ROGER MONTGOMERY | from Montgomery Investment Management

G’day, listeners! In the latest Shares for Beginners, I chat with Roger Montgomery, a funds management pro with over 30 years in the game. He’s got a sharp take on where the stock market’s at and what’s coming as we nudge into 2025.

With inflation bouncing around and markets shifting, plenty of us are wondering what’s next. Roger doesn't get hung up on the daily dips, he looks at the bigger picture. He reckons some companies are still solid bets, especially those pulling in double-digit earnings growth.

We dig into liquidity too—Roger calls it the market’s pulse. It’s the stuff that keeps prices moving and shapes how we invest. He explains how central banks and quantitative easing stir things up for investors.

AI’s the hot topic these days, and Roger’s got thoughts. Not every AI stock’s a winner—he’s all about finding businesses that can actually make it pay off, not just ride the hype.

We also touch on corporate earnings. The US is expecting some growth, but how are Aussie companies stacking up? Roger breaks down which ones have the edge to keep profits rolling, even in rough patches.

This ep’s a goldmine for anyone into investing. Roger’s straight-up insights make the market less of a mystery—great for newbies or old hands alike. No dull lectures, just a solid chat that’ll sharpen your thinking.

Give it a listen and pick up some know-how for your next move. Catch you on the pod!

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

G'day, and welcome back to Shares for Beginners. I'm Phil Muscatello. Waning inflation, robust economic growth and a significant infusion of liquidity into financial systems and a recent rate cut here in Australia. Is this what 2025 holds, or is the bull runs set to reverse? And what does this mean for your portfolio? Joining me today is Roger Montgomery. G'day, Roger G. Day.

Roger Montgomery: Phil, great to be with you.

Phil: Yeah, thanks very much for coming back on. It's been a while. I think it's like almost been two or three years since last. Been on the podcast too long.

Roger Montgomery: We shouldn't let so much time pass next time.

Phil: That's right. Roger Montgomery founded Montgomery Investment Management in 2010. He's got over three decades of experience in funds management and related activities, including equities analysis, equity and derivative strategy trading and stockbrking. So your views about the outlook in 2025 have changed recently. And we're basing this conversation on your recent article in the Weekend Australian, because you were quite sanguine, I guess, about 2025 until maybe last week. Tell us about how your thinking has changed in the turnaround.

Roger Montgomery: Well, Phil, it's probably worth just going back. We haven't seen each other for a few years, but in 2023, the beginning of 2023, we were in a position where equity P ratios were very, very cheap, both here and, uh, uh, overseas. So USP ratios for small caps in particular were at almost the lowest level, with the exception of the gfc, for this century. And what we know about P ratios is if you buy and sell a stock on the same PE ratio, so you buy it today on a P of 12, and I'm just making up a number there, sell it on a P of 12 in three years or five years or 10 years time, um, your internal rate of return, your return will equal the earnings per share growth rate. So that means that if you buy a company that's growing its earnings per share at, ah, double digit rates, you'll make a double digit return even if the popularity of the stock market doesn't improve as reflected by the P E ratio. So if you bought today on a P of 12 or you bought at the start of 2023 when PEs were really low, you didn't even need sentiment to improve, to make good money. So we started to think, hey, you know what? Investors are going to do pretty well if we buy shares for them in our portfolios that are growing at double digit rates because P'ARE so low. Sentiment is therefore very, very weak or I guess negative. Therefore, even if sentiment doesn't improve, they'll make a great return. Now, on top of that, we also had disinflation beginning. So from those 8, 9% inflation rates, inflation was coming down. And we also had positive economic growth. Now, there were lots of fears about a recession, but with employment being very, very strong, we didn't expect that there would be any recession. In fact, 2023 and 2024 were probably the most widely predicted and broadly predicted recessions that never happened, especially by the.

Phil: Bond market as well.

