Rudi: AI is the end of investing as we know it

hey how you doing and welcome back to another episode of the rules of investing a podcast that gets Inside the Minds of leading investors economists and Industry experts brought to you by Livewire markets I'm Ally Selby and in the last episode you learned how some of Australia's ultra wealthy invest with the help of capital Riser Louise Walsh from Walsh capital and the cioo of a family office Peter McGee from mrb House this week's guest is on a mission to truly surprise our listeners he believes investors are under appreciating the real impact of artificial intelligence and markets and how he value stocks in fact he believes it's the end of the world as we know it this guest is none other than fan favorite Rudy filipek van djk from FN Arena let's get into the rest of the podcast later but first some housekeeping if you're an apple podcast or Spotify user don't forget to to subscribe to the podcast so you never miss an episode or if you're a live wire subscriber hit the follow button at the bottom of the wire to be notified when new episodes are available not a Livewire subscriber yet just head on over to Livewire markets.com it's free easy to register and you'll get access to insights from leading investment Minds in the country okay let's get on with the show thank you so much for joining us today Rudy I'm really excited for this chat today I I think we should be playing some RM music in the background now a little bit of electronic music have a little dance off it is quite dark and moody in here as I mentioned in the intro you did you told me you were going to surprise investors and I do hate to admit this but I feel like a little bit of a skeptic just because last time you told me I was going to leave surprise leave a change woman and I wasn't so my question for you today what do you think the market is getting wrong and what will be something that will truly shatter investors World Views well I'm not so sure what I'm going to shatter them but um there's a lot of changes taking place and I think the the saying in in investment Market as always the four most dangerous words being uttered by investors is this time is different but I personally think that's the most um that's the the tool and the saying that's most misused and used in the wrong context uh in in and around investment markets I mean let's let's let's if you sit back and and look at what what happens throughout history and and in daily life I mean things change all the time I mean it's just that most changes take gradual pace and we sort of like like the boiling Fork we we almost not realizing that things are changing but there are times in history and one of these times is is right now when those changes go into acceleration and why is that is because we go through these periods when when there's a lot of change happening on the back of technological innovations and and new inventions basically and we have a few periods in history where my my favorite one to compare with is in 1920s which essentially is 100 years ago and 100 years ago if you exactly deduct 100 years from today we would be now in a new Fresh bull market that would last until late 2029 and then of course Came Crashing Down I mean but if you go through those periods and you learn from history do you realize that things already have been changing and there's a fair argument to be made and I I've made those arguments already in in in the past few years that the share market itself has changed since 2014 that's already 10 years ago and why do you think that it's not just thinking it's also observing I mean everyone who has his eye in the right spots they would have noticed for example that um the share market in general is trading on higher multiples than it was before um I mean traditionally the share market in Australia would be would be valued on average at uh 14 and a half times next year's uh profits that has crapped up to uh 14 15 and in these days it's actually closer to 16 and the LA that's that's the average of the last 10 years result number one is that there's so much talk about it's a bubble is going to come crashing down it's it's too high investor sentiment is elevated all of that I think that's misplaced because you basically all those people are saying that have not caught up on the fact that the average multiple is higher so while I'm not saying that the share market today is not trading on elevated multiples and it probably is a little bit too high what I am saying is that the degree to which there is a little bit more exuberance in share prices is not as high as you would think from historical perspectives so now you have to reason in higher multiples and why is that two reasons one is that we we get a different type of company and that comes in in in the slipstream of those technological times that we are going through we we we literally have a different type of company that's coming to the share market I mean and and those companies they are increasingly becoming more important for for the index and for the market in general think we stack block but also some of the old stall WS still I mean we have CSL we have wmet we have cockle they're still in there mcari group and stuff what investors also should catch up on is that those companies are valued on a different manner than your typical Bank resources producer or your or your oil and gas company that's something that investors have to get their head around as well I mean we the market has become a lot more sophisticated and that's also an observation I mean that if you have tried to buy something like let's say technology one or an Raa group or a car car group if you have tried to buy them at low PE multiples well you never bought them maybe with the exception of 2020 when we get a big sell off so that should make you think and I think that's already lesson number one investors have to get their head around in how those companies these days are being