Hitting economists with the measuring stick…

Adam Keily: [00:01:23] Hello again and welcome back to comedian versus economist. We demystify the world of money and help you get a handle on the bigger picture. My name is Adam and I'm joined, as always by my older brother and real-life economist, Thomas. Welcome, Thomas. [00:01:37][13.4]

Thomas Keily: [00:01:38] G'day Adam, how are we going? [00:01:38][0.6]

Adam Keily: [00:01:39] Oh, very good. Thank you. How are you? [00:01:40][1.1]

Thomas Keily: [00:01:40] I'm good, yeah. [00:01:41][0.7]

Adam Keily: [00:01:42] Episode five to America. [00:01:43][1.3]

Thomas Keily: [00:01:44] The tie breaker. [00:01:45][0.9]

Adam Keily: [00:01:46] Tie breaker six all. Anyway, I feel like we're off track. Look, we're about to start again. We're about midway through the introductory series that we're doing at the moment. So that series is basically where Thomas helps me and hopefully helps you understand the world of money and what makes it so. What I want to know now. This week, I want to focus in on we've got all that data. We've got all we've got our dashboard. I want to kind of narrow it a little bit and think about how those things kind of effect the share market, so a lot of people, especially if they're finding us through the Equity Makes Investing podcast, they've probably got a fairly keen interest in in the markets and what moves the markets. And so I really want to try and unpick a little bit what all these headline indicators mean broadly for the market and how they can kind of affect market prices. So I guess at a macro level, they're affecting the whole market. And then, you know, obviously, there's is going to be some individual implications for individual stocks. [00:02:53][67.1]

Adam Keily: [00:02:53] So how does that all work, Thomas? [00:02:55][1.6]

Thomas Keily: [00:02:57] So you want to know how to make money out of this? [00:02:59][1.7]

Adam Keily: [00:02:59] Yeah. Yeah. [00:03:00][0.9]

Thomas Keily: [00:03:01] For besides a theory, now it's like this. [00:03:03][1.7]

Adam Keily: [00:03:03] Show me the money. Should I sell Tesla or not? That's what I want. That's ultimately what I think me and lots of other people would really like to know right now about. [00:03:12][9.2]

Adam Keily: [00:03:13] Well, I mean, as we record now, we're at the end of December, for example, I've heard the term Santa rally being bandied around. That seems like a ridiculous concept that there's some somehow Santa Claus is going to bring wealth to people. But how's what's driving this sort of stuff? How what are the macroeconomic factors that are driving the market, the whole market to go up and down like an ocean? [00:03:37][24.1]

Thomas Keily: [00:03:38] Whoo! Okay. Yeah, yeah. So the big, big question, I think I think what we've got to do is we've got to pull it right back and just understand what a share actually is. Right. So this is an ownership in a company. And that's so when you buy a share, you're buying a partial ownership of the company. You become effectively one of the owners of the company. [00:04:00][21.9]

Adam Keily: [00:04:00] All right. Could people forget that? [00:04:01][0.9]

Adam Keily: [00:04:02] Like, you know, when I buy, I have some investments. I never think of myself as an owner. I just think of myself as, I don't know, a bit like putting on a chip on the table at the casino. [00:04:12][10.7]

Adam Keily: [00:04:15] I feel detached from it. Yeah. Even when they send, [00:04:18][3.0]

Adam Keily: [00:04:18] like, the company's annual [00:04:19][1.1]

Adam Keily: [00:04:20] report. Just tell me what the share price is doing. Yeah. [00:04:24][4.3]

Thomas Keily: [00:04:24] Yeah. I mean, yeah, like at your level, you know, where most people are at. They're not owners in a functional sense. They're not helping steer the steer, the company deciding policy or any things that the owners typically do, but [00:04:37][12.8]

Adam Keily: [00:04:38] probably for the best. I don't think Coles needs to be asking me. [00:04:41][3.1]