Roger Montgomery: Yeah, indeed. And so we end up, we know that since the 1970s, whenever you've had a combination of disinflation and positive economic growth, even if that economic growth is anemic, as long as it was positive, you know, barely over zero, as long as it was positive and you had disinflation then, since the 1970s, whenever that's happened, without exception, innovative companies with pricing power have done very, very well. And so we believed that 2023 was going to be a good year for equity investors if they invested in innovative companies with growth and pricing power. And 2024 was the same. So we had two years in a row where the US market, the S&P 500, has increased by more than 20% in each of those years. And so we got that right, and we got it right just using some basic understanding of what's happened in the past and why disinflation and positive growth are good coming out of a period where PEs were very, very low. So the setup was absolutely perfect. This year is a little bit less clear,

00:05:00

Roger Montgomery: it's a little bit more difficult to navigate simply because now one element that we had last year and the year before that we don't have this year is those very, very cheap PEs. We also, if I can just add another thing that was very positive for markets over the last two years. We had to big injection of liquidity into markets from M central banks and also from uh, treasury in the United States. They ran down their reverse repurchase agreement account by about $2 trillion. So that went from 2 trillion to about 120 billion do now. And that was a surreptitious way of really feeding those animal spirits that pushed up AI related stocks, which I'm sure we'll get to in a minute. And so everyone said, well it was AI that drove the market. It was, it was the Mag 7 that drove the market over the last two years. Yes, they're the stocks everyone gravitated to. But why did they gravitate to them? Innovative pricing, power growth and there was liquidity. So we had the setup and then we had exactly what's happened every time since the 1970s. This year. Well, that reverse repurchase agreement account that was used to fuel some of that boom last year, well that's kind of exhausted now. So if we're going to have another boom this year, we' and have another double digit return year, we need central banks to come to the party. So we will need quantitative easing of some description in some form. We'll need more liquidity because I think there'll be a bit more liquidity. I think it'll come to the market, uh, but it won't be the same quantum that we've seen last year and the year before. And consequently that means that while we might have a positive year this year, my view is it's not likely to be a double digit year. And by the way, I mean it's almost unprecedented that you would have three years in a row of 20% gains.

Phil: Can we just dive into for a moment how liquidity works just to explain it for beginners? Because obviously this is something that's really driving markets. There's money being pumped in. What's the mechanism? How does that work?

Roger Montgomery: Well, if you think about quantitative easing, what quantitative easing is, it's the U.S. federal Reserve or a central bank buying from the Treasury Department bonds which are uh, issued to fund the government's budget deficit. So the government takes in tax revenue but then it goes and spends the money and typically it spends more than it receives. And so it has to borrow that money. The way it borrows money is it issues bonds. Now if the central bank buys those bonds, it pays cash for those bonds, that cash goes into Treasury's account or it goes into a bank's account if the bank owns those bonds. And the central bank has been expanding that program from sovereign bonds to less lower quality bonds. It's broadene the spectrum of quality of bonds that it buys in order to inject money into markets. And while Janet Yellen is out there saying o no, we're satisfied and we're not going to be doing much in terms of quantitative easing around the back, uh, in the back room while she's saying that they've been buying bonds, they'vely bought broad based bonds. And the consequence of that is money being injected into the financial system and then being lent out. And that's why you've seen Bitcoin do so well. Bitcoin has a very, very strong correlation to central bank liquidity, global liquidity. And that's why we saw Bitcoin do well over the last 12 months. At the start of last year, at start of 2024, we also had, and you saw this, and this is another form of liquidity for Bitcoin. We had the issue of the issuance of the first ETFs Exchange traded funds backed by Bitcoin. And so we knew that that would grease the wheels or smooth the path for regular everyday mum and dad investors to be able to buy Bitcoin. They didn't have to set up an account with an exchange that they could potentially be dodgy. They didn't have to have a blockchain wallet, you know, they didn't have to do all those things. They could just buying uh, uh, security on the New York Stock Exchange. And so billions and billions of dollars were attracted to those ETFs in a matter of weeks after they were launched. And that money had to go and buy Bitcoin. So we knew that that was going to be positive for Bitcoin. So there was a bit of a spike at the start of 2024, then it faded and then we had central bank liquidity come in and that drove Bitcoin again. So liquidity is really the heartbeat of markets. But we also had, as I mentioned earlier, that environment where people felt compelled to buy innovative growth companies because disinflation

00:10:00

Roger Montgomery: existed which meant that interest rates are unlikely to rise. And so the companies that the intrinsic value uplift is greatest when interest rates drop for companies whose earnings are further out on the horizon. So you, the further away profits are, uh, then when you discount them back to today, the value of that has the biggest uplift, the biggest percentage change when interest rates drop. So people felt because disinflation existed, they felt compelled to buy those companies that were going to make the most money in the future from AI and then, of course, we had positive economic growth. And that just means that there's a belief that there's a correlation between corporate profits and positive economic growth. And so people felt comfortable buying shares.