being valued I mean they're not in a traditional manner of uh low PE high PE Etc what is equally important is that that technological era has started in 2014 we've already seen those changes and there's an argument to be made that after 10 years you could say well maybe that's a bit long in the tooth because we've we've now had one of the results of that is is that we've seen um growth and quality sharply outperforming develop part of the market and a lot of value investor your typical value investor will will tell us it's not going to last rsion to the mean we're all very keen on it the problem with that with that with that is that after 10 years we now get glp ones and we get AI and I would argue that's that is that's a strong argument to be made that you shouldn't count on version to the mean here I think this is a strong extension of what already has has been in place since 2014 and it's going to probably Define Life as We Know It with consequences for investing and share markets for the next 10 years now it's not going to go in a straight line yes bond yields economic growth it all will impact but in general terms this I think should be on on investors R out because the growth that comes towards uh those companies is absolutely mindblowing and what I pick up in recent times is that investors who go to the US analysts that go to the US and they try to get their head around what actually is happening there without exception they all return to Australia and they all have this idea that there's literally a tsunami in in Investments is happening in the US and it will trickle down into the Australian share market now we're talking a process here if if if this is going to last 10 years and it will outperform the importance of mobile phones and of the internet if current projections are correct then this will still not go in a straight line and will not impact on all companies equally in the first phase and that's where we are now we will have the so-called uh pick and shovel providers proverbially I mean so the guys who got rich in in every gold boom in the past were the guys who sold pick and shovels to the to the gold miners not the gold miners itself what we see now that's just like on the internet it was the infrastructure Builders yeah that initially benefited from the from the internet not the ones who came up with the first browser what we see now is that this the proverbial pick and shovel providers which essentially now is the chip man manufacturers and the data centers and you see that in the share market that likes of I mean next TC Goodman group they are now seeing this enormous demand coming towards them and here's the challenge for investors because we now have caught up that these guys see unprecedented Investments coming their way and of course those share prices go up and they they're trading on high pees now now here's the challenge to get your head around what looks expensive in the short term you go you go three to five years into the future you look back it's a bargain right on some calculations the share price of of of of an XTC for example might well go to to $40 in 3 to 5 years time let's say it doesn't get there let's say it stops at 30 the share price now is $16 $17 the challenge for investors is are you going to be the third at $16 because the share price looks expensive right now or are you going to stay the course or get on board and in 3 to 5 years time you look back and you made 100% % return and I think that's something that investors at this point in time will have to get their head around it won't go in a straight line but in in in the in the markall concept that is the challenge that Now lies ahead what does that mean for Value investors and are you calling I guess the death of value as a factor or the death as of value fund managers I guess as well well one observation is that they are going through a tough time uh platinum and and others I mean they're not the best performing uh man fund managers out there and um in in in general terms I I don't think your pure value investing will ever go out of fashion because the share market being the share market it will always push up share prices too high on one end and always push the share prices too low on the other end and then also some of the world's most famous investors of value investors yes um but maybe not in the same sense as as value is something that is interpreted in many different ways by by investors and and and when things are different then you have to almost reel out the lessons from Charles Darwin and it's not the strongest or the one has the most money but you have to adapt I mean and I think unless you're your typical value investor and and as I said you essentially investing in the mispricing of assets essentially and you probably don't care anything what happens to the Future that's fine but I have a suspicion that the arrival of AI is going to polarize the market even more than it has been over the past 10 years and I think every veteran in the share market will acknowledge that um the past 10 years has seen polar polarization in the market going to extremes and and probably never to be seen um I I have a suspicion that might actually become much much wider that and that's the danger then for investors thinking that there's a there's a there's value up for grabs and they're actually they're actually going into a trap and why is that is that I the two things I know now about AI at this stage is one thing is it would appear because investing in AI requires a lot of capital that that's already is certain so it would appear that there's a danger that at some stage governments will have to intervene because there's a danger that that the the true access of of AI will be will become very concentrated in in a few Mega companies and all the other ones are playing not even second fiddle but third fiddle and that's a danger for the world but apart from that while we're now talking about data centers