Transcript QAV 427

Episode: QAV 427

Length: 1:15:16

Cameron Reily [0:04]: Wel­come back to QAV. This is Episode 427. How are you sur­viv­ing lock­down TK?

Tony Kynas­ton [0:11]: Good. Yes, hav­ing a bit of fun just stay­ing at home for as long as I can. Hey, we had a COVID case in the build­ing last week, had to be tak­en out by ambu­lance to the hos­pi­tal. So, I do not want to even go down­stairs at the moment.

Cameron Reily [0:30]: I kind of love the whole lock­down thing, I think it’s great. I don’t have to make excus­es for just stay­ing home and being a fan­tas­tic home.

Tony Kynas­ton [0:40]: I’d bit like that too. And like the golf cours­es are open here we do not feel like going out and even ven­tur­ing out into pub­lic places and that’s prob­a­bly safe. Jen­ny worked out, she point­ed out to me, it’s the sec­ond time now. I’ve been one hour away from some­one with COVID. Last year at the Nation­al I was an hour away from when the per­son had COVID. And then this time I was in the cof­fee shop down­stairs. I was one hour away from the per­son with COVID. So, I think I’m on bor­rowed time here.

Cameron Reily [1:10]: One hour Kynas­ton that’s what we’ll start call­ing you. Well, before we get into oth­er news, I know you’ve got some stuff you need to talk about. I want to talk about our end-of-finan­cial year final report, Tony 48.42% accord­ing to Navexa, ver­sus the ASX 28.48%. So, 20 points not exact­ly dou­ble, a lit­tle bit less than dou­ble the ASX 200. Not sure about the All Ords gen­er­al­ly speak­ing what it did any idea with the All Ords do?

Tony Kynas­ton [1:51]: The All Ords accu­mu­la­tion index was 30.2%.

Cameron Reily [1:55]: 30.2%. Okay. So we did­n’t dou­ble it but it was the best year on record I read in the Finan­cial Review of the All Ords, but we out­per­formed it quite nice­ly, look­ing good. So, it was a good year, did you have a good year in your port­fo­lio?

Tony Kynas­ton [2:14]: I did not as good as a dum­my port­fo­lio but beat the index on a gross basis where we’re mak­ing more mon­ey out of the port­fo­lio now because we’re Jen­ny does­n’t have an income. So, that’s hit­ting us on a net basis but yes, gross was good.

Cameron Reily [2:29]: You’re liv­ing on it, yes. Good stuff. Well, I hope every­one else out there had a good year, if you’ve been invest­ing for a year; I know we’ve had some reports come in from some of our long-term club mem­bers that had great years. But there are prob­a­bly more sto­ries that we haven’t heard. So, if you want to share them with us con­fi­den­tial­ly or pub­licly, on the Face­book group, or just shoot us an email if you want to keep it con­fi­den­tial. We’d love to hear how you did but it was cer­tain­ly a good year for us. Now to oth­er not-so-good news VUK Tony, what’s going on with VUK?

Tony Kynas­ton [3:08]: Well, it’s dropped again below its sell line today. So, I’ll just call it up… the sell­ing price was I think 366 and we’re that fin­ished today. And today is Wednes­day, the sev­enth of July, I should say. So, Vir­gin UK fin­ished at 357 down 3.7% today, so a bit of a drop.

Cameron Reily [3:39]: So, we bought, we sold, we bought it again and we’re going to sell it again.

Tony Kynas­ton [3:45]: Cor­rect. And I’m going to sell it too from my port­fo­lio unless some­thing changes in the next day or so. So, I’ll give peo­ple 24 hours’ notice when this is going out Cam?

Cameron Reily [3:56]: Prob­a­bly go out tomor­row. So, Fri­day, prob­a­bly it’ll have been out for 24 hours.

Tony Kynas­ton [4:02]: Okay, well [cross-talk­ing 04:03], Fri­day, unless vir­gin drops through the floor, but I don’t think it will even bounce back. Yes, so always sell­ing I’m not sure if I’m going to buy it and it’s pret­ty hard to pre­dict what’ll hap­pen on Fri­day but I was think­ing of a cou­ple of things so I’ll out­line my options. I own some shares and Ramelius which is prob­a­bly the next thing on my list to buy. But I don’t have a full posi­tion on those because I’ve had them for a long time and the port­fo­lio was small­er so I’ll prob­a­bly add to Ramelius. And I may buy some ideas or some back into JB Hi-Fi again, which are the next ones on my list. Just look­ing at both Adairs and JB Hi-Fi I’ll see how they go. Adairs is in a bit of a down­turn at the moment even though it’s above its byline. So I may wait for that one and JB Hi-Fi is a bit sim­i­lar so we’ll see if turn up. If that’s the case, I don’t decide to buy those Sil­ver Light Resources is the next one on the buy list, which is big enough for me to grab the same thing as Ramelius. So, I already have a small par­cel of these so I’ll add to it but any­way, that’s what’s like­ly to hap­pen on Fri­day for me.

Cameron Reily [5:18]: Not finan­cial advice, peo­ple make their own deci­sions.

Tony Kynas­ton [5:21]: No, I’m giv­ing peo­ple this notice so, it’s more about trans­paren­cy. So I’m not say­ing to men­tioned a stock and then as peo­ple start to buy, well, if I already own it, and I’ve men­tioned it, and peo­ple start to buy it that helps me, which is not the whole idea of this. And giv­ing peo­ple plen­ty of time to get their posi­tions set before I make a trade myself. But not sure what it’ll be, but it’ll be in that sort of set. And then for the dum­my port­fo­lio, too, I think we need to replace Vir­gin UK. And I think the next one for us is Mil­len­ni­um Ser­vices. I did the down­load today to work out what I was going to do. And MIL is the code.

Cameron Reily [6:07]: Sor­ry, MIL.

Tony Kynas­ton [6:10]: It’s the sec­ond item on the list after my last down­load with a QAV score of 1.32. It’s pret­ty small, though, it’s only got an aver­age dai­ly trad­ed amount of $10,000. But that’s big enough for us to put into the dum­my port­fo­lio.

Cameron Reily [6:29]: Very good. Unless VUK goes back up and we buy it the third time in this many weeks.

Tony Kynas­ton [6:37]: It’s pos­si­ble and that’s an issue I think with some of these stocks now that we’re look­ing at dou­ble bot­toms and I guess that means that the sell line is much steep­er than it has been. And so I should also say, too, that this is not just hap­pen­ing with Vir­gin UK, but it was hap­pen­ing with the oth­er bank. So, let’s have a look, West­pac bank­ing, and NAB have also crossed their sell lines today. But again, they’re all pret­ty steep; the sell lines are sort of fol­low­ing the upward trend. So, Vir­gin UK, West­pac, and NAB may all reverse and go back into buy ter­ri­to­ry soon, but they’re all skirt­ing around their sell lines and those three across so I’m tak­ing them out of the top scor­er’s list as of today.

Cameron Reily [7:34]: Well, in oth­er news, Myer has been a good one for Tay­lor and me we bought it out a few weeks ago. I think it’s at 33% or some­thing in the last few weeks. Thanks to Solomon Lew decid­ing that he want­ed to increase his stake, and I think he’s try­ing to get the board fired today.

Tony Kynas­ton [8:00]: He’s been doing that for years. Either that or he’s a clos­et QAV mem­ber.

Cameron Reily [8:05]: Yes, it could be that, sure.

Tony Kynas­ton [8:09]: [Cross-talk­ing 08:08], play­book he did with coun­try roads, springs to mind. But there are oth­er retail­ers that he’s been involved in. He’ll take a stake, crit­i­cize the board agi­tate for board seats, slow­ly increase the stake, but nev­er launch a takeover. So we’ll see what hap­pens. But it’s sort of a fuse on the buy­er, who’s buy­ing, I think high­lights to oth­er fund man­agers that there’s a lot of val­ue in Myer, which I think is, also hap­pen­ing, which is good.

Cameron Reily [8:36]: Well, I know they’ve been clos­ing stores and I read arti­cles about they’re under pres­sure from online retail­ing, which, after you left, they gave up on that. But you got to won­der why they’re not lead­ing the coun­try and online retail­ing. We had Joe on the show talk­ing about that a cou­ple of years ago, did­n’t we?

