:04:51][3.8]

Alec: [00:04:51] You always hear about, you know, insider trading and I know stuff like that. [00:04:55][3.4]

Bryce: [00:04:55] I mean, you hear of unethical behaviour and this is just taking it to the next level. [00:04:58][3.4]

Alec: [00:04:59] Yeah. Yeah, it is. And look, it would be naive to think this is the only person that's trying to sabotage a company to try and make money. Yeah, but he's definitely one of the more high profile ones given the huge soccer team. [00:05:13][13.5]

Bryce: [00:05:14] Unbelievable. But did the share price do anything significant? [00:05:17][3.5]

Alec: [00:05:18] Do we know? It felt it felt a little bit on the on the bombing. But I mean, at the end of the day, it didn't really affect the share price because it didn't really affect their, you know, position as a company, their position in the market, the players, they have the coach, they have that position like German football, that that's the reason that they're valued at what they are, not because of, you know, their bosses. [00:05:38][20.6]

Bryce: [00:05:39] Well, moving on, then, someone who is definitely making their money in a legitimate manner is Jeff Bezos, CEO of Amazon, a bit of a hero of both of ours, probably seen in the news lately. There's been a lot of chatter of Jeff bringing Amazon to Australia. There hasn't been any true confirmation from Jeff about this. But there was an article recently that confirmed that they were looking at a huge warehouse for their distribution, which is a sign that they're definitely [00:06:10][30.8]

Alec: [00:06:10] on their way. Do we know where it is yet? [00:06:12][1.5]

Bryce: [00:06:13] Definitely not. In an area they show an interest in a massive warehouse. I think they were talking the size of five stages. [00:06:19][6.6]

Alec: [00:06:20] Yeah. Yeah, I heard that. That started. Well, that's that's pretty big, [00:06:23][3.1]

Bryce: [00:06:24] which is massive [00:06:24][0.3]

Alec: [00:06:25] means this swans five games at once. [00:06:26][1.7]

Bryce: [00:06:29] Certainly good news for consumers, Amazon.com and change the retail landscape in Australia. It's also good news for small to medium sized businesses as well, because Amazon on a fantastic platform that allowed businesses to distribute and sell their products through Amazon without having to worry about the distribution and storage of the products themselves. So, yeah, [00:06:53][24.0]

Alec: [00:06:54] now, just to give an idea of just how big a giant killer is Amazon. Ah, I've got a bit of a list going of companies. Big American companies, you know, the established big names that had been there for, you know, decades that Amazon have destroyed. Yeah, so we've got borders, the second biggest bookseller that just doesn't exist anymore, gone Barnes and Noble on life support won't won't last much longer gone. So they're the two biggest booksellers prey Amazon. That just not really there anymore than we've got in sort of electronics. RadioShack has gone bankrupt twice, gone in light clothing and apparel. J.C. Penney's, Macy's, Sears are all really struggling or have buckled to Wal-Mart. Used to be the biggest retailer in the world. Not anymore. And they're really they're competing hard to keep their market share against Amazon. So these are like old companies that we've heard of in Australia and that, you know, sort of fixtures in American life for decades and decades. Yeah. And Amazon is just crushed them all [00:07:59][65.9]

Bryce: [00:08:00] actually crush them. And I read an interesting article at the start of the week that highlighted one of the reasons that Jeff is able to do this is with due to his relentless focus on the customer, he has a very strong focus on ensuring that every single thing that they do from the distribution all the way through the customer service is is in the customer's absolute best interest. And that's why in America now they're becoming the number one go to because they know that they'll get their product on time, probably faster than most other places that they would buy it from. They get it, you know, within in some instances within hours of ordering. And then there was an example given where a customer jumped online and had an issue with her Kindle, which is a product that you can buy on Amazon. And she said that within 15 minutes of lodging her claim for help online, she got a call from a customer help centre from Amazon. They weren't able to help her with her query. And so they said someone would call her from the U.S. within five minutes. And that happened. And they resolve the issue with the Kindle within half an hour, which I thought was pretty amazing. [00:09:07][67.3]

Alec: [00:09:08] And that's the customer service you dream of. [00:09:10][1.5]

Bryce: [00:09:10] Yeah, exactly. And and it's what's going to kill places like Harvey Norman and Myer and potentially maybe someone now running, you know, running them, [00:09:19][9.5]

Alec: [00:09:20] giving a run for their money. Yeah. Well, the interesting thing is that hardware hasn't obviously Amazon have have some market share, but they haven't been giant killers in the same way that they have in a lot of these other spaces. So it will be interesting to say the the, um the interesting thing about Amazon, though, is that they're very adaptable to local markets and they get really good teams in place to compete in the market that they're competing in. So the strategy in America hasn't just been replicated, you know, over and over again. The one that I'm really interested in is India is really, really big battleground for Amazon at the moment because there's quite an established e-commerce platform there called Flipkart, Indian owned, Indian operated. So obviously very acclimatised to the local conditions. And Amazon is investing billions in India at the moment to take on Flipkart. And it is really an interesting battle to see. And it's also it's interesting to see just these two giants slugging it out, but also to say how well Amazon adapts to local environments. Yeah, very much. It's it's a it's a warning shot for any retail giant in Australia. [00:10:31][71.2]

