Latest / The Money Puzzle / Mega floats, market froth, and whether investing in SpaceX risky or smart

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Mega floats, market froth, and whether investing in SpaceX risky or smart · The Money Puzzle

0:10
Speaker 1: Welcome to the money Puzzle. I'm your host, Julianne Sprague,
0:13
Speaker 1: filling in for James Kirby, who's on a very well
0:15
Speaker 1: deserved break. He's missing a bit of the action though.
0:18
Speaker 1: I've got to tell you there is a lot of
0:20
Speaker 1: interest around some megafloats. Space x is listing. The big
0:25
Speaker 1: AI gives are hot on its trails open AI. It's
0:30
Speaker 1: confidentially put out a prospectus following on the heels of anthropy,
0:34
Speaker 1: all up more than three and a half US trillion
0:37
Speaker 1: dollars surfacing on our markets. They are big floats joining
0:42
Speaker 1: me to digest what this all means and whether you,
0:45
Speaker 1: as the retail shareholder, should get a piece of this action.
0:49
Speaker 1: Chris Braicky is the founder of stock Spot follows markets closely.
0:53
Speaker 1: Was also recently in South Korea, where there is someone
0:58
Speaker 1: who knows very well who's an early backer of SpaceX.
1:00
Speaker 1: So I do want to get his thoughts on whether
1:02
Speaker 1: the Mira are going to stay investors in SpaceX, or
1:05
Speaker 1: do they cash out and join What many critics are
1:09
Speaker 1: arguing is a cash out by billionaires to hand a
1:12
Speaker 1: bag of overpriced stock to retail holders. We'll get stuck
1:16
Speaker 1: into all of that, Chris Braichy, thanks for joining us
1:18
Speaker 1: on the money puzzle.
1:19
Speaker 2: Thanks for having me on.
1:21
Speaker 1: What a week it's been. There's a lot of stories
1:24
Speaker 1: floating around about SpaceX. We'll get stuck into that in
1:27
Speaker 1: a minute, and some of my nighttime reading I did
1:30
Speaker 1: digest the local Prospectus. Anyway, the Australian perspectives SpaceX. There
1:37
Speaker 1: are a few interesting things I've not seen some lines.
1:40
Speaker 1: You know that there's colonization and a few other things
1:42
Speaker 1: mentioned in that perspective. But we'll get stuck into that soon.
1:44
Speaker 1: But first, you've recently returned from South Korea. Can we
1:48
Speaker 1: have a chat about what you saw on the ground there.
1:50
Speaker 1: The market in South Korea has gone gangbusters? What's driving
1:54
Speaker 1: that and what are your thoughts?
1:56
Speaker 2: Yeah? It has so, I mean I was over in
1:58
Speaker 2: South Korea in Seoul last week at an ETF conference.
2:01
Speaker 2: I mean, it's an interesting time to be in ETFs
2:03
Speaker 2: in Korea because, as you mentioned, they're going absolutely crazy.
2:06
Speaker 2: Their share markets up a couple of one hundred percent
2:09
Speaker 2: in the last year alone, largely driven just by two stocks.
2:12
Speaker 2: So I think that's kind of the key is It's
2:14
Speaker 2: not like their whole economy is just flying there's two
2:18
Speaker 2: semiconductor related stocks that are called Samsung, which a lot
2:22
Speaker 2: of listeners would know, but also sk Heinix is the
2:24
Speaker 2: other one. They now account for about half of their
2:26
Speaker 2: total share market and these stocks are up close to
2:29
Speaker 2: tenet in the last few years, so there's been a
2:32
Speaker 2: big change in the I guess bullishists around like memory
2:36
Speaker 2: chips over the last couple of years, and then the
2:39
Speaker 2: demand for them in AI and those have been two
2:41
Speaker 2: of the biggest beneficiaries in the whole world, and the
2:44
Speaker 2: market's just going crazy for them.
2:46
Speaker 1: There's a show sort of perhaps problems in somee of
2:49
Speaker 1: how indexes a structure if you've got two stocks that
2:53
Speaker 1: are basically responsible for this massive uplift. I mean, maybe
2:57
Speaker 1: it goes to the argument of why you should have
2:58
Speaker 1: an ETF against it all else because if you didn't
3:01
Speaker 1: pick those two are you're out in the cult.
3:03
Speaker 2: Well, it's a problem, and I guess people have had
3:05
Speaker 2: the same concerns about the Magnificent seven in the US
3:07
Speaker 2: is they've become a bigger and bigger proportion of the market.
3:10
Speaker 2: And definitely those large caps in the US now are
3:13
Speaker 2: pretty big compared to the last twenty or thirty years.
3:15
Speaker 2: I mean if you actually go back further, though, there
3:16
Speaker 2: were periods in history, like the nineteen sixties and seventies
3:20
Speaker 2: when those large caps accounted for even more. Obviously, Korea
3:23
Speaker 2: is a pretty extreme example, having two stocks now account
3:26
Speaker 2: for half of the market. But I mean, the big
3:28
Speaker 2: problem for active managers over there is if you're underweight
3:31
Speaker 2: those two stocks, you're going to be massively underperforming. And
3:33
Speaker 2: like you say, that's one of the reasons why ETFs
3:36
Speaker 2: are appealing is because you always have an allocation to
3:39
Speaker 2: those stocks that are driving the market, you know, higher
3:41
Speaker 2: or lower. So you know, I think it's been one
3:44
Speaker 2: of the drivers of ETF inflows over there. And Mire
3:47
Speaker 2: the company that as an investor in our business and
3:49
Speaker 2: that we're over there at this conference for they have
3:52
Speaker 2: the biggest semiconductor ETF in Korea. And to give you
3:55
Speaker 2: an idea of the scale, just in the last seven
3:58
Speaker 2: or eight months, that ETF is grown from one billion
4:01
Speaker 2: US in assets under management to over ten billion in
4:04
Speaker 2: assets under management, So in what time, right since last
4:07
Speaker 2: September one.
4:09
Speaker 1: Billion to ten billion.
4:10
Speaker 2: Just phenomenal growth. And they pulled up a chart of
4:13
Speaker 2: this ETF and this ETF is largely those two stocks
4:15
Speaker 2: and a few other global semiconductor stocks, and it's I mean,
4:19
Speaker 2: the ETF is done phenomenally, but the amount of inflows
4:22
Speaker 2: of retail money and the interesting anecdote I heard was
4:25
Speaker 2: a year ago, like ninety percent of the retail trading
4:28
Speaker 2: in Korea was in cryptocurrencies, but now it's like ninety
4:32
Speaker 2: five percent is in Korean stocks. So all of those
4:35
Speaker 2: mum and dad investors and traders out there have switched
4:37
Speaker 2: from being crypto experts into being, you know, Korean semiconductor guru.
4:41
Speaker 1: It's chip mania at the moment. So you mentioned to
4:45
Speaker 1: me Ray so they are a backer of stocks blog,
4:48
Speaker 1: but they were also early into SpaceX, so they invested
4:52
Speaker 1: over four hundred million I think as US four hundred
4:54
Speaker 1: million since twenty twenty two. So I'm assuming you've had
4:59
Speaker 1: a chat with chairman part and Jew what's his view.
5:01
Speaker 1: Is he staying, is he backing Elon through the float
5:04
Speaker 1: or does he sell out?
5:05
Speaker 2: So they've been a big backer for a few years now,
5:07
Speaker 2: and I think the chairman and founder of mire Asset's
5:10
Speaker 2: always been, you know, quite a visionary in his area.
5:13
Speaker 2: He was the first person to launch manage funds in Korea.
