Marcus Padley & Henry Jennings – Chickens don’t make money | Finfest

Bryce: [00:00:15] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. Whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you going?

Alec: [00:00:30] I'm very good. Bryce is very excited for this episode. It is another fine fast clip from two returning favourites, Marcus Padley and Henry Jennings. 

Bryce: [00:00:39] Yes, this session at FinFest 2022. October 2022. 

Alec: [00:00:45] The fact that you're calling it FinFest 2022 implies... 

Bryce: [00:00:49] Yes, nothing.

Alec: [00:00:53] If you want. 

Bryce: [00:00:53] Our news to come, some news comes, but. 

Alec: [00:00:55] We've already announced we will have it. Well, there's a website for it. 

Bryce: [00:00:58] I hear you're very. 

Alec: [00:00:59] Early and there's a sign up page. And if you'd like to attend FinFest 2023 and be notified of all of the exciting announcements. Bryce is getting very nervous because it's a big job. Yeah it's a huge job. 

Bryce: [00:01:12] Equitymates.com/finfest. But anyway, this is one of the sessions that was called out on the day as being one of the most popular and I guess most watched, most enjoyed with Henry Jennings and Marcus Padley from Marcus today. The session is titled Chickens Don't Make Money. That was a line, that. 

Alec: [00:01:30] Short thesis on income for no columns. 

Bryce: [00:01:34] But that was a line that Marcus actually let rip in an interview we had with him during COVID. And it was about his attitude towards the markets at the time. Get in there, rip in. So, yeah, fascinating conversation from the two of them. If you do want to watch it in video, it is online as well on our YouTube channel. But again, without further ado, here chickens don't make money with Marcus Padley and Henry Jennings. 

Alec: [00:02:00] Nice.

Bryce: [00:02:02] Now have to entertain probably the most entertaining finance experts coming on. 

Alec: [00:02:09] Yes. Some of the most popular Equity Mates podcast interviews have been with these two. And I mean, you can't say the subject of the session, but it really says it all. Chickens don't make money for Marcus today. We've got Marcus Padley and Henry Jennings. Everyone Let's give a round of applause. Oh, let's go, boys. 

Marcus: [00:02:34] Hello, everybody. I can see some of my demographic men over sixties. Hey. Yes, there you go. And all you younger people. Interesting, right? 

Henry: [00:02:48] This feels a bit like a bandaid, a live aid. Freddie Mercury coming out on stage. 

Marcus: [00:02:53] Little difficult to hear you. There we go. I don't know whether you know Henry is in a band. Keep all guitars away from him. He'll start singing right now. We've prepared a lot of notes and this is very structured. Well, we can talk about Henry. 

Henry: [00:03:12] What are we going to talk about, Marcus? Well, the subject of our little chat is that chickens don't make money. 

Marcus: [00:03:19] Right. 

Henry: [00:03:21] So what do you do? What do you take from that? Chickens don't make money. 

Marcus: [00:03:24] Right. Well, there there is. If you are Captain Cook, right. One of the most successful English touring captains in Australia. If you are Captain Cook. And you. You got it. Thank you. Wake up, everyone else. If you. If Captain Cook, every island he went to, there would be a tribe of some sort who maybe hadn't seen the rest of the world in their whole lives. And they would always have a god and they would always have a religion. And the reason why we have religion. Oh, I better be careful what I say. The reason why we have religion, after all, is because we've got to answer all our questions all the time. And if it is a human need to have our answers questioned, to huddle under some omnipotent being with a creed, and in the stock market, the creed is diversification. Net result, most of the people who look after their own self-managed super funds my demographic you over there and that guy. 

Henry: [00:04:36] There's not many. 

Marcus: [00:04:38] There are many. 

Henry: [00:04:39] Pitches. Pitch it, pitch it.

Marcus: [00:04:41] Most investors have got 20 stocks. Now, I call it up and don't use that expression, huh? It is the easy portfolio. It is the portfolio that you designed where you take the top 50 stocks and cross out the top 50 biggest stocks and cross out any stock. You do not know what it does or can't spell. Net result QBE is in this portfolio. It's underperformed for decades because everybody you can spell it. But that is what most investors have done. They've stuck to big stocks, easy stocks, brand names, but. [00:05:22][41.0]

Henry: [00:05:24] So if you're going to do that, why wouldn't you just invest in an ETF? [00:05:28][4.5]

Marcus: [00:05:30] You would, Henry. 