Phil: So where are we at with disinflation? Has inflation ended? Has the lid been put back in the bottle, or is the journey about to erupt again?

Roger Montgomery: Yeah, it's a great question. We saw in January this year, we saw US Inflation jump a little bit higher than was expected. And so people are worried about people. I feel, if I could say this, when it comes to investing in stock markets, there is a habit, people form of using a microscope to look at all the detail instead of standing back and looking through a telescope. And I might patent that if I can.

Phil: Uh, did that just come to you? Did it?

Roger Montgomery: I think that people are looking too closely at the changes in inflation month to month and quarter to quarter, instead of standing back and saying, you know what? Conditions are a lot better today than they were when inflation was at 9%. And that's disinflation. We're still in a disinflationary period, and I think that's a good thing for investing in equities. But we really do need the backing of that liquidity if we're going to get decent returns out of the stock market.

Phil: Okay.

Roger Montgomery: By the way, Phil, I should say I'm speaking about the stock market broadly. M that doesn't mean there aren't companies that you can buy today that you'll make a lot of money out of. I know I can list three or four companies today that I think will do very, very well over the next five or ten years. And again, that's using a telescope instead of using a microscope. I couldn't tell you what the share prices are going to do over the next week or next month or next year. But I can tell you over five and 10 years, they'll do extremely well. Even though the stock market might not do well this year. Are you confused about how to invest? Life Sherpa can ease the burden of having to decide for yourself. Head to lifeshherpa.com.au to find out more. Liferpa, uh, Australia's most affordable online financial advice.

Phil: So you're looking at the macro environment so that then you can apply those kind of metrics to the value of what you think are going to be good. Companies that will benefit from those macro themes is that the case?

Roger Montgomery: No, I think, Phil, I think we'd look at the microeconomics rather than the macroeconomics. I mean, we've spoken about liquidity, we've spoken about disinflation, and we've spoken about economic growth. Let's leave macroeconomics there. We probably don't need any more detail than that. Then what we do is we dive into microeconomics. How are industries behaving in response to those stimuli or those conditions? And then what we care about are those businesses with sustainable competitive advantages that are going to be able to compete most successfully within their industry group.

Phil: So where are you thinking at the moment with artificial intelligence? And I've said this so many times, I believe that artificial intelligence is something that's going to seep through pretty much any industry and any enterprise over the next 10, 15 years. You know, the kind of efficiencies that it generates, but's going to benefit so many companies. What are your thoughts on artificial intelligence and where would investors best benefit from these kind of trends?

Roger Montgomery: Ok, a couple of things. Number one, new technology, really hard to invest in successfully. Why? Simply because you don't know who is going to win the race. You don't know what the competitive landscape is going to look like. Without exception, new technology that transforms the course of human history, whether it be commercial air travel, the motor vehicle, television, all of those things. What we do know is they benefit consumers and they benefit society. That's great, but just because it benefits humans doesn't mean it's going to benefit investors. We've seen billions and billions of dollars collectively lost by investing in motor vehicle manufacturing. You know, in the United States there's been more than 1,300 companies that have made cars since the car

00:15:00

Roger Montgomery: was invented by Carl Benz back in the late 1800s. All of them, with the exception of Tesla, all of them have been broke at one point or another, all been bailed out by private equity or government. So new technology has a habit of benefiting consumers, but not necessarily benefiting investors. The second thing that I'll say is that AI what we want to see is we want to see profitable business models based on AI. It's all very well that this company has AI or this company is using AI, but let's see the profitable benefit. Is there going to be a step change in the margin you're going to generate from using AI? I think the phase of the pick and shovel phase, that's probably tiring now. So look at Nvidia's share price over the last six months or look at the, you know, the sox, the semiconductor index in the United States over the last nine months it's gone sideways. So that tells me that thematic, that upstream thematic is kind of tiring. What we want to see is downstream companies that adopt AI, that use those chips, making money out of that, making a lot of money out of that. How are they going to do it? I'm paying for a subscription to Chat GPT. I'm a Google subscriber so I can use Google's Bard AI and they're helpful on a day to day basis. They save me a bit of time but I'm not paying millions of dollars, I'm not paying hundreds of dollars or thousands of dollars a year to use it. So what's the business model that's going to be really profitable for companies? I think LLMs will be commoditised, I think they'll be pretty much free. And again society benefits but investors don't. So really. And at the moment one of the biggest use cases for uh, LLMs is companion bots. People who are lonely want to talk to somebody. They're subscribing to a companion bot that's powered by AI and paying for that. But I don't see that scaling massively. I don't see that making lots of money. For millions of people investing in the stock market they're the two things to remember about AI. Number one, society wins, not necessarily investors. And number two, let's see the profitable business models downstream before we get really excited about AI.