5:16
Speaker 2: Then ETFs in Korea, and I think he's always looking
5:18
Speaker 2: out for visionally founders around the world, and that's why
5:20
Speaker 2: he has great respect for Elon as such a visionary.
5:23
Speaker 1: As he does you, Chris, I mean, who would have
5:25
Speaker 1: thought the'd be that you going not.
5:27
Speaker 2: To the same extent, but I think, I mean, our
5:29
Speaker 2: business is also different and definitely leaning on technology in
5:32
Speaker 2: a similar way. So yeah, I think he really believed
5:35
Speaker 2: in Elon. I think he originally invested in x so
5:38
Speaker 2: in Twitter, and then that actually gave them the opportunity
5:41
Speaker 2: to invest into SpaceX and they've held that since twenty
5:45
Speaker 2: twenty two. You know, over that time the valuations increased
5:48
Speaker 2: by something like three or fourfold, so they've done well
5:50
Speaker 2: on it. And I mean I was curious. I asked
5:53
Speaker 2: the chairman what his views were now that it's listing,
5:55
Speaker 2: and I mean, he certainly still seems very bullish on
5:58
Speaker 2: the company. And he gave the analogy of of Google
6:00
Speaker 2: and Facebook when they listed on the share markets, that
6:03
Speaker 2: was only the start of their journey, and although they
6:05
Speaker 2: had a bit of volatility in the first year, their
6:08
Speaker 2: share prices, you know, multiples higher now and I think
6:11
Speaker 2: he really sees a big future for SpaceX in a
6:14
Speaker 2: lot of areas that you know, maybe listeners might not
6:16
Speaker 2: have thought of, like actually selling solar energy to Earth.
6:19
Speaker 2: He thinks is a big business opportunity, as well as
6:22
Speaker 2: some of the defense tech opportunities with their satellites.
6:25
Speaker 1: And look, I want to mock it, don't you. You're
6:27
Speaker 1: to a solar energy selling about to Earth, and we
6:29
Speaker 1: can go through some of the lines and the prospectus
6:31
Speaker 1: and you just think this is cuckoo waku crazy. But
6:35
Speaker 1: then I do remind myself of the story of an
6:37
Speaker 1: ex Amazon employee who got into Tesla very early, like
6:40
Speaker 1: he just backed Elon. I think he bought it when
6:43
Speaker 1: the stock was like two bucks or something. Now it's
6:45
Speaker 1: Ober three hundred and eighty, retired at the age of
6:47
Speaker 1: thirty nine and made twelve million dollars just on some
6:50
Speaker 1: lazy on Tesla. So you look at that and you think, okay,
6:52
Speaker 1: well maybe it is worth a little bit of a bet.
6:54
Speaker 2: But yeah, the problem for it any skeptic is Elon's
6:57
Speaker 2: got a pretty bloody good track record of getting these
6:59
Speaker 2: things between Tesla and you know, SpaceX, and he does
7:03
Speaker 2: seem to see the future and really back it, and
7:06
Speaker 2: he is able to get the capital to really deliver
7:08
Speaker 2: as well. So yeah, I think people recognize that this valuation,
7:12
Speaker 2: it may not stick initially and there may be some volatility.
7:15
Speaker 2: I remember it was the same with Tesla for the
7:17
Speaker 2: first ten years it had a lot of share price volatility,
7:20
Speaker 2: and then the business model got traction and it you know,
7:23
Speaker 2: started to get good, you know, commercial success, And it
7:25
Speaker 2: may take a while for SpaceX as well. But yeah,
7:28
Speaker 2: I would I wouldn't be going on the other side
7:30
Speaker 2: of the trade and shorting it. I'm not sure whether
7:32
Speaker 2: it will be successful initially, but it's too dangerous to
7:35
Speaker 2: be negative on it.
7:36
Speaker 1: Well, but this is the issue is do you get
7:38
Speaker 1: in now. There's a lot of frenzy around it. But
7:40
Speaker 1: he did talk about some of the other bigger tech
7:43
Speaker 1: players and how much their stock has grown. But if
7:46
Speaker 1: you go back to say, when Facebook was listening, I
7:49
Speaker 1: think they raised sixteen billion. Just to put that in context,
7:52
Speaker 1: SpaceX is raising seventy five billion. It's such a lot
7:55
Speaker 1: of money. But then Facebook shares they fell more than
7:58
Speaker 1: fifty percent ten weeks after listing, So it is that
8:02
Speaker 1: idea of it seems like it's a company you might
8:04
Speaker 1: want to back. Elon, But do you need to back
8:05
Speaker 1: it now?
8:07
Speaker 2: Well, it's a good question, and obviously it takes time
8:09
Speaker 2: for any company when it lists to find its feed
8:11
Speaker 2: and work out what the market values it at. When
8:13
Speaker 2: a company lists, the book runners and the people selling
8:15
Speaker 2: the shares determine the price as well as those initial buyers.
8:18
Speaker 2: But some of those initial buyers are in there for
8:21
Speaker 2: a quick buck to try and flip it, so it
8:23
Speaker 2: does take time for all of that to kind of
8:25
Speaker 2: process through the market. It's been one of the big
8:28
Speaker 2: challenges for the indices this time because being such a
8:31
Speaker 2: large stock, a lot of the big index providers like
8:34
Speaker 2: MSCI and SMP have had to decide whether it should
8:38
Speaker 2: be included immediately or whether the index itself should wait
8:42
Speaker 2: to work out whether you know where it should be positioned.
8:44
Speaker 2: So this, I mean this causes an interesting challenge for
8:47
Speaker 2: index investors because they have to now decide should I
8:49
Speaker 2: be in an index that includes SpaceX immediately or maybe
8:52
Speaker 2: one that's only going to include it in a year's time.
8:55
Speaker 1: It is fascinating because nas deek Well I was going
8:58
Speaker 1: to say, bend the rules, bend them just the rules
9:00
Speaker 1: they were really keen to have SpaceX, and so instead
9:03
Speaker 1: of three months, maybe, Chris, I think that you have
9:07
Speaker 1: to wait a certain amount of time before you can
9:08
Speaker 1: get included in the index. They've made that. Now you've
9:10
Speaker 1: got fifteen days and then you're in regardless of proving anything.
9:14
Speaker 2: Yeah, that's right. I think depending on the index, they
9:16
Speaker 2: all relax their rules. So some of them were about
9:18
Speaker 2: the index inclusion time period, and like you say that
9:21
Speaker 2: NASDAK shortened it. Someone's are out free float. So typically
9:24
Speaker 2: induses will only allow companies to be part of that
9:27
Speaker 2: index if a decent proportion of the overall shares on
9:30
Speaker 2: issue are tradeable. Now, in the case of SpaceX, you know,
9:34
Speaker 2: based on the latest figures I've seen, only about four
9:36
Speaker 2: point three percent of the company will be tradeable. That's
9:39
Speaker 2: a very low free float, and so traditionally indices wouldn't
9:43
Speaker 2: allow it to be listed, but they've relax those rules
9:45
Speaker 2: as well.
9:46
Speaker 1: It's a very low free flow. And when I was
9:48
Speaker 1: looking through the prospectus, I mean Elon Musk is in
9:51
Speaker 1: complete control of this company. He's the one who votes
9:54
Speaker 1: in directors. You can't as a shareholder have any sway,
9:58
Speaker 1: no matter what big you're holding might be. He's got
10:02
Speaker 1: total control of the B class shares when I went
10:05
Speaker 1: through this, it's looking at obviously we know about the
10:08
Speaker 1: space exploration, but it's really trying to gear up and
10:11
Speaker 1: be an AI player. And in the prospectus it says
10:15
Speaker 1: our AI segment is capital intensive, has incurred significant operating losses,
10:20
Speaker 1: and operates in a nascent and rapidly evolving market which
10:24
Speaker 1: the potential of AI remains uncertain. It is basically same.
