Pimp my portfolio returns, 2024’s hottest commodity & we review Same as Ever by Morgan Housel

Bryce: [00:00:15] Welcome back to another episode of Equity Mates Investing, the podcast, where we explore what's possible in the world of investing. If you've just joined us. A massive welcome. My name is Bryce, and today we're looking at one of the world's hottest commodities right now. We have another Pimp My Portfolio submission, and we review the latest book from Morgan Housel. To chat through it, as always, is my equity buddy, Ren. How are you? 

Alec: [00:00:40] I'm very good, Bryce. Very excited for this episode. Another big one. Pimp My Portfolio is back for the second time. Yeah. I can't wait to get into that. But before we do.

Bryce: [00:00:58] Yes. Now, while we are licensed, we're not aware of your financial circumstances. Any information on this show it's for entertainment and education purposes. Any advice is general, Ren let's hit it. 

Alec: [00:01:11] All right, Bryce. Well, two bits of news that we have been watching and that we want to talk about in this section. First of all, as you said, the world's hottest commodity. And no, it is not lithium. In fact, that's one of the world's coldest commoditiesAt the moment. But also Nancy Pelosi's latest stock trade.

Bryce: [00:01:29] Okay. Give us some context here, though. 

Alec: [00:01:30] Well, which do we want to start? 

Bryce: [00:01:31] Let's go to Nancy Pelosi. Okay. For those that have just joined and have no idea who she is or why we find this interesting. What's the deal? 

Alec: [00:01:40] So Nancy Pelosi is one of the most senior Democratic politicians. She represents a district in California in the US Congress. She has been the speaker of the US Congress before. So like a very senior politician. But the reason that she is interested in investing circles is for her stock trades. And I think her husband actually manages the portfolio. When Nancy Pelosi entered politics in 1987. Her net worth was 3.5 million estimated. She earns a salary of $223,000 a year, maybe a bit more when she's speaker of the House. But her net worth today is $115 million. And the reason that it is, is because of some incredibly well-timed stock trades. The US political system, politicians can trade stocks and they have to report their stock trades so you can see what they're doing. But there's obviously questions of what information they have and how they trade on the back of it. And it's not just Nancy Pelosi. This is a system that is incredibly problematic. But that is a conversation for another day. We're not going to get into US ethics reform on this.

Bryce: [00:02:58] No. [

Alec: [00:02:59] What we are going to do is have a look when Nancy Pelosi put her money. 

Bryce: [00:03:04] Sorry. When did you say she started politics? 

Alec: [00:03:05] 87.

Bryce: [00:03:06] 87. 

Alec: [00:03:07] Okay, cool. Are you doing a countdown? 

Bryce: [00:03:13] Yeah. Okay, so she's actually, she's actually just underperformed the market, so I sucked into her. She's done a Kaga compound. Average growth of 9.8%.

Alec: [00:03:24] So this shows the inputs.

Bryce: [00:03:27] 3.5 million to 115 over 37 years. 

Alec: [00:03:31] So are we saying what?

Bryce: [00:03:31] So we're saying that you can become a multi-millionaire. That's what this whole show is about. I guess.

Alec: [00:03:42] Well, then I guess we're saying that all this noise around Nancy Pelosi. She probably just bought the S&P 500. 

Bryce: [00:03:48] Yes. Well, she hasn't because you were just about to launch into. [

Alec: [00:03:54] No. There's some quite famous Nancy Pelosi who trades Nvidia and a few others. But I think that puts a incredibly different context on. 

Bryce: [00:04:03] Well let's close out that bit first, which is that she allegedly used political connections and, and I guess information to place. 

Alec: [00:04:13] Some well timed. 

Bryce: [00:04:14] Yes, and very well timed stocks. 

Alec: [00:04:16] And we should be really clear, like it's not just Pelosi that some of the most egregious ones were, around Covid, like there were stories of different senators and congresspeople getting, closed-door briefings at the start of Covid and then, like, dumping stocks and anyway, like, it's a system that nature reform. But Nancy Pelosi has bought Palo Alto Networks, which is a Silicon Valley, cyber security fund. If you own the Betashares ETF Hack, it's one of the bigger components of that. It's been a really good performer. But it's sold off recently because it did worse than expected in earnings season. And the commentary from the CEO was they thought they were gonna land some government contracts because the government is beefing up their spending on cyber security, but they didn't materialise and they weren't as big as they expected. And then Nancy Pelosi buys a whole bunch of options. 