and Chip manufacturers that whole process will ultimately just like the internet that whole process will ultimately unfold and develop further and we will go to much larger impact economic economic wise and and and for other companies what that means that is that companies will be forced to make investments and for for for a quality investor like I am I've long acknowledged that the difference between a quality a high quality and a low quality company is basically the ability to make consistent Investments and to get a return out of those Investments so if investors want to know the secret the secret Source what what makes companies like a technology one or a qu Leisure uh or even today a web jet what makes them so special or what puts them in the position where they are you can relate that back to Investments that have been made in the past if AI really becomes as important as as we now think it might be then it will divide the share market between companies who can successfully make investments and make AI their second nature and those who can't do it and and you will and that's why I'm thinking that those who can't do it will ultimately end up as value traps and and and any value that as investor that you will get from them will be shortterm only I mean if I if I can throw in some hyperbole um in in this conversation is like if you go back 100 years and you just realize that the in the US the the trains went bankrupt because they were all corrupt um but then the manufacturers of of carriages that were carried by by horses and By and By by oxes they're now being threatened by someone who invented the automobile now what happens in the share market is that the automobile from the moment we see as a collective we see the the value there and and the prospect we will place all those Auto automobile manufacturers on a high PE and we really value them the manufacturers of the carriages will will trade on a low PE and they might in some case bond yields economic growth momentum changes in the share market they might have a big upswing in their share price but ultimately they go out of business and that's the challenge that investors will have over over if over the next decade if AI will have that influence that we that we now think it might have it will really divide the share market and it will polarize to to to probably to extreme levels right the other thing to consider of course us humans being humans do we do always we always do the same thing right it is well possible that within years to come we will have an extreme valuation for those for some of those AI beneficiaries and yes it might end in a bubble and a big selloff and because that's what happened in after the 1920s and that's what happened after the 1990s but you have to question whether you should be worried about that right now because it might still go on for for Seven 8 nine 10 years yeah and if you look back then you go like right was it worth not owning them was it worth not owning them was it worth being worried about that one in in 2024 and I'm almost inclined to think that you're way way way too early with that and I think that the the challenges to to make money out of the the out of the the history that that is about to repeat and that will change society as we know it before you talked about the stages of I guess AI winners yes and in the first stage being the pigs and shovels plays what are the next stages I think we go I think the next stage will be to the the people who sell it and and I think in Australia we will we will we will move to uh for example to office works at West Farmers we will go to diad dat we will go to a um data three companies like that it might actually also include the likes of uh JB HiFi and Harvey Norman um to who sell it to Consumers and to small businesses as well is it worth investing in those businesses or should invest look offshore to the you know global leaders like Google and Microsoft you know why invest in those aussy players when there are these incredible companies on the global stage yeah well that's that's a choice of course and um my analysis over the past decade or so is that investors can have us similar returns in Australia as long as you have similar stocks in your portfolio and and what that means practice is that if if you had investors in in Australia and instead of owning the banks telra and some of the resources stocks if you had owned Raa group block wack Global Alum uh car group uh ResMed CSL and and and a whole bunch of others technology one if you had owned those shares you would not be jealous today at the returns that were made in in the US and that is a fact yeah um and that there's your chall there was there was me are the beneficiaries in the US are they cheap today no they're not I mean are the beneficiaries in Australia are they cheap today no they're not but there will be more beneficiaries down the track and it will it will morph it will change and and the challenge is to get to to get the right context around around things happening to get the right perspective and and again as I said it's is a stock that is going to double over the next 5 years and that looks expensive today does that mean it's uninvestable if sellers are the next stage what's the stage after that well I the the thing is the problem with with these predictions always is is that they they almost by definition change from the moment you make them and while we don't know exactly how how uh technological advances and that also includes gp1s by the way while we don't know and and and cyber security and some of the others we don't know exact L how the trajectory will will unfold but what we with a very high reliability can can make is that this will not go away this will change the world and we will look back in in 10 years time and we will look back to today and we go like oo this is a bit different just like when all of a sudden we had we had smart mobile phones I mean and it did it did change