Bryce: [00:10:32] And the news item, quite topical is to do with superannuation. And also what everyone's talking about, the housing crisis or the housing bubble that we're seeing in Sydney and Melbourne at the moment, certainly not in other areas of Australia, but particularly Sydney and Melbourne. And there's been a lot of debate at the moment within government budget is coming out soon in May as to what measures they can put in place to make housing more affordable or accessible for our generation. In particular, as you know, people are finding that they're just getting squeezed out of the market and finding any opportunity to buy with anything reasonable or affordable. So one of the suggestions that has been under debate for a while now is having super available to the younger generation. So that would mean withdrawing what is available in your super account at the moment and in some way using that to go towards a house, be it in the form of a deposit or whatever it might be. That would be a measure of allowing us to access housing a bit easier than if we were to try and save the deposit ourselves. However, there's been a lot of debate about it and there's overwhelming support for this not to go through, not particularly from Malcolm Turnbull. However, it's interesting that the Treasurer, Scott Morrison, is in favour of this policy. So the reasons that, you know, it would be a bad idea. Is two reasons, one is a revenue loss to the budget over the years, which would be billions of dollars lost in revenue, that comes from tax earnings on assets that are within your super fund. But the major concern is that the impact down the track, if we withdraw money from our stupid now empty the accounts, put it into a house, then it doesn't solve the problem of having some sort of capital when it comes to our retirement. And it's just going to put a whole lot more pressure on ourselves really to, you know, support measures such as the pension. And, you know, there's going to be an increased number of people that are relying on the aged pension later on down the track. If this policy does get through and people do start using their super for housing because it speaks to the whole idea of compound interest, having money in here now is going to be worth a lot more down the track than, you know, potentially if you were to use it on a house. But it's more to do with the fact that you're not going to be generating any income or revenue from an owner occupied house as opposed to having your super in shares or in a property investment where you will be generating income. Yeah, not so reliant on support measures such as the pension and that sort of stuff. So that's the big that's the major concern. [00:13:17][164.7]

Alec: [00:13:18] It's probably worth just quickly explaining the beauty of compounding just as we go into this conversation about superannuation. It is you know, Warren Buffett calls it the eighth wonder of the world because it really is the reason why you should start investing young. So hypothetically, if I had a hundred dollars and I got five percent sorry, one hundred dollars in shares and I got five percent dividend dividend on that, I'd be getting a five dollar dividend. But then if I reinvested that and so I had and dollars in shares then and I got another five percent dividend a year later I would get five point twenty five in dividends. And so then if you reinvest that then your dividend grows. And if you reinvest that it grows and it grows and it grows and grows at an exponential rate. And that's why, you know, if you get in the market young, especially if you're getting it well, while you're in your 20s and you you hold a lot of the money that you've got in the market, or at least you can you can buy and sell different shares, but you don't take it out of the market. That's where you really start to make a lot of wealth. And that's what you can say. Warren Buffett's wealth has exponentially grown and especially as he's got to, he's very light years. You know, now he's the richest man in the world or the second richest man in the world because of this just beauty of compounding, because the more you have in the market, the more you're going to get. And then you put that back in the market and then it just grows and grows and grows. Yeah. And that's why superannuation is so important when you're young. And I guess that's as good as any. A point to introduce our interview with the CEO of a superannuation fund. [00:15:02][104.6]

Bryce: [00:15:03] Yeah, great Segway there, Ren. So that takes us perfectly into Paul, as we said at the start of the episode is the CEO of Spaceship, which is a superannuation fund that is trying to disrupt the way that we think about superannuation and the way that we invest in superannuation. He feels that there is heavy reliance on, you know, superannuation investing in the big four banks and miners and that sort of stuff on Telstra. And it's not really the direction that the world is going in time. [00:15:39][35.8]

Alec: [00:15:39] So we're very we're very insular nation. Yeah. As Australian investors. [00:15:43][3.8]

Bryce: [00:15:43] Yeah. But if you look at some of the world's biggest companies at the moment and where a lot of the world is putting their money, it's in technology and tech companies. So Space Ship has a focus on investing superannuation into tech stocks. Not entirely. A proportion of your portfolio would be invested in tech stocks. So something new on the market, something different and something worth definitely having a look at. Pulling stuff is a very accomplished man. He's ex Goldman Sachs and [00:16:12][28.2]

Alec: [00:16:12] worked at er Trevitt Venture Capital for a while, Australia's biggest venture capital firm. [00:16:16][4.1]

Bryce: [00:16:17] Yeah. So he's had some experience in Vaisse and has then and is now working with I think I said a team of nine. Yeah. [00:16:25][7.8]

Alec: [00:16:25] Getting very small. Yeah. Very surprising. Yeah. If you, if you want to check them out, spaceship dot com donator or scroll down your Facebook news feed, I'm sure you'll see an ad buy them. Yeah. Enjoy the interview. [00:16:38][12.7]