Bryce: [00:05:14] Classic. 

Alec: [00:05:21] Anyway. That's something that's come across, that's making news. And I don't know I don't know if there's much to be said. 

Bryce: [00:05:26] Well, let's move on. But I think the key takeaway there is, it just goes to show the power of compound. If you just have the money in the markets for up to 40 years. Up into 159%, that's literally taking the S&P for the last 40 years anyway. That's the beauty of being a retail investor. We can get those returns, but let's move to the world's hottest commodity run that isn't lithium or gold, but is absolutely booming right now.

Alec: [00:05:50] Yeah. And pushing up inflation. Yeah. 

Bryce: [00:05:53] Coca cocoa.

Alec: [00:05:54] Yeah. The key ingredient in chocolate. According to Rabobank, your favourite chocolate treat cost an average of 10.3% more than it did a year ago. And if you're not saying that in the price, you might be saying that in the product. White.

Bryce: [00:06:09] Definitely. Tim Tams.

Alec: [00:06:10] Shrinkflation. Definitely. Yeah. What less tin. 

Bryce: [00:06:13] I bought a packet the other day and admittedly it's because of the type, but there's now three main types of Tim Tams original, double coat, and triple coat. Now, the original has 11 in it. Double has nine. Triple I think is seven.

Alec: [00:06:37] Well that maths. 

Bryce: [00:06:38] Well, yeah. But when you open the packs you can see in the triple the spacing between them is huge. 

Bryce: [00:06:46] They could easily fit another one. Yeah. Okay. 

Bryce: [00:06:49] So not quite shrinkflation but nonetheless. 

Alec: [00:06:51] So here here are the numbers. Cocoa prices have more than doubled since the start of 2023. But since the start of 2024 for this year they're up more than 40%. And they've hit an all time high of, about 5500 dollars per metric ton.

Bryce: [00:07:08] Wow. Why? 

Alec: [00:07:10] Weather in West Africa. So three quarters of the world's coca is produced in West Africa. Two countries alone, Cote d'Ivoire and Ghana, contribute about two thirds of the world's output. There has been drier weather. A lot of people are pointing to both El Nino and climate change, but it's led to a massive deficit. Rabobank forecasts a third consecutive annual coca deficit. They estimate it's about 160,000 metric tons in 2024. Which, according to them, hasn't happened before, at least in the data that they've got going back to 1960. So a catastrophic shortage in chocolate. 

Bryce: [00:07:50] Wow. To be honest, I have noticed it. My Cadbury Black Forest, has gone up in price. Lava, come right back. 

Bryce: [00:07:59] I don't think I've had it.

Bryce: [00:08:00] You know, the one with the little chocolate bits and, like, the raspberry, like jelly lolly?

Alec: [00:08:06] Yeah. Okay. 

Bryce: [00:08:06] So that's good. And this is why it matters. Yeah. This is all hats making the top of the segment because it is hitting inflation and obviously price inflation.

Alec: [00:08:15] Yeah. Now, Hershey's CEO came out and said that the chocolate maker's earnings growth will be flat this year due to historically high cocoa prices. They reported fourth quarter profit of. About 350 million, which was down about 12% from a year ago. And I was surprised that an American chocolate maker was feeling the effects, because I don't think American chocolate has much cocoa in it to begin with. 

Bryce: [00:08:40] What do you mean?

Alec: [00:08:40] It's just all, like, just sugar. American chocolate. Not as good as British or Australian chocolate.

Bryce: [00:08:47] Those that are hurting over the crazy people out there who buy the 90% Lynd dark Chocolate. 

Bryce: [00:08:52] Yeah, yeah, yeah, I think they're better than us. Yeah. That's going to be going year. 

Bryce: [00:08:57] This cocoa importing would be huge.

Alec: [00:08:59] Yeah. Now of course Wall Street are trying to trade it. Hedge funds have been piling into the cocoa market since the end of last year, which is really only adding fuel to this fire because they're bidding up the price as well as they're trying to speculate on the commodity, which is also facing a shortage. Estimates are that speculative traders have amassed almost $9 billion in bets across London and New York futures exchanges. So yeah, they're betting prices are going to rise. A lot of the chocolate makers are predicting shortages and and dealing with it. But yeah, the world's hottest commodity. It's cocoa. And it's going to affect what sounds like. It's going to affect you more than. 