Phil: Have you seen any of these successful business models or even just the hints of any early formations of them? I mean I think about companies that deal with legal matters or patentss for example, that they might benefit because there's a large amount of data which needs to be wrangled by something like a large language model.

Roger Montgomery: At this stage what we're seeing across all companies that are adopting AI is incremental changes to their margins, incremental changes to their overheads, but not step changes. We haven't identified the business model yet that's coming down the pipe that we're going to see that massively disrupts everything that exists and is s going to, you know, hoover up and be a winner take all from a profit perspective. We haven't seen that yet.

Phil: Mhm.

Roger Montgomery: I mean it could be out there. That's not to say it isn't out there Phil.

Phil: We don't know. It's hard to identify.

Roger Montgomery: We just haven't found that nugget.

Phil: Yeah, yeah. I just want to return to the article in the weekend Australian, where you had a perfect recipe for a bull market which was corporate earnings, multiple expansion and abundant liquidity. So we've talked about liquidity, but what are your thoughts on corporate earnings and looking into the future?

Roger Montgomery: So if we look at the US market first, corporate profits are expected to grow double digits circ 13% 12, 13% this year, which is great. If we look at Australia, analysts are upgrading their forecast at the moment. We're right in the thick of reporting season for the half year for 2025 and we're seeing some upgrades but not exceptional upgrade. So I think we'll see sort of mid to high single digit profit growth in Australia, which is good. That supports an increase in P E ratios, but it doesn't mean that PE E ratios are going to race ahead. And Australians tend to be more circumspect in their outlooks anyway than U.S. investors. And so that's one of the reasons why we often don't see the Australian stock market performing as well as the U.S. but I think fundamentally the reason why we've had two 20% years in the U.S. we haven't seen it in Australia is that the big cap companies that drive the index, they pay the bulk of their earnings out as a dividend, they're not retaining it for growth. Whereas in the US a higher proportion of earnings are retained rather than paid out as dividends and that produces growth. Particularly if a company is generating double digit returns on equity if it retains those profits rather than paying them out as a dividend. To me, I'm going to put them in the bank and get 5%. If they keep the money and generate another 20, 30, 40% return on equity,

00:20:00

Roger Montgomery: they're going to see double digit earnings growth. Whereas large cap Australian companies tend to pay maybe 80% their earnings out as a dividend. So they're not retaining it at double digit rates of return and therefore not generating double digit rates of growth on their earnings per share.

Phil: And that's presuming that they'd be able to spend the money wisely anyway to generate any extra.

Roger Montgomery: And that's the criticism you Australians are fairly distrusting, uh, of CEOs, uh, and they'd rather collect the cash money. Yah, yeah, they'd rather collect the cash than leave it with a CEO, uh, goes and pays too much for an acquisition.

Phil: Just getting back to inflation for a moment. The bond market has always seemed to be a reliable predictor of recession. And we've seen signals from bond markets that they do expect A recession, but it hasn't kind of eventuated. Do you think the bond market is getting it wrong?

Roger Montgomery: Well, Phil, I did some work back in the 1990s where what I did is I looked globally at global bond markets. So we looked at bonds, we looked at btps, we looked at gilts, we looked at bond markets all around the world. And what we did is we went back in time and looked at the contemporaneous yield curve implied by the futures market. So bond futures, where did, back 20 years ago, where did bond futures markets say interest rates would be in 10 years time and 19 years ago, where did they say bond rates would be in 10 years time and 18 years ago and 17 years ago, where did they say. And I can tell you the futures, the bond market, the bond futures market, or the collective wisdom of traders of bond futures got the forecast for where bond rates would be in 5, 10, 20, 30 years time, 100% wrong.

Phil: And because we are told that, uh, the bond market runs everything, the bond.