Thomas Keily: [00:04:42] Yeah, no, it wasn't an accident [00:04:43][0.9]

Adam Keily: [00:04:43] that you weren't given direct control over your Wesfarmers holdings. And I thought they saw they saw you coming. Yeah. Wouldn't that be fun? Wouldn't that be a fun way to [00:04:56][12.6]

Adam Keily: [00:04:56] buy shares if you had to sort of walk [00:04:57][1.3]

Adam Keily: [00:04:58] into, like a committee meeting with the directors? Please, you guys, can I join up guys you want to buy? Got a lot to offer. [00:05:06][8.4]

Thomas Keily: [00:05:09] It's important to think about it like the ownership of the company and the reason that you start a company or you own a company is because it's going to make money and it's going to make you money. And so that's sort of the fundamental thing to remember and to keep up when you think when you're thinking about, you know, what a stock's fundamentally worth. So if you could imagine a scenario where I'm starting a lemonade stand, for example. [00:05:30][20.9]

Adam Keily: [00:05:33] Yes, go on. [00:05:34][1.2]

Thomas Keily: [00:05:36] Then I go to you and say I need some money to buy a table. [00:05:39][2.3]

Adam Keily: [00:05:40] I'm going to let you go to me. As for who? As a shareholder. [00:05:42][2.1]

Thomas Keily: [00:05:43] Not as my brother. [00:05:45][1.8]

Adam Keily: [00:05:46] you know, we've been through this already, haven't you? You've come asking for money before. Yeah, well, I've got a prospectus now that I want to click through. I remember the presentation he gave us on a boat it was terrible. I'm certainly glad I didn't invest in Batshit crazy idea. [00:06:10][23.2]

Thomas Keily: [00:06:12] I want to raise the money for my lemonade stand. Right. So I can go to you in two ways. I can say, look, I need 50 bucks to buy this table. I could do it sort of its debt. So I say give me 50 bucks and I'll give you 55 bucks next month after I've sold a few lemonades. And that's just a commitment. And regardless of whether I sell lemonade or not, I'm going to I've committed to pay you that fifty-five bucks back. The other way I could do it is they come on board and be an owner of this lemonade. Stand with me and I'll give you a share of the profits going forward. Hmm. So I've put in fifty bucks myself so we'll go fifty fifty in this lemonade stand and I'll give you 50 percent of the profits. [00:06:56][44.0]

Adam Keily: [00:06:57] So the first example there that's essentially going to the bank and saying, can I have a loan to start a business? And then the other way of approaching it is to get people to buy into the company. [00:07:08][10.8]

Thomas Keily: [00:07:09] Yeah, yeah, that's right, that's right. Well, yeah, so this is sort of debt financing and equity financing, that's sort of what we're talking about there. So yeah, you could go to a bank and ask to just borrow money on fixed terms, on particular terms. But banks aren't the only place that you can do that. So companies will issue bonds, for example. That's debt financing right now. And so that works in a similar way. And this is like, you know if you're buying a bond, you said, I don't care what your outlook for-profits are. I just want to know that I'm going to get the money that you told me I'm going to get. If you buy if you're buying in equity, if they're doing equity financing, you're buying a share of the company, you're buying a share of the profits and you're buying a share of the profits from now until eternity, effectively until for as long as the companies around your equity holding your stake in the company entitles you to that share of profits. Right. So now if you so if you think about that. You know, is it worth you throwing in 50 dollars to go into business with me? You need to think about what how much do I value the future income and profit stream from this lemonade stand? I'm like, what is that actually worth to me? What is a 50 percent share of a lemonade stand profit actually worth to me today? Right. And that's that's just what we sort of call fundamental share valuation. And that's what we're trying to figure out. When do you think about what a share is fundamentally worth, you trying to think what is the future revenue stream worth today? What is a share of future revenue stream worth today? And there's a lot of uncertainty there because you're talking about a future, potentially infinite future. And so there's a lot of uncertainty about how much you're actually going to sell. What's the outlook for the lemonade industry, all these sorts of things and becomes a lot of uncertainty start packing into that picture. But, you know, very smart people spend a lot of time trying to sort of get a handle on these calculators, what's market share, what's market growth, all these sorts of things. What's, you know, what's the company's potential? And you try still that down and then you figure out, OK, I think, you know, that's this is what how much money the company is going to make. And so that's what it's worth today. A share of that is worth today, right? [00:09:25][136.0]