Bryce: [00:09:41] Yes. It's going to Say but to wrap up, if anything, this is a positive for me because it's going to mean I buy less chocolate. 

Alec: [00:09:48] Do you think what how dramatic does the price rise need to be? 

Bryce: [00:09:53] I think it's at a point. Now look at it. I only buy on special. Let's put it that way.

Bryce: [00:09:57] Oh, really? 

Bryce: [00:09:58] Yeah. And I don't really buy it that much, but. Yeah, maybe I do. But anyway, Ren. Let's move on. We've got Pimp My Portfolio. I love it. 

Alec: [00:10:15] Yes, the sting gets better every time. There's a level of excitement here, because this is fast becoming one of our favourite segments here at Equity Mates. Pimp My Portfolio is back.

Bryce: [00:10:25] It is back. And we have joining us again in the studio, our expert for Pimp My Portfolio Larative. Luke. Welcome.

Luke: [00:10:33] Bryce. Alec, how are you? 

Bryce: [00:10:34] Good, good. Excited.

Luke: [00:10:36] Best. Best new sting, I reckon just throwing it out there. I might be a bit biased, but I reckon it's the best of the year, the new stings. 

Bryce: [00:10:41] Yeah, I, I we're pretty happy with it. Joining us online is Romero. Romero. Welcome. 

Romero: [00:10:50] Thank you very much, guys. Hi, Bryce. Ren, thanks for having me here.

Bryce: [00:10:53] Any time. Luke's have a look at your portfolio. He's got a few suggestions, but, we'll start, as we always do, by just giving a high level on how your portfolio is currently constructed. Ren, What are we looking at? 

Alec: [00:11:04] Yeah. So Romero got, he's got a few holdings. He's got a few ETFs and then some stocks. So I guess the core of the portfolio is a Vanguard Australia ETF and a Vanguard MSCI, international ETF. Then there's a couple of thematic ETFs as well Betashares Crypto and Betashares Video Games and Esports on the individual stock side. And so those ETFs together are about half the portfolio. Then on the individual stock side we have some big well known companies Commonwealth banks in there. Qantas is there. Nick Scali flight centre. And then some smaller companies including one that does the rounds in the Equity Mates community. BrainChip Holdings. sure Luke's we'll have some thoughts on that one. 

Bryce: [00:11:50] Nice. All right. So that's it. Luke has gone away and thought long and hard about naming this portfolio. So drumroll. Luke, what is the name of Romero's portfolio? 

Luke: [00:12:05] It's called the Confused Core Satellite. 

Alec: [00:12:10] And why is it confused. 

Luke: [00:12:11] Like weightings and construction and. Yeah, just how he's how he set it up. We'll get there.

Bryce: [00:12:16] Yeah, we'll get there a bit to unpack there. So, Romero, what is your response to Luke's name of the confused core satellite? 

Romero: [00:12:25] I completely agree, guys.

Bryce: [00:12:29] Couldn't be better. Put it that way. 

Alec: [00:12:32] Well, hopefully by the end of this session, it'll be a little less confused. So I guess, where do we start, though? 

Luke: [00:12:39] I guess so. I'm going to assume that you want to have all your money in equities. I'm not going to bother talking about fixed income and all the stuff that you can invest in. You want all your money in equities. I think Romero's taking sort of this core kind of approach where you get some core ETFs and then you try to choose some stocks on the outside. And I think that's fine as a general comment. But this the way he's done, it's a little bit strange. So you've got 12% in Vanguard Australian shares like for example. And then you've got 18% in CBA, Bank of Queensland and Qantas like sort of large cap Aussie share picks. I would like to figure out what the core is going to look like, whether that's a multi-asset ETF or a mix of, you know, geographic type of broad based index, following ETFs like cost and then find some, you know, sector ETFs and companies on. The outside, but get the white right. You know, so if it's going to be 50% Co fine and 50% non Co. That's fine. But then you know how we deal with that sort of non-core part. And that's where maybe thinking something along those like you know maybe 5 to 10% kind of max per individual security or sector orETF. 

Bryce: [00:13:46] Okay. So Romero, how to this point have you gone about actually thinking about constructing your portfolio?