the world it it it ruined a few Industries I mean like who who who has a camera these days very true there's obviously quite a lot of AI Skeptics out there you talked about the polarization before in the market is there anything that they say that makes you go maybe I'm wrong on AI or nothing at all you're completely convinced well while I while I while I admit that um making very strong forecasts five seven 10 years into the future always has a lot of danger with it and as I said earlier we don't know the exact trajectory of how this will unfold but at this point in time it is it is without any question that the demand that is coming through in Australia for the data centers Goodman group nextdc and some of the other ones that is tangible and real the the pipeline is tangible and real which is why people project forward and and make forecast like $40 for for de CC and it's not just because they put their finger in the air the other the other lesson I've learned and I think this is very important as well if I wonder whether I need a haircut I'm not going to ask my dentist and I'm not going to ask my my the one who does my hair what he thinks about my teeth yeah one thing I've learned about the share market is that you should never ask a value investor your typical value investor whether he should invest in growth I mean you should ask the right people and in this point in time I'm willing to bet my money on uh fund managers at Hyperion for example at Alex poock at uh at Lo uh L L to PE uh and I'm I'm more willing to lean towards those guys than I am to your typical Platinum who will tell everyone that the market is getting crazy again and it and andp reaches are too high you just have to understand like mean we have the Euro football about in week time in Europe I'm not going to ask any Australian who loves AFL NRL Rugby Union what he thinks and who's going to win that tournament yeah but if you're English you might actually have a conversation with me because I know you know football it's the same in the share market mean there are different religions in the share market I'm personally I'm I'm I'm I'm in between value and growth I I'm I'm very concentrated on on quality but I've come to appreciate over the years and particularly over the past 10 years that my quality Focus leans more towards growth than it does to value mean a lot of the value oppos propositions I just think there right like if you're an investor in in in landle for example are you happy now because they finally taking taking action well maybe but you've suffered hopefully not but you most likely you've you've been suffering now for years and you get your you get your happy moment after years of of of of erosion of your Capital basically that's not my type of of investing right how do investors actually value these AI stocks then what are your recommendations actually looking at the fundamentals of these companies there are a few elements to this yes too many people I think are still relying on books that were written in the 50s 60s 7s even in the 80s and how to how to value stocks yeah like I mean I run a service as F Arena I'm assuming that all people will will know the service and and that gives me an Insight in in all the things that are changing me and while uh decades ago you could you could poke a lot of fun at how analysts at Wall Street were doing stuff today I can guarantee you they're lot lot more sophisticated and lot more knowledgeable and and and up toate in how they value stocks it has become a lot more sophisticated now whether you have to go into the detail for that I mean there was a professor in the US aswat Doran and I hope I'm pronouncing his name correct because it's quite extic um I mean he shares via YouTube via his website via his his I mean he he he will I mean I've read I've read his book as well I mean it's very technical but it gives you lots of insights in how today's companies businesses are being being valued in in general terms if you are reliable and and you are of more quality and you and you give more security to investors you basically get a higher valuation that's the long and the short of it um broader terms though without going if you just look in broader terms I rather put my money in something that that is about to explode in the years ahead than trying to pick something that is cheaply priced for the moment and I think that's to to recognize that I think that's much more important for investors than than trying to pinpoint exactly at what percentage Point behind behind the decimal point uh is the valuation of a certain stock you've talked about quality quite a lot today yes why do you think quality investing is so important right now it has been it has been important already in the past 10 years I mean quality doesn't doesn't necessarily always outperform but it does perform one of my favorite stocks has has just reported technology one right it basically doubles every five years now I know people out there they don't like the company and there's there's a few of them and they think it's always too expensive but the problem is if doubles every 5 years that is that is a quality that you don't find in in too many segments of the share market what I can do with with a stock like technology one is I can literally treat it as a bot in my bottom drawer and just keep it there and unless the world really is going to change a lot and including for this company I'm quite confident that in 5 years time the share price will be double because the company will be double yeah in the meantime yes we get we get we get interest rates and we get we get other considerations and momentum plays and and etc etc but where it comes down to me like when a share price weakens I always draw myself I always draw a lot of confidence from the fact that a I know the company and B I can trust in it because it's a quality company if I were in a in a lower quality company and the share price would tank I would have a