Henry: [00:05:30] You would, baby. 

Marcus: [00:05:32] It is an astonishing development, isn't it? 

Henry: [00:05:34] It is astonishing. Why not? What I started out in, in broking and whatever, we had to make up our own ETFs. We made up our own baskets and we only traded those much like you're talking about with the basket of the top 50 distilled down to 20. Now, there's all these guys that have created these ETFs for us, which is fantastic. So why isn't an ETF just. Is the ETF the answer? 

Marcus: [00:06:03] No, it sort of is, but it isn't. If I can pass on one. We've been between us 80 years in the stock market. Right. We've lost money. We've made money. We've learnt a lot of lessons. ETFs, this whole what's happened, I think, is a lot of you have appeared in the market because of the COVID boom. There you just have to look at the number of people that were trading shares in the boom and it's tailing off now. You've all come to the market. And there is this idea now that rather than stock picking, you should be in an ETF. Exchange traded funds weren't around for us. We had to deal with managed funds. That was very difficult. You now have an exchange traded vehicle that will give you the ASX 300 accumulation index compounding general. A compounding is impossible to achieve in real life because you never compound dividends. You spend them. 

Henry: [00:06:58] I do what? Spend them. 

Marcus: [00:07:02] We can see Henry and the An ETF are a fabulous vehicle for you because the stock market goes up 95% of the time. But I think you can do better. There are two ways you can do better. One is by timing, an ETF. All right. We've we've been a fund manager and we know fund managers who struggle to beat the ASX 300 accumulation index. It's like the holy grail of funds management. How can you outperform a theoretical index that perfectly compounds dividends, has no cost, no buildings, no staff? And the amazing thing is you can now buy that. You can buy a compounding Australian market index. Better than that, you can buy an American one. Why would you bother with a boring economy like us? You can buy the S&P 500 index. So this is this is a great development, but I think you need to time it because if you'd held the ASX 300 ETF from 2006 to today, you haven't made any money. Right? Timing is everything. And I believe if I had all the money I needed in retirement, I would trade an ASX 300 ETF and an S&P 500 ETF. And that's because I think because I put a lot of time and effort in, I think I'm good at picking the big market pivot points. That's what we spend most of the time in our newsletter doing and the strategy picking the tops and bottoms. We're waiting for the new bottom. You know, the best opportunity to buy the ASX 300 in years is coming up. Not today, but our market's been in a bear market now for a while. It's a fabulous opportunity for you to start in ETFs. And what have they got that we haven't got? 

Henry: [00:08:59] Have what indeed have they got that we haven't got? I guess from time, from my perspective, I must admit I'm not a big ETF fan. I think it's a bit like blancmange. It's great, but it's not really going to set your world alight. 

Marcus: [00:09:16] I don't know. They know what blancmange is. 

Henry: [00:09:18] Does anybody know what blancmange is? Vanilla mush. It's like when you get into an elevator and there's music playing. It's that kind of stuff. It's not real music, it's just in the background. It's a bit like ETFs. It's just, you know, in the old days when they first started ETFs, it was a really good way of diversifying your portfolio really quickly and really easily. But you're not going to get rich unless you're old and it's time you compound. Interest is wonderful. It's fantastic. Most powerful force in the universe, they say. But it takes time. Some of us, especially me, with my health conditions, probably don't have that much time. So I'm looking for other ways to do it. And I was recently giving a talk about the market and how to make money. And the thing that is important in that statement is make. Now there are times and we've just been through them in post the GFC and during COVID where it was really easy to make money. You chuck money. Chuck something at the wall and it stuck and you made money. It's different now. It's a lot harder. So you got to be a lot pickier. And to make money, you have to make something. And it takes effort. Take your hands. It takes your brain to make something. So you need tools, technical analysis, fundamental analysis. We need to do the work. Which brings me. 

Marcus: [00:10:48] To. 

Henry: [00:10:48] To this. We had a thing in the news that I didn't have. We had a guy say, we're up on our feet now. We had a guy that was this. We called him the $6 Million Man. Some of you are old enough to remember the $6 Million Man from the seventies.

Marcus: [00:11:06] Hands up. Who doesn't know who the $6 million Man is? Oh, no, Henry. We completely misjudged anyway. Okay, there is. I'll read you this email right now. So you got ETFs and you can time and ETF. And that's really good, I think for someone who probably is working and doesn't really want to trade shares. But let me read you this email. Sorry, I don't want to bore you Henry. 