Roger Montgomery: Market says that you know the bond market's right and know it gets it right. Sure, sometimes it gets the call right for the next six months or the next 12 months. But the further out you go, the less reliable the bond market is in terms of forecasting interest rates. The problem is humans are really good at projecting current circumstances out as a straight line into the future. They're very, very poor at predicting turning points. They're very, very poor at predicting when things are going to change. You can make a lot of money getting changed. Right. But my suggestion would be that if you look at the bond futures yield curve and go back in time and have a look at the contemporaneous curves, then, then what you find is the bond market doesn't do such a great job of predicting the future.

Phil: Okay, that's interesting because it's something that I've been told many times it is a reliable predictor, but obviously not.

Roger Montgomery: I might update that research and publish it. It'be a lot of fun.

Phil: So which Australian companies do you think would be benefiting? How's the ASX going to be affected by what you see is coming down the turnpike in 2020?

Roger Montgomery: Well, the first part of your question was about individual companies, so I'm happy to talk about that. Whether the ASX goes up or down, you know, really, as I said, my base case is that you'have a positive calendar year, but there is a risk towards the end of the year. And it's really important to talk about this. There is an increasing risk towards the end of the year that a lot of and we can come back. This will tie into your bond question that you asked a minute ago as well. But towards the end of the year. So what we're going to start seeing is some of those bonds that were issued at 0% during COVID during the pandemic, we're going to see the start of that wave of bonds being refinanced. So through 2026 and 2027 that'll start needing to be refinanced. Now that refinancing is goingn to soak up some of the liquidity that the market is used to drive share prices in Bitcoin higher. So that doesn't mean that the market will crash, but there is a risk of a correction or a sort of a stale kind of sentiment starting to pervade markets at the end of this year and into 2026. Now that's what the bond market I think has got right you that the bond rates are starting to rise. The bond market is realizing that there's going to be some competition for refinancing towards the end of this year. I think that's fundamentally correct. So that's my sort of overview of equity markets for 2025 should be a positive year. But this is the caveat is that there's that competition for liquidity come the end of the year. Now in terms of individual stocks, well, in reporting season what we're seeing is we're seeing successful

00:25:00

Roger Montgomery: companies entrench their success. So businesses like the Commonwealth bank, it's deepening and widening its economic moat. JB Hii doing the same thing. Nick Gali doing the same thing. ARB doing the same thing. So we're seeing a lot of good quality businesses, companies that we've talked about, gosh, for 15 years, 20 years we've talked about these businesses being a one quality businesses. And that's what we're seeing again. You know, the Commonwealth bank has always been the highest quality bank. Why generates the highest return on its equity. It got a leg up during the global financial crisis when it bought the bank of Western Australia pretty much for a song over a weekend without any regulatory hurdles, which was remarkable. And that gave it a big leg up in terms of return on equity. That's kind of normalized now but it's retained its advantage and it strengthening its advantage. And these other companies that I've mentioned a moment ago, Nick Scorie, JB Hifi, ARB Breville Group is another one. High rates of return on equity, little or no debt. Entrenching their competitive advantage. Rea Group real estate.com.aut arguably the strongest competitive advantage of any business listed on the Australian market. What's the most powerful, most valuable competitive advantage of all? The ability to raise prices without a detrimental impact on your unit sales volume. If you can lift prices and more people buy your stuff, even though prices have gone up, you've got the best business in the world. And REA Group does that almost every year. It raises the price of advertising. And despite the fact that there are 80 websites in Australia that let you list your house on that website for free, REA charges the most and it has the most houses listed. And because it has the most houses listed, it has the most people looking for property to buy. Because it has the most people looking for property to buy, more people list their house. So it's got the network effect. There's a valuable competitive advantage. And again, it's entrenching that. And that's what we've seen in the results so far.

Phil: And with cba, uh, I believe they've moved from a margin model where they're basically charging a margin between what they get for interest rates and what they charge for a customer, much more to fees. And we've all seen the fees. Now every time you spend any money or try and withdraw money from an atm, there's going to be fees, isn't it? That's been a huge turnaround for most of the banks and especially cba, hasn't it?

Roger Montgomery: Well, they have the biggest deposit base in Australia. You know, they have a lot of data as well, which gives them an advantage. They have something like 7 million credit cards issued to customers. They get all that data, spending data ahead of time, so they know how the economy is going better than the Australian Bureau of Statistics does. You know, that credit card data, that spending data, that saving data that they've got that's entrenching their competitive advantage because they know where the economy is going as it happens, know they've got their finger on the actual right now, minute to minute pulse of the economy, and that's giving them an advantage over their competitors that have smaller data sets.