lot more a lot less confidence in it and I think history past 10 years past 15 years past 20 years have proven me correct in that those are the type of companies that you can trust how do you define quality I feel like for every investor out there there's a different definition of quality is true what does it actually mean to you that is true because um just like there's so many definitions of of value out there there's there's not one definition of of quality out there I think for Quality there's there there's two elements to it in my in my world one is that it defines companies that can perform on the most circumstances and that's why I call my research into all weather performers because it doesn't matter whether it freezes rains The Sun Shines the wind blows yeah those companies can perform I mean and that's definitely not given to all companies but equally important in in my definition of quality is that if you drill down into the final details it comes basically down to companies investing yeah and why is that important I mean obvious observation yeah three of the four major banks in Australia and it becomes five out of six if you add the two regionals to it those share prices have not moved in 15 years yeah the only exception is Commonwealth Bank what has Commonwealth Bank done differently from the others it has taken Investments on board 10 years ago that the other ones are taking on board right now westc for example yeah see that is the difference and once you recognize the importance of making those Investments ahead of the pack and making them consistently that means that you can you can you can attach a a value or what's a quality label to that company and almost by definition if those those Investments are being made on a consistent basis you can be quite reliably predict that even if they run into headwinds at some stage they will come they will come on top of it what do you mean by Investments because there have been you know there's obviously some bad Investments as well not all Investments tar tar makes Investments and there's no return on them you mean and that's obviously that's that's where that's where the the secret Source comes from you have to invest in new products in New services in making your business better in making your mode stronger in keeping your number one position that that you have and that requires constant investing I mean and if companies do that in in a in a in a good way then you get a great company mean like if you ask me why is Aristocrat doing so well ask them it's it's consistent is consistently making Investments yeah in in new products in in their services why is web jet today outperforming the rest of the sector they made Investments when everyone was on their knees yeah why am I still confident that uh a share price in in CSL will come on top of it because they're still investing 800 million a year yeah they're not going to spend $1 billion every single time on a product that that won't deliver they will come good because they make consistent Investments and that's basically the secret Source right it also shows you in in in in the share market that why why investors have to be cognizant of about how life is changing yeah because what do most of them have in their portfolio it's Banks it's telra and and it's and it's a few of the other guys if you know that three of the four Banks haven't moved in 15 years and the share market over that period has done something like 8 n% on average a year is now at alltime highs then you know it's coming from other from other segments yeah and why wouldn't you have those in your portfolio because you've basically done yourself this this favor by by sticking with the wrong the wrong side of The Ledger where are you seeing businesses that are investing heavily ahead of the pack today what businesses have you been adding to the portfolio recently because of that that reason yeah well I've I've already mentioned a few um I mean I'm I'm I'm I'm a long time and and at this point in time um quite comfortable investor in in the likes of Goodman group nextdc in Raa group in in in still in CSL wmet uh technology one Aristocrat uh car group don't forget car group uh often underestimated you can't own them all um I would also think that the likes of of seek will come good why can't you own them all well um there's there's two there's two definitions in in how you would construct the portfolio um you either own them all and then they all represent like 1 or 2% of your portfolio and that's I mean some some investors do that or you sort of concentrate your portfolio to like in my case I concentrate let's say around 20 uh Holdings that's about average between three and 6% uh well that means you can't own them all and and that and I'm more on the little bit more concentrated part and then it means that even stocks are sometimes like a lot um I don't own them for the moment right and that's just that's just how portfolio Works basically what's your biggest position right now that's CSL still right but it would be it would not be that far off from uh Goodman group and and an aristic Leisure okay have you sold any stocks recently is there anything that you're feeling like I don't know just the story has changed you're not feeling so confident about that quality company anymore I just did um an episode of hold sale and we talked about companies that are quality companies that are almost masquerading as as Quality Companies have you found that yourself yes you do have Pretenders and that's because sometimes the story looks looks better from the onset than it than it does from in practice um I don't think I've had too many uh disappointments in my in my all weather segment um but I do see in my portfolio construction I always have percentage in gold as well and I have a segment that I that I dedicate to to dividends to to income um that's the weak point in my portfolio I find I mean and why is that is because if if you analyze the