Tony Kynas­ton [8:57]: Yes. Look, it’s 15 years ago since I worked there, but the cul­ture was very much back then. And online retail­ing would only ever amount to one or two per­cent of sales. And the feel­ing was that we were bet­ter off open­ing a new store than invest­ing the mon­ey in an online plat­form. It was going to be that small, but now espe­cial­ly since COVID, I guess there are prob­a­bly around 15% of sales. So it’s a mean­ing­ful num­ber for them, and then scram­bling to catch up.

Cameron Reily [9:26]: Bit late.

Tony Kynas­ton [9:28]: And the inter­est­ing thing is Sol­ly Lew was prob­a­bly the biggest pro­po­nent on the Coles Myer board any­way, that time, of all this online stuff nev­er going to work, it’s just a load of shit. I’ve been in rag trad­er all my life this is how it works, you buy stuff, you open a store, and you sell stuff.

Cameron Reily [9:48]: You were try­ing to tell him this time, it’s dif­fer­ent and he was like, no it’s prob­a­bly isn’t.

Tony Kynas­ton [9:53]: That’s right [inaudi­ble 09:53]. The roles were reversed. And to be fair, he’s prob­a­bly embraced it now since I left, he’s prob­a­bly embraced it in his oth­er busi­ness­es like Smiggle and Peter Alexan­der does a lot of E‑trade. So, he prob­a­bly under­stands it all now. Well at least his man­agers do.

Cameron Reily [10:18]: Well, it’s had a good run the last cou­ple of weeks. So [cross-talk­ing 10:20].

Tony Kynas­ton [10:22]: Good tim­ing, that’s great.

Cameron Reily [10:24]: Well, I keep putting [cross-talk­ing 10:24] what goes up can come down, don’t get too excit­ed that it comes back down. In the next week, you nev­er know but so far, so good.

Tony Kynas­ton [10:35]: And that kind of leads me to the stock of the week, which I’m going to say is Grange Resources. Again, anoth­er tip to buy but caught my eye, it’s jumped up quite a lot in the last few days. That’s been on the buy list for it’s been in their dum­my port­fo­lio since Novem­ber last year when we put it in at 28 cents, so it’s now at 68 cents so, it’s get­ting up there it’s going to be one of our bet­ter per­for­mance, I think in over 12 months. I don’t know what’s going on with Grange there’s no news. The only thing I could dig up through inter­net search­es was that they had a mind approval. So that could be peo­ple sort of real­iz­ing that minor approval means that they’re going to expand or at least have a longer mine life with their cur­rent oper­a­tions. But it’s been increas­ing quite quick­ly.

Cameron Reily [11:26]: It’s gone up 10 and a half per­cent today.

Tony Kynas­ton [11:30]:  So, some­thing’s going on. I imag­ine they’ll have to make an announce­ment soon over that kind of increase, but as yet, don’t know what it is. 

Cameron Reily [11:38]: 165% since we bought it, that’s incred­i­ble.

Tony Kynas­ton [11:42]: No announce­ments that man­age­ment is mak­ing yet, but some­thing’s got to hap­pen.

Cameron Reily [11:48]: Good stuff. So, Grange Resources even though it’s gone up, what are you scratch­ing there?

Tony Kynas­ton [11:54]: Sor­ry, just scratch my arm. Around the area where I had my COVID shot.

Cameron Reily [12:03]: So, even though it’s gone up, 165% since we bought it in Novem­ber, it’s your stock of the week. Do you think it’s still scored as well?

Tony Kynas­ton [12:13]: Yes, it does. Let me just call that up, let me have a look. So, it is still scor­ing point two sev­en. That’s good, I did my down­load this morn­ing so, it won’t have some of that last jump in it but it did have some.

Cameron Reily [12:32]: What else you got in the news that you want to talk about, TK?

Tony Kynas­ton [12:35]: Just a cou­ple of things. What I have some­one asked a ques­tion last week about what do I do between report­ing sea­sons and I talked about what I did, but I had kind of kept track of what I did over the last week just so I could be a bit more accu­rate, just want­ed to add to that answer. So apart from read­ing the Fin review every day, I also look at Alan Kohler’s, Eure­ka Report, Week­end Update or read that. So gen­er­al­ly for me if there’s noth­ing else on it usu­al­ly isn’t Sun­day, Sun­day morn­ing, in par­tic­u­lar is a good time for me to catch up on all the emails and arti­cles I did­n’t get to dur­ing the week. So, I usu­al­ly read The Week­end Update from the Eure­ka Report on the week­end. I might skip through Stephen Mayne’s col­umn once a week. So he’s also in Eure­ka Report, he gen­er­al­ly reports on cap­i­tal rais­ings in takeovers and things like that which can be inter­est­ing for back­ground rea­sons. And it’s always good to dig into the machi­na­tions of com­pa­nies and what they do.

So that’s some­thing I glanced through, I lis­tened to Your Mon­ey Cafe prob­a­bly most weeks, it’s a pod­cast. And he goes for half an hour usu­al­ly at split recent­ly. So it used to be Alan Kohler and James Kir­by and now they split and gone their sep­a­rate ways. They both have a pod­cast called Your Mon­ey Café once a week Stock Doc­tor put out a video record­ing on a Fri­day after­noon. So I gen­er­al­ly just do a scan of the email and see if there’s a com­pa­ny in there which I own or am of inter­est in and just at least lis­ten to that part of their video so that’s occa­sion­al­ly I’ll do that. I glanced at the Stock Doc­tor dai­ly digest, again, look­ing for big move­ments in the mar­ket. That’s where my alerts will come through often­times to for Stock Doc­tor, so check those out. We glance at Livewire every day but again, hard­ly ever click on the links unless it’s some­thing inter­est­ing or that catch­es my inter­est. But that’s not a bad resource. And in my port­fo­lio, I bench­mark it against how the Wil­son Asset Man­age­ment port­fo­lios going and Stock Doc­tor port­fo­lios, or at least that what they claim they around Stock Doc­tor stocks are doing, which is what I use. So that’s prob­a­bly what I do in the reg­u­lar week.

Some­times it’s only like five min­utes here and there. And then the oth­er thing is that I keep up the dis­ci­pline of read­ing. And gen­er­al­ly, most of my books are some­times it’s a nov­el, but they’re main­ly non­fic­tion. And gen­er­al­ly, all their biogra­phies or biogra­phies around invest­ment types and I’ve read a cou­ple of good ones recent­ly, we spoke about the Zell one, I’m being too sub­tle. I read one, a very old one, actu­al­ly, from the 70s, called Zeck­endorf [recent­ly], it’s not on stock investing’s a prop­er­ty investor, but it was just a great read. And quite moti­vat­ing in terms of prob­lem-solv­ing, he spent his whole career try­ing to solve prop­er­ty prob­lems and became quite big on it and had a great life too. Often­times, buy­ing prop­er­ties would mean they take over the busi­ness that was under­neath it, just to get the deal done. And one of them was a cabaret, one of those old din­ner time sup­per clubs in New York, where he’d sort of based him­self as an office there. And all the big­wigs of New York would come by and sit at this table and get they get free drinks and all that says you made a bit of a career out of it, inter­est­ing read any­way good fun read. So I just want­ed to sort of expand­ing on what I said last time about what I do between com­pa­ny report­ing sea­sons.

Cameron Reily [12:37]: Just a lot of read­ing, keep­ing abreast.

Tony Kynas­ton [16:30]: Pret­ty much, keep­ing abreast. Does­n’t have to take too much time but you got to be dis­ci­plined about it.

Cameron Reily [16:37]: I’ve been read­ing Taran­ti­no’s new book, The Once Upon a Time in Hol­ly­wood Novel­la, as he calls it. Have you heard about this?

Tony Kynas­ton [16:47]: No.

Cameron Reily [16:48]: He’s writ­ten the book ver­sion of the movie, expand­ed on all the sto­ries and told sto­ries that weren’t in the film and as an old in the 70s in the 80s, hit films, what­ev­er book comes out after­ward, sort of the film book ver­sion of the film he’s done his own and it’s good sets the tim­ing, as you would expect. Can I talk about the sell­ing price for BCN?

Tony Kynas­ton [17:21]: Yes, sure.

Cameron Reily [17:23]: So, I bought BCN a cou­ple of weeks ago, and its share price has been com­ing back, and look­ing I was throw­ing the pric­ing into the sell price cal­cu­la­tor and I don’t think it’s work­ing for me. Either I’m doing some­thing wrong, or well, let’s just go with I’m doing some­thing about this more lik­ing sce­nar­ios always.