10:27
Speaker 1: We want to take all of this money. We're going
10:29
Speaker 1: to plow it into this AI. We think it's going
10:31
Speaker 1: to be something. It could turn out to be nothing.
10:33
Speaker 1: You might all lose your money. It's very clear. The
10:35
Speaker 1: prospectus clearly points out all of the risks I reckon.
10:39
Speaker 1: I got to my fourth or fifth risk, and yeah,
10:42
Speaker 1: I'm running miles away from this. But I feel like
10:46
Speaker 1: the people who really back Elon quite like the idea
10:49
Speaker 1: that these risks are pointed out, and they are backing
10:52
Speaker 1: him in the idea of this company that's making significant
10:55
Speaker 1: losses isn't troubling them.
10:57
Speaker 2: I think that's right. I mean, they're backing his vision.
11:00
Speaker 2: And yeah, he is such an interesting figure, but he's
11:03
Speaker 2: got such a strong following of people that just believe
11:05
Speaker 2: in him and believe in his bit, in his ability
11:08
Speaker 2: to find the future. You know, it might not be
11:09
Speaker 2: his initial idea, it might be something that comes later.
11:12
Speaker 2: So you're right, And I don't think it's unusual for
11:14
Speaker 2: founders or you know, the families involved in businesses to
11:18
Speaker 2: have kind of different share ownership or preference shares or
11:21
Speaker 2: controlling interests. You know, I think Facebook was in a
11:24
Speaker 2: similar situation. You know, even your employer has different share
11:28
Speaker 2: structures where different people have levels of control different to
11:31
Speaker 2: ordinary shareholders.
11:32
Speaker 1: So they do.
11:33
Speaker 2: That's not unusual, I'd say, and certainly in the case
11:35
Speaker 2: of Elon, I think people would be a lot of
11:38
Speaker 2: the investors would be happy for him to have kind
11:39
Speaker 2: of that overarching control.
11:42
Speaker 1: But it does point out that if something should happen
11:44
Speaker 1: to Elon, musks you. And they're not even suggesting that.
11:47
Speaker 1: I think they even point in there, like in the
11:49
Speaker 1: event of his death, which is so macab but it's
11:51
Speaker 1: just to have to point out that he has so
11:52
Speaker 1: much control and that his vision is essentially what this
11:56
Speaker 1: company is all about. So should something happen to Elon,
11:58
Speaker 1: there's a significant risk. I haven't really seen that mentioned
12:02
Speaker 1: in many company prospectus. As before, there's key man risk,
12:04
Speaker 1: but there's just one individual and something should happen to
12:07
Speaker 1: that individual.
12:08
Speaker 2: Well, yeah, I think definitely in this example, because it
12:11
Speaker 2: is everyone backing his vision. I mean maybe Steve Jobs
12:14
Speaker 2: were similar, but you know he managed to hand over
12:16
Speaker 2: the company in a in a way that worked out.
12:19
Speaker 2: But yeah, I think that's it's a big challenge for
12:21
Speaker 2: the businesses and as a shareholder you have to price
12:24
Speaker 2: that in the price you're prepared to pay. You know,
12:26
Speaker 2: even though the probability of elon kaarking it would be
12:29
Speaker 2: very low, then you know the impact on the share
12:31
Speaker 2: price would be obviously quite negative. So people have got
12:34
Speaker 2: a factor that in.
12:35
Speaker 1: Will we see some weakening in other share prices as
12:38
Speaker 1: money moves through to maybe get onto the SpaceX rocket.
12:43
Speaker 1: It's just as I mentioned that they're raised seventy five billion,
12:46
Speaker 1: what's the mark that two point four trillion? It's extraordinary
12:48
Speaker 1: just to put into context to SpaceX, open Aur and Anthropic.
12:52
Speaker 1: If all three of those floats get away, the three
12:54
Speaker 1: of those companies are worth significantly more than the entire
12:57
Speaker 1: Australian market.
12:58
Speaker 2: Yeah, it's wild. I mean, that is the challenge at
13:00
Speaker 2: the moment and the market's been selling off. You know,
13:03
Speaker 2: I don't know what proportion of it's due to the
13:05
Speaker 2: Middle East and how much of it's due to you know,
13:08
Speaker 2: other factors, but I think some level of it is
13:10
Speaker 2: funding these upcoming floats, because there were some good calculations
13:14
Speaker 2: that the Financial Times did a day ago suggesting that
13:17
Speaker 2: there's about fourteen billion dollars worth of index and active
13:20
Speaker 2: manager buying that has to happen over the first few weeks.
13:23
Speaker 2: That money needs to come from somewhere, and the cash
13:25
Speaker 2: allocations of index funds are negligible and for active managers
13:29
Speaker 2: are very low, so they need to sell other stocks
13:32
Speaker 2: in order to buy you know, SpaceX and eventually Anthropic
13:35
Speaker 2: and Open AI. So it's going to put pressure on
13:38
Speaker 2: share prices. You know. We see a similar thing happens
13:41
Speaker 2: in Australia if there's a big float coming up, which
13:43
Speaker 2: we haven't seen a lot of recently, but even a
13:44
Speaker 2: big placement, let's say a big gold stock does a
13:47
Speaker 2: big placement, you often see the funding coming from other
13:50
Speaker 2: gold stocks, so you'll see other gold stock selling off
13:53
Speaker 2: before that placement happens.
13:55
Speaker 1: So I want to get your thoughts on whether you
13:58
Speaker 1: would buy space as a stock on its own. I
14:02
Speaker 1: know you're an easyf lover. I know you love indexes.
14:04
Speaker 1: We need to have a chat about the impact on
14:06
Speaker 1: the Australian market and how the Australian market is lagging
14:08
Speaker 1: global indexes and what that means. And as part of
14:12
Speaker 1: that discussion, we can talk about what the budget's going
14:14
Speaker 1: to do now for local investing and on our market
14:17
Speaker 1: because we're already behind. We don't have a big AI
14:19
Speaker 1: player that we're listing on the AX. The AX is
14:22
Speaker 1: a lagger globally, so I want to get your thoughts
14:26
Speaker 1: on what we could expect and what you'd like the
14:29
Speaker 1: government to do. If you're a prime Minister for the day, Chris,
14:31
Speaker 1: I might make you Prime Minister for a day and
14:32
Speaker 1: see what you do. We'll have that conversation when we
14:34
Speaker 1: come back. Welcome back to the money Puzzle. I'm Julianne
14:48
Speaker 1: Sprague filling in for James Kirby, who's on a well
14:50
Speaker 1: deserved break. I wonder if he was doing some holiday
14:54
Speaker 1: reading and checking out the SpaceX prospectus, because I don't know.
14:58
Speaker 1: Sometimes I feel like it is a a bit of
15:01
Speaker 1: a fairytale. Lots of talk about colonizing Mars. My guess.
15:06
Speaker 1: Chris Spreiky from stock spot was talking about the idea
15:09
Speaker 1: of harvesting solar energy and selling it back to us
15:12
Speaker 1: here done and Earth. It all sounds crazy, but you
15:15
Speaker 1: know what, there was a time where there wasn't cars
15:18
Speaker 1: that had batteries, and now I look around and there's
15:21
Speaker 1: tesselas everywhere. The pace of technology is changing things at
15:25
Speaker 1: such a rage that you think, am I silly to
15:27
Speaker 1: miss this opportunity? Chris, you're running stock Spot, You're running
15:33
Speaker 1: portfolios for a whole bunch of people who back and
15:36
Speaker 1: believe in you. So where does SpaceX sit from a
15:39
Speaker 1: portfolio point of view? And you personally would you buy
15:42
Speaker 1: SpaceX stock?