Alec: [00:16:42] So Paul do you want to start by telling us a bit about yourself and about spaceship. [00:16:45][2.8]

Paul: [00:16:46] So Spaceship is a new superannuation fund for folks with long time horizons. So generally we're focussing on the sort of twenty to thirty five year old bracket. We start a spaceship because it is generally and this is my personal opinion, if you if you are a young person. Who is saving money compulsorily through super, and you were to actually try and make a decision within superannuation? It's actually really hard to do. Now, you guys have through the podcast you have is obviously investing backgrounds of finance backgrounds. So anyone with an investment finance background loves reading therapy as a last thinking about asset allocation. But the most young people, they find a huge hurdle to to be able to enter into these products and make a decision around them. So historically, most people have been disengaged from this could because it is hard to understand and you generally don't hear from the superannuation fund. You know, some funds only send you once a year annual statements. So, yeah. So we wanted to start a space ship to really help people with their superannuation and think through from the ground up from first principles. If you were to start a super fund with a blank sheet of paper, what would that look like? Yeah, and it's not trying to be all things to all folks. We just want to focus on our generation, which is, you know, my generation and your generation, and build something that's very, very helpful for them. So that's the kind of ethos. [00:18:05][79.4]

Alec: [00:18:07] So from that, what makes it different? Like, how do you target yourselves, the millennial generation? [00:18:11][4.6]

Paul: [00:18:12] You know, our generation is the generation that you call the Internet generation. So we've seen technology completely spread itself through society. You know, we've watched the pharmaceutical companies and, well, become technology companies. You know, locally we're seeing companies like Atlassian grow bigger than Qantas. We use it everyday. Now we're sitting here on iPhones, we're using Snapchat. We're going home to Netflix on the weekends. We're in this. And when we go away, we usually have Inbee. So it's not a big leap for people to think, well, if I'm constructing a portfolio that's going to be around for the next 30 years, shouldn't it be aligned to where the world is going and not so much where the world is today? Right. And if you look at your superannuation, certainly from my own personal superannuation, when I looked at it, I saw that I had like a 40, 50 percent allocation to Australian stocks, you know? And, you know, if you look at Australia shares that three percent of the world equities. So, um, the other type of customer we get is the index type customer who's like, I just want to own the index. Well, the Aussie index isn't really an index. It's thirty six percent financials at seventeen percent commodities and this 15 percent property. So it's not even the best of the market. And and if you really want to just sign the index and that's an appropriate strategy for some people. Shouldn't it be the world index. Why is it the index or the US index or whatever? I if you really want the top companies in the market basket, then you should own the MSCI World Index. Right. But even that's hard to do. So we're trying to differentiate ourselves not only through portfolio construction, but also just making the whole experience need to have an ease of use. And so anyone with any type of background can approach these products and understand the importance of the financial asset, the building, and then have all the information they need to make an appropriate decision at launches. [00:20:05][113.5]

Bryce: [00:20:06] They're going to be just one product offering or is there going to be a number of the investors are going to be able to choose between depending on their associated risk. [00:20:13][7.2]

Paul: [00:20:13] So when you start with zero funds on the management, you're very limited in what you can do. Right. An example of that is you have life insurance. It's you know, your fees are kind of constructed based on them not wanting you to go out of business and also stuff. Yeah. So you'll see all those changes come through. What we have to be careful of is you can't actually a customer can't buy a product based on what the price is going to become. They can only borrow money today, gentlemen. So you've got to be careful on how you market where the product is going. But it's you know, it's it's obvious that we want our fees to come down. We want to add life insurance. We only have one investment option. How are you're going to see that expand over time. But we can't really, you know, stand on the top of the mountain and talk about that sort of stuff, because, you know, there's a fine line on from a compliance standpoint. But we've been so fortunate that we are a group of customers have started coming on board since January when we got regulatory approval to be a super fund. Um, you know, we've been on boarding up since early to mid January. You know, we've always been one hundred million dollars in the fund. Now, management, um, and what we're doing now is we're putting through a set of changes, which I kind of spoke to you then. So we're actually kind of just, you know, hey, we don't want to we don't want to grow too quickly. We've got enough fund now that we can do the things we want to do with product. And we made those changes. So and that takes a bit of time because we're using an external trustee compliance department and they take the time because they should, you know, these sorts of things. But we're super excited. We're hoping to get that all done in Q2 and really kind of current market shift. And that's [00:21:50][96.5]

Bryce: [00:21:51] awesome. Are you able to give us an indication of what the split is going to be in terms of investing in tech and then how you diversify? [00:21:58][7.2]

