Happy Friday. It's been a rough week on the ASX, but these things happen occasionally. And it's important not to lose sight of the bigger picture.
Here are some Friday afternoon thoughts.
The challenge for the RBA
I'm writing this from the food court in the departure lounge at Gold Coast airport, after getting an Uber from the hotel. Unfortunately I was only here for work, and have to head back before the weekend!
I was in Melbourne earlier this week, too, giving a keynote address at the Microcap Investing conference.
In both cases, I got chatting to the Uber drivers who took me to and from the airports.
Uber drivers have their fingers on the pulse. They speak to hundreds of people. They see who's booking them and who's not.
And, at least when they're not evangelising about Bitcoin mining (happily it's been a few years since that last happened), they're a pretty good barometer for what's going on.
All of them, unbidden, talked about interest rates and the cost of housing. Two worried for themselves, and the other two for their kids.
Interestingly, though, all four said business was good. I suspect those travelling aren't those doing it toughest. In fact, I'm sure of it.
The RBA has a difficult decision to make on Melbourne Cup day. There are no good choices – they'll need to work out which outcome is 'least worst'.
On balance, whether higher inflation, for longer (that usually results in a permanent reduction in living standards), is worse than higher interest rates, (which can be subsequently reduced, but could result in some people losing their homes).
There are no bystanders in that question. We're all impacted to some degree or other.
What I do know is that those who believe the answer is easy are either speaking through their kick, or are blissfully unaware of the downsides of each choice. (There are some whose ideology blinds them to nuance, too. Be particularly careful of them. They're like Mulder and Scully; they 'want to believe', but it's a flight of fancy.)
I'm glad I'm not the RBA Governor or on the Board… they have a tough choice to make.
The power of founders
I recorded the newest episodes of our podcast, Motley Fool Money, yesterday (they'll come out this afternoon and on Sunday morning).
In one of them, I remarked on the strong preference I have for founder-CEOs when I invest (or at least those who think like them).
Which isn't to say non-founder CEOs can't do a great job. But when companies become too 'corporate' and boards too interested in 'box ticking', the power, drive, insight and cultural passion of a founder-CEO is all too often lacking.
You don't need to be a founder, of course. Two companies I own shares in, Washington H. Soul Pattinson (ASX:SOL) and Berkshire Hathaway (NYSE:BRK.B) are run by people who aren't founders: but the former is run by the fourth generation of the same family, while the latter, run by Warren Buffett, has assumed the 'shape' of the man running it.
A founder-CEO is no guarantee, of course, just as not having one doesn't mean you'll do badly.
But, as I said on the podcast, if you made me choose just one single data point before investing, I wouldn't choose a single financial number, or valuation metric. I'd choose companies run by the people who actually (or essentially) founded them.
Gamble responsibly
Speaking of which, I still sometimes shake my head at the way some people invest. (And if you recognise yourself in what follows, I apologise… but also might humbly suggest you reconsider how you do it!)
Remember that investing, over the very, very long term, has delivered compound returns of around 9% per annum, in both Australia and the US.
No guarantees, but that means you could have turned $10,000 into $138,000 over the last 30 years, just by buying an index and going fishing.
Now, let me pose it another way: If I told you that you could have multiplied your money almost 14 times in value, just by doing nothing, would you have taken it?
I thought so.
I hope, with that knowledge, you wouldn't have gambled that $10,000 on the latest fad, 'hot stock', or tip from your brother-in-law, instead
I hope you wouldn't have risked not making $138,000.
Now, I'm not saying you shouldn't actively invest, if you have the time, interest, ability, help and temperament.
It's what I do, and what we do at The Motley Fool.
I'm saying that 'investing' is very different from rampant speculation and gambling.
If you want to invest the way you play the lotto, the choice is yours.
But think about how you'd feel if someone told you they bought $10,000 worth of lotto tickets.
You… wouldn't approve.
By all means, buy a single lotto ticket if that's your thing. Bet $5 on the dish-lickers at Dapto if you get some fun from it.
But please gamble responsibly. And please don't confuse punting with investing.
Slow and steady really does win the investing race. Don't risk a very likely gain for a little more, if the downside is losing what you started with.
Have a great weekend.
Fool on!
