Welcome to my Friday article.
On Fridays I do things a little differently. Punchier, format-wise. And sometimes, well, itâs just punchy.
Speaking of whichâ¦
Who pays the tax if they donât?
Did you see the list, earlier this week of the largest public companies, and the tax they pay.
Or, in almost one-third of cases, the tax they donât pay?
And this isnât a list of companies the ATO has caught doing the wrong thing!
Iâm 99.9% sure theyâre paying every single cent of tax theyâre obliged to pay.
The problem, then?
The tax laws, themselves.
A company can, for example, use inter-company loans to lower the profit in, say, Australia, while increasing profits in, say, the Cayman Islands, where thereâs a lower rate of company tax.
Or they can get the accountants to make sure that they make no- or little profit in Australia, instead making those profits in, say, Singapore, where their âmarketing hubsâ make all of the money.
And more. And more.
Now, there are legitimate reasons for paying no tax in a given year. Very legitimate. I have no beef with loss-making businesses or those with carry-forward losses.
But if you have the money, the accountants and the interest, itâs remarkable how little tax you can pay, especially if youâre a multinational.
And if they can (again, legally) pay less tax with a little smoke-and-mirrors, who pays?
Yep.
You and me.
Itâs been in the government too-hard pile for years, under both sides of politics, where a lack of will, interest or effort has allowed it to go on, and on and on.
Over to you, Treasurer. You have a Budget in structural deficit. This is an obvious solution.
(And, dear reader, if youâre not as mad as hell, can I suggest you either havenât seen the story, or you donât understand the scope of this thing. You should be ropeable!)
Iâd rather have our problems than theirs
Tuesday was âRates Dayâ here in Australia.
The US upstaged us on Wednesday night with a 0.75% increase in their official interest rate.
Then, the Poms gave us both an almighty âHold my beerâ, as they not only went up 0.75%, but then forecast the UK economy could contract for the next two years.
Make no mistake, things are bleak over there. Thank goodness they had the sense to give former-PM Liz Trussâ plans the short shrift, but they still have a lot of work to do.
Iâm not saying we should be happy about whatâs going on here at home, but it could be much, much worse.
Never stop asking our legislators and regulators to be better⦠but donât forget how lucky we are, at the same time.
Whoâs that storming down the outside as they reach the winning post?
Our regulators have, shall we say, a variable record of holding Australian companies to account.
But the picture has been brightening in recent months and years.
The Hayne Royal Commission exposed a welter of wrongdoing in our finance sector (though the government squibbed the response!).
The various casino inquiries have gone through those companies like a dose of salts⦠and then some.
But atop the podium, as far as Iâm concerned, is the anti-money-laundering regulator AUSTRAC.
They have been astonishingly good â and thorough â in rooting out wrongdoing.
You really, really, donât want a call from them.
Which is what happened to Sportsbet and Bet365 recently.
To quote an ABC article, AUSTRAC â…told the ABC it has “reasonable grounds to suspect that Sportsbet and Bet365 may have contravened or are contravening the anti-money laundering and counter-terrorism financing law and rules”.
Thatâs⦠not ideal.
But also, itâs wonderful.
Our economy and society works best where there are clear rules, well-enforced (and when companies and people can reasonably expect that if they do the wrong thing, theyâll be caught.)
We make no allegations of wrongdoing about either company. If thereâs no case to answer, they should be publicly exonerated.
But itâs great to see a regulator really getting stuck into its work. It should be a model for other regulators â whose employees also work bloody hard, to be fair â to follow.
In defence of Facebook
Whoa⦠what?
Who defends Facebook these days?
Itâs funny, you know. Once upon a time we hated Microsoft. Then Google (I own shares). Now itâs fashionable to hate Facebook.
But donât worry â Iâm not going to defend social networks or their algorithms that one the Motley Fool investing team called âa cancer to societyâ this week (and isnât wrong!).
But I am going to defend it â and CEO Mark Zuckerberg â against the short-termism of the market.
Heâs made a big, big call to go neck deep into the so-called Metaverse.
Now, for the record, I think the hype is overdone. We will end up using immersive technology to communicate, but Iâm not sure a capital-T âThe Metaverseâ is necessarily where weâll end up.
But then again, Zuck is the visionary, not me. He might well be right.
Heâs certainly spending a large fortune to make it happen.
And, right now, the market hates it. Hates. Despises it.
Facebookâs market value has plunged by $1 trillion in the last year or so.
Thatâs gotta hurt.
But is Zuck wrong?
I donât know. And you donât know. And the market doesnât know.
What youâre seeing is market impatience at work.
Some CEOs would read the tea leaves and say âthe market hates this, Iâll stopâ.
But a good CEO â a shareholder-friendly CEO, focussed on building long term value â should ignore the market and push on.
Or, as Amazon (I own shares) founder Jeff Bezos once said:
âWhen I have a good quarterly conference call with Wall Street, people will stop me and say, âCongratulations on your quarter,â and I say, âThank you,â but what Iâm really thinking is that quarter was baked three years ago.â
I donât know if Zuckerberg is right. But I do know that this yearâs results â or the current market sentiment â donât help answer that question.
He should be responsible and thoughtful in capital allocation. Perhaps he has been, perhaps not.
But we wonât know if heâs right or wrong for years. The recent slump in Facebookâs share price has nothing to tell us â or him â in that regard.
Hereâs my best advice on this topic: If you want a company with steady, predictable results, buy shares in one.
If you buy shares in a business trying to change the world (or even its tiny little corner of the world) donât expect consistency, and be prepared to wait.
Mixing up the two is a recipe for disappointment. And maybe worse.
Quick takes
Overblown:Â I canât tell you how many times weâve been told thereâs a ânew normalâ. In fact, betting against the ânew normalâ has been the best bet. Yes, things change. We adapt. Some businesses arrive, some grow, some die. But the fundamental underpinnings of business havenât changed in decades. New categories, a new lick of paint, but the âold normalâ persists.
Underappreciated:Â Did you know that October was the best month for the Dow Jones Industrial Average in 46 years? Fourty Six! It was barely reported. Or that the ASX gained 6% in October? No-one rang a bell on October 1. Most were worried that inflation would get worse (it did) and that interest rates would go up (they did). The correlation between market returns and the economy is tenuous, at best.
Fascinating:Â The Melbourne Cup had many fewer free-to-air viewers this year (1.02m) than the year before (1.21m). And thatâs the continuation of a long term trend (more than 2m people watched in 2015). Maybe theyâre streaming. Maybe watching in pubs. Or maybe losing interest. I donât know which, but itâs worth thinking about whether itâs a trend, and what the implications might be.
Where Iâve been looking: I guess Iâm an âenvironmentalistâ (whatever that means) and I want strong action on Climate Change. But the coal mining companies are incredibly cheap – with one big âifâ. Theyâre cheap if they use the cash flows to create long-term value for shareholders. If I was in charge, Iâd be distributing huge dividends and/or investing in less structurally risky businesses. Some are. Others are doubling down. Itâs a risky area in which to invest, but the rewards for careful stock selection â assuming responsible company management â could be significant.
Quote: “The stock market is filled with individuals who know the price of everything, but the value of nothing.” â Phillip Fisher
Fool on!
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Foolâs board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Foolâs board of directors. Motley Fool contributor Scott Phillips has positions in Alphabet (C shares), Amazon, and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Meta Platforms, Inc., and Microsoft. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Meta Platforms, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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