15:45
Speaker 2: I think from a portfolio perspective, Juliana like, it's hard
15:48
Speaker 2: to not have a position in a stop that's such
15:51
Speaker 2: a big part of the index. But the caveat to
15:53
Speaker 2: that is if I was running one of the index providers,
15:56
Speaker 2: I wouldn't be changing the rules to allow it come
16:00
Speaker 2: into the index earlier. And so I think having a
16:02
Speaker 2: good twelve months to find its feed and work out
16:05
Speaker 2: how the market values it is a safer option for
16:08
Speaker 2: index investors is to basically buy it, you know, after
16:11
Speaker 2: it's been listed and after them it's found its feet.
16:14
Speaker 1: So if you know that, right, why was SpaceX? So
16:18
Speaker 1: I presume it's SpaceX pushing to get the Debrules change,
16:22
Speaker 1: as why would an index provider, why would they go
16:24
Speaker 1: and make these rule changes for them?
16:26
Speaker 2: I think it can potentially benefit both. Absolutely, it benefits
16:29
Speaker 2: the SpaceX because it creates this you know, big amount
16:32
Speaker 2: of passive buying. But it's not only passive buying. And
16:35
Speaker 2: I think this is the important point. If you're an
16:36
Speaker 2: active manager and you're benchmarked against the index and SpaceX
16:41
Speaker 2: is in the index, there's a big risk if you
16:43
Speaker 2: don't own it as well, because you could easily lag.
16:45
Speaker 2: And we talked about those two Korean companies, you know,
16:48
Speaker 2: having such a big impact on the index. So because
16:51
Speaker 2: there's got to be about you know, something like fourteen
16:54
Speaker 2: billion dollars of buying, that's obviously great after market support
16:58
Speaker 2: of the stock. So makes sense with SpaceX. I mean
17:01
Speaker 2: for a Nasdak, I guess if you're sitting in their shoes,
17:03
Speaker 2: you're competing against a lot of other index providers, and
17:06
Speaker 2: you know that a lot of retail investors will be
17:08
Speaker 2: interested in this. So maybe it gives you a competitive
17:11
Speaker 2: advantage to have SpaceX included earlier, and I think that's probably,
17:15
Speaker 2: you know, one of the reasons why they would have
17:17
Speaker 2: been comfortable relaxing the rules in this case. I mean,
17:20
Speaker 2: it's obviously an extremely rare thing for such a large company. Basically,
17:25
Speaker 2: you know, a company that will be in the largest
17:27
Speaker 2: you know, five or ten stocks in the US to list,
17:30
Speaker 2: and so I think they've had to grapple with you know,
17:32
Speaker 2: maybe those rules are a bit old school, you know,
17:35
Speaker 2: and come from a time when companies would list a
17:37
Speaker 2: lot smaller and then grow into that size. You know.
17:40
Speaker 2: Now we've got a lot of companies staying private for
17:42
Speaker 2: a lot longer and earning listing once they're already at
17:45
Speaker 2: trillion doll evaluations, you know, like Anthropic and Open AI
17:49
Speaker 2: and SpaceX.
17:50
Speaker 1: And that's the criticism here, is that it's not listing
17:54
Speaker 1: where you can get in early and enjoy the journey.
17:57
Speaker 1: How you said that, the backers would say, there's still
17:59
Speaker 1: a lot of runway to go for these companies. But
18:03
Speaker 1: the criticism that the critics are arguing that it allows
18:06
Speaker 1: the early stage the private backers you've got in very
18:09
Speaker 1: early and have ridden this, they are the ones who
18:11
Speaker 1: are actually really profiting, and this might leave you holding
18:13
Speaker 1: the bag.
18:14
Speaker 2: Well, that's true, and I think that's the risk for
18:16
Speaker 2: any shareholder is like, is the price you're going to
18:19
Speaker 2: pay a fair price? And will someone be happy to
18:21
Speaker 2: pay a higher price in the future. This is obviously
18:23
Speaker 2: a very difficult company to value, and so there's a
18:26
Speaker 2: wide dispersion of possible outcomes from you know, it's worth
18:29
Speaker 2: a lot less, so it's worth a lot more, and
18:31
Speaker 2: so you know, is you know one point seven trillion
18:35
Speaker 2: US kind of the midpoint of that that those probabilities,
18:38
Speaker 2: I'm not sure, or maybe it's a little bit lower,
18:40
Speaker 2: or maybe it's a bit higher. Yeah, I think the
18:42
Speaker 2: danger for someone not owning it is, let's say it's
18:45
Speaker 2: a you know, a seven or ten trillion dollar company
18:47
Speaker 2: in five years time, and you don't have an allocation.
18:49
Speaker 2: You could have missed out on potentially you know, twenty
18:52
Speaker 2: or thirty percent sort of returns from a portfolio perspective,
18:56
Speaker 2: even if it started at a very small allocation. So
18:59
Speaker 2: I think it make sense to own it in an
19:01
Speaker 2: index weight in your portfolio. But I wouldn't be taking
19:04
Speaker 2: a punt at an over index weight. I don't have
19:06
Speaker 2: any strong conviction that it's going to outperform, and equally,
19:10
Speaker 2: i'd be concerned about note owning at all. You know,
19:14
Speaker 2: if you're looking for a broad global market exposure.
19:18
Speaker 1: We mentioned too, there's Open AI. It's it feels like
19:22
Speaker 1: there's an arms race on at the moment. All the
19:24
Speaker 1: ais are like, cool, there's all this appetite. We've got
19:26
Speaker 1: a list, and we're not only need on a list,
19:27
Speaker 1: We're going to list at these extreme valuations. Trillion dollar companies,
19:31
Speaker 1: Open Ai, Anthropic, as I mentioned to the three companies SpaceX, Athropic,
19:37
Speaker 1: Open Ai all up about three and a half US trillion.
19:42
Speaker 1: Our market the ax is three point two trillion AUZ,
19:44
Speaker 1: so it's three companies worth an awful lot. What does
19:48
Speaker 1: it mean for the Australian market and for those investors
19:52
Speaker 1: who typically have a home bias. We had a point
19:56
Speaker 1: where you really are doing yourself a disservice if all
19:59
Speaker 1: you're focusing is investing in the Australian market.
20:03
Speaker 2: Well, that's right. I mean, there's already been a trend
20:05
Speaker 2: probably for the last ten years or so with oussi's
20:07
Speaker 2: who have traditionally just owned our banks and BHP and
20:10
Speaker 2: Telstra and Woolies adding globally tfs to their portfolios. And
20:14
Speaker 2: it's a trend we've seen very clearly, but you've even
20:16
Speaker 2: seen it within the big super funds, that global allocation increasing.