Tony Kynas­ton [17:47]: [Inaudi­ble 17:54], we talked about it; it was get­ting pret­ty close to its sell, was­n’t it?

Cameron Reily [17:57]: I don’t know, when were we talk­ing about that?

Tony Kynas­ton [18:00]: A cou­ple of weeks ago.

Cameron Reily [18:01]: Okay. Well, I bought it any­way.

Tony Kynas­ton [18:03]: Okay. Well, I’m get­ting a low point in Decem­ber 2016.

Cameron Reily [18:11]: Point 0027.

Tony Kynas­ton [18:13]: Yes, point 0027. Cor­rect.

Cameron Reily [18:15]: And the sec­ond one?

Tony Kynas­ton [18:17]: I think the sec­ond one is going to be April 2019 at point 018.

Cameron Reily [18:24]: I’ve got a point 0206. What have you got, point 018?

Tony Kynas­ton [18:28]: April 2019 .018.

Cameron Reily [18:33]: Okay, when I put that into the cal­cu­la­tor, sor­ry.

Tony Kynas­ton [18:37]: So, I’m going to get very close to its sell price now.

Cameron Reily [18:40]: So, I get a tar­get of about 33 cents, sor­ry, 3.3 cents, which is what I think I put in to stop doc­tor any­way; we’re just look­ing at the graph so okay.

Tony Kynas­ton [18:51]: It’s 3.4 now, so it’s pret­ty close.

Cameron Reily [18:54]: There you go.

Tony Kynas­ton [18:56]: Actu­al­ly, it’s some­thing I haven’t found before I just had been using it over the last few days if you go into those Stock Doc­tor advanced chart­ing pages. There are some tabs on the left-hand side one says fold­ers, one says events, one says draw­ing tools I’ve been click­ing on draw­ing tools and using seg­ment under­lines. If you click on that, then you’ll have to close the tab down to get back to the full graph again. And then click on the low point you can draw a line-up. Then if you extrap­o­late a lit­tle along to the right axis gives you the sell­ing price.

Cameron Reily [19:36]: Alright, does it for you.

Tony Kynas­ton [19:37]: Rather than just eye­balling it so you get a clos­er num­ber.

Cameron Reily [19:46]: Doesn’t seem to go all the way to the edge for me, it sort of drops out just to the, okay [inaudi­ble 19:50].

Tony Kynas­ton [19:51]: It goes as far as their graph does so part­way through the month. I found that use­ful recent­ly.

Cameron Reily [19:59]: Very good. Alright, so well, thanks for help­ing me clear that up. That’s good as always Cameron error. I was read­ing an arti­cle in the Fin the last week, and it was talk­ing about the invest­ment strat­e­gy known as Dogs of the Dow. I think we’ve talked about this before, I thought you’d men­tioned this before.

Tony Kynas­ton [20:26]: Pos­si­bly, would have been a while ago I can’t recall when.

Cameron Reily [20:30]: So, it’s pop­u­lar­ized by con­trar­i­an investor Michael O’Hig­gins in his 1991 book Beat­ing The Dow advo­cates buy­ing the 10 worst-per­form­ing stocks over the past 12 months from the Dow Jones Indus­tri­al Aver­age at the begin­ning of the year, and only select­ing div­i­dend-pay­ing com­pa­nies. So you’ve played with this before?

Tony Kynas­ton [20:52]: Yes, it usu­al­ly gets a good return not as high as QAV but it’s a sim­i­lar sort of process it’s a quick and dirty way of find­ing val­ue. So, he advo­cat­ed I think, he said that there is called Dog to the Dow I but I think he does say take it from like in Aus­tralia, it’d be like a top 100 or the top 200. So he’s not tak­ing a lot of small-cap stocks and he’s also say­ing you should take ones of heavy a div­i­dend yield. So in oth­er words, man­age­ment at least thinks that the com­pa­ny is going to be con­tin­u­ing because they’re pay­ing a div­i­dend and not sort of com­plete­ly strapped for cash. And so it often works you won’t get QAV num­bers, but you’ll get a vibe index, I think from over the time, it’s like prob­a­bly 12 or 13, maybe 14 15%. I’m not sure what the num­bers are would be dif­fer­ent from the Dow com­pared to the ASX pos­si­bly too.

But the idea is, it’s good to con­trary and invest­ment, you’re tak­ing a com­pa­ny, which is a big, sol­id com­pa­ny, and you’re buy­ing it when it’s cheap. And so the val­ue side of things comes from the fact that if they were the worst per­form­ers from last year, but they may not be ongo­ing, some­times they are. But if you think about Aus­tralia that will prob­a­bly be stocks like Flight Cen­ter, which had a bad year because of COVID. But if things lift next year, well which you hope they will we get inter­na­tion­al trav­el back and more cross bor­der trav­el with­in Aus­tralia, then you should see them improve. So, Flight Cen­ter quar­ters. I’m not sure what’s on the list this year for Dog to the Dow but it’ll be com­pa­nies like that. And the idea is that a good year was a bad year but if it’s some­thing exter­nal like that, hope­ful­ly, the exter­nal­i­ty clears up after 12 months. But if it’s some­thing inter­nal man­age­men­t’s going to be work­ing pret­ty hard at fix­ing it going for­ward. Myer might even be at Dog of the Dow, I’m not sure.

Cameron Reily [22:54]: In the arti­cle in the Finan­cial Review, he was say­ing A2 Milk was the biggest dog on the ASX 100 last year it fell 67.8%.

Tony Kynas­ton [23:05]: And let that be a les­son to Growth Stock Investors. A2 Milk was always on the top of every­one’s buy list and that had a high PE and was a riv­er of gold fly­ing into Chi­na and Chi­na went, no don’t want you any­more.

Cameron Reily [23:30]: A2M, I’m just look­ing at its chart, yes.

Tony Kynas­ton [23:34]: And I think from mem­o­ry, I read today’s paper that A2 Milk bought some oth­er kind of maybe a nutri­ent com­pa­ny or a nutri­tion­al com­pa­ny in New Zealand. So, they mad­ly try­ing to diver­si­fy away I guess from sell­ing milk into Chi­na. And I think they still do quite a bit of that but I think it’s not as big as it was. So, the man­age­ment or diver­si­fy and work out a way of becom­ing more prof­itable because they’re under huge amounts of pres­sure to do that. And chances are this year might be good.

Cameron Reily [24:10]: Alright. Well, let’s talk about Dun­can in the mys­tery of the reduc­ing scores.

Tony Kynas­ton [24:17]: Yes, it was a good ques­tion. Good pick-up from Dun­can.

Cameron Reily [24:20: It’s my attempt today a Sher­lock Holmes type nov­el. Mys­tery of the Reduc­ing Scores. So, Dun­can shot me an email he said, Hey, I just noticed that in Andrews’s ver­sion of the check­list if you give a stock a score for con­sis­tent­ly increas­ing equi­ty if you give it a one, it’s QAV score goes down. And if you give it a zero, it also goes down. He said, is this a bug in the check­list? And I asked Andrew and he said, Well, I think that’s the same cod­ing. I got out of Tony’s check­list and I checked with you and you said yes, no, that’s he wrote this lengthy email that even if I had­n’t been on hol­i­days and Bund­aberg or when­ev­er nev­er to under­stand it just kind of crushed my brain with all of this met­ricsand stuff. [Cross-talk­ing 25:09] you did. And then I for­ward­ed it to Andrew and he said, yes, that does­n’t make total sense. What he’s say­ing is I could­n’t under­stand his email either. I think Dun­can came back, I for­ward­ed it to Dun­can, and he said, I under­stand it but okay and I was like, glad I’m not the only one. So can you explain it in Eng­lish for us? Why giv­ing it a pos­i­tive score for con­sis­tent­ly increas­ing equi­ty would reduce its QAV score, not bump it up, Tony?

Tony Kynas­ton [25:37]: Yes. So why is it so?