Romero: [00:13:53] Yeah. So, like, I like I said, it couldn't be better the, the name of the, of the portfolio. So I'm reasonably new, on this investing journey I started like, two years ago. I just recently started to invest on the VGS and the VAS. So that's why the percentage is still low. Yeah. My idea is get VGS and VAS and a few other ETF as a core portfolio and have a few, satellite ones, especially the ones that, it's not doing very great at the moment, which was the individuals, stocks that I bought was when I start my journey in investing and, as, everyone, I believe that I was trying to be smart and beat the market and, yes, it is not that easy. 

Luke: [00:14:49] Yeah, I don't, I don't know why. Retail investors and sort of non advised people have such an aversion to investing with active managers. So I know this is sort of talking about my own book a little bit, but okay. You want to have a core satellite strategy. Why wouldn't you have a core satellite strategy with managers rather than having? Well, it doesn't matter. You're going to get better. Like no offence, Romero, but like anyone, any professional manager is going to do better than this portfolio. 

Bryce: [00:15:17] Well, no, I think. Yeah, I think that's the distinction, with satellite stocks. Completely fair comment with, with your core low cost index tracking portfolio. That's where Bryce's fees comment comes in. And there are active managers that beat the market over the long term. But there are plenty of that time. 

Luke: [00:15:36] Yeah for sure. And I'm not saying, finding those managers is necessarily the easiest thing in the world or, you know, getting access to them and minimums. And like, I'm not saying this, it's not without issue. All I'm saying is that, I think as a general comment, people are, I'm going to go and choose these stocks and I'm going to beat the market. And then they don't benchmark their returns. They don't compare themselves to other managers. And I go, well, I just like these companies, so I'm going to buy it. It's like, well, okay, cool. Like your money, do whatever you want with it. But if you're just trying to generate the best possible returns for yourself with a sort of systematic, long term, sustainable process, I would personally think that picking, you know, 1 or 2 high conviction managers who are going to own, you know, 20, 40 companies, each kind of thing, and then just owning those two on the outside of your core kind of makes makes a lot of sense. If you don't think that active managers can beat the benchmark at a core level. But I would not agree with either of you on that. And I

Alec: [00:16:28] I don't know. 

Luke: [00:16:29] Don't let me get the data. 

Alec: [00:16:32] No. There are some that can you just have to find them. 

Luke: [00:16:33] Yeah. You got to know. And look, there are certain processes and I've written articles recently about this on on Livewire about how to choose managers and how to think about what works in different in different sort of sectors and, and asset classes. So there's some definitely some rules to live by. They are a little bit two. But yeah look I would just be sort of thinking about okay well if I'm going to pick stocks and sectors and I'm going to have my core Romero and you know, think about what kind of companies you want to own and then think about getting the weights right, maybe reduce the number of tracks so that you're a bit more concentrated on things where you can actually slowly learn about the company and gain an edge. 

Bryce: [00:17:06] I have a question for you then Luke. So Romero has VAS in his portfolio, the Vanguard Australia ETF. It's the top 300 or. 

Alec: [00:17:15] Yeah I think something like that. 

Bryce: [00:17:16] But then also has Qantas, CBA, you know a lot of big Australian names that are likely to make up a large chunk of VAS itself.And you know, Romero obviously started the journey by going down the individual stock route. But I imagine a lot of people are in this position where there's a bit of overlap with the individual companies and the ETF. What is the general comment there if you're looking to reduce your positions? 

Luke: [00:17:46] Yeah, I mean, it's pretty simple as you sell the stuff you not want to own anymore and you buy the stuff that you do, now you'd have to buy something new, I don't know, sort of a smart ass answer about, like, you know, if you think, okay, well, I've got some Qantas stock in my VAS holding. I've got some, you know, Commonwealth Bank shares in my VAS holding. Well, I can sell those. And that's going to throw up X percentage of my portfolio that's available. And I'm going to reallocate that based on my ideal, you know, portfolio setting. So I think what we're hearing doing these calls like third one of these now is very much the same people come into it with a kind of gambling mentality of buying individual stocks that I've got really no idea about what's going on at the company, what the market expects. Is that all the stuff you are supposed to know to be able to make an informed decision? And then I realised that that doesn't work when you don't have it, when you don't know what you're doing. And I go to ETFs and that's great. Like you're doing the right thing, but it's you gotta you've got to do it all with all your money to get the maximum impact out of it. 

Alec: [00:18:45] I think there's, perhaps, a fairer way of characterising early investment decisions, which is that a lot of people don't know about ETFs or how they work. And so people stuff on individual stocks because it's more, you know, that's how people think that is available on the stock market. So they buy well known Aussie companies.