20:19
Speaker 2: The market just hasn't grown as much in that sort
20:22
Speaker 2: of innovative area. And although we've had a few good
20:25
Speaker 2: local successes, they haven't listed on our market, so people
20:28
Speaker 2: don't have exposure to the at Lassians or Canvas through
20:31
Speaker 2: the ASX. You know, Lassian is listed in the US
20:34
Speaker 2: and Canva hasn't listed yet, but it probably will list
20:36
Speaker 2: over there. So absolutely, if ozsis want exposure to some
20:40
Speaker 2: of these growing industries, you can't just have Aussie shares,
20:44
Speaker 2: you know, you need shares not only in the US
20:46
Speaker 2: but in markets like Korea and Japan and other countries
20:49
Speaker 2: that are growing faster due to technology. Does that mean
20:52
Speaker 2: technology will only go up, No, absolutely not, And there
20:55
Speaker 2: could be a period where these sectors become overheated and
20:58
Speaker 2: they ultimately fall, and maybe our markets center beneficiary because
21:02
Speaker 2: people are looking for more defensive exposures, happy with dividends,
21:05
Speaker 2: you know, happy with the sorts of stocks that our
21:08
Speaker 2: country has. But you know, it's been a pretty lonely,
21:11
Speaker 2: lonely place for the last five or ten years, because
21:14
Speaker 2: you know, grocery stores and telco's and banks aren't kind
21:18
Speaker 2: of the exciting stocks people want at the moment.
21:20
Speaker 1: No, they really aren't. But it's feeling frosty, though, isn't it, Chris,
21:25
Speaker 1: Like I feel like these this race on to get
21:27
Speaker 1: prospectus is out, this race to go list some of
21:30
Speaker 1: the valuations we're seeing. You have probably come across this too,
21:34
Speaker 1: where a lot of companies are talking about themselves as
21:36
Speaker 1: been tech companies, when the last time I looked there
21:38
Speaker 1: were perhaps I'm not going to say grocery company, but
21:42
Speaker 1: something that would just be pretty mundane. But suddenly, all
21:44
Speaker 1: of a sudden they're rebranding to become a tech company.
21:47
Speaker 1: We're seeing this a bit now, isn't this pointing?
21:48
Speaker 2: Well, yeah, I think we'll see it even more in
21:50
Speaker 2: Australia if the government has carve outs for tech companies
21:53
Speaker 2: on the CGT every hairdresser becoming a tech company. But yes,
21:57
Speaker 2: I mean it's it feels a bit frothy. The problem
22:00
Speaker 2: with trying to call a top in these areas is
22:02
Speaker 2: you could have equally thought three years ago it was frothy,
22:04
Speaker 2: and so you don't really know whether we're in the
22:07
Speaker 2: adoption curve of you know, to put it back in
22:10
Speaker 2: the original tech boom sort of context, like are we
22:12
Speaker 2: in ninety one, ninety two? Are we in ninety seven?
22:15
Speaker 2: Are we in ninety eight? And even between ninety eight
22:17
Speaker 2: and two thousand the US market doubled again. So it's
22:21
Speaker 2: a real tricky thing if you're an active trade or
22:23
Speaker 2: someone betting on picking the top is that you can
22:26
Speaker 2: be eventually right, but you can be wrong and wear
22:29
Speaker 2: a lot of pain for quite a long time.
22:31
Speaker 1: I guess if you're in a strong enough position, you
22:33
Speaker 1: can have a bet each way back some of these
22:36
Speaker 1: stocks that have some cash on the table, and I
22:37
Speaker 1: so Berkshea Hathaway has a record number of a record
22:40
Speaker 1: level of cash holdings. At the moment, it's obviously thinking
22:42
Speaker 1: things are feeling toppy.
22:45
Speaker 2: Yeah, that's right, or even just diversification across other asset classes.
22:48
Speaker 2: And that's what we're always recommending to clients, is I mean,
22:51
Speaker 2: we see the pressure always and clients are always interested
22:54
Speaker 2: in assets and sectors that have done better. So at
22:57
Speaker 2: the moment, we're getting a lot of clients asking, like,
22:59
Speaker 2: as you do expect how can I get exposure to SpaceX?
23:02
Speaker 2: But four months ago it was how can I get
23:04
Speaker 2: exposure to gold? And before that cannabis or whatever was
23:08
Speaker 2: from at the time. So we always have to temper
23:10
Speaker 2: that excitement and say, look, there's always temptation to chase
23:13
Speaker 2: the latest and greatest thing, but you know better than that.
23:16
Speaker 2: Just own everything and you'll always have a bit of
23:18
Speaker 2: those exciting things, and you'll also have some things that
23:21
Speaker 2: aren't doing as well, but it gives you a more
23:22
Speaker 2: smooth ride. Otherwise it's a bit of a roller coaster.
23:25
Speaker 1: Just on that I feel like there's some clever structures.
23:28
Speaker 1: Well is it clever or it's clever and a sense
23:30
Speaker 1: of feeling that sense of euphoria or the demand out
23:34
Speaker 1: there in the market. Pangana is listing a company the
23:38
Speaker 1: Tickets AIX. It's basically an AI trust and what they've
23:41
Speaker 1: recognized is that a lot of these AIA companies, the
23:45
Speaker 1: wealth created in the AIA companies comes at the very
23:48
Speaker 1: early stages from VC from the private backers. Now were
23:52
Speaker 1: obviously seeing a few of these big folks, but what
23:54
Speaker 1: they're arguing is that they can give the punter access
23:57
Speaker 1: to private stage investments, so you invest in the listed vehicle,
24:01
Speaker 1: which then itself is investing in AI companies. How risky
24:06
Speaker 1: is that, Chris?
24:09
Speaker 2: Look, if you go through history, there's always going to
24:11
Speaker 2: be both sort of active funds and now ETFs that
24:13
Speaker 2: launch in areas that are hot because they know that
24:15
Speaker 2: there's a lot of retail money kind of chasing these
24:18
Speaker 2: trends and it's a good way of attracting assets. I
24:20
Speaker 2: remember back in ninety nine two thousand, it was all
24:23
Speaker 2: the big fund managers in Australia like A and Z
24:25
Speaker 2: and BT and AMP launching technology funds. You know, there
24:29
Speaker 2: was the bt at Technology Fund, there was an AMP
24:31
Speaker 2: Global Tech Fund. Everyone wanted to launch a tech fund
24:34
Speaker 2: back then, and most of them then fell by ninety
24:36
Speaker 2: percent over the next few years. So I think it's
24:40
Speaker 2: always a concern for me when you see a lot
24:42
Speaker 2: of funds launching in one space to capitalize on retail interest.
24:47
Speaker 2: One of my favorite sort of stock market sayings is,
24:49
Speaker 2: you know, feed the ducks while they're quacking, and that
24:52
Speaker 2: tends to be what fund managers and asset managers do,
24:55
Speaker 2: is they satisfy the demand while it's there, even though
24:58
Speaker 2: it's not the right thing. To do. We have a
25:00
Speaker 2: different approach because we don't actually create these ETFs. We're
25:03
Speaker 2: a fiduciary trying to work for the best interests of
25:06
Speaker 2: our clients, which is why we're trying to tell them, Hey,
25:08
Speaker 2: maybe that's not the most clever idea. I mean with
25:11
Speaker 2: this particular fund, it obviously has a good narrative to
25:14
Speaker 2: it that you know, you can get access to things
25:16
Speaker 2: before they list. You know, the challenges it doesn't always
25:19
Speaker 2: you know, make them cheap or good value. And also
25:22
Speaker 2: being in unlisted stuff has its own challenges because of illiquidity,
25:26
Speaker 2: and if there is truly a downturn, you know, if
25:28
Speaker 2: it's hard to get out of listed stuff, it's going
25:30
Speaker 2: to be incredibly difficult to get out of unlisted stuff.