share market you realize that to get a dividend stock doesn't just require a company paying dividends it requires a relatively cheap valuation which basically means those companies not the strongest in practice I noticed over the years that's where most of the disappointment comes from I mean because strong companies trade on higher multiples they will still pay your dividends but the the yield will be not that high so they don't qualify as as a dividend stock what stock do you invest in for that yes so I have so I have for memory I uh I bought um dick dat when they were pretty much on their knees and were very high yield and I I was very happy to snap them up I've kept them uh because as I just mentioned I think they might be one in the next phase of the of the beneficiaries of the AI um I have the home C daily needs read in there and um that has performed quite well and I'm still thinking if if Bon deals at some stage will come down that that share price will reate higher the disappointment in my portfolio there is that I I at one stage when tstar was very low I added tar I did really really well out of it because they were going to sell assets and of course now we have we have the opposite side now there's now there's um doubt about the dividend growth that the next year's had so I've been arming and arming about TSA for quite a while to be honest um my lesson and I've been I've been telling that to EA subscribers who ask me questions as well never have high expectations about a subar quality company mean the the reason that I benefited a lot from tstar at some point was luck I was just lucky and I should have very moderate expectations now because you know why because Telsa is not a high quality company it's a moderately quality company and it's basically I mean it's not gone to much just like three of the four Banks haven't done much over the past 15 years so I'm actively considering uh switching telra for something else but I haven't made up my mind yet it's interesting you mentioned telra because I recently went to a fund manager shareholder day I won't say which fund manager it was but they were saying that telra is going to be an AI beneficiary yeah do you disagree with that no but that's that's the problem also when when when when you invest in those in those themes is that they might benefit on one hand but they they also could well have the the negative impacts on the other end of the business and that's the problem with with those and and I've come across those predictions as well and I always think like yes yeah I rather have a beneficial that is undoubtedly beneficiary than one that is a little B of wishy-washy and and and one end might actually listen telecommunication industry you can also tell it from other uh companies in that industry it's not going well I mean it's not fantastic uh it it by no means uh matches anything that is that's happening in a lot of other sectors it's commoditized it's it's not going very much um Tela is struggling because it's it's a beast that has so many arms and L legs and and there's always an arm and a leg that's in a Twist somewhere and that's just the that's just the fact of life I mean and um again my conclusion um I rather overpay for a company that is in Splendid form and has a great future ahead of itself then I have uh then I snap up a low quality stock that uh seems to be offering quality in or or value or upside in the short term I like I like my portfolio to be forever yeah and when people ask me like how how how long do you think you're going to own this stock well I I snapped up Dicker data when it was cheaper I'm still trying to probably keep it for next 5 years or so because I think it it it will do better I mean I'm not the type of investor that switches all the time I mean and that's here's also a very interesting concept about that is there was research out there that if you look at professional investors institutions yeah the better performing ones are the ones that ch very little yeah so they have their stocks and they keep it just what I do right and yes sometimes you have to take you have to take it on the chin that I own wws and and to answer your previous question I've added to wws after the sell down um because I think wolw is one of those companies as well that mean temporarily is out of favor but it's a strong franchise and um they will they will renew their franchise and they will invest in their business and they will they will come over the over the top uh in in Greater shape there's a little bit of Warren Buffett in that you know the best holding time for a stock is forever yes and I've and I've myself found that if you have Quality Companies you can have that principle right like a temporary headwind is just that a temporary headwind I want to talk about cash now I feel like every time we talk to you you've got so much bloody cash it's always like 19% 18% what's your cash looking like now it's a lot it's a lot less I can tell you it's it's uh I I'm not sure exactly what it is but um it's no longer there it's i' I've put it to use and I've put it into companies like like uh wws uh also in in in for memory in in Goodman group in in Hub 24 um and probably in a few in a few other companies as well um so I've definitely put it to use I recently had dinner with some family friends and one of them is honestly your biggest fan it was it was so so nice he follows your all weather portfolio hi Greg um very exciting I'm going to ask a question from Greg okay he wants to know whether he could ever see or you'd see ETS like Fang drug or hack becoming part of that all weather portfolio mix uh probably not because you have to be see the whole the whole characteristic of all weathers is that it it that they perform regardless of what the M or what in the moment is the theme or the Thematic that is the mean and I think that's that's the d That's the mistake that a lot of people make I I do get high quack by the way I I I don't