Bryce: [00:19:04] Was that your situation, Romero? 

Romero: [00:19:06] Yeah. So much when I started, I hadn't any clue about ETF or never heard about ETFs. So I went directly to stock. And then when I started studying and hearing podcasts and here like Equity Mates search on the, on the website. So I start to heard about the ETF and then that's when the coin flips. And I said, well, okay, maybe that's, that's the approach now. 

Alec: [00:19:35] So Luke the question that I'm sure a lot of Aussie retail investors have been waiting to hear asked is BrainChip Holdings. So I guess, you know, we've covered off some of the big stocks in the individual stocks part of the portfolio. Let's move to some of the smaller names. So, there's catapult, which is, been a popular stock recently, Brain. Chips in there. How are you thinking about some of the smaller names here? 

Luke: [00:20:02] Yeah. I think whenever you're investing in small companies, you gotta have a really clear understanding of, like, the business, the product, the people. And you know, how the capital is going to get spent because you essentially are in a business situation where, you know, we've given them $100 and and they're going to run it, that hundred dollars is going to disappear at some point because they're not profitable and they're not generating money. So, look, I don't I don't follow Brainchip super closely. I don't know a lot about it. It's not in my wheelhouse at all. And I think anyone who's reasonable and rational with themselves would probably argue that's not in their house wheelhouse. 

Alec: [00:20:38] Romero, is it in your wheelhouse? 

Romero: [00:20:40] No, not that I'm not. 

Luke: [00:20:48] I'm not saying it's a good company. Bad company. It's going to do well. It's going to do poorly. I'm not saying any of that. I don't know. What I'm saying is, is that when I'm looking for companies, I'm looking to invest in things that I understand and know better than everybody else. Yeah. Like so, you know, that is where you're going to find that edge. That is where you're going to find value. That is where you're going to be able would understand a longer term investment thesis when everyone else is looking at the short term noise. And so try and find if you can up invest in single shares, try and find scenarios. You know, if you work in metal processing and you know your customer is sims metal you know it seems like metal. Maybe have a look at their company and if you think they're going well by and if you think they're going poorly, don't bite or short it. You know, like I think investing around stuff that you've got a real tangible kind of understanding of in a practical, nitty gritty kind of way. That's where the value is in the moneys.

Alec: [00:21:44] Yeah. Nice. 

Bryce: [00:21:45] So Romero, do you have any final questions for Luke. 

Romero: [00:21:48] I guess in terms of the stock, and the ETFs. Look, I just, just want to understand a bit more if you can provide some general information in terms of, what would be a where is the ideal percentage? 

Luke: [00:22:06] Sure. All right. So if you think about your out allocation is going to drive 90% of your returns. What else? What I mean by that is how much money you've got invested in growth assets versus in defensive assets. And what I mean by growth assets. He shares the general comment. And what I mean by defensive assets is bonds is a general comment. So you need to think about that as a stop point. If you want to go and get an idea of, you know, what the appropriate sort of weights are for a risk profile, like a high growth, a growth, a conservative, a balanced well, go and have a look at your your industry super fund or go and have a look at one of those, multi asset ETFs. We're always bang on about in this segment. To give you an idea of how professionals are weighting portfolios growth and defensive or equities bonds and other stuff. So you know for you I don't know what's going to be the appropriate weight that you know how that would play out. But assuming, you know, your current portfolio is sort of, pretty high growth and pretty, 100% equities, you know, maybe like 40 to 60% global equities, 30 to 50% Australian equities, diversified ETFs, you know, something like that. And then maybe 20 to 40%. You could do some stock picking if that's what you're interested in and want to do. Some of your stock picks have been good luck. You've got a pretty good strike right at the moment. If you've holidays for the last 2 to 12 months, it doesn't sound like you have. But, you know, regardless and, you know, 5 to 10% per company kind of max. More like five, you know. More like three and a half. That's kind of the number that, you know, I would be thinking about and just kind of keep it to a small list of your pet stocks that you know really well, you follow closely. And you can keep an eye on it doesn't mean that you don't make changes. But, you know, I'm not a big advocate for high trading, high turnover. You might just be topping and tiling. That's kind of how we run our portfolio, you know, based on valuation. And yeah, try not to get distracted by the shiny things in the corner of your eye. You know, when Bryce is trying to pitch you Brainchip or some other nefarious podcasters, you know, selling you down the river on something or you're on, you know, the dreaded hot coffee. 