Cameron Reily [25:41]: Sand in a fun­nel sup­port­ed by a string, a slight push…

Tony Kynas­ton [25:46]: So, first of all, it does­n’t, it’s not just relat­ed to increas­ing equi­ty; it’s relat­ed to any score on the check­list and a cou­ple of points. So, I think there’s some­thing like 18 items on the check­list so the numer­a­tor for the check­list is the score. So, some­times you get one, some­times you get two, some­times you get zeros, some­times you get minus ones. The denom­i­na­tor is the num­ber of items that you’ve been scored on in the check­list. So, if you have gaps for things like more than six PE’s, or if you haven’t got a PE if you don’t have an own­er, founder, all those kinds of things, and some­times you don’t get the score on that matrix. So, some com­pa­nies might have, for exam­ple, a score of four out of four. So they’ve achieved one score for four items, and they’ve only had four items that we can score them on, so they get 100%. So, if you then say, as in Dun­can’s case, let’s look at the increas­ing equi­ty, okay, they get a five, I get anoth­er one for that, they’re get­ting five out of five so it’s still 100%. So, increas­ing equi­ty does­n’t add to their QAV score, it’s 100%. If in that case, if they scored four out of four, and the next thing we scored them on was say­ing on either the record PE and I received a score of two, then they’ll go to six out of four.

Cameron Reily [27:30]: So, 120%?

Tony Kynas­ton [27:31]: Six out of five, sor­ry, yes, so what­ev­er that works out to be 115% or some­thing. If they then add, anoth­er one becomes sev­en out of six, and the per­cent­age goes down a lit­tle bit. So that’s how the QAV score can go down if they have a fun­ny one in between. If they’ve scored a two at some stage, and then we start­ed at one’s the per­cent­age goes down.

Cameron Reily [28:02]: So, it’s just math.

Tony Kynas­ton [28:03]: It’s just math. The oth­er way of doing it, which I had used orig­i­nal­ly and then reject­ed as if you just add up the score so years ago, if in the case of this com­pa­ny got a score of four, and all the pos­si­ble 17 or 18 items, then how does that com­pare with a com­pa­ny that actu­al­ly could score 17 items, but only got a score of four. And my sort of expe­ri­ence at the time said that the com­pa­ny which scored four out of four was a bet­ter com­pa­ny than one that is scored four out of eigh­teen. So, the com­pa­ny that scored four out of eigh­teen has lots of fail­ures and so then I changed it to a per­cent­age basis. And so this com­pa­ny with four out of four gets 100, the com­pa­ny or four out of 18 gets what­ev­er that is, 20%, or what­ev­er the num­ber is. And that’s how you get a bet­ter qual­i­ty score. And then I’ve got sort of bas­tardize because I start­ed get­ting some twos and some minus ones and so, you get these strange occur­rences, we can have more than 100%.

And if you add one more to the check­list that reduces the per­cent­age, so but I think the big­ger point is, so Dun­can’s cor­rect, the first thing is I think we should use the per­cent­age rather than just the sum of the scores, because that solves the prob­lem where some­one gets lots of bad scores. And then even though the per­cent­age can change by a lit­tle bit, and we’re talk­ing sort of maybe five to 10% when these things hap­pen, the score can go down, it’s still going to be unlike­ly that it will change the rank­ing on the QAV list because we’re also then divid­ing it by the price to oper­at­ing cash flow. So you’d have to find a com­pa­ny that had the same price to oper­at­ing cash flow and very sim­i­lar if not the same qual­i­ty school before that sort of lit­tle micro change in the per­cent­age for a qual­i­ty score would throw it to a dif­fer­ent rank­ing. And even then it would only be one slot on the lad­der. So, it nev­er wor­ried me that sort of anom­aly with the math was hap­pen­ing.

Cameron Reily [30:14]: Okay. Well, that’s good. We should read your email that sim­ply I would have under­stood it.

Tony Kynas­ton [30:20]: I did write it that sim­ply.

Cameron Reily [30:26]: Well, I don’t get it and I beg to dis­agree. But appar­ent­ly, Andrew under­stands.

Tony Kynas­ton [30:31]: Okay, good.

Cameron Reily [30:35]: Shout out to Lach­lan and James. Lach­lan Dixon for post­ing his charts on Face­book and James Simp­son, for jump­ing in with his thoughts and then also to Cos­min who post­ed his score­card and charts again this week good on you guys, great to see folks tak­ing the plunge and post­ing their stuff up there and get­ting bet­ter at it. And just sort of ask­ing the com­mu­ni­ty and you and I to have a look at what they’re doing ter­rif­ic stuff. So want to encour­age that as we said last time.

Tony Kynas­ton [31:13]: I do too. And I’ve done a down­load now. So I can have a look at them and com­pare them to my scores too and talk about the good dif­fer­ence. See what should hap­pen.

Cameron Reily [31:22]: Good stuff, alright. Any­thing else in the news of the week before we get into Q&A for you TK?

Tony Kynas­ton [31:28]: I think we had a stock jour­nal, which was the Image Resources was back on the top scor­ers’ list. It’s turned up, I think we took it off a week or two ago and it’s back on now. So, just [cross-talk­ing 31:42].

Cameron Reily [31:42]: Alright, back on. Okay, here are the ques­tions. The first one is from Daniel. And Daniel sent us a ques­tion last week that we may have mis­un­der­stood. So he just was send­ing us a clar­i­fi­ca­tion. He was talk­ing about com­mod­i­ty prices. And I think he was talk­ing about some of the declin­ing and you looked at them and said, no, they’re still going up. He said, “I was main­ly want­i­ng to ref­er­ence cop­per, but also gold, Index­Mun­di has a lag to its graphs, cop­per has start­ed to tail off, which has also put SFR into a slight down­turn, noth­ing too major, but it’s still track­ing the under­ly­ing com­mod­i­ty and start­ed to tail off. I know, Tony men­tioned over the short term. But how short are we talk­ing? We’d love to know some more insights.” I don’t remem­ber what the short-term com­ment was, do you?

Tony Kynas­ton [32:38]: No I’m not sure, pos­si­bly he’s talk­ing about the recent peri­od; I’m not sure what short-term refers to. So regard­ing cop­per, I’m pret­ty sure it’s in Stock Doc­tor as a graph and it’s more up to date than Index­Mun­di is so you can go into the Stock Doc­tor and have a look at it. And then chart and look, it’s get­ting clos­er to its sell line, but it’s not there yet. And it did sort of turn up this month so it could just be a slight aber­ra­tion we’ll see. In that pos­si­bly is dri­ving Sand­fire, Sand­fire is well above its sell line so, I’m not too wor­ried about that. And sim­i­lar sort of thing with gold you can also look at gold in Stock Doc­tor if you want to have a look at the gold chart.

Cameron Reily [33:26]: Hold on before you move on to gold. Can we go back to cop­per?

Tony Kynas­ton [33:32]: Yes, sure.

Cameron Reily [33:33]: So, do you have to go into advanced chart­ing, to do the [cross-talk­ing 33:39].

Tony Kynas­ton [33:39]: Yes, I’m going to the front page of the Stock Doc­tor. So just click on the top left where it says Stock Doc­tor, it’ll take you there. And then CMD for com­modi­ties over on the right-hand side where there’s a box about mar­kets in the cop­per, and then advanced chart­ing.

Cameron Reily [33:53]: Then advance chart­ing and that gives you your five-year month­ly.

Tony Kynas­ton [33:57]: Cor­rect, yes.

Cameron Reily [33:58]: I’ve got an L1 here of August 16 at 206 and then an L2 at 224 on March 20. Is that bump up against the 8% rule?

Tony Kynas­ton [34:15]: It does, I’m just check­ing it out. It’s so close it’s not fun­ny at some 8% is 2235, and that March is 224.

Cameron Reily [34:27]: So, would you use March as L1, is that what you’re doing?

Tony Kynas­ton [34:31]: Yes, I think so it’s so close and besides the August 16 is about to drop off any­way. So we’re only going to be a month ear­ly if we use the sec­ond one. But again, if I draw, I’m going to go in and use this draw­ing func­tion I’ve come across. So if I put the L1 as March 2020. The L2 is going to be May 2020.

Cameron Reily [35:02]: That’s a lit­tle late.

Tony Kynas­ton [35:04]: Yes, exact­ly. So it’s not going [cross-talk­ing 35:06].

Cameron Reily [35:06]: 364 and it’s cur­rent­ly 431.

Tony Kynas­ton [35:10]: Yes, I’m get­ting a sell-off around 370. It’s 431, as you say, yes. So we’re a long way to go for that.

Cameron Reily [35:20]: And I’m just going to look at SFR Sand­fire Resources and see where that is. Well, the sell line for that looks sim­i­lar it’s cur­rent­ly trad­ing at 689 and the sell line I think comes in around 536.

Tony Kynas­ton [35:38]: That sounds right. So, it’s ways above it.

Cameron Reily [35:42]: Ways to go to. Well, it sort of did come back and it’s bumped back up by the looks of it this month.