Adam Keily: [00:09:28] Terrible investment lemonade, by the way, sugary drinks are on the out. Coca-Cola is struggling. My finger on the pulse over here. [00:09:35][6.9]

Thomas Keily: [00:09:38] Lemonade, the hard vitamin C, [00:09:39][1.3]

Adam Keily: [00:09:40] you know, I make lemonade. I do. Yeah. So that's. [00:09:45][4.7]

Thomas Keily: [00:09:45] Yeah, I spoke small batch. [00:09:46][1.2]

Adam Keily: [00:09:47] Yeah. Kraft lemonade. We're talking here about all that there. And before, you know, you [00:09:54][6.9]

Adam Keily: [00:09:55] mass-producing and you've sold out [00:09:56][1.4]

Adam Keily: [00:09:57] just to please your shareholders. So just to wrap that up. OK, so, so now we understand what a share price or how a share price is a kind of calculated. We can understand. You know, I guess you've talked a bit about what goes into working out from an investor's point of view, what goes into working out what a fair price is for the lemonade stand. So, you know, there are all those factors that you mentioned before. And so we're talking like if I'm doing a I don't know, what do you call an evaluation on a company as to whether or not I want to invest? What are the key things I'm looking at? [00:10:36][39.2]

Thomas Keily: [00:10:39] I don't know that we want to go different. This episode is quite a bit you know, you're thinking about like [00:10:44][4.6]

Adam Keily: [00:10:45] you say you don't know. That's fine. [00:10:46][0.9]

Thomas Keily: [00:10:47] You know, I mean, that's not economics. What I want, you know, like at university, that's second year, third year sort of stuff. [00:10:59][12.0]

Adam Keily: [00:11:00] I'm very advanced. It's you are very you're very quick learner. Very quick learner. They're looking at me and say, how do I know all this stuff? I look, maybe I'm a natural. [00:11:09][9.2]

Thomas Keily: [00:11:11] Uh, it's the outlook for the market. It's the potential for the market itself. How much the market is going to grow, then it's the potential of the company. So then it's like, you know, how much debt do they have? How much available cash flow? What's their management team like? Yeah, this is quite a range of factors and it's a bit of an art. They're like, you know, there's sort of a lot of agreed terms. That's why that, you know, you have so many sort of interesting ratios that people talk about, like earnings per share or these sort of things, because it's like you're trying to get a picture of it. And there's a sort of a common language in in stock valuation. But there's a there's an art to it as well. [00:11:49][38.3]

Adam Keily: [00:11:50] Yeah. So I guess we're really focused on the macroeconomic space in the podcast. You know, if you want to know more about investing, I'd strongly encourage you again to head over to Equity Markets Investing podcast, where I think they've probably covered most of this stuff already. I should probably tune into their [00:12:05][14.7]

Adam Keily: [00:12:05] introductory series at some stage. I thought I'd skip that and I'd go straight to hosting my own podcast talking about macroeconomics. [00:12:13][7.9]

Adam Keily: [00:12:16] So to me, like I mentioned, the Santa rally before and even in the lead up to the election there, people were talking about kind of patterns and repeatable patterns that happen in the market that kind of that lift the whole market. So this this market is made up of tons of individual companies. Right. And there's these events that can happen that can either lift the whole market. We talk about the whole market going up or we talk about the whole market going down. And that seems to be almost like an agreed trajectory of of of stuff based on based on what like what's happening. That means the market as a whole goes up and the market as a whole goes down. [00:12:55][39.7]