Alec: [00:24:08] So just just, for people, listen, just repeat those percentages that you had for global equities, Aussie equities and then individual stocks. 

Luke: [00:24:14] Look at and like I said.

Alec: [00:24:15] You can be super general. 

Luke: [00:24:16] You can do this 15 different ways from Sunday. But look 40 to 60% global equities 30 to 50% Australian equities. then you can have the net essentially which would be 20 to 40. In some stock picking or in that stock picking kind of depending on your conviction. Now if you know a lot about a company and you are, you think you're way ahead of the curve on it. No, not what you read on the internet, what you already know from other places that aren't the internet like.

Alec: [00:24:45] Well, by definition, if you read something on the internet, you're not ahead of the curve. 

Luke: [00:24:49] Correct. That is the correct answer. So you know that that would be you'd have lower conviction in that kind of idea versus say, like if you'd been working in the, you know, private equity investing in health care for 20 years and now you're trying to invest in health care companies. Well, you know, you're going to know a lot about how have they run so high conviction, like 5 to 10% as a starting weight. And then if it gets over ten you're going to like, and you know, you're going to be forced to to trim that and reinvested in something else, hopefully something in that core part, you know.

Alec: [00:25:20] You know, the, you know, the big let you win is random guy. 

Luke: [00:25:22] I am, but you need to have risk like risk management is important. So like whatever you're going to set your parameters at, maybe it's 15% you're going to have to trim or 20% you're going to have to trim, I don't care. Just have a rule, have a process and keep it. Because, you know, building continual conviction in stuff can lead to significant portfolio holdings, and a small error can lead to too big financial impacts. And I think as a non professional investor, the consequences of that can be pretty pretty dire.

Alec: [00:25:58] Well on that ominous note. Romero, thank you for joining us. 

Alec: [00:26:02] We hope we hope you got something out of this conversation and have some, general thoughts to go away and think about. 

Romero: [00:26:09] Definitely. Yeah. No, thank you very much. Luke, Renand Bryce, for all the advice and, and the chat, really appreciate general advice. 

Luke: [00:26:18] General. General. 

Romero: [00:26:20] Yeah. General advice. I mean, yeah, I appreciate that. Certainly I will start a bit more and and make, make the necessary change, according to some idea. But, yeah, that's good talk, I appreciate it. 

Bryce: [00:26:33] Awesome. Well, thanks, Romero. We very much appreciate you coming on. 

Romero: [00:26:36] Okay. Thank you guys. Have a nice day. 

Bryce: [00:26:38] If you would like to book in a time with Luke to review your portfolio, have these sorts of discussions with him in a bit more detail, discuss the markets, or just get him to help with your financial goals. 

Alec: [00:26:50] And actually get personal advice.

Bryce: [00:26:52] And get personal advice. 

Luke: [00:26:53] I can't guarantee everyone's going out. I can't give advice to everybody, but I'll try.

Bryce: [00:26:57] Okay. Yes. Head to equitymates.com/advice. You'll find a form there where you can select Luke's name and his booking and calendar will pop up. And, you'll be able to book directly with Luke. I would highly recommend it if you are looking for some professional advice on your portfolio. Equally, if you'd like to come on in Pimp my portfolio, submit your portfolio equitymates.com/contact. All those links will be in the show notes. But Luke as always, it's been an absolute pleasure.

Luke: [00:27:24] Pleasure, gentlemen. I've been here. 

Bryce: [00:27:26] Now we'll be right back. And on the other side of this break where unpacking one of Morgan Housel's most recent books. Welcome back to Equity Mates. This is a podcast that explores what's possible in the world of investing with covered off the hottest commodity cocoa. We've had our Pimp My Portfolio and now it is time for. That's it. I'm getting the SparkNotes for books that I come across Ren's bedside table at the moment, and I will bring one, I am sure. But today, Ren, what have we got? 

Alec: [00:27:59] So we are going to be talking about Same as Ever by Morgan Housel. People may be familiar with the psychology of money. Morgan Housel first book. 

Bryce: [00:28:09] Was that his first one?