Tony Kynas­ton [35:50]: It almost looks like the cop­per graph, does­n’t it?

Cameron Reily [35:52]: Pret­ty much, yes. Okay.

Tony Kynas­ton [35:57]: So, Daniels, right to track these things. But I think we’re still com­fort­ably above the sell lines for cop­per. I think the sign was for gold, too, if we just have a quick look at that. Again, I’ll use Stock Doc­tor so we have more up-to-date data. And just have a look at the bot­tom on gold so Decem­ber 2016 is the low point at 1172.9. I’ll see if it has a flat bot­tom. I get the next point is below 1266 we’ll swap it.

Cameron Reily [36:30]: It’s 119 1 I think.

Tony Kynas­ton [36:32]: Yes. The next one to the right of that’s 1214. So I’m going to use Novem­ber 2018 as the low point here as our one.

Cameron Reily [36:41]: Which one, Novem­ber?

Tony Kynas­ton [36:44]: Yes, 18.

Cameron Reily [36:46]: Right. Yes.

Tony Kynas­ton [36:48]: So, let me just draw a line from there.

Cameron Reily [36:51]: It comes in around about 1606 1608 1610, some­thing like that.

Tony Kynas­ton [36:58]: Yes, I’m get­ting 1608 as well. So again, 200 points above where the cur­rent price is at 1801. So a [bit things] to come back to that. Gold has been in a side­ways pat­tern for the last prob­a­bly almost 12 months now. So but again, it’ll just take a COVID out­break or some­thing’s fun­ny going on in the world or inter­est rates to rise and I think gold will come back but here it’s above its sell line. So Daniel, good to watch those, and a Stock Doc­tor has both of those anoth­er site I found recent­ly called YCharts as up-to-date data for com­modi­ties as well if Index­Mundi’s lag­ging a bit. Index­Mun­di the strain some­times it’s up to date, and some­times it lags a bit, so I’m not sure what’s going on there. But ycharts.com you might want to have a look at too.

Cameron Reily [37:55]: Okay, thanks, Daniel. James. Hi, I came you get Tony’s thoughts on the ral­ly and coal prices stick­ing with com­modi­ties. Coal com­pa­nies seem to be stuck in the dol­drums I know it’s get­ting hard­er for in-store investors to buy them due to ESG pres­sures. By the way, speak­ing of ESG pres­sures, my mom who I was just with got her endeav­or group share cer­tifi­cate. She worked for Wool­worths for 25 years, and she has an employ­ee share still so that thing that we were talk­ing about a few weeks ago the demerg­er has gone through.

Tony Kynas­ton [38:37]: Okay. Good to know. But you going to hold on to them or sell them or what?

Cameron Reily [38:46]: I think she’s going to hold on to them.

Tony Kynas­ton [38:48]: Okay, well good for her.

Cameron Reily [38:49]: So, I can’t see coal com­modi­ties in Stock Doc­tor.

Tony Kynas­ton [38:56]: That’s right. And I think I had looked at it too recent­ly, and in Index­Mun­di, it’s the one may graph so it’s not the most recent. So I went into this one called YCharts and if you go into ycharts.com, it’ll ask you to sign up but I just gog­gled Aus­tralian coal price chart, and there was a link to go straight to the charts, it’s like a bypass list, the signup process for YCharts, you not lis­ten­ing. And I get the June 21 graph and so James is right, the chair price has been rock­et­ing up in the last month or so. It’s been a three-point buy though, for a long time, I think we talked about coal maybe 18 months ago. Not at least back in 2020 any­way when it became a three-point buy and what’s hap­pened since then, even though the com­mod­i­ty price was going up the coal mines in Aus­tralia have been going down until recent­ly this last leg up in Coal prices keep them up as well. So, I went back and had a look at the coal min­ers so they’re on the QAV list and there are three there’s new hope, White­haven coal, and Yan­coal. I’ll talk about Yan­coal first, it has a very tiny free float because it’s owned by I think one or two large Chi­nese coal com­pa­nies.

And so that one would be too small for me to buy and pos­si­bly too small for oth­er peo­ple to buy so it’s prob­a­bly the eas­i­est one to deal with. And because of that free flow, I think Yan­coal has for a long time been in a sort of falling knife sit­u­a­tion. So the code is YAL and just going into Stock Doc­tor for it, the aver­age dai­ly trade is $65,000, not too bad, but giv­en the size of the mar­ket cap on the com­pa­ny, which is the mar­ket cap for Yan­coal is 2.6 bil­lion and only 65,000 is trad­ed per day. If I look at the chart, it’s kind of caught betwixt and between here it’s I think it’s above it sell line one of these which have been very high on the left-hand side and they’re almost flatlin­ing on the right-hand side so I would say it’s above it’s sell­ing. It’s kind of ques­tion­able whether it’s above its buy it’s almost get­ting almost too gran­u­lar to decide. So, I think it’s a maybe I haven’t put it through the three-point train cal­cu­la­tor to work it out. But to me this is kind of still I’d want to see a bit of an uptrend in this stock before I’d be con­fi­dent to say it’s inci­dents buy space rather than its sell space because it kind of just keeps going back and for­wards along that hor­i­zon­tal line around the cur­rent price.

So, that’s Yan­coal so that’s prob­a­bly my third one on the list that I’ll be con­sid­er­ing but White­haven Coal is now in an uptrend, but it only has a QAV score of point 02. So, I would­n’t be con­sid­er­ing it, New Hope Coal is the one I poten­tial­ly would want to con­sid­er. But its QAV score still only .07, so if we have a look at its graph, it’s pret­ty good now it’s turned up. I think we owned New Hope Coal at some stage in the dum­my port­fo­lio as well. If I have a look at this chart, it had also been a falling knife all these coal com­pa­nies have been falling knife for a long time. And the main rea­son for that not just because of ESG con­cerns but also to Chi­na had put the screws on import­ing Aus­tralian coal. I don’t think they’ve ever come out and said they won’t do it but they play [unclear 42:54] and make­up rea­sons why the coal ship­ments can’t dock and all this kind of stuff and that they need to be run through some exten­sive test­ing to make sure the qual­i­ty of the call is accu­rate.

All this kind of stuff, which has been a bit of a damp­en­er on sales to Chi­na but in the mean­time, the coal com­pa­nies have found oth­er cus­tomers so they start­ing to ben­e­fit from the increase in price and work their way around the Chi­nese block­age. So, New Hope is def­i­nite­ly in a biased sit­u­a­tion but the high­est score is point 07, but it is the high­est-scor­ing coal com­pa­ny on our check­list. So, if peo­ple are keen on play­ing the com­mod­i­ty theme and want to buy a coal min­er again, not a rec­om­men­da­tion here but this is some­thing peo­ple might want to con­sid­er. They could look at New Hope and I could relax their scor­ing so they buy­ing some­thing at point 07, but that’s prob­a­bly all I’ll say about it. It’s up to peo­ple to do their research on this one.

Cameron Reily [43:59]: It’s cur­rent­ly trad­ing at $1.84 we did sell it in May of last year at $1.39 we bought it in April and sol­id Three weeks lat­er for $1.39.

Tony Kynas­ton [44:12]: So, I pos­si­bly should­n’t hang on to it.

Cameron Reily [44:14]: Rules are rules.

Tony Kynas­ton [44:15]: Any­way, rules are rules. Exact­ly, you’re pro­tect­ing your down­side.

Cameron Reily [44:22]: Thanks, James. Here’s one from Glen. What are Tony’s thoughts on SUL Super Retail’s Chart it’s a hard one to judge because it’s climb­ing so quick after the COVID cough and the 3PTL is chas­ing and just as quick will Tony right this a 3PTL  buy as the high­est point is the cur­rent share price if it is a buy the QAV score is about 0.27 which makes my top 20 list? Did you talk about this one recent­ly? I seem to feel like we’ve talked about this recent­ly?

Tony Kynas­ton [44:55]: No, I don’t think so Super Retail Groups one I’ve been watch­ing myself, Glen, because I’d like to buy some, it’s the right sort of aver­age dai­ly trad­ed amount for me. But I’ve had the same prob­lem you’re hav­ing I can’t make the buy line stack up. And I don’t know if it’s a bit of a lag since we got this ques­tion. But the right­most point is no longer the high­est; it’s dropped off from there. So it’s start­ing to fall back on itself and this is kind of a bit of a com­mon pat­tern we’re see­ing with the banks, and with some of the oth­er retail­ers I was talk­ing about before, like Adairs and JB Hi-Fi, they’ve all shot out of the gates because of the return from COVID and gov­ern­ment stim­u­lus.