Thomas Keily: [00:12:59] Hey, I'm just, um, there's a plane going overhead, [00:13:01][2.3]

Adam Keily: [00:13:02] and it's okay if you don't know, [00:13:04][1.5]

Adam Keily: [00:13:06] I'm not sure what we're not sure what we're doing. A lot of these questions is what's really expert. And all I'm getting is excuses. I'm guessing that's not what we're here to talk about. Are we getting now? There's a plane flying above my head. We talked about [00:13:23][17.2]

Adam Keily: [00:13:24] USA last week. Maybe we should just [00:13:25][1.4]

Adam Keily: [00:13:25] talk more about USA out of the office. Sorry we wasted your time. We just got word that Thomas is a complete fraud. Okay. Oh, is it okay? It's a good question, Larry. Let me pick it up. So the markets [00:13:42][17.1]

Adam Keily: [00:13:43] markets move up and down as a whole while [00:13:45][1.9]

Thomas Keily: [00:13:45] you can kind of think about and think about this sort of three layers to it. So the first is the sort of the fundamental like what is it? What is it fundamentally worth? And this is like in theory, there's there's a fundamental there's a true value of the company that exists in theory that you never really understand, because the future's always unknowable. [00:14:03][17.4]

Adam Keily: [00:14:04] Right. [00:14:04][0.0]

Thomas Keily: [00:14:04] We then have expectations start to come into it. So you could imagine, say, if there were you didn't you didn't go fifty dollars and you just threw in twenty five. I sold twenty five dollars worth of shares to Bob. And so he's the other shareholder now. Now you might have some you and Bob might have different expectations about what the outlook for my lemonade stand is, and that would affect how much you're willing to pay for a share. So you might get wind. The you know, I've been stealing Mr. Johnson's lemons and he [00:14:37][33.0]

Adam Keily: [00:14:38] said, I love that we're running with this analogy so far in stealing Mr. Johnson's lemons. My my bulbs go well. I mean, that's good. That's good. That's good. Yeah, we're just building it up. [00:14:55][16.4]

Thomas Keily: [00:14:55] Yeah. I mean, it's true for what's true for lemonade stands true for Wesfarmers, you know, just a different scale. Yeah. You know, so you might have this insight that like Thomas is about to get squeezed on his supply is going to [00:15:07][11.7]

Adam Keily: [00:15:07] sing Bob Dylan. Yeah. It was all just contrived just to bring that. We could we can move on from lemonade. Yeah. Yeah. [00:15:20][12.6]

Thomas Keily: [00:15:20] So I've got supply issues coming up. It's going to I'm going to struggle to be able to keep bringing enough lemonade to the market. Yep. And so you might be like, oh, this isn't worth as much as it is. And if Bob doesn't know that, you might be like I'm going to sell my share of now because he's not aware of that. He thinks it's worth more than the share is actually worth more. And so that's that's why I like you know, you're looking for that sort of knowledge advantage initiate. You look at what do you know about a share that no one else does. So, for example, if you're, you know, working in retail or something and people are just coming in handing over money hand over fist and you think, wow, this stuff's really booming. No one else knows this. And that might give you an insight into the value of of that reach out the chain that you're working with that no one else has. And you might understand that the value is actually higher than what everyone actually thinks it is. Yeah, and that's sort of the key point is it's what the current share price reflects what everyone thinks. So it's sort of like what everyone collectively things. And so if that collective mood shifts, if people start thinking something different, then the share price can shift, even if nothing fundamentally has changed. If people just start thinking about that company differently or the market differently, let's keep it with company. So they just start thinking about the company differently, then that that can shift the share price. And so so there's sort of like the fundamental and then they sort of like the expectations and the the view, the opinions that people have about the company and the company's outlook. [00:16:53][92.2]

Adam Keily: [00:16:54] Right. And then and then so because you didn't really answer my question, [00:16:57][3.0]