Paul: [00:21:59] Yeah, so our our current. Cause right now, if you if you go into a portfolio, see there's a tech core, 35 percent where it's all technology companies and there's passive diversification around it. What we haven't built out, which is the thing that you need funds and a manager for, is alternative assets or super funds and alternative assets with toll roads and property and private equity funds. So we think there should be direct ownership in large technology companies and leaders of the world to invest lots of stuff. We're going through that process. You know, we're excited about that process. I think when you have one investment option, rightly so, it's hard to kind of be too aggressive and much take your own job when you have multiple investment options. Some folks are like, I'm 20 years old. I've got two thousand dollars worth of super. I'm totally happy it being 100 percent intact. You know, I don't know whether we'll get to that level, but to show an extreme end of the spectrum, um, and then because you have multiple investment options, you kind of align themselves to that risk appetite in that class. And then all the way down to the other end of the spectrum, we're trying to do something around the passive portfolio. So those folks who just want to own the market and we want to price that in line with the rest of the industry and losses. So, um, we're excited about a lot of things, but we can't say exact numbers on any of that. Yeah. Until it's done. [00:23:19][80.1]

Bryce: [00:23:19] So the reason I ask because leading up to this, when we are talking some questions, we're throwing money. It's a great opportunity to get involved in the tech side. But then what happens if you start heavily in tech? What happens if that industry goes belly? [00:23:31][12.0]

Paul: [00:23:31] And what's the biggest misconception is that there's this whole short termism that moved into the markets over the last 50 years where if you look at the average turnover of a stock in the 60s and 70s, so the average is seven years. Right. And it's going a New York Stock Exchange website. You can download all the data and you can see that chart every time you look at this day, seven months. So it's gone from seven years to seven months. So if you talk to anyone today and you say, I'm going to hold something for eight months, I want to hear a long term investor [00:23:57][26.0]

Alec: [00:23:59] driven a lot of that. Because of boards, though, [00:24:00][1.4]

Paul: [00:24:01] you look at it's going to be it's going to be the trading activities. And, you know, the whole quant strategies have been around for a very long time. You know, Renaissance Group has been around since the 70s, I believe. So there's always been quite of time trading. I think they become more and more sophisticated. I think more generally, if you look at the way the addition of Bloomberg, the edition of CNBC, all these kind of media and the opportunity to not buy a stock through a broker, but actually have to buy the buy through a online discount trading platform, everything is kind of built to Mutual Short-Termism. The problem with that for a superannuation investor is that you can't sell out in 10 minutes. You know, you actually have to keep your money in a box until you're 65. So the question becomes, if you're not going to leave the financial markets for the next 30 years and you start with an average balance of, say, for the thousand dollars today, you're going to add another eight thousand next year, the year after that and the year after that, you have every year allocating money to the markets. The question becomes more not what's happening through a trading cycle, a business cycle, not so much what you know, whether you get Alpha in a boom in the bust or something. It's more I need a diversified portfolio of assets that I can continue to allocate over the long term. So then it feels like more like a kind of Warren Buffet approach was like, I want to select one hundred companies that I think are highly differentiated, highly defensible. And yeah, I may be paying too much in a bull market, but I know there's going to be a downturn and I'm going to be continuing to allocate to these names through the cycle. So if you look at, you know, if you look at long term investing, there's really only two things that a 10 year return, it's it's your entry. And is it trading multiple? So the valuation multiple can give you an example that if you bought Amazon at the height of the dot com bubble, if you were that stupid guy, you pay twenty three times twenty three times your revenue three times already today, Amazon trades to hundred. And right now it's hugely hard to make a return when it's gone from twenty three times revenue down to two times revenue. Right. But if you're a long term investor, you're actually allowing yourself to the underlying economic engine of that business. So Amazon, even though it's trading multiple, shrunk, the economic engine has continued to grow every single year. So in in nineteen ninety nine, I had a billion of revenue. Now it's got something like one hundred and thirty billion of revenue. So if you were the guy who bought Amazon on its most expensive day in nineteen ninety nine, you're still up ten times today. And that's because it's what economic engine should be aligned to. And some people say to me, well hang on Paul. There's so many dot com companies like how would I have known to buy Amazon. Well how many companies have a billion dollars of revenue? Like that's a company that is only a few people's radars because it's so large. So, um, so I know what your question was, because it really kind of, you know, superannuation people have. How long term this is not about trying to try to it's just really what are the 100 companies on engage with in wartime over the next decade? [00:27:10][188.8]

Alec: [00:27:11] Jeremy Yeah. So I guess maybe we'll turn the focus to you a little bit and ask about your personal investing journey and how you got to where you are today. So just to start very gently, like what got you interested in investing to start with? [00:27:25][14.3]