Phil: But then, of course, these are great quality companies that you're talking about, but they're all on elevated P ratios, aren't they? It's kind of scary to get into a company like this right now, but.

Roger Montgomery: Phil, you and I, uh, someone would have told me that in 2009, when I started our blog, we were writing about ARB. ARB was $2.70 or $2.80 at the low in 2009. And I was saying it was an A1 quality company then and people were telling me it was expensive because its dividend yield was too low. Today it's circa $40. It's paid, gosh, maybe $15 out as dividends as well in that period of time since 2009. And you're telling me the same thing, it's expensive now. It was expensive then, but it was a high quality business and it was growing its earnings at double digit rates and generating a high rate of return on equity with little or no debt, entrenching its competitive advantage, expanding the quality of its products or the range of its quality products. So as long as it keeps doing that, people will keep paying a high multiple for those businesses. And remember what I said earlier, if you buy a stock on a P of 20 and you say it's expensive and in 10 years time you sell it on a P of 20, your internal rate of return is going to be the earnings growth rate that the company generates. So you want to buy businesses generating double digit growth in earnings and you'll do just fine.

Phil: Nick Scal'been growing by acquisition more recently as well. And again, this is a uh, problem where companies often get into trouble is trying to acquire other companies. But they've managed to acquire companies quite well, haven't they?

Roger Montgomery: They have. They've bought things on the cheap. So uh, you know their latest UK purchase, Fab Furniture Fab, that was a business that went into administration

00:30:00

Roger Montgomery: back in 2018. So they've bought that at a relatively cheap multiple. What they're doing is they're rebranding the stores in the UK to Nick Scally stores and they're pushing their products, the Nick Gali product through in the space of six months. Their product is now the number one selling furniture product in the uk. So they're demonstrating what they've done before with plush furniture in Australia. They're doing it again over in the uk and the UK population is three times the size of the Australian population. So they extract synergies faster than they expected. They're generating growth out of these businesses and they're buying them when they're on their knees, literally.

Phil: And we've also got to love the JB hi Fi business model which is unchanged really for years, but it really works. Just keeps on working, working well, doesn't it?

Roger Montgomery: And chemist warehouse copied it. You know, big yellow stickers, pack the shelves to the roof and chuck yellow stickers everywhere, throw yellow stickers all over the place and people think they're getting a bargain and away you go.

Phil: What is it about the yellow, do you think?

Roger Montgomery: I, uh, don't know. You'll have to ask a retail expert that. You know, psychology, a psychologist, a retail psychologist. They'll probably know more about it. But big yellow stickers look like bargains. Coals and woolies do it with their shelving. IGA does it. Yellow stickers. Seems yellow stickers work. JB hii they invented it.

Phil: So, looking a bit broader internationally, what are some companies that you're looking at on the S&P 500 or even any other markets around the world that you're looking at?

Roger Montgomery: Yeah, uh, that's a tougher one to answer because there's so many really, really great businesses overseas. But you know, those we talked earlier about AI and I think the businesses that are most likely to generate profitable revenue and business models out of A.I. uh, are going to be those businesses that have the ability to invest the most in developing those technologies and business models. So you can think about some of the big brands in the mag 7 as leading that charge. And I think people will feel safe investing in those businesses. And I'm thinking of the Googles of the world and the Microsofts S of the world and the Apples of the world. Those and Metas, they're the sorts of businesses that will, I think, be able to leverage that technology or if they don't, that's where you'll see it not happening. But I think they're most likely to win because they've got the most money to spend on it.

Phil: Do you have any thoughts on tariffs? Because apparently we've got a president who loves a tariff. Do you think that's going to have much effect on markets?

Roger Montgomery: Well, we've seen a lot of tariffs announced and then days later they're deferred or delayed. And you know, I think it's a negotiating tactic. For every 10 tariffs that announced, we might see one that's implemented at some sort of abbreviated or, you know, subdued level. So it's very, very hard at this stage to factor that into your investing strategy. M I don't think you need to do that. I think you really need to think about businesses that are well managed. Breville, for example, the market, it didn't like one aspect of its results and that was a lot of money put into inventory. Inventory jumped from something like $38 million to about $44 million. Uh, and everyone was really worried about. A lot of analysts were worried about that, but they Explained that what they were doing, they were taking all 120 volt products that are made out of China, stocking them in the United States ahead of tariffs being implemented or additional tariffs being implemented against China. So that was a stockpiling exercise and that's just smart business management.