Thomas Keily: [00:16:58] which was abandoning their [00:17:00][1.2]

Adam Keily: [00:17:01] you tell me you getting married. I've got things I need to be doing. [00:17:05][3.5]

Adam Keily: [00:17:07] So so are you going to I guess are you going to say that you can just kind of extrapolate that out across the whole market and say there's a general mood for a particular stock? There are a lot of other factors at play, even though the fundamentals aren't changing for a stock. But maybe there's, you know, collectively there's emotions that are driving the whole market, you know, like so say, an event, you know, like covid-19 where that that changes everything and the market kind of crashes as a whole because collectively across all the companies, everyone's like, I don't know what this means. I'm going to take my money. I'm going to sell just to kind of protect my money or whatever. And so that those events obviously drive the whole market. And I guess that's kind of what I'm interested in like. [00:17:52][45.3]

Thomas Keily: [00:17:53] Yeah, I mean, at one level, like, there isn't really a market like this that does [00:18:00][6.4]

Adam Keily: [00:18:00] want to drop in truth, but no, I mean, like, yeah, tell me the Santa rally is not real. Yeah. [00:18:12][12.3]

Thomas Keily: [00:18:19] I mean, like to the ASX 200, you know, as an industry of the biggest 200 companies on the Australian stock market, but it's aggregates it clicks together those 200 companies. And so there isn't really a market as a single entity. There's 200 companies that when you average them out, move in a particular way. Right. [00:18:38][19.2]

Adam Keily: [00:18:38] Such as law of averages. So, yeah, I mean, [00:18:41][2.6]

Adam Keily: [00:18:41] yes, a company is going to perform. I guess the thing I'm struggling to understand, one of many is the companies are independent entities right inside their collective of independent companies. And people are buying and selling these companies based on their own opinions of these companies. Yet when it's reported in the news and and the media, you see the share market is down today because of some because of X. And so so that's not that's not independent companies kind of doing anything necessarily that's confidence or risk or something that people are just like, oh, we're not going to to sell coal to China anymore. So I'm going to sell, you know, coal companies. [00:19:26][45.4]

Thomas Keily: [00:19:27] I mean, I think I think that level of analysis is a little bit dangerous and it's good to sort of separate yourself from that. You know, like just to say, you know, the market rallied on a fall in the Aussie dollar or something like that. It's you know, it's sort of true. But like, it's it's using way too broad a brush to talk about 200 companies because there's too those 200 companies in the ASX 200, you know, they're across huge, very different sectors. There's resources, there's retail, there's all sorts of things. So it's very unlikely that they move exactly the same way for exactly the same reasons. So it's very it's convenient to tell the story that this thing happened and the market responded in a particular way. But it's not actually true that that hasn't really happened or it's unlikely that it's happened like that, you know. And so if if the ASX went up two percent or something, it's quite probable that within that there were companies, some of them went up eight, 10 percent. Some of them fell five or six percent or something. I mean, maybe not that kind of range with with large companies in ASX 200. But, you know, there's a there's a diversity of experience within that broad industry. Right. So, yeah. So I think to be as you become a savvier investor, you need to look past that story and go to story and not really believe stories that say the market did this because this because, one, there isn't really a market. And two, one thing doesn't affect all companies and the outlook for all companies the same way. [00:21:01][93.8]

Adam Keily: [00:21:02] I respectfully disagree [00:21:04][1.5]

Adam Keily: [00:21:09] only because, like [00:21:10][1.3]

Adam Keily: [00:21:12] for me, I'm typically I'm not I'm not much of a stock picker. You know, I try every now and then. But, you know, I've got things like Super, which is invested in, you know, broad kind of, you know, maybe like international shares or Australian shares or Australian property or whatever it is. And so there's these investments that are tied up in in those big themes. And so for me, like as a stock picker, I go, are you saying, like, don't worry about too much what's happening with the ASX if you're interested in buying CSL or something. But but as someone who is kind of, I guess, risk averse, maybe if that's the right way of framing it or you've got investments in bigger things like superannuation and stuff, you are interested in what the whole market does and what maybe is driving the market. And maybe if you're you know, I was way too active in superannuation changing options during Kovar. [00:22:13][61.4]