know him I don't think but I I appreciate the question and and the appreciation I mean I'm obviously going to leave today with a big smile on my face but um I think when I and I get I do get questions on a regular basis like it's infratil should that be in there and and and should some of the other stocks that at the moment are performing well why aren't they in the old Weathers well the whole thing about all weathers is that they they don't perform just 1 2 3 four 5 years they perform 10 20 years yeah and that's the whole characteristic so you have to pick things that um that withstand the pressure in the moment or the headwind in the moment and I mean I wouldn't even mean I for example I I I just noticed that um Goldman Sachs still has Nvidia on their convi ition list personally I probably would not put Nvidia in my list of all weathers why is that is because they have this tremendous growth coming towards them now but logically at some at some stage they will find it very very hard to to to keep that going and there will come a time when that whole AI story will will have an interruption or I mean some something going sideways or whatever or temporarily a pause and that's the whole characteristic yeah that as a company that you can you can withstand that I'm not so sure whether chip manufacturer can withstand that so the answer would be no basically although I I I'm I'm I would be the first one to encourage investors to to invest in mega Trends and the ones that you just mentioned like the cyber security and all that those are Mega Trends yeah so well I wouldn't regard them as all weather performers I think you can keep them in your portfolio for quite a while and and you are definitely riding the right Tren there I mean if you have to choose between the The Carriage with the ox or the the motorcycle in its early existence you will always go for the motorcycle yeah well if you if you're my type of investor he was also talking very excitedly at dinner about some of the awesome kind of penny stocks that you've recommended and how much money is made from these was just really lovely to see someone so passionate about investing in such a big fan of yours I was wondering I feel like we always talk about quality large caps you and I yes yes none of these small cap stocks I'm like where is Greg King all this stuff I do I do sometimes pay attention to small caps I I would love a micro cap or a small cap stock that you are super excited about right now and explain to us why yeah I'm not so sure about the super excited but um first of all and that's also some if you look for for high quality companies they have to deserve that label and um if they're small caps they they they haven't they don't have enough track record they don't have enough and there's also a lot of disadvantage of being a small cap anyway as as a lot of investors have noticed over the past two years right like where the first the first ones going out the window when when Bon deals go up is is small caps wait until we get we get a scare about the recession yeah small caps will go out the window but having said so I do pay attention uh also because what I tend to do often is when I see a small l cap stock that might be interesting I tend to follow it and some I give it about like 3 four years and then that's often a period that you that the true colors will come will come to the to the four and that's also also when sometimes when you go like I'm so happy I didn't go there um or sometimes that's the other thing yeah if if they prove themselves over over that period and that means they are on a on on the great path it's still time to me it's still time to get on board um to give you one example I I bought um uh at the time zero at $27 I saw it going to 127 I believe um I mean I could have bought it at 45 yeah like I didn't buy it at at2 or $3 you don't have to there's plenty of time now coming back to your question um I recently came across a relatively real I would I would describe there's a micro cap okay and um I've actually how big is the market cap of this stock 27 million okay tiny yes exactly and I actually learned how to pronounce its name imagine so it's it's DM okay and what do they do uh they do uh essentially uh waste water and and water cleaning and uh and they they have they have a very unique business model uh very ambitious um CEO very ambitious and they see seem to be getting uh the see the strategy seems to be ex they seem to be executing on the strategy there are regularly uh Acquisitions taking place um with capital raisings which means investors have all the time to get on board um it's a micro cap micro caps at the moment are not in very much in favor but um it's on my radar and and um mean does by no mean that I I I will buy the stock tomorrow or so but um if they if they if they make the progression that they are making now and the general sentiment in the market improves because that has to happen before you go to micro caps um then that this share could go could go long way I think okay we've come to the end of the podcast so we asked our guests the same questions they're always a little bit of fun MH what's the story of a big loss or a big win from your time investing and what did you learn from that I'm not so sure oh oh yeah I have mean the example I usually use and I don't actually remember whether I've I've mentioned this in the past but um once upon a time I I was a shareholder in Slater golden and um you won't believe it um it was for a while actually the best perform I remember it was the best performing stock in my portfolio wow and and I was I was actually I was actually really Chu at myself I go like h haha look at me I mean and then of course they um the acquisition happened in the UK and and and the whole thing came unraveled essentially and the lesson that I've always learned from that is that it is never too late to sell and um because before you know it all those gains you've made that they