And now that is sort of played out, I guess there’s a theme, and apart from shut­downs that are hap­pen­ing in Syd­ney, at the moment, life’s get­ting back to nor­mal, it’s start­ing to slow down, it’s still going up. I mean, so if you take the sort of broad-brush view that this is a trend, which is going from bot­tom left to top right, it’s a good trend. But you can see that sort of every leg down is the slope of the graph is get­ting less and less. So, I looked at it quite a few months ago, and I think it’s prob­a­bly since it’s by prices added about 30%. So that’s 30%, I missed out on myself. So I under­stand where you’re com­ing from Glen, but I’m still a lit­tle bit con­cerned about the shape of this graph and I think it is in sell ter­ri­to­ry at the moment. And I want to see it climb above its cur­rent sell line before I’d be inter­est­ed in buy­ing it.

Cameron Reily [46:32]: Can you walk me through how you draw this sell line, it’s start­ing at the COVID cough, and then through Feb­ru­ary 21?

Tony Kynas­ton [46:42]: It’s almost like a falling knife in reverse. So, that sort of the first trough was back in June 2020 and then there’s anoth­er trough in Novem­ber 2020 then anoth­er trough in Feb­ru­ary 2021, which is prob­a­bly about where it sits, April 2021, would be where I’d be tak­ing the sec­ond point four. So, you’ve had all these buy and sells on the way up all those troughs, give it anoth­er sell line or the REL two. So the cur­rent sell price crossed that sell line in June 2021. The sale price is going to be up around $13, I think at the moment. So, the share price is 1249.

Cameron Reily [47:31]: That was its peak; it was its five-year share price high point.

Tony Kynas­ton [47:36]: Yes, I know. I could be wrong, this could be a bit of a short­com­ing in the way we draw these graphs but it’s kind of makes sense to me. Okay, we’ve missed out on the 30% gain from when the buy price hap­pened. But these retail­ers aren’t going to go up for­ev­er. And as gov­ern­ment stim­u­lus gets, well, I’m back and as inter­est rates start to rise, they’ll be hit hard. So we might be see­ing a bit of fore­cast­ing for that in the cur­rent share price and it’s slipped back below its sell line. As I said, the increase in the graph is get­ting shal­low­er and shal­low­er as we go. So, I’m per­son­al­ly not a buy­er at this price. And I want to see it have anoth­er leg up above 1250. Before I sor­ry, what do we say that price is prob­a­bly going to be? $13 before I con­sid­er it.

Cameron Reily [48:32]: That’s an inter­est­ing one. I would have looked at that said since the COVID crash it’s had a pret­ty good run, but you’re skep­ti­cal.

Tony Kynas­ton [48:41]: No, it’s had a great run. I have no argu­ment with you on that. But every time I’ve gone to look to buy it, it’s kind of made a new low point, a new L2 on the sell line, and become a sell­er. Again, it’s cer­tain­ly had three of those since the buy and it’s cer­tain­ly gone up since then. So I’ve been wrong every time but this is about risk mit­i­ga­tion, one of those turned out just going to keep going is I guess my point and it could be the cur­rent one. But I can’t pre­dict, I just fol­low the sys­tem.

Cameron Reily [49:21]: I saw a quote in some invest­ing arti­cle I was read­ing ear­li­er today that I added to the Bible in the max­im sec­tion. I think it’s from Niels Bohr, the physi­cist it was “Pre­dict­ing is hard, espe­cial­ly when it comes to the future.”

Tony Kynas­ton [49:41]: And I saw some aca­d­e­m­ic research recent­ly too, which just put paid I think it was based on eco­nom­ics in gen­er­al, but just skew­ered any sort of pre­dic­tions at all from econ­o­mists it worse than a coin toss.

Cameron Reily [49:57]: I remem­ber ear­ly on I was just think­ing about the last day or so I remem­ber ear­ly on to the pod­cast. We were talk­ing about the econ­o­my, I think like mid-2019. And we were talk­ing about the signs of being a bub­ble and that kind of stuff and one of our ear­ly lis­ten­ers send me an email said, quite hon­est­ly, I don’t care about Tony’s thoughts on the econ­o­my. If I want to know about the econ­o­my, I’ll ask an econ­o­mist. And I remem­ber us reply­ing to him at the time. Well, fair enough but I’d rather talk to some­body who’s a suc­cess­ful investor than an econ­o­mist whose get­ting paid a wage.

Tony Kynas­ton [50:34]: It was a fair com­ment. I think back then we were sort of find­ing our feet and what their con­tent was and stuff. And I was also talk­ing about, I think, from mem­o­ry, it was the yield curve and ver­sion. Yes. We spin a show about that and the com­ment was yes, they have eco­nom­ics guys which are fair enough but my point is that it’s try­ing to pre­dict where this guy is going to be fool­ish.

Cameron Reily [50:58]: Alright. Here’s one from Elmar. G’day, Elmar. He says IMA came up trumps when I was look­ing at anoth­er stock to my list, Tony agrees. Unfor­tu­nate­ly, since then, it has not moved much at all try­ing to fig­ure out what is going on and not find­ing any­thing sub­stan­tial I found a func­tion on Self Wealth. That seems to show the spread of buy-sell offers out in the mar­ket and he attached a lit­tle pic­ture here. Does­n’t make much sense to me, unless there’s some strat­e­gy employed either push down the buy price, and on the oppo­site side, push­es it up on the sell-side. I think what he’s talk­ing about here is there’s a big spread here of buy­ers and sell­ers around about the same price. How do you read this mar­ket depth chart Tony, how do you make sense of this?

Tony Kynas­ton [51:51]: So, the first point to make is, like I said before, Image Resources came back onto the buy list any­way so it’s above its sell line again so that hap­pened in the last week or so. So that’s the first point for Elmar to take note of. I don’t use these mar­ket depths, because Bal­lieus do my stock trades for me, they will use them. Excuse me, but just to what we’re talk­ing about here is a screen­shot of the mar­ket for this par­tic­u­lar stock. And the screen­shot lists that there are buy­ers who are pre­pared to sell IMA for 17 cents, buy­ers in return they’re offer­ing 16 and a half cents for it, it lists how many shares are for sale and those prices and how many shares are want­i­ng to be bought at those prices. And it goes all the way down from that spread, which is half a cent between the sell­er and the buy­er, all the way down to peo­ple who want­ed to buy it at 10 cents. And they’ve got no hope, by the way, or 8 cents, which I imag­ine pret­ty old orders because it would be unusu­al for it to cross at that kind of price.

So, I guess Elmar’s ques­tion is ask­ing, is this telling you any­thing about the price move­ment in image resources? I don’t think it is real­ly, it’s pret­ty nor­mal to see this kind of spread in a mar­ket depth sort of snap­shot like this. I guess the cou­ple of things which I nor­mal­ly just glean from look­ing at these; gen­er­al­ly, the price will fol­low the weak­er of the sides. So, what I mean by that is the top line on this mar­ket depth graph reads that there are buy­ers who are pre­pared to buy 364,000 shares at 16 and a half cents and there are sell­ers who are pre­pared to sell 222,000 shares at 17 cents. So, what that says is that there are more buy­ers and sell­ers and the price is half a cent apart. So, what I would expect to hap­pen in a sit­u­a­tion is that there are peo­ple in there with more shares to buy than there are sell­ers. And the price is only half a cent dif­fer­ence, I would expect them to break ranks and accept the sell­ing price at 17 cents.

That’s gen­er­al­ly how it works so when you’re see­ing one side of the equa­tion that has more vol­ume behind it than the oth­er one, gen­er­al­ly, that vol­ume will swamp the oth­er side. And that by price will be met best that’s kind of gen­er­al­ly how these mar­kets work. If you think about it as an auc­tion and peo­ple will prob­a­bly be famil­iar with house auc­tions. We’ve got some­one stand­ing here will­ing to sell the house for 17 cents, and lots of buy­ers on the oth­er side going to buy it for 16 and a half cents that’s where the last bit is. Even­tu­al­ly, some­one’s going to want to not miss out and put their hand up and take the 17 cents.

Cameron Reily [54:56]: I’ve got 16 and half cents 16 and half cents over here. 17 cents, thank you Mr. Kynas­ton 17 cents over there in the red hair.