Paul: [00:27:26] So I got investing. So I always want to run my own business. And when I was also a very interesting Pugh's at the same time, this is Basche. So I went through university in 1999. So 2002, I did better business and I was working at a computer store where you actually could operate computers, you could repair computer, you could pull out of graphics, kind of put party in. And that was my part time job. And in my last year at university, I was like, I want to do this for myself because I see where they're getting the the parts from how to respond. And also thing I started my own computer store with ten grand of what I had at the time. And, you know, it was it was hugely profitable for a 20 year old. Yeah, not much money today, but at the time I was like, oh, my God, you know, I can actually, you know, spend a hundred bucks on Friday night and you're crazy. So, you know, the store was pretty much profitable from from day one. And then I started thinking what I do with this, I'm getting a thousand dollars a week from this thing or whatever it was. What should I do? Should I invest that? So based on a small business going well for me, I had to start thinking about learning how to invest. And I stumbled across a book on Warren Buffett and everything to that point really didn't make a lot of sense to me. There was no trading books and there was gambling, not books and all sorts of stuff. The only thing really resonated with me as a business owner was he is a guy who invests in businesses as if he's owning the entire business rather than trying to buy something this quarter and so on. This quarter he was going to buy Coca-Cola in nineteen ninety seven and hold it until today. Yeah. So that's how it kind of got into thinking through how to invest in. And it was just such a buzz because I'd see my little retail store and I knew what was wrong with it as far as a competitive standpoint. And then to be able to look at very big industries like EPS and actually think about, you know, UPS, the strategy of the driver being an employee versus FedEx being, you know, a franchise of the truck driver, you know, and kind of thinking about how does it how does that change the economics of both those businesses and the competitive standpoint and the differentiation defensibility, which is such a fun kind of thing to kind of learn about a business for the first time as a sort of 20 year old. Yeah. [00:29:41][135.2]

Bryce: [00:29:42] So community then explain what your philosophy of investing is look like. [00:29:48][5.7]

Paul: [00:29:48] I've kind of talked to a little bit already. I think really there's two things that determine invest our time and energy in valuation multiple and the growth in underlying economic gain. So if you look at Coca-Cola in the 60s, I weren't selling Coke in that many countries based on globalisation are able to open up more markets. That's the economic engine growing at time. Well, they're trading multiple is is telling what the multiples of Coca-Cola is going to be next month. Who knows? And if you bought this month and you need to sell it next month, the only thing that's time me return is a change in that p e multiple look at Snapchat when they IPO the first day, there are 40 percent and they start out down 12 and downtown and the zigs and zags the first five trading days. But what actually changed in the offices of Snapchat during that week to have such a massive change in equity valuation for that business? Nothing. Yeah. So for me, investing only becomes interesting when it's over the long term, because then it becomes much more about evaluating and differentiation and sensibility of economic engines rather than what the guy across the table is willing to pay for your stock 12 months from now. [00:30:50][61.5]

Alec: [00:32:44] So that's not just one question we asked on one of our earlier podcasts was will Snapchat be Facebook or Twitter in terms of its future success? And given that you're a tech investor, I guess it would be remiss not to ask you what your thoughts on Snapchat are. [00:32:59][15.3]

Paul: [00:33:00] I was yeah, well, I can't exactly remember the numbers, but the way I think about Snapchat is they did four hundred million dollars worth of revenue last year. Right. Twitter did two two and a half billion dollars with the revenue last year. Yeah. Facebook is doing 25 to 30 billion dollars worth of revenue. If you look at that on a per user basis, Facebook is generating about 15 dollars per user right in North America and more developed markets, they generate sixty dollars per user. So that's kind of what through advertising, because at the very best success a company can do right now is Facebook. And it's either 15 Dollars across developed and developing markets per user or sixty dollars from a North American and European market. And Snapchat on the other end is generated two Dollars 50 per user. And the majority of that users are also in Europe and North America because they just haven't penetrated on markets. So if you look at the daily active users, Snapchat, I think about one hundred fifty eight million active users at this point. Um, the investment thesis around that business is really kind of moving from a two dollar fifty per user of revenue to something closer to Facebook right now. If you look at Twitter. Twitter hasn't been on do that. Twitter generates sixty seven dollars of revenue per user and the growth curve has left them now growing their customer base any further in their audience, where Snapchat is at the beginning of what that site is working and what modernisation, very beginning of that journey was only generating two fifty per user. And if you go on Snapchat, you barely notice uptime, really, and the audience size is still growing very, very quickly. So they're the only two drivers that will really determine whether Snapchat is a Twitter outcome or Facebook. And I think the other interesting thing about Snapchat is that the team that has been so ambitious in product changes. So if you look at the last four years of Snapchat, they have really made bold moves to product. Now, Twitter, within a public markets environment, it's actually harder to make bold product changes because you've got to you've got to go to Shell is three months later and say, was that a good idea or a bad idea? Whereas it's not just doing the private markets without anyone looking at revenue or any or use or stuff like that. So the question becomes, can they as successfully iterate on product and innovate within a public market realm? I mean, I think the jury's out on that. But I think it's safe to say you're going to see revenue levels go from journalist fifty up to at least Twitter and then perhaps beyond. If it does, then I got no idea what market cap Snapchat is today, but it was IPO at around twenty or twenty billion, then X generate 400 million actual SWIFTIE. Well you can very easily get up to billions of dollars of revenue by that tootles. Fifty going to six, seven or even fifteen. Or keep in mind that Facebook's generating sixty dollars in North America. So where is the natural level. Four times on or not. [00:36:10][190.0]