25:33
Speaker 2: And the other problem is that this structure is not
25:35
Speaker 2: a ETF structure where it trades that it's net tangible
25:38
Speaker 2: assets every day. It's essentially a listed investment company or
25:42
Speaker 2: a listed investment trust where it's up to buyers and
25:45
Speaker 2: sellers every day to determine the underlying value of those
25:49
Speaker 2: assets they own. So in a downturn, what you could
25:52
Speaker 2: see is not only those assets falling in value, but
25:55
Speaker 2: people in the shed market just wanting to get out
25:57
Speaker 2: of the structure altogether and selling it at twenty or
25:59
Speaker 2: thirty percent discount even to that. And it's always been
26:02
Speaker 2: one of these challenges with listed investment companies is you know,
26:06
Speaker 2: they can trade it at a big discount even of
26:08
Speaker 2: what the fund manager believes its worth. So you know,
26:11
Speaker 2: these aren't the sort of structures we're recommending to clients
26:13
Speaker 2: just because although they can have a lot of excitement,
26:16
Speaker 2: they come with a lot of risk and danger in
26:18
Speaker 2: exiting when you want.
26:18
Speaker 1: To well made points, Chris, we need to get to
26:23
Speaker 1: a few questions from the listeners. But before we get
26:25
Speaker 1: to that, I do want to just quickly cover off
26:27
Speaker 1: on your thoughts on the budget. We're are a few
26:30
Speaker 1: weeks out from Jim Chalmers delivering that budget that delivered
26:34
Speaker 1: quite a lot of shock and or. I've got to say,
26:36
Speaker 1: in my time covering budgets, it's very unusual that we're
26:39
Speaker 1: this far away from the budget being handed down and
26:41
Speaker 1: people still talking about it and still being upset with things.
26:45
Speaker 1: Your key concern well, there's a few of them, but
26:47
Speaker 1: one of the key concerns is what it does to
26:50
Speaker 1: innovation or what it does to entrepreneurship and what it
26:53
Speaker 1: might do for these future companies that would help the ASX,
26:57
Speaker 1: what would you prefer for the Treasurer to do, and
27:00
Speaker 1: maybe just outlined for us sort of those chief concerns
27:03
Speaker 1: you've got.
27:04
Speaker 2: Well, yeah, so I'm not First of all, I'm not
27:06
Speaker 2: the first or not the only person to have these concerns.
27:08
Speaker 2: I've heard there's been over five hundred submissions to the
27:11
Speaker 2: Senate inquiry, which is extraordinary given the time people were given.
27:15
Speaker 1: Well, yes, there's hundreds. On the day after that we
27:17
Speaker 1: could get access, there was eleven up on the website,
27:20
Speaker 1: and so there's still.
27:20
Speaker 2: Only eleven, which is shocking because.
27:23
Speaker 1: We have many with many inquiries. Chris, It's like, surely
27:26
Speaker 1: not eleven. Surely there was more than eleven. There is
27:28
Speaker 1: hundreds and hundreds, But Treasury apparently have to vet and
27:31
Speaker 1: do all these things before they can upload them.
27:33
Speaker 2: Yeah. I sent mine three times because it's not getting
27:35
Speaker 2: loaded up, and I was checking that they weren't having
27:37
Speaker 2: a tech issue. But I yeah, I'm still waiting to
27:39
Speaker 2: hear back. Have they called you, No, they haven't, so
27:42
Speaker 2: I'm worried that. Yeah, mine's been Yeah, bind or shuffled
27:45
Speaker 2: to the side, so I'm very keen to see mine
27:46
Speaker 2: up on the website as well. But I mean, yeah,
27:49
Speaker 2: on those concerns, I mean, the first one I raised,
27:51
Speaker 2: you know, in the Australian even before the budget was
27:53
Speaker 2: this innovation you know problem that founders you know, aren't
27:58
Speaker 2: putting a lot of capital into their business, putting a
28:00
Speaker 2: lot of time and energy and years of hard work
28:02
Speaker 2: and foregoing salaries and then eventually, if they're lucky enough,
28:05
Speaker 2: they're getting an exit in a single year. You know,
28:07
Speaker 2: these proposals, first of all, are nothing like the old
28:11
Speaker 2: structure of ninety nine where you've got to split it
28:13
Speaker 2: across multiple years. You can't do that. You're going to
28:16
Speaker 2: pay a minimum thirty percent capital gains and you're going
28:19
Speaker 2: to be only indexing your cost base, which for most
28:22
Speaker 2: business owners and founders you know, who aren't running capital
28:26
Speaker 2: intensive businesses, is pretty meaningless. And so really there's a
28:30
Speaker 2: big tax on innovation and it's going to drive a
28:33
Speaker 2: lot of entrepreneurs and people thinking of starting businesses overseas.
28:37
Speaker 2: And this is in sectors like you know, biotechnology or
28:40
Speaker 2: technology or anywhere where there's going to be a lot
28:42
Speaker 2: of intellectual you know, IP and capital. But not a
28:45
Speaker 2: lot of financial or you know, physical capital. So this
28:49
Speaker 2: one I think has been aired pretty widely now, and
28:51
Speaker 2: there was obviously.
28:52
Speaker 3: See it's been aired, but I think the government sort
28:54
Speaker 3: of hit back a little bit and said, you know,
28:57
Speaker 3: one of the lines is that people often tax the
29:00
Speaker 3: tax considerations isn't really in your top five list when
29:03
Speaker 3: you go and set up a business, right because most
29:05
Speaker 3: business owners are there to solve a problem.
29:07
Speaker 1: They're driven to do a whole bunch of things, and
29:09
Speaker 1: tax does it for me is the equation. But I
29:11
Speaker 1: think what the government might miss in all of that
29:13
Speaker 1: is that, well, you weren't taxing people up to fifty
29:17
Speaker 1: percent or forty seven percent of the winnings before, Like
29:20
Speaker 1: it didn't have to be a consideration before, because maybe
29:22
Speaker 1: it felt fair before.
29:24
Speaker 2: Well yeah, it sounds to me like something coming from
29:27
Speaker 2: someone that's never thought of running a business before, because
29:30
Speaker 2: like having gone through that process, like it's there's a
29:33
Speaker 2: real opportunity cost that people have to consider. And for me,
29:36
Speaker 2: it was leaving a corporate job where I had a
29:39
Speaker 2: stable salary and a decent salary, you know, going without
29:42
Speaker 2: any sort of salary for multiple years, taking a big
29:44
Speaker 2: risk that it would end up being worth nothing and
29:47
Speaker 2: going back to work and missing out on all of
29:49
Speaker 2: that opportunity.
29:50
Speaker 1: And you sold your house as well, right, like you
29:52
Speaker 1: really mean?
29:53
Speaker 2: I saw my house that start the business as well,
29:55
Speaker 2: So I missed out on years of kind of growth
29:57
Speaker 2: in another asset. So you have to believe not only
30:00
Speaker 2: idea is going to be successful, but the financial outcome
30:02
Speaker 2: is going to somewhat justify all of this time and effort.
30:05
Speaker 2: And I think a lot of founders you know already
30:08
Speaker 2: are kind of at the margin working out whether that's
30:10
Speaker 2: worthwhile or not, because you know, having a stable job
30:13
Speaker 2: and being able to pay your mortgage and kind of
30:15
Speaker 2: lived in a secure way is so important for people,
30:18
Speaker 2: you know, risking all of that for something that's likely
30:21
Speaker 2: to be worth nothing isn't very appealing. So absolutely taxes
30:25
Speaker 2: a consideration because if you're going to double the tax
30:28
Speaker 2: on an outcome, and a sensible founder is trying to
30:32
Speaker 2: probability weight, you know, should I start the business or not,
30:35
Speaker 2: and the outcome, even if they're successful, is a half
30:38
Speaker 2: the outcome that they were looking at. Absolutely, it's a
30:41
Speaker 2: huge driver of someone's decision, you know, even though you
30:45
Speaker 2: know not everyone writes this on paper implicitly in their
30:47
Speaker 2: mind they're thinking of all of these things.