Tony Kynas­ton [55:07]: So, that’s about all I’m say­ing in this mar­ket depth it looks pret­ty com­mon for me. As I said, I think this would mean that the price would go to 17 cents I’m not sure what the price is today on, I need to have a quick look. 18 so there you go. So, there’s a vol­ume on the buy side, which is dri­ving the price up is I guess what I’m try­ing to say.

Cameron Reily [55:29]: 18 and a half actu­al­ly, I closed that today. I sold it at 16 cents a month ago I’m furi­ous. But then I bought Myer [inaudi­ble 55:37].

Tony Kynas­ton [55:42]: That’s not a bad rule for the stock mar­ket is don’t go and look back when you’ve sold some­thing[cross-talk­ing 55:45] inevitably you’ll be up. You just go around in cir­cles hid­ing. So, Elma image resources are back in the top scor­ers’ list any­way, so I would­n’t be wor­ried about the mar­ket it’s pret­ty nat­ur­al what you showed us with the mar­ket depth screen­shot.

Cameron Reily [56:07]: Okay. Thanks, Elmar. Cou­ple more ques­tions, we might be able to knock these off. Geoff, ques­tion from my AFR break­fast read­ing this morn­ing. What is the val­ue slash pur­pose of doing this? Mag­el­lan announced its inten­tion to tran­si­tion its high con­vic­tion trust list­ed invest­ment com­pa­ny into an active exchange-trad­ed fund fol­lows a sim­i­lar move ear­li­er this month by Monash Investors which ditched its LIC struc­ture to rein­vent itself as an exchange-trad­ed man­aged fund. I’ve heard a num­ber of these sto­ries recent­ly. Do you know what’s going on here?

Tony Kynas­ton [56:50]: Yes, look, I don’t know these two in par­tic­u­lar but gen­er­al­ly, I think what’s hap­pen­ing here is that they’re prob­a­bly try­ing to elim­i­nate the share price dis­count to the net tan­gi­ble assets val­ue of the List­ed Invest­ment Com­pa­ny. So, just quick­ly, a list­ed invest­ment com­pa­ny has the price you’re pre­pared to pay for the shares, and that’s dis­con­nect­ed from the under­ly­ing assets, but you can work out what the under­ly­ing assets are worth par­tic­u­lar­ly if they are shares because you can get their cur­rent prices and add them all up and you’ll get a net tan­gi­ble assets for the fund. And some­times list­ed invest­ment com­pa­nies, their share price will lag the NTA for what­ev­er rea­son, a whole heap of rea­sons as to why that might hap­pen. And the man­age­ment of the list­ed invest­ment com­pa­ny will try hard to get that dis­count trad­ed away. One way to do it in an instant is to become an ETF because you no longer a LIC, the share price always equal the NTA of the under­ly­ing assets. I’m not sure in this case, whether the share price went up or it went down when it trans­ferred from being a LIC to the ETF. But cer­tain­ly, there’s no more dis­count between the price and the NTA. So that’s prob­a­bly the main rea­son I think peo­ple are mov­ing out of the LIC space into the ETF space.

Cameron Reily [58:07]: Can you explain to me again, why mov­ing it to an ETF means that there’s one-to-one between the price and the under­ly­ing assets?

Tony Kynas­ton [58:18]: Yes, so the ETF has what’s called a mar­ket mak­er sit­ting in behind the screen, if you like, behind the scenes with the ETF.

Cameron Reily [58:30]: Like a lit­tle lep­rechaun guy sits on your shoul­der?

Tony Kynas­ton [58:33]: It is like the Wiz­ard of Oz behind the screen and their whole role in life is to buy and sell shares. So that dis­counts trad­ed away, or what­ev­er just trad­ed away. So they’re furi­ous­ly match­ing the share price with the under­ly­ing assets. And so the ETF works dif­fer­ent­ly from a LIC as well, I should say. So if you sell your shares, the mar­ket mak­er behind the scenes has to sell the under­ly­ing equiv­a­lent amount of shares to pay you out. And like­wise, if you buy shares, the mar­ket mak­er has to buy some more shares to allow you to buy-in. And so that’s basi­cal­ly what they’re doing that that sort of match­mak­ing goes on behind the scenes. And the fund always equals the share price if you add up all the under­ly­ing assets.

Cameron Reily [58:40]: So, with Berk­shire Hath­away is a list­ed invest­ment com­pa­ny?

Tony Kynas­ton [59:28]: Yes, it would be it’s a con­glom­er­ate. So, this is a good exam­ple of what we talked about when we talk about the book val­ue. So, it’s not strict­ly called a LIC but it acts like one because it holds a port­fo­lio of shares that they’ve invest­ed in. But it also com­bines it with oper­at­ing com­pa­nies. But you can get val­ues for those oper­at­ing com­pa­nies if you can work out what they’re worth or what their book val­ue is worth. And then work out a val­ue for Berk­shire Hath­away. And that’s the trick and that’s some­thing that War­ren Buf­fet­t’s always point­ed out that the com­pa­nies that they buy whole as bowlers, like, Burling­ton steel or Berk­shire Hath­away real estate are worth more than they both val­ue. Because they’re, they’re prof­itable com­pa­nies that are grow­ing. So, the ques­tion for valu­ing Berk­shire Hath­away is how much is that pre­mi­um to the book val­ue worth for their oper­at­ing com­pa­nies?

Cameron Reily [1:00:28]: So when the Berk­shire Hath­away shares, accord­ing to War­ren, going for less than the under­ly­ing val­ue of the assets in the com­pa­ny, he does a share buy­back, right?

Tony Kynas­ton [1:00:44]: Cor­rect. The under­ly­ing assets plus 30%, is his trig­ger.

Cameron Reily [1:00:50]: So, why don’t list­ed invest­ment com­pa­nies here just do the same thing, if they think the share prices and reflect­ing the true val­ue of their hold­ings just do share buy­backs?

Tony Kynas­ton [1:01:01]: It’s cer­tain­ly one of the things which are avail­able to them. But if you’re list­ed as an invest­ment com­pa­ny and you’re buy­ing back shares, and then can­cel­ing those shares, you have few­er share­hold­ers. It should work out to be the same in terms of your fees because you’re get­ting paid a fee for the funds on the man­age­ment and the growth. Poten­tial­ly, that is a solu­tion, I would think I would hes­i­tate to do it because it means like share­hold­ers on their share­hold­er base.

Cameron Reily [1:01:32]: I like the fact that Mag­el­lan-list­ed Invest­ment Com­pa­ny was called its high con­vic­tion trust. And they’ve gone, you know what, when we said high con­vic­tion, we’ve rethought that we’re not that con­vinced any­more that this is a good idea. We’re going to turn it into some­thing else because we might have been; maybe our mar­ket­ing guys should have come up with a kind of aver­age con­vic­tion trust, rea­son­able con­vic­tion trust.

Tony Kynas­ton [1:02:02]: Well, a high con­vic­tion does­n’t refer to the busi­ness that they’re doing. It refers to the shares. I know you knew that but any­way.

Cameron Reily [1:02:09]: Come on, Tony it’s a gag it’s late in the day. Okay, and so an active exchange-trad­ed fund is what it says it’s active. So, they buy­ing or sell­ing to make sure that there is one cor­re­la­tion between the share price and the val­ue of the under­ly­ing shares assets. Thanks. Good ques­tion, Geoff. Dar­ryl, how do we apply a 3PTL  to a chart giv­en the effect of con­sol­i­da­tion like for COG? Some­one was talk­ing about COG on Face­book, their share price just rock­et­ed up, I think Dar­ryl, and some­body else was talk­ing about this just recent­ly COG Finan­cial Ser­vices.

Tony Kynas­ton [1:02:58]: Yes, it went through a 10 for one con­sol­i­da­tion, and for, I think the share graph is now reflect­ed that so I’ll just con­firm that in Stock Doc­tor. So, it’s back to nor­mal now. So prob­a­bly on the day that the share price con­sol­i­dates or maybe for a day or two after­ward, you had this huge ver­ti­cal line because the shares went from being worth 12 cents to be worth $1.20. Because of the con­sol­i­da­tion, noth­ing else hap­pened in the com­pa­ny, they just did a 10 for one swap of their shares. But now the data providers, the Reuters, and the stock doc aren’t like Reuters pro­vides the Stock Doc­tor with their data. They’ve gone back his­tor­i­cal­ly and account­ed for that in the past. So, the share price graph looks like it did before the con­sol­i­da­tion in terms of its shape.