Phil: Mind you, I don't rate the coffee that a Breville machine makes. Nothing that doesn't matter to our classic retro Italian job. You.

Roger Montgomery: And it's really important not to invest based on what Phil Muscatello and Roger Montgomery think, it's really important to look at the numbers that they're producing. And a lot of that trend of having a barista style coffee at home, uh, that's really only just beginning in the United States. We've had it going for, you know, decades and decades and decades thanks to a lot of the Italian and Greek migrants that came to Australia in the 40s and 50s and the 60s. Uh, so we've had great coffee here for a long, long time in the United States. They're just coming, um, it's just happening. So you'll see great growth from Breville Coffee Machines in the United States.

Phil: Are you going to be coming along to the Shareholders association annual conference this year, Sy?

Roger Montgomery: I'm not sure. Uh, I don. Think. I'm not sure if I'll be there in person, but I might be one of the online presenters there. I'd love to be there. Would absolutely love to be there.

Phil: Yeah. Oh, well, it'll be good to catch up even if it is virtually, because it's always a great conference, isn't it? Great bunch of.

Roger Montgomery: It sure is. And I've supported that conference, uh, you know, from the very beginning. But you know, they're changing the model for who they allow to speak and so, you know, we respond to

00:35:00

Roger Montgomery: their requests as they come.

Phil: Well, what's really nice is being able to hear from CEOs, you know, becausety of plenty of CEOs on the smaller end of the market that you can see any day of the week. But to see the CEOs of Telstra or AGL, um, or whoever really does make a difference in hearing how they're explaining the business model as well.

Roger Montgomery: Yeah. It's interesting you mentioned Telstra. That's one. When I give university lectures on understanding business quality, Telstra is one of the examples that I give of a company that I wouldn't rate as a high quality business. And it's not the fault of a CEO. Uh, it's just the business that it's in.

Phil: Yeah. Is that because it's a legacy business and just is unable to respond to.

Roger Montgomery: Future conditions, it's unable to do that thing that I said is most valuable and that is raise prices without a detrimental impact on unit sales volume. It can raise prices marginally, but it doesn't have a lot of leverage there.

Phil: Yeah, it's interesting, the REA example. It's because it's not something that you're going to buy every day advertising to sell your home. So it is really an inelastic demand, isn't it, that if you're going to sell your house, you don't know what the price of buying advertising on REA was a year ago. You don't care about it, you just sort of cough up and the agent plugs you into that system.

Roger Montgomery: Well, and the agent isn't paying, the vendor is paying in Australia and that's unique to Australia. The agent promotes the use of the advertising for rea, but the ultimately they don't pay for it, it's paid for by the vendor. Hmm.

Phil: Mhm. So Roger, if listeners want to find out a bit more about you, where can they go?

Roger Montgomery: Well, a couple of things if you're interested in subscribing to our blog, then that's rogerm montgomery.com and we publish once a day, sometimes twice a day and during a reporting season, some occasionally more frequently than that. And we've been doing that since 2009 and we were one of the first finance blogs out there. And if you're interested in investing with us and our partners. And so we've got domestic funds, domestic long, short, domestic small caps. We've got global small caps and large caps. We've also partnered with a manager that offers an Australian long short fund. And perhaps most exciting at the moment is our partnership with a private credit manager who's. Phil, you're not going to believe this, but been running a fund for almost eight years, has produced circa 10% returns, pays monthly cash, has negative month, the unit price has never moved negatively and produced, as I say, stock market like returns without any volatility, which has been extraordinary. And so we've recently partnered with them and that's growing very quickly. And to find out about any of those funds, head to montvest. So think montgomeryvestonttinvest.com.

Phil: Uh, Roger Montgomery, let's not leave it too long.

Roger Montgomery: Thanks. I look forward to seeing you again, Phil.

Phil: Okay, see you mate.

Roger Montgomery: Uh, thanks for listening to Shares for Beginners. You can find more@sharesforbeginners.com if you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

00:38:04

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