Alec: [00:28:11] I actually don't know. First book I came across. Yeah, I think so. Yeah. A lot of the stuff you say is just the two books that he's written, The Psychology of Money, is up there with my favourite investing book. It would be at least on the podium for me, probably number one. Like if you haven't read Psychology of Money, I highly recommend reading it. And I am buttering Morgan up because you're right, I am not going to be about as positive about this second book. But yeah, if people don't take what I'm about to say is any indication of the quality of the first book, because it's worth reading this book. On the other hand, I think you can probably skip, so I'll get into it. The premise of the book is timeless lessons on risks, opportunity, and living a good life. And what he tries to do is pull out 23 stories or 23, I guess, like facts or, phenomena of the world that don't change. He says that too many investing in economics books focus on things that are changing and will change and have changed. Okay, but he wants to focus on things that don't change. 

Bryce: [00:29:18] For the purpose of like money management or just like put things into perspective. 

Alec: [00:29:23] There's a bit of biology and, okay, I'll get to that. And the premise is that, like, these are the things that you should sort of base your life and your finances and everything around. Okay. And I think so there's 23 chapters here, 23 things that don't change. I think you can largely split them up into two groups. One is like things about people that don't change. And the second is things about the world that don't change. And I think a lot of it is pretty harmless and like, you know, I think a lot of it's pretty good. You know, things like incentives rule the world. You know, that's something that people always responding to incentives. And that's how you can understand. People like things about people that never change. I think a lot of that category makes sense. But my gripe with this book is when he starts talking about things, about the world that never change. And there's certainly things about the world that are that never change. But I don't think Morgan has done a great job of identifying them or proving them. Instead, these chapters take the following three part structure. Firstly, a big normative statement. This is always true. Then secondly, a number of examples from economics, psychology or biology that quote unquote prove that normative statement. Okay. And then the third part, how we should behave given that big normative statement is true. But here's the problem, Bryce. For almost every chapter, I could find competing examples to the examples that he gave us. You can't just cherry pick a few examples and say, therefore, this big normative statement is always true. So let me give you two examples from two different chapters that I think step through, where I think this book fell a little short. First chapter, that I'm going to talk about overnight tragedies and long term miracles. The big normative statement is that good news comes from compounding, which always takes time. But bad news comes from a loss in confidence or a catastrophic error that can occur in a blink of an eye. That's a quote from his book. So he's saying good news takes time to build up, and be realised, whereas bad news always comes quickly. The examples he gives three examples. First of all, heart disease has fallen an average of 1.5% a year between 1950 and 2014, which means that heart disease has fallen more than 70% since the 1950s. That good news has compounded over a long period of time. The second example he gives is that GDP grows at an average of 3% a year, which means that over a long period of time, GDP has grown eightfold in the past 100 years. Good news takes time. The final example he gives was a little strange about life and death, he says. For life to exist, tens of billions of individual steps have to go right in the correct order to create a human, but only one has to happen to cause its demise. And again, that's a quote that starts off that section. Well, that example in the book. And so his takeaway from those examples is to be long term optimistic. But my gripe with that is, as I was writing it, there are plenty of examples that cut the other way. The most obvious, of bad news that hasn't happened quickly but is compounded over a long time. Climate change.

Alec: [00:32:40] Just a classic example of inverting your heart disease and GDP and taking small percentage changes year after year after year, compounding into something catastrophic. But there's also plenty of and.

Bryce: [00:32:51] I'll say like, alcohol compounds time and time again on your body. Smoking. Yeah. Yeah. 

Alec: [00:32:57] Like there are so many examples. But there's also good news that just happens out of the blue, you know, scientific breakthroughs. A lot of them are accidental things that happen that there's no slow compounding over time. Winning the lotto happens. You meeting your future Wife at most heads on a night out? 

Bryce: [00:33:18] Yeah, that was just how it was. That's very true. There's no big lead up to it. Yeah, good things can just happen. 

Alec: [00:33:25] And bad things can happen slowly. In the same way that good things can happen slowly and bad things can just happen. Yeah. The normative statement is things happen. 

Bryce: [00:33:32] Things happen. Yeah. 

Alec: [00:33:34] LIke he hasn't proven. So anyway, so that was. 

Alec: [00:33:38] One example where I think you can't, the normative statement is too big.

Bryce: [00:33:42] Yeah. 