Adam Keily: [00:22:13] It was like flicking around like I don't have anyone's ever tried to time the market using a two and a half day delay. But it's just I try. Yeah, not investment advice, but I didn't have success that way. [00:22:28][15.0]

Adam Keily: [00:22:29] But I you are interested in what drives the whole market, the whole you know, if you're investing in, say, the ASX 200 ETFs or I don't know, the Nasdaq ETFs or whatever it is. [00:22:40][10.7]

Adam Keily: [00:22:41] Yeah. [00:22:41][0.0]

Thomas Keily: [00:22:42] But I'm sort of saying there isn't a whole market like there is. There is factors like covid or money printing or these are things that will affect every company in the market in broadly a similar way. Yeah, but that's what the market is, is what happens collectively to those two hundred or whatever things are in the market, you know, whatever you're talking about. And it's. Yeah. As much as possible. You want to think that at the company level because that's really what a what share prices are we talking about. The the value of a. [00:23:15][33.1]

Adam Keily: [00:23:16] People forget, too. Well, I certainly do that there's always someone if you want to buy into a company, there's always someone selling in that company. Like you can't I mean, unless the companies, like, just made some more shares to do whatever that does. What is that, a capital raising or whatever? Yeah, like there's always someone like. So I guess the sentiment is, you know, is largely to blame. So, you know, if you get more people selling and then there is buying, then that pushes the whole market down and maybe people are all selling because I don't know, maybe, you know, they think someone's going to win an election or something. [00:23:49][32.9]

Thomas Keily: [00:23:50] Yeah, it's it's often it's often hard to know, you know, it's easy to tell stories about what's driving the market. But it's you know, if it was if it was that simple, then it would be much easier to get ahead of [00:24:03][12.4]

Adam Keily: [00:24:03] like, why don't we why don't we pause and take a quick break. We'll go grab a quick word from our sponsors. And we'll be right back after this with more of Thomas's thoughts on or whatever he was talking about. [00:24:14][10.3]

Thomas Keily: [00:24:17] Banking with Virgin money has never been more rewarding. Earn rewards on your everyday spending and pay zero monthly fees with the Virgin Money Go transaction account. And with point perks and epic experiences tailored to you, you can manage your money easily on the go smash your savings goals, get money for it and be rewarded for it. Thanks to your own beat virgin money terms and conditions and monthly criteria apply. Now let's get into the show. [00:24:43][25.9]

Adam Keily: [00:24:45] Welcome back to comedian versus economist, we are talking the share market and what kind of factors influence the prices in the share market for individual companies and the share market as a whole? Thomas, we're talking about prices in the market, and I'm curious to unpick a little bit more how you work out what a fair price is for a particular stock. How do you how do you think about a company in terms of, you know, is it going to is it is your share price kind of going to go up and, you know, what are you kind of how you work out the expectations for a company with that? [00:25:19][33.7]

Thomas Keily: [00:25:20] You can sort of think about what the outlook for the company is. If you have some insight into the company, like saying if you if you if you're buying because you think your share price is going to go up, then you're saying you've got some insight into what the company's doing or how it's running or what its market's doing. That means that you think it's going to perform better than people think. And and that's the key point. It's better than people think. So it's not just that it's going to make money or it's going to make really good money. Right. Because it the fact that it's going to make really good money over the next year or two might already be factored in. People might already understand that. And that might already be priced into the. Yeah. The cost of the company into the share value. [00:25:57][37.9]