disappear for the sun uh you take you take a breath later and and now you're sitting in the red and and and the losses only only accumulate um and most investors will have that will have that response like well I'm not selling now I'm going to wait until I get my money back or whatever I me and the problem with that is long story short ultimately the share price lost 96% of its value and I'm so happy that I wasn't there when there's only 4% left because mathematics will tell you you're never going to make your money back now now now you've done yourself a really big disservice and that's why I always say to people m mes we all make them and and sometimes we sometimes maybe you don't even make a mistake I mean maybe sometimes things change company changes World changes the market changes whatever you should never be afraid to just go listen Okay this is not working me just sell move on right and you have like a percentage of stop loss where you're like 10% I have to nothing like that no I don't because that would have for example that would have forced me out of wmet and I I stuck I stuck the course there and I'm I'm very happy I did so sometimes I think it's it's more important and I know it's easier said than done but the more I do this the more I realize know your stocks know your companies and know why you own them yeah and if the if the world goes crazy and and all of a sudden start selling off WM because I mean they don't know what's happening and and and they and and the shorters moving etc etc then it's it's it's good to dig in your heels and to and to be convinced that you that that your thesis is still correct and it's not being disrupted it's only a matter of time and that's the disadvantage sometimes when you have those strict rules mean having said so um I'm also shareholder in IDP education and maybe I should have sold there in an earlier stage um but I do think that story is is gradually turning around now and and and that also the mean I think the good thing there is is that at the very least I acknowledged that the uncertainty was there and I didn't add to my Holdings I actually at one stage I I half them and I kept them at that level and that also gives you an idea that sometimes you just have to make those gutfield decisions by not just throwing money after throwing money and the Sherie just keeps in one it keeps going in the same direction the wrong one that was definitely the biggest mistake I've ever made he's throwing more money at something that's too EAS too easily done I mean I I I at one stage had a had a investor contacting me um and um he basically turned by doing that he turned $400,000 and $50,000 and oh that makes me feel sick and exactly and I your stomach really turns and I literally told them listen uh rule number one you're never going to make your money back just forget about it it's not going to happen yeah and that's that's what that's what the mathematics will tell you yeah a stock that goes down down by by that much it has to go up it has to all of a sudden go up by thousands percents or whatever I mean but yes and that's that's the danger of of just going like I'm averaging down you go like yeah no like I almost never average down yeah it doesn't mean that I don't add extra money when the share price goes down but like I bought extra woolward shares yeah that's not averaging down I'm just maximizing the fact that the share price gets weak at certain point and I just make an investment in a in a in a in a cheap looking share price yeah but I'm not doing it to get my average down yeah I'm not interested in that but and the averaging down that's mean for Trader maybe but if you want to go bankrupt just think of all the people who average down in amp in land Le etc etc it's it's it's simply not a great strategy okay last question for today and probably my my favorite question is well if the market was to close for the next 5 years which one stock and one stock alone what do you want to own and why well I'm going to break the rules because rules need to be broken every once in a while to put my conviction to the conversation we had today I'd be very happy to to own both Goodman group and next CC for the next five years because I'm convinced with the growth that comes towards those companies that they that the shies will be a lot higher in 5 years time and in the meantime I don't have to worry what happens to the shies mean all of fluctuations all the volatility but if we if we exclude the AI story here then I then I my my nomination would be CSL and I think that's one thing I've learned as well people have strange ways of looking at shares and because the sh the share price has moved in now two or three years everyone's now convinced that the stock is dead nothing's going to happen there you know and I think you should turn that around because it hasn't happened in the past three or four years this is this is now why you should consider owning that stock yeah it's the other way around yeah in 2020 when when everyone was was moving into the stock out of out of a fear out of what Co might do that was the time to question the outlook for CSL yeah not today when they've had all the bad news thrown at them and they're working now on on on improving their margins yeah now is the time to own them so for the next 5 years I'd be more than happy to to have CSL in there and and after 5 years I look at the St price I go like my goodness what a nice surprise is this oh fingers crossed I I hope so I own CSL as well it's definitely been kind of annoying an annoying position in the portfolio yeah fingers crossed well thank you so much for your time today Rudy I absolutely love this chat it was so so fun thank you for coming on the rules of investing I hope the viewers and the listeners appreciate as well

Channel: Livewire Markets

Views: 6,204

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Id: yDD3CKlZTM4

Length: 52min 32sec (3152 seconds)

Published: Fri May 31 2024