Henry: [00:11:31] Was launched on both of them. 

Marcus: [00:11:33] I went to one of your education seminars in 2008 in Perth. You taught me about the one stock portfolio technique. 

Henry: [00:11:43] We're getting to that. 

Marcus: [00:11:45] 100 and $156,000 I had, and I put it into Kidman Resources. KDR It was taken over by Wesfarmers. $800,000 came out, which I was supposed to pay off my debts with, but I put it into Lion Town instead. That investment hit $12 million yesterday. 

Henry: [00:12:11] Now, to put that in perspective, it's an awful, awful lot more now. [00:12:15][4.8]

Marcus: [00:12:17] It's now 30 million. All right. This is a year later. [00:12:19][2.9]

Henry: [00:12:22] But going back to my point, Marcus. [00:12:24][2.6]

Marcus: [00:12:25] What was your point, Henry?

Henry: [00:12:26] Making something requires effort. Now, the gentleman in question who did this, who emails me quite a lot with pictures of him flying around the world and press. 

Marcus: [00:12:37] Pass and his licence plate is Lion Town. 

Henry: [00:12:40] Yeah. So he put in an enormous amount of work into investing in Lion Town. He pestered the CEO, he went to the AGM, he drank terrible tea and ate horrible biscuits. He pestered everybody. He went and saw the projects. He went on field trips. He did everything. He put in the work and he made something from the work which was all this money.

Marcus: [00:13:09] And the point being, most of us or most small investors have got 20 stocks, big companies, they're slow growth, they're mature. A lot of them have no growth. Telstra has underperformed relentlessly and they hold them. What is better and this is an article I wrote in the Fairfax press and the broker that I worked for came up to me the next day and insisted I put a disclaimer on it saying These views are Marcus's and they have nothing to do with us. And the idea was that you are taking less risk with one stock than you are taking with 20 that you know almost nothing about. True. Because if I told you you have to take all your money, you've got no choice. You've got to take all your money. So imagine you're a retired super fund investor. 

Henry: [00:14:05] There's lots of those here. 

Marcus: [00:14:06] You've got to take your life's nest egg and put in one stock. What would you do? Well, you agree to every announcement they've just made. You go to the website, find out who they are, what they did. You would look up the management, you would go to the AGM, you'd go to the company meetings, you'd watch every webinar, you'd know everything on their website. You'd start telling them they've got typos on the fifth page about the so-and-so. You'd be sitting outside the CEO's house with a pair of binoculars at night. Because you have so much at stake in one stock. So the question was, this was just a theory. I'm not suggesting you do this right. It was just a theory. But the question is, if you're going to invest your money, why aren't you doing that with every stock? And that, I think, is the part of the issue with the market is tips. You'll get a tip. You'll buy it because you've got a mobile phone now that you'll just do it immediately without doing any research at all. But Mr. Lyon Chown, he's a friend of the CEO now. He goes to all he's on the CEO's yacht in Perth. 

Henry: [00:15:24] It's a big yacht. It's barely as big as the one that Hamish used to have. Yeah, but you know what? The hardest thing to do with the lines on trade is? 

Marcus: [00:15:33] What? 

Henry: [00:15:34] You know what? The hardest thing to do. The easy thing is to buy lines down. That's really easy to pick. That one who's seen City Slickers? Member City Slickers. Curly Scott The one thing I remember holds up. 

Marcus: [00:15:48] All right, you're a tough audience. 

Henry: [00:15:50] I'm ageing myself badly here. Anyway, he's got one thing the hardest. It's easy to find the stock. The hardest thing is to hold it and keep it and not sell it. When that guy made the 150 grand into 850. I know. I would have gone. Oh, that's enough. Thanks. And then if you take in the 815 you made into two mills, you go, Oh, that's. I'm really happy with that. The hardest thing is having the courage of their convictions and not being a chicken and doing the work and putting the work in and getting the AVO off if it'll the CEO hold it until it becomes. As big as the coin spot dome or the Magellan dome. That's the hard thing. The easy thing is to find one. And luckily this afternoon and this morning, there were heaps of really great ideas. This has just been a smorgasbord of ideas. There's lots of ideas. The hardest thing is to do the work rather than just chuck the money at the wall, which we all did in the good times in the bull market. The hardest thing is to do the work, keep the stock, stay convicted. Then you don't become one of those chickens and get run over as you're crossing the road. 

Marcus: [00:17:07] And that's why he doesn't sell, because he knows everything about it. 