Alec: [00:33:43] Yeah. And too broad and not proven by the examples. Yeah. I'll give you one more example and then we'll pull me out of this. Okay. So another example, another chapter. Too much, too soon, too fast. And the quote to kick it off, a good idea on steroids quickly becomes a terrible idea. And so the premise of this chapter is if something grows too quickly, it will become weak and die. If something grows slowly, it will be stronger and stand the test of time. He has four examples to prove his point. First of all, Robert Wadlow, the largest human ever known. He died at 22 years old and was almost nine feet tall because his body was just a mess. Because it grew too quickly, his organs couldn't keep up, his joints couldn't keep up, he grew too quickly and he died. Second example from the stock market, Starbucks grew too quickly. In the 1990s and 2000. It had 425 stores in 1994. By 1999, it was opening 625 new stores a year. By 2007, it was opening 2500 new stores a year. It grow too quickly, had to rationalise during the GFC and beyond. It closed 600 stores in 2008. It grew too quickly. It got weak, it didn't die, but it had to sort itself out. The third example young tree saplings, when they grow, in the shade of bigger trees, they grow slowly because they don't get a lot of sunlight that leads to dense hardwood. But if they're in an open field with no shade, direct sunlight, they grow more quickly, they grow faster, but they grow soft, airy wood, which becomes a breeding ground for fungus and disease. You can see what we're going here. Slow growth. Strong. Fast growth weak. The final example, two identical groups of fish. One is put in abnormally cold water and one is put in abnormally hot water. The group in hot water grows faster. Then you put them back in the same temperature water. And they end up being the same size. But here's the interesting thing the group in the hot water will die sooner, about 15% sooner because they grow too quickly. And so those four examples, used to prove the case that if something grows too quickly, it becomes weak and dies. If something grows slowly, it will be stronger and stand the test of time. And so the the outcome is grow slow, grow slow, don't try and grow too quickly or too big. But again, it's just like cherry picked examples that prove this normative statement. I can think of plenty of examples that cut the other way. There are plenty of examples where things have only been successful because they grow quickly in the stock market and company context. The most obvious example is all of these winner takes all Start-Ups, Uber. If Uber had focussed on growing slowly, we wouldn't be taking Ubers, would be taking.

Bryce: [00:36:41] Taxis, well, competitive, or. 

Alec: [00:36:43] Didi's or Lyft's or Ola's or, you know, something else like the sometimes you have to grow quickly or you don't make it. slowGrowth doesn't always make you strong. Sometimes slow growth makes you out of business. But it's also just Like an example of hindsight, like post ex post facto rationalisation. Something has happened and then You're Doing the analysis afterwards because what is to say is too fast growth. Like, I'm sure we could find other fast service restaurants or other retailers that have grown at a similar store growth to Starbucks, but they sustain that growth. And so what's to say that like one what level of growth is too quick? Until after the fact. 

Bryce: [00:37:31] Yeah. I mean, it was hit by the JSO 2008. Of course it's going to have to rationalise, but like, if that didn't happen, maybe it wouldn't have been an example.

Alec: [00:37:40] So again it's just like I don't think any of these ideas are wrong. I just don't think the, the logic is there that like these hand-picked examples prove these giant normative statements about the world. And so that's my gripe with this book. 

Bryce: [00:37:55] Nice. Well, if you want to read it. It's called Same As Ever. Morgan Housel second, what's the bio line?

Alec: [00:38:02] Timeless lessons on risk, opportunity and living a good life? 

Bryce: [00:38:06] There you go. Yeah. So, 23 of them. 

Alec: [00:38:08] Now, look, I'm being too harsh. Like, there's certainly some good takeaways from this book, and there's certainly some lessons that will make you a more thoughtful investor and, you know, probably make you think about your life. But I just think it's a bit careful. I think it's about your life. Don't take it as gospel for your life, because good things might happen out of the blue, and bad things can compound over time. 

Bryce: [00:38:31] Yeah, it's like we win the lotto. So that brings us to the end of our episode today. If you have a book recommendation, head to Equitymates.com/contact. We'd love to hear from you if you'd like to submit to Pimp My Portfolio, Same equitymates.com/contact. Or if you have a general question that is investing or money related, we'd love to hear from you as well. But again, that brings us to the end of today's episode. We will be back. 

Alec: [00:38:56] And the end of our chances of getting Morgan on this podcast. 

Bryce: [00:38:59] And on the podcast. Make sure you do read the psychology. Psychology, though most definitely, a great investing book. But Ren, we'll pick it up next episode. 

Alec: [00:39:07] Sounds good.