30:49
Speaker 1: Chris, how many people does Stop Spot employee? What kind
30:52
Speaker 1: of commandent a team?
30:54
Speaker 2: I think of full timers At the moment, we've got
30:56
Speaker 2: twenty four or twenty five, and they've also received shares
30:59
Speaker 2: in our business as well, so they're impacted, you know,
31:01
Speaker 2: in a similar way in that the cost base of
31:04
Speaker 2: their shares in our business, which they took in lieu
31:07
Speaker 2: of higher salary and a lot of circumstances you know,
31:10
Speaker 2: are now in this new regime to be tax tier
31:12
Speaker 2: as well. So you know, clearly for employees and early
31:16
Speaker 2: employees of new innovative businesses, it makes that decision a
31:20
Speaker 2: lot less.
31:21
Speaker 1: Appealing to So under this regime, if this, if this
31:24
Speaker 1: comes into being, which the Treasurer and the Prime Minister
31:27
Speaker 1: are pretty pretty strong that it's happening, would you start
31:32
Speaker 1: stop Spot again under this current regime and would those
31:35
Speaker 1: twenty four people have to?
31:36
Speaker 2: I mean unlikely in Australia. I mean knowing you know,
31:39
Speaker 2: it's taken me thirteen years to get this far, and
31:42
Speaker 2: you know it's a huge amount of work and sacrifice
31:45
Speaker 2: to start a business. You sacrifice time with your family,
31:48
Speaker 2: you know, you sacrifice your health, you sacrifice so many
31:50
Speaker 2: different things. It just wouldn't be worth the risk starting
31:54
Speaker 2: again in a regime where you know, you're better off
31:57
Speaker 2: earning just a salary the whole way and having that security.
32:00
Speaker 2: And I think, unfortunately, that's what it's going to drive,
32:03
Speaker 2: you know, from a behavioral perspective, across the economy. And
32:06
Speaker 2: it will be hard to measure it because you never
32:08
Speaker 2: know about the company that didn't get started.
32:11
Speaker 1: Yeah, exactly right, that's.
32:13
Speaker 2: One of the challenges. But I mean, the innovation thing
32:15
Speaker 2: is aldi Leon's obviously only one of many problems that
32:18
Speaker 2: have been discovered. And there's you know, this diversification penalty
32:21
Speaker 2: people have worked out is a big problem now. You know,
32:24
Speaker 2: there is the fact that young people saving up in
32:26
Speaker 2: shares are now going to be penalized with a thirty
32:28
Speaker 2: percent tax rate, the same people that are trying to
32:31
Speaker 2: buy a property. Is that, you know, apparently this policy
32:33
Speaker 2: is trying to help. So there are so many contradictions
32:36
Speaker 2: and problems with this, you know. I think that's you
32:39
Speaker 2: know why there's been over five hundred submissions.
32:41
Speaker 1: Hopefully we'll get to read them and including yours soon
32:44
Speaker 1: on that will take a break, and then we'll come
32:45
Speaker 1: to a question from Ben, because there is some confusion
32:48
Speaker 1: about your investing and whether you can offset losses or not,
32:53
Speaker 1: whether they're nominal losses, real losses. There's all these little
32:56
Speaker 1: intricacies that the war you dig into the detail, the
32:59
Speaker 1: more you think, hang on a second, and this might
33:00
Speaker 1: have to change how I invest. So we'll get to
33:03
Speaker 1: those questions when we come back. Welcome back to the
33:14
Speaker 1: Money Puzzle. I'm Juliana Sprague, Wealth editor at The Australian.
33:18
Speaker 1: I'm filling in for James Kirby. He will be back
33:20
Speaker 1: with you next week. And there've been some questions and
33:22
Speaker 1: I appreciate they've come to James's inbox the Money Puzzle
33:26
Speaker 1: at the Australian, dot com dot are us where you
33:28
Speaker 1: can reach us. Now. I mentioned Ben. He sent it
33:32
Speaker 1: through a question and it is about how these rules
33:34
Speaker 1: will work now when you're investing. So he says, under
33:36
Speaker 1: the new rules, do you think that if a stock
33:38
Speaker 1: grows at one percent and inflation's at two and a
33:41
Speaker 1: half percent, would't that be magical if it goes back
33:44
Speaker 1: to the middle point of the target band anyway, So
33:46
Speaker 1: inflation's at two and a half percent will we be
33:49
Speaker 1: able to gain will we be able to claim the
33:52
Speaker 1: offsetting capital loss? Even though on a notional basis you've
33:58
Speaker 1: made a capital gain, slight capital gain, but because it's
34:01
Speaker 1: sitting under the gains of inflation, it's an emotional loss.
34:05
Speaker 1: So the example that Ben throws up here is if
34:07
Speaker 1: I buy ten shares for ten thousand dollars, they grow
34:09
Speaker 1: at one percent, so they're worth eleven and forty six
34:12
Speaker 1: after ten years, and with two and a half percent inflation,
34:15
Speaker 1: the cost base is twelve eight hundred, So versus the
34:19
Speaker 1: inflated cost base, I have lost one seven hundred and
34:22
Speaker 1: fifty four Can I claim against the other capital gains?
34:26
Speaker 2: So it's a great question, I think one that a
34:28
Speaker 2: lot of people are thinking about, because it's pretty typical
34:30
Speaker 2: in a portfolio to have a few losers and a
34:32
Speaker 2: few winners.
34:33
Speaker 1: So yeah, it's one way you can't win them all.
34:35
Speaker 2: Hey, well no, the stats show that yeah. Most Actually
34:39
Speaker 2: it's like sixty to seventy percent of shares fall in
34:42
Speaker 2: real terms over time, So the share market's made up
34:45
Speaker 2: of a few big winners and lots of small losers.
34:47
Speaker 2: As anyone that's you know, speculated in you know, penny
34:50
Speaker 2: stocks would be able to attest to. But yeah, the problem,
34:53
Speaker 2: Ben is that under this proposal, you wouldn't be able
34:56
Speaker 2: to essentially use that that re loss on your portfolio
35:01
Speaker 2: to offset other gains. And this is a huge problem,
35:04
Speaker 2: and a few people, including myself, have put a few
35:07
Speaker 2: examples online to show what this really means. But if
35:11
Speaker 2: you have a portfolio with a few small losers like
35:13
Speaker 2: the one you've described, and one big winner, the problem
35:16
Speaker 2: is you now have to pay a much bigger tax
35:18
Speaker 2: rate on the winner because you don't get the fifty
35:20
Speaker 2: percent discount and indexing isn't going to have a lot
35:22
Speaker 2: of impact. But you don't get to write off all
35:25
Speaker 2: of the nominal losses on those or sorry, the real
35:28
Speaker 2: losses on those losers, only your nominal loss, which means
35:32
Speaker 2: that your effective tax rate can be a lot higher
35:35
Speaker 2: than even fifty percent, and the amount of return that
35:38
Speaker 2: you're keeping versus the government's keeping can be minuscule. So
35:42
Speaker 2: you know, from my calculations and others online that have
35:44
Speaker 2: done these calculations, it doesn't make a lot of sense
35:47
Speaker 2: to own a portfolio of shares at all. Now, if
35:50
Speaker 2: you're going to own shares, the only sensible way to
35:53
Speaker 2: own them is in a structure like a ETF, where
35:56
Speaker 2: that netting happens internally within the structure, and then you
36:00
Speaker 2: earn the difference between all the winners and losers, because
36:03
Speaker 2: then you do get to take advantage of all of
36:06
Speaker 2: the winners and losers canceling each other out. So it's
36:09
Speaker 2: an important question and a good one, and it's one
36:11
Speaker 2: of the big problems with this structure that apparently was
36:14
Speaker 2: known as well back in pre nineteen ninety nine, but
36:18
Speaker 2: hasn't been addressed by the Treasurer in this new proposal.