Adam Keily: [00:25:58] So if you take a company like one of the big fang stocks like Apple, Facebook or whatever, we know they're going to make tons of money. That's that's almost guaranteed, but that's not necessarily going to result in an increasing share price. [00:26:12][13.7]

Thomas Keily: [00:26:13] Hmm, that's right. That's right. So, yeah, the share price theoretically at least, should go up if they make more money than people think they're going to make. And that's that's the key thing. So it's not just you're not just looking at a company going like, oh, yeah, that company is going to make a lot of money. The question is, is. That company going to make more money than people currently think it's going to run is the answer to that is yes, then you think, yep, I'm going to I can buy that and it's going to make more money than people think. And when when people catch up to that reality, then the share price will go up. Hmm. And there's a there's a lot there's an art to that. There's no guarantees in that. And a lot of a lot of people spend a lot of time trying to answer that question and figure out, you know, how much money a company is going to make. And then is it underpriced or overpriced? And if you're buying a stock, there's at least one other person in the market who thinks the exact opposite of you. So they're selling a stock, they think it's overpriced. Yeah. And if you're buying your think you think it's underpriced, you sort of taking a bet with each other effectively and you sort of betting your knowledge against their knowledge or your insight against their insight. [00:27:20][66.8]

Adam Keily: [00:27:20] I didn't I was not aware of this bet when I bought stocks. Had I known I was feeding my stock knowledge against someone else, I could almost certainly guarantee you that other person had more information than I did. And I [00:27:37][16.7]

Adam Keily: [00:27:37] guess that, yes, I talked about that's why things like, you know, ETFs and indexes are kind of more attractive if you don't know what you're doing, especially, which is my case, [00:27:47][9.2]

Thomas Keily: [00:27:48] if you're not confident, is a good place to start this new insights available to people that you can get an insight that you think is not priced into the current company's current value that you can you can trade on. So if you do get that insight, but that's what you're looking for. You're looking for an insight that you think that that people don't have or the people are misreading in a particular way. [00:28:08][20.4]

Adam Keily: [00:28:09] Yeah. And so if we think back to our economics textbook that we now have, which is activity and prices, so how do we kind of apply what we know about activity and prices to the stock price of a company? [00:28:23][14.6]

Thomas Keily: [00:28:24] Yeah, so so on the activity side, to most companies, revenue and profit will key off activity. So the more economic activity there is going on, the more money they're going to make. And so what sort of key here is? Because, you know, the outlook for activity is also forecasted and projected and therefore factored into the current share price. So what you're interested in is, is it going to come in at more than people currently think? You know, are we going to get a surprise to the upside or a surprise to the downside? And so in the financial media, often what you hear of things like GDP came in at point eight percent in the quarter, which was well above expectations because we really care about those expectations, because it's those expectations that are influencing share prices. And so if you get if you get an upside surprise, [00:29:15][50.4]

Adam Keily: [00:29:16] we can say, yeah, well, I'd like an upside surprise, please. It comes in a little. Yeah. [00:29:28][11.9]

Thomas Keily: [00:29:28] If you get an upside surprise and then that can boost share prices because the outlook changes like, oh, actually these companies are going to make more money than we thought because activities harder than we thought it was. And you can you can get an insight into that again, like say if you're working retail and it's just churning, you think like, wow, this activity is going to be a lot, lot stronger than what people are thinking it's going to be. Yeah, you might be able to trade on that. [00:29:50][21.3]

Adam Keily: [00:29:50] Right. And when we talk about prices, then we're just talking about the price that the companies are buying the product at or selling it at or those kinds of things. That was interest rate, part of prices. So whether the company's borrowing money and what's happening with interest rates is that that's that's the prices side of the equation [00:30:05][15.4]

Thomas Keily: [00:30:06] on the price. So that's a little more sophisticated in terms of like the interest rates are going to hand. [00:30:11][4.8]

Adam Keily: [00:30:13] You talk to the truth. [00:30:15][1.7]