Alec: [00:36:10] And that's the big question. Yeah. So from the starting investing, from the profits from your small business, where is your investment journey taking you? What are some of the things that you've sort of picked up along the way that could help our listeners as they start their investing journeys? [00:36:26][15.5]

Paul: [00:36:27] I think this is the wonderful thing about investing is that you learn so much about business, right? It's just such a wonderful intellectual exercise. And it's not just about business, too. It's about, you know, where economies are going and how. Because because the the reason economies are important is because the government is such a massive factor in the economy. Right. So if you're an actor as a business and you have this gorilla, which is the government, then they do kind of impact your business. Yeah. So it's fascinating not only to learn about the competitive strategies of businesses and the different. And if instability, but then also flipping over to the economy and learning about the different types of economies in the world, and there is no really pure capitalist economy at all, you know, they're all, you know, even trumps economy now. It's moving towards more of a dirigisme, which is I mean, this idea that France after World War Two, was more of a directed economy where the government kind of said, we should do this, we should do that. Yeah. And that's what Trump seems to be moving towards. And it's fascinating to kind of learn about the how economic growth has worked under these different levels of control from the government. You know, um, so for me, investing is more of a answering curiosity about the world than than than a moneymaking exercise. But the sad thing is you need like five years before you learn anything, you know, like you you know, as a 20 year old, you can't you can't learn anything. The first three months of investing, you you wake up as a twenty five year old. Oh, I learnt some stuff, you know, but no idea whether you made any money. Right. And so I think that the first thing people should do is to move away from I'm going to only get 10 grand, going to buy the stock and see what happens in the next 12 months. And what they should do is go, I can't get ten grand. I'm going to slowly allocate that into the markets over the next 12 months. And then I'm going to set up an automatic savings tool to allocate to the markets over the next decade. Yeah, and that's that's kind of a hint of what we're building, a spaceship where we don't we don't really see a difference between compulsory savings and investment and discretionary saving investment, because a lot of our customers, they see they're going to love what you're doing over here. And super, I love what you're doing a portfolio and how you're helping me learn how to invest and also stuff. I've this kind of money in a savings account over here, but no idea what to do with it. I go to this person's website and understand that I want to start saving or stop building wealth. Are you going to build products over here as well? So we're kind of taking a more holistic approach to people's savings investment. We would love one day to wake up and be the savings button on your phone. So that's that's how we [00:39:01][154.1]

Alec: [00:39:01] think about it. So does that mean a space spaceship fund will start as well as a superannuation fund in the future? Totally. [00:39:06][5.2]

Paul: [00:39:06] OK, you should go. Yeah, totally. And that's where we've got a wonderful team working on all that sort of stuff. [00:39:11][4.2]

Bryce: [00:39:11] And so for beginners, then, when you say you're not going to learn anything in five years, what's in a way that you would suggest without directly investing in similar companies that you can at least start getting involved in the market without having to worry too much? [00:39:28][16.7]

Paul: [00:39:28] Well, you buy the index for starters. You know, that's always interesting. I think I think it's more developing the habits of what makes a good investment. And that's kind of constantly learning about things going on. I think I think it's totally okay to buy a single company stock, but just know that you're going to earn it for the next five years and you should probably average into it as well. You know, could be one of the first stocks I got was Berkshire Hathaway. And I was just like, oh, man, this is so cool. And I learn more by earning that than what financial return have generated from it to me, because I was forced to read his annual report every year and I read the first couple of pages of the ten. Q each quarter. I didn't really understand all of it. But, you know, over the last decade or so you build up a kind of a database of knowledge around that business because of it. You mean and so you learn a ton by owning an individual company stock. Just don't don't bet the farm on it. I mean, and if you can't allocate into it over time. So I bought a number of my shares over time because I've tried to average in particular points in the business cycle. If you know enough, you should find individual company stock. You should kind of go. I think this particular Google is a wonderful company. Whatever it is, you know, we're taking stock recommendations. Um, you should do that sort of stuff. [00:40:50][81.7]

Alec: [00:40:51] What has been the best investment you've ever made? It can be financial, but it doesn't have to be just in your investment journey. What's the one thing you you've really benefited from? [00:41:00][9.4]

Paul: [00:41:01] I said Bush out of the way for sure. Yeah, yeah. Just just allocating into that over time has been a wonderful thing. And, you know, remember, it dropped down really badly in 2009. And because I have been a long term investor at the time, I kind of understood what that meant. I thought, wow, this is great. Um, I was able to, you know, buy more depressed levels. So it's not easy to understand the differentiation and flexibility of a business. In any event, that's hard. And usually the most differentiated defensive businesses have high valuation multiples. As long as you can hang in them for a long time. Usually the underlying economic engine does its job and it builds out [00:41:40][39.1]

Bryce: [00:41:40] what you think will happen to Burkhart's. [00:41:41][0.9]