36:22
Speaker 1: So for those people who really love the art of
36:24
Speaker 1: stock picking, it's going to take the fun out of it.
36:27
Speaker 1: What a lot, isn't it.
36:29
Speaker 2: Well, it was already hard enough to be successful at it,
36:31
Speaker 2: But I mean, this just adds another barrier and one
36:34
Speaker 2: of my concerns that I've raised as well as it
36:36
Speaker 2: will cause a hollowing out of our share market, because
36:39
Speaker 2: any industry where you're thinking there might be a few
36:41
Speaker 2: losers is no longer worth investing into, So mining biotech,
36:45
Speaker 2: you know, a lot of emerging industries and dividends are
36:49
Speaker 2: getting preferenced a lot more under this new structure. Because
36:52
Speaker 2: you still get the franking credits back. So what's going
36:55
Speaker 2: to lead to is a lot of companies and boards
36:57
Speaker 2: upping their dividend payout ratios because that's why investors are
37:00
Speaker 2: going to demand because it's better from a tax perspective
37:03
Speaker 2: investing less into R and D and innovation and into
37:06
Speaker 2: expanding their businesses and adding jobs, and all of those
37:10
Speaker 2: industries that are doing innovation won't get supported financially because
37:13
Speaker 2: investors will be running towards the dividend payers like Telstra
37:17
Speaker 2: and Wilwors instead.
37:19
Speaker 1: I got almostly cry because the big part of our discussion, Chris,
37:23
Speaker 1: we've been talking about SpaceX, Open Ai Andthropy, these major floats.
37:27
Speaker 1: It is clear as day in this SpaceX perspectus, it
37:30
Speaker 1: is they are not paying a dividend. They don't intend
37:32
Speaker 1: on paying a dividend for probably forever. Like it's all
37:35
Speaker 1: about we are putting our money back into growing this thing.
37:38
Speaker 1: And the local stocks, Australian stocks are going to have
37:41
Speaker 1: to say we want to prioritize dividends because you want
37:43
Speaker 1: your tax structures to be this way.
37:44
Speaker 2: Well yeah, it's a sad irony. And all of this
37:46
Speaker 2: is we've created a tax structure that massively disincentivizes people
37:50
Speaker 2: to take productive risks, to back ideas and really just
37:55
Speaker 2: encourages people to put money into those old incumbent businesses
37:59
Speaker 2: that have been around for fifty years. And you know,
38:01
Speaker 2: it's why I wrote that piece as well in The
38:03
Speaker 2: Australian around the idea of the Japanification of Australia that
38:07
Speaker 2: really it's going to introduce a lot of the problems
38:09
Speaker 2: that cause you know, the lost decades in Japan.
38:12
Speaker 1: Yeah, we might not realize it for another decade or two.
38:15
Speaker 1: We could go on and on about this boot that
38:17
Speaker 1: Chris really could, and also just the idea of why
38:20
Speaker 1: is it so bad to make money? When did we
38:21
Speaker 1: become a country where making money became a bad thing?
38:24
Speaker 1: But anyway, look that's maybe that's a whole other topic,
38:25
Speaker 1: a whole other episode. But Ian has written in and
38:30
Speaker 1: he wants we are talking about the floats. So we've
38:32
Speaker 1: covered this a little bit in but we'll go into
38:34
Speaker 1: a little bit more detail. So Ian says there are
38:36
Speaker 1: a number of mega floats in the trillions about to
38:38
Speaker 1: hit the market. Once they list every index following ETF
38:43
Speaker 1: will have to buy them to replicate the index. They
38:45
Speaker 1: are in. Won't this be a self fulfilling prophecy for
38:48
Speaker 1: these floats to rally? If so, we must buy them.
38:50
Speaker 1: So Ian's making that point that if next onnes have
38:53
Speaker 1: to buy it, maybe it's not going to soften, Maybe
38:55
Speaker 1: it's not going to fall fifty percent like Facebook did,
38:58
Speaker 1: we have to buy it.
38:59
Speaker 2: It's one of the interesting challenges when a float so big,
39:01
Speaker 2: is that sort of passive buying that has to happen.
39:03
Speaker 2: And I think I mentioned earlier it's about fourteen billion
39:05
Speaker 2: that's been calculated. Interestingly, the SMP five hundred rejected adding
39:10
Speaker 2: it earlier. If they had said yes as well, it
39:12
Speaker 2: would have been more like twenty five billion dollars worth
39:15
Speaker 2: of passive buying. So really then it's about finding the
39:17
Speaker 2: right level. Where are the sellers going to be shaken
39:20
Speaker 2: out to, you know, be happy to sell to these
39:23
Speaker 2: index byres. And it's not only index byers, it's going
39:26
Speaker 2: to be active managers that don't want to diverge from
39:28
Speaker 2: the index. You know. It is one of the reasons
39:30
Speaker 2: why some of these rules were embedded into the indices
39:33
Speaker 2: originally to give it time and let things settle down first.
39:37
Speaker 2: So it's going to be an interesting case study. I
39:38
Speaker 2: think that we'll look back in the future on you know,
39:41
Speaker 2: if you force all indices to buy a new entrant immediately,
39:44
Speaker 2: what does it do. Interestingly, in my previous job before
39:48
Speaker 2: starting stocks, but I worked, you know, at a hedge
39:50
Speaker 2: fund where part of our job was to actually preempt
39:52
Speaker 2: the flows going into new additions and deletions into the index.
39:56
Speaker 2: So there's a whole industry out there that is trying
40:00
Speaker 2: to basically front run and get ahead of these index
40:03
Speaker 2: flows to profit. And so potentially some of those people
40:06
Speaker 2: buying in the float may be doing exactly that. But
40:08
Speaker 2: then it is a bit of a game of chicken
40:10
Speaker 2: and egg because if a lot of the buyers initially
40:12
Speaker 2: are just hoping to sell to the sellers, if the
40:15
Speaker 2: buying quantity is bigger than the selling quantity, it actually
40:18
Speaker 2: might not go up. It might do the opposite and fall.
40:20
Speaker 2: And that's what happens often when there are these big
40:23
Speaker 2: index changes and too many people are preempting them, is
40:26
Speaker 2: that actually they cancel out any benefit and actually it
40:29
Speaker 2: goes the other direction. So it is a bit of
40:31
Speaker 2: a cat and mouse gain. But it's not a guarantee
40:34
Speaker 2: that the share price is going to go up.
40:36
Speaker 1: Well, we'll get to find out how it all shakes
40:38
Speaker 1: out SpaceX listing later this evening our time. Next few
40:42
Speaker 1: weeks are going to be very interesting to watch how
40:45
Speaker 1: the markets react. Chris Brocky, thank you very much for
40:47
Speaker 1: your time. Always a pleasure, my pleasure.
40:50
Speaker 2: Thanks for having me, Thanks.
40:51
Speaker 1: For joining us on the money Puzzle. As I mentioned,
40:53
Speaker 1: James Kirby back in the chair next week.
41:00
Speaker 2: The h