Thomas Keily: [00:30:16] Yes, it's going to affect their cost of capital interest rates. You're also going to affect the economic outlook. So if interest rates start rising, for example, that's going to sort of put a handbrake on activity that might come as a surprise to the market. So that creates a downside surprise that also exists. [00:30:32][15.9]

Adam Keily: [00:30:33] Well, I don't like surprises. All right. So so I think we [00:30:41][7.3]

Adam Keily: [00:30:41] really need to wrap it up and just about there. But I did mention I mentioned at the start of the show the Santa rally was is about to happen. And I'm just that concept just kind of makes my head spin a little bit that this is somehow a repeatable event that always happens at Christmas time, that stock prices go up as part of the Santa rally. Great name for it, by the way. [00:31:04][22.6]

Adam Keily: [00:31:04] Modern economists on that one. Thank you. So not you. Obviously, a real proper economists came up with the name [00:31:15][11.5]

Adam Keily: [00:31:16] that probably the media wasn't even economists. [00:31:17][1.2]

Adam Keily: [00:31:18] No, we wouldn't have called it. [00:31:19][1.7]

Thomas Keily: [00:31:20] No, we would have called it fourth quarter. An unexpected deviation from trend. [00:31:26][6.4]

Adam Keily: [00:31:31] And that's why we have marketing departments, [00:31:32][1.4]

Adam Keily: [00:31:34] but I don't get how these can be repeatable events, like how can we if if we know that there's going to be a Santa rally every year, for example, why don't we just hold off buying anything until October? The jump in [00:31:49][14.9]

Adam Keily: [00:31:50] ride that ride Santa and his sleigh all the way, all the way to cash Castletown [00:31:55][5.4]

Thomas Keily: [00:31:57] stock markets quite frustrating for economists. They do do things like this. Yeah, there's an idea called efficient markets hypothesis. And this is the idea that things like this shouldn't exist, that if if you knew that in every December the share market went up, people would trade on that knowledge and trade away the opportunity. And so, yes, and that's the efficient market hypothesis. Money just doesn't sit around for long. And yet it could because so much of the of the share price is built on expectations, as we're saying. So there's the fair value. But there's also so much about expectations. And with expectations comes moods and comes herd behavior and reinforcing, you know, groupthink, all these other factors that are really hard to quantify and understand. Then you can get phenomena like the Santa Claus rally, [00:32:52][54.8]

Adam Keily: [00:32:53] that peer pressure is [00:32:54][0.9]

Adam Keily: [00:32:54] a peer pressure that may go on there. Some stocks where people [00:33:03][8.5]

Adam Keily: [00:33:03] like to spend that Christmas time that [00:33:05][1.3]

Adam Keily: [00:33:05] they do, you know, everyone gets a bit cheery, gets a bit loose. [00:33:07][2.8]

Thomas Keily: [00:33:08] Yes, they were just drunk. [00:33:10][2.1]

Adam Keily: [00:33:11] Yeah. Yeah, they might. But it wasn't. No, that was also considered as a name. But the drunken rally wasn't it wasn't as palatable to the media as the Santa rally. I reckon we should. [00:33:24][12.4]

Adam Keily: [00:33:24] All right. We should leave it there. Thanks again for your insights. Yeah, been a fun one. So I hope you're enjoying the show. That's it for this week. We would, of course, love to hear from you. So if you've got questions for Thomas, questions for me, even you can email us at KVIA at Equity meIt's dot com or you can check out the new website hosted by our good friends at equity markets, at equity markets, dot com forward slash CBA. And yeah, if you like what you heard on the show, I like what you're hearing on all the shows. Be sure to tell your friends if you didn't like it, then maybe tell someone you don't like because it still counts towards their stats. So yeah, whatever you do, be sure to leave writing, leave us a review wherever you get your podcasts. And we look forward to talking more about macroeconomics next week. [00:34:16][52.4]

Adam Keily: [00:34:17] All right. Take it easy. [00:34:17][0.0]

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