Paul: [00:41:42] One goes well, I think there's a there has more from this kind of guy picking stocks to and operating business where it has sixty eight operating businesses underneath him. And and, you know, the CIO of the business, which is Warren Buffett, has selected businesses based on competitive. And you know, which is really surprising that the ability to lift prices over time, so even if he goes any bill, you've got this you've got this wonderful economic engine, those operating businesses, and you have two amazing fund managers who also think like Warren Buffett to do it. Warren Buffett is not the only person who can make good investment decisions. Otherwise that would be kind of crazy. But that usually the problem is more the incentive structures that surround people's investment decisions. So even if you look at private equity firms, you U.S. firms or corporate, you know, corporates, every time investment decision has been made, really pick the the, um, the the incentives of the person making decision. Usually there's a lot stacked against them to do it. You know, I've got friends who do who are fund managers and their biggest frustration is having to report on returns every month. Problem with that is that it doesn't matter how long term you want to be in, you're always going to be at the behest of someone receiving a report saying you are up or down one percent in that month and then explain yourself. It's like, well, you know, not much is up in the last few weeks. [00:43:10][88.0]

Alec: [00:43:11] Little bit of research on your background before you came here and you worked at that. Yes. Yeah. So so far, this industry is very safe for venture capital firm in Australia. Yes. How is that experience sort of shaped your view about investing and and especially on the Australian technology side? [00:43:29][17.6]

Paul: [00:43:29] Yeah, I think the best we can in Australia at this point, it's safe to say that they started with a 60 million dollar fund on 13 when I joined the business and we raised that capital. And based on that traction, it now raised two hundred fifty million on this busy fund. That's the biggest one in Australia. So usually you can't be the biggest fund in Australia unless you know what you're doing, you know, and they keep getting you to building out their team and trying to be more and more helpful to their portfolio companies. So not just having invested professionals, but actually having guys and girls, and it can be helpful to their businesses. So it's actually done phenomenally well and from really a standing start in 2013. And that was also a wonderful experience for me because we got to invest in 20 private companies in the first fund and then work with those those founders over time to kind of go through the ups and downs of building those businesses from scratch. Everyone wants to be a VC because it's such a cool job. [00:44:31][61.7]

Alec: [00:44:34] So from that experience, what do you think about the Australian technology saying there's potential there? [00:44:40][5.5]

Paul: [00:44:40] And I think I think I think huge potential there. I think I think there's actually hundreds of very large technology businesses that people don't even focus on. You know, like, um, we've got someone joining from Campaign Monitor very, very shortly. Mars, Mars, a billion dollar business on Park Street. You know, you wouldn't even notice. And I wish there was way more coverage within Australia on these wonderful businesses that we have sometimes. I think the reporting on on business and tech in Australia is more sort of pulling people down rather than kind of telling the wonderful stories behind these businesses. I think, you know, what's what's blossoming now is a lot of private capital is moving in and funding these opportunities, which is great. Some of the opportunities are regional, you know, and some sort of global, which is really exciting, I think. I think we still have a long way to go as far as the amount of capital coming into the system. You know, I talk to VCs outside of the market and some some of them say that we're on the cusp of lines as far as companies are concerned. You know, and it is hard as a family, you sort of, you know, given a million boxes to, like, build a business as well, that that feels like a lot money. But it's actually really hard to do by the time you hire some people and stuff, you know, you really only have 12 months or something to kind of do stuff and and, you know, 12 months, 12 months isn't even long enough to write a thesis at a university. So you build an economic engine at that point. So but I think directionally everything's going wonderfully. You just have to give it time. And even though we're sitting in Tirhas offices right now, which, you know, Andrew Rothwell and the and the team had done a phenomenal job of building a business, and it's just so exciting watching and seeing that business grow in front of us. [00:46:27][107.2]

Alec: [00:46:27] So, yeah. So down down the line for spaceship. What would you be looking at doing some sort of Vaizey work and putting some of the super fund into Australian start-ups. [00:46:38][10.3]

Paul: [00:46:39] Yeah, so so I think we have to frame it from this is a retirement money. So we're probably not it's probably not the right place for people to be getting, you know, 10 per cent of the super and putting it into a Start-Up that's may or may not be around in two years time. Yeah, I think what we found over the last ten years is wonderful. Tik-tok. Businesses are starting to take longer, longer to get to the IPO markets, so Uber is now a billion dollar valuation, you know, whereas if you look at when the TripAdvisor is the world where they IPO, when they'll listen to that billion dollars, you know, now they're worth over 10 billion dollars. You know, it's we should really have that wealth creation as much as possible available to retail investors. And the private markets are usually the sort of arena of wholesale investors and for good reason, because you want the wholesale investors have more capital where they can lose if things go wrong. So so. So if you were at 60 billion is probably should be in retail hands already because it should be a public business. And then the stock up with 12 months to potentially live or die is way, way too early. This somewhere in between there where it makes sense to allocate a small portion of your retirement portfolio to. Now, this is a new, you know, all super funds allocated to PE funds or Dollars and cropping and also stuff. Our view of the world is we really believe the next billion dollar business is probably not going to be soft drink business. It's probably got it's probably going to be a technology business. And if you look at the every company on the on the S&P 500 that was formed after 1970. The majority of those were v.C, but they also seem to have started, Veselin, in graduate school. No, I don't you know, we will we will do whatever whatever our customers want us to do, as long as we think it's in their best interests. Our customers don't want direct allocation to U.S. funds, but they want direct allocation to wonderful private technology companies. So we will you know, we will have a team in place in Australia. I don't know what we'll call it, but it's spaceship's something that will be there to find opportunities in private markets to allocate to wonderful companies such as technology companies. So interesting. But everything gets easier if if, you know, folks believe in us early and give us the opportunity to build out these wonderful things we want to do. So, you know, the people who rolled into space already, we just so, so grateful for them to put their faith in us because we know we have an incomplete product. Know we know we have you know, we know we want to look back to where we are 12 months from now and just go, oh, my God, I can't believe anybody anyone even gave us a chance, you know, because it's really hard, because we sort of starting there with with, you know, a small fund. We're in the face of other super funds out there with 10, 20, 30, 50 billion dollars and the management [00:49:37][178.2]