Henry: [00:17:10] He does. He does so. That is why I like. The alternative to ETFs. Because you have the power as well. You have the power to do that work. One thing I learnt from it, I created an ETF portfolio and I'm quite old, as you might have guessed by my cultural references, and I haven't done Venn diagrams for a long, long time. When I put together this ETF portfolio. I realised that in the middle of this Venn diagram of all these tech stocks, sectors, U.S., Asia, whatever, there was one stock that was a big lump right in the middle of my Venn diagram and video. Hasn't that done brilliantly? So when you're looking at these ETFs and you're diversifying, which is fantastic, they're a great product to diversify. And maybe the lion's. Our man has got some ETFs. Just make sure you haven't got a Venn diagram, a lump. Of Nvidia or something that is just going to drag you down because it is blancmange. But one stock can drag you down. So ETFs. Great. But just look at the composition of them. If you look at our all tech ETF in Australia, which gives you exposure to our technology stocks, how many of them are there? Three. Four. Computershare is the biggest share of the old tech index. You really want to put 11% of your money in Computershare?

Marcus: [00:18:51] They earn most of their money out of interest rates, and yet they dominate the old tech index. But anyway, I think we have to finish on how we are going to.

Henry: [00:19:00] Finish on a high? 

Marcus: [00:19:00] We have to finish on a high. The best thing you can do and I think if I was younger, I would focus on my job building a business and I wouldn't see the stock market as a place to make money. But an ETF suits that purpose, keep junking it and keep junky and try and time it. But the other bit to impart to you is that there is a fabulous game in the stock market, which is one stock knowing a lot about you. If you do an hour's work on one stock, you'll be in the top .000-1% of people that hold that stock but know something about it. If you do 10 hours of work, you'll be in the top spot. No, no, no. 1% of people that know anything about that stock 10 hours work. If you commit to it as a daily vigilance, you'll be elite level knowing about that stock. And that gives you a tremendous edge. You'll watch it. You'll get to know it. You can trade it a lot more easily. You get the idea oh, always on the results are always dips after the results are oh yeah and you'll get a really good feel for it and your risk is much lower. Sounds like it should be higher, but you have a great opportunity in the stock market to play individual stocks. What I would suggest you don't do is buy 20 stocks, you know, bugger all about just because they're big and everybody else knows what they are. If I had X the amount of money I need to retire, I would stick it all in an ASX 300 ETF time. The ETF because I'm quite good at picking market pivot points. And I would play on the side with Max five stocks. That's what I'd be doing. And each of those five stocks I'd know something about. Okay, Henry, in your retirement, what are you going to be doing? 

Henry: [00:21:06] Now, I don't intend to retire any time soon. You'll be happy to know. But I will leave you with one piece of advice, because you're all obviously struggling with the $6 Million Man references, etc.. And I do from time to time teach young people about the stock market. And there is only one thing you need to do with the stock market or any investing. There is one. It's curly again. One thing. It's really simple, and you've all started to do it by being here today. You gotta start, and the earlier you start, the more you'll enjoy it. It's a really interesting field, but also you are going to make money. The earlier you start, the most powerful force in the universe is compound interest. Start, make mistakes, stuff it up. You'll learn more when you stuff it up. Don't believe that you're ever. A genius because you never are. We talk about punching the air. If you punch the air and you think I am invincible. The James Bond reference there for us older people. Goldeneye. 

Marcus: [00:22:23] Even if you're punching the air, that means cell. 

Henry: [00:22:26] Don't believe that you're invincible. But just start. If you're young and all these faces out there, you're all youngsters. Start. Start investing. Start getting interested. Stop buying ETFs. Start buying single stocks. Embrace investments. Because in ten, 15, 20 years time, you will be like a friend in law in town. You might have a different stock, you might have a different story, but you'll be sending me. I'll probably be dead by then. But you'll be sending me pictures of you in first class flying to Sweden. Very annoying, by the way, when you're at your desk and it's pouring with rain in Sydney just for a change, just start. So what are you going to do? I think the Stones. This is the movie. The Cue for the Stones. Start me up. But that's my best advice. Oh, you go, 

Marcus: [00:23:20] Don't sing. 

Henry: [00:23:21] We're out of time.

Marcus: [00:23:22] Well done, Henry. Equity Mates boys. Guys. Thank you Very much. 

Henry: [00:23:28] Let's put our hands together for Equity Mates. How good of a team to put this off, it is extraordinary.