Bryce: [00:49:39] or so the sort of super at this age, as well as something that might be well, is hard to break, I guess, for some of our most. I don't even think about it totally. So getting the message across to them that it's really something that could benefit them significantly in [00:49:55][16.6]

Paul: [00:49:55] the long run. We always used the car analogy. We said here on one hundred thousand dollars, right now you're going to spend nine hundred thousand dollars with the fund manager this year. Right. If you like. Really, Emma and I said, yeah, you are. And if I gave you nine half thousand dollars on the table right now, how would you spend it on a car? I said, go buy a car with it. Yeah. What would you do? You just turn on the Internet and you'd be looking at car photos. Right. And then if you go in a car on the weekend to try a car and then you'd be talking to your friends about which cars they like and also stuff, and you probably take three months to make a decision, whereas with the super people defaulting to wherever their employee gave them is, they don't think about it. Exactly. So and that's really sad. But when we kind of frame it as a car, people like, holy shit, I'm buying a car this year. I probably should do some work on. Yeah, yeah. [00:50:39][44.0]

Alec: [00:50:40] Well, we don't have to go. So, yes. Just just before you do, do you want to give one last plug to space ship or. You know, I recommend yeah I recommendation. [00:50:51][10.9]

Paul: [00:50:52] Well from a personal. Yeah. So, so from a financial advice thing people should do their homework. I'm, I'm not a financial adviser and stuff like that, so I can't give financial advice. But everything I talk about today is really just in the disclaimer of that. And the good thing is about the industry is I really see this as a positive force. We're trying to help people with not not so much investing, but with savings. So superannuation is both a savings and an investment product. I feel like today if you look at the product suite that's out there, it's very focussed on asset allocations and PDS and and investments rather than kind of. Well, you know, the question all our customers keep asking us is, hey, I've got to save nine percent of my salary this year. That that number's actually going to twelve percent by law and twenty twenty five if nineteen percent is wrong and two per cent is right, should I say Tik-tok percent this year. I mean, just tell me how much I need to save this year. That's the question. And if you if you're retiring when you're 65, you need some amount of money in a box when you're 65, but no one really knows what number that is, you know, and they don't have the tools to say, hey, I'm on seventy thousand now. If I want to be only seventy thousand dollars when I'm sixty five and not have to work, then I need three million dollars in the bank, whatever it is, you know, some number and and the product suite, the product roadmap that we have is really around making it easy for people to understand what the final number is. And and you guys are smart investors and financial guys. Well, you can kind of go, well, if I am a six percent market return over the next 30 years, that means I will have a different savings requirement this year than the guy who is more conservative. Only wants to rely on the two percent portfolio return over the next three years because the guy who's only relying on a two percent return has to actually save more this year. But you kind of want it such that your customers have a conscious decision as to what they want to kind of rely on. Right from from the from their investments. So we we really, really want to solve savings for this generation. That's what we're trying to do. [00:52:51][119.2]

Alec: [00:52:51] So that's a hard sell side of it. So I'll pull that off. Thanks so much for taking the time. Check out the website dot com. Thought I got a yes. Thank you. [00:53:05][13.3]

Bryce: [00:53:05] Thanks very much. I really appreciate your time. [00:53:06][1.2]

Paul: [00:53:07] Thanks for having me. [00:53:07][0.0]

[2921.4]

More About

Meet your hosts

  • Alec Renehan

    Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

Get the latest

Receive regular updates from our podcast teams, straight to your inbox.

The Equity Mates email keeps you informed and entertained with what's going on in business and markets
The perfect compliment to our Get Started Investing podcast series. Every week we’ll break down one key component of the world of finance to help you get started on your investing journey. This email is perfect for beginner investors or for those that want a refresher on some key investing terms and concepts.
The world of cryptocurrencies is a fascinating part of the investing universe these days. Questions abound about the future of the currencies themselves – Bitcoin, Ethereum etc. – and the use cases of the underlying blockchain technology. For those investing in crypto or interested in learning more about this corner of the market, we’re featuring some of the most interesting content we’ve come across in this weekly email.