Cameron Reily [1:03:07]: So, noth­ing changes in terms of doing a 3PTL , it’s just lag, data lag.

Tony Kynas­ton [1:03:59]: You can’t do it on the day that the con­sol­i­da­tion hap­pens maybe a day or two after­ward. It looks strange, but then the data providers work it out and refill it.

Cameron Reily [1:04:07]: Okay. Thanks, Dar­ryl. The good ques­tion nonethe­less. Alright, last ques­tion of the day. And we’ve got to the end of our list. So final­ly, after weeks of dig­ging through this, bet­ter send us some ques­tions for next week, peo­ple we’ll just take the week off. Dun­can. Hi, Cameron, I note that sev­er­al finan­cial stocks seem to have crossed their sell lines CBA, VUK, NOB, WC, and MQG, which we’ve talked about ear­li­er, in this episode. I know that this is the oppo­site of what has been gen­er­al­ly fore­cast. I tried not to use the F word. I won­der if Tony is plan­ning to wait and see or to sell now. Well, I think we’ve answered their ques­tion. We’re sell­ing VUK.

Tony Kynas­ton [1:04:49]: Cor­rect. And we took most of the oth­er ones off the list as well.

Cameron Reily [1:04:54]: Yes. Okay, good one, Dun­can. Thank you, Tony. Well, I was going to say what’s on for the rest of the week but star­ing out the win­dow at that ter­ri­ble view of Syd­ney Har­bour that you have there.

Tony Kynas­ton [1:05:08]: Yes, exact­ly I’m not going any­way.

Cameron Reily [1:05:11]: Alright. You watched any­thing good recent­ly you want to rec­om­mend?

Tony Kynas­ton [1:05:17]: We’re still watch­ing Call My Agent. We watch three episodes last night, which is great. The French fast com­e­dy and I rec­om­mend that Zeck­endorf book it’s a lot of fun. It’s about prop­er­ty invest­ing. There’s a lit­tle bit about share invest­ing, but a lot of fun and quite moti­vat­ing in terms of, doing analy­sis and prob­lem solv­ing and work­ing through prob­lems it’s good.

Cameron Reily [1:05:38]: Is that one named Zeck­endorf?

Tony Kynas­ton [1:05:41]: That was his name. Yes. So, it’s out of print but I’ve got a book­topia, I think, from mem­o­ry goes back, I think it was writ­ten in the 70s. So, he went bust in the 70s. And then the end of the book, he was sort of restart­ing with his son to get back into the prop­er­ty game, but it’s a great re great bit of his­to­ry about the growth of the big cities in the US and Cana­da and South Amer­i­ca, too. He did a lot of work in those coun­tries as well. But just one of those peo­ple will have just a nat­ur­al joy of even. Work their way up from noth­ing. Great sto­ry.

Cameron Reily [1:06:19]: Z E C K E N D O R F. If any­one’s won­der­ing how to spell it, he died in 1976 worked with archi­tects I. M. Pei and Le Cor­busier.

Tony Kynas­ton [1:06:40]: I think he found I. M. Pei when he was fresh out of archi­tec­tur­al school. And used to call Le Cor­busier and they pay each oth­er com­pli­ments from time to time, which was inter­est­ing as well. And Pei needs a lot of, con­struc­tion tech­niques and archi­tec­tur­al tech­niques was a big one for build­ing an office block with a big plaza around it so that peo­ple have room to move and con­gre­gate and get out in the fresh air as well which was­n’t the done thing back then. So, he was respon­si­ble for bring­ing the UN build­ing to New York. His game plan was to go on mass lots of real estate in big hold­ing cycles from acreages of real estate in New York, where we start­ed. And where the UN build­ing was an old slum and some wars and then when the UN build­ing was cast­ing around for some way to put it, and it sound­ed like he was going to Philadel­phia, he offered up his land, hold­ing it at a slight prof­it to him, but mul­ti­ples less of what it was worth in the future. And got the UN build­ing plump in New York [Cross-talk­ing 1:08:01] Wheel­er Deal­er, the sto­ries are just amaz­ing.

Cameron Reily [1:08:05]: Well, apart from the Taran­ti­no book, I’ve been read­ing a great book called Why Chi­na Leads the World by a guy called God­free Roberts. God­free Roberts, the first book to explain Chi­na’s suc­cess tal­ent­ed the top data in the mid­dle democ­ra­cy at the bot­tom. A very fas­ci­nat­ing book, most of the books I read on Chi­na are writ­ten by West­ern­ers. And they’re very crit­i­cal, obvi­ous­ly, of Chi­na and excuse a lot of stuff away. But this guy is prob­a­bly the oppo­site he’s an Amer­i­can aca­d­e­m­ic, but he’s prob­a­bly on the oth­er side. He’s very pro-Chi­na and it’s a lit­tle bit unbal­anced but on the oth­er side, but it’s good to bal­ance up my unbal­anced read­ing with a bit on the [inaudi­ble 1:08:52].But it’s a fas­ci­nat­ing look at, all the stuff that Chi­na does well like, moves very quick­ly on stuff and he’s talk­ing ear­ly on in the book, he said, well, for­get the sta­tis­tics, but it’s like, just say 1% of our pop­u­la­tion is a gene have a genius-lev­el IQ. That means Chi­na has, like 350 times as many genius IQs as this coun­try like the Unit­ed States, what­ev­er it is the pop­u­la­tion going to be much big­ger, and it’s like four or five times big­ger, right?

Tony Kynas­ton [1:09:29]: And as they become more mid­dle class, with their econ­o­my, if those genius­es will get a chance as well, which is inter­est­ing.

Cameron Reily [1:09:36]: And accord­ing to this book, that’s all part of the strat­e­gy for the last 50 years has been to find all the smart, hard­work­ing, inno­v­a­tive peo­ple they can and give them sort of more pow­ers since the dan­ger of being in the late 70s. Real­ize that to hear have social­ism we need to catch up to the rest of the world first, then we can wor­ry about social­ism but we can’t do it when we’re all starv­ing. So we need to inte­grate parts of the mar­ket econ­o­my and we need to man­age it care­ful­ly. But we need to build quick­ly and what­ev­er you think of Chi­na, they’ve cer­tain­ly done that pulled 850 mil­lion peo­ple out of pover­ty in the last 40 years. You know Char­lie Munger is a big fan since Char­lie talk­ing about Chi­na or a lot in the last year or so.

Tony Kynas­ton [1:10:30]: I think that’s right. And we’ve often said before this pod­cast that the best sort of form of gov­ern­ment as a benev­o­lent dic­ta­tor, and I think Chi­na prob­a­bly comes close to falling into that cat­e­go­ry, in terms of hav­ing that sort of one vision and one per­son and just dri­ving change, which is often need­ed.

Cameron Reily [1:10:49]: Well, I’m sure you’ll get a lot of hate mail for that com­ment. But I don’t think he is a dic­ta­tor as well I think that’s a bit of a [cross-talk­ing 1:10:56].

Tony Kynas­ton [1:10:57]: I did­n’t mean to mean, he was a dic­ta­tor, but that sort of idea of the auto­crat, it’s benev­o­lent and runs things to suit the coun­try with­out all the bag­gage that you have to go through with West­ern democ­ra­cy is not a bad mod­el.

Cameron Reily [1:11:10]: Well, in Marx­ist terms, that would be the van­guard of the pro­le­tari­at, you have a small group of smart peo­ple at the top who run things and they just decide what goes on you’d have to wor­ry about the messi­ness of a west­ern-style mar­ket or a west­ern-style democ­ra­cy. Any­way enough that, a good book I’m what inter­est­ing book is, leave it at that and some find­ing it inter­est­ing. Alright well, have a good week Tony, have a good week lis­ten­ing. Keep the ques­tions com­ing either ques­tions for the pod­cast or as I keep telling peo­ple, new club mem­bers. There’s a lot to get your head around, have no qualms what­so­ev­er, mass shoot­ing me emails, and that’s what I’m here for. I will do my best to help you get your head around it. And if I can’t answer your ques­tion, I’ll flick it past Tony, but keep them com­ing. And keep post­ing your charts and your score­cards up to the Face­book group that’s great and we’ll be back next week.

Tony Kynas­ton [1:12:09]: Well, thanks Cam doing a good job answer­ing all those ques­tions as usu­al. You doing a good job get­ting this club togeth­er and the pod­cast being pro­duced it’s fan­tas­tic. It’s moved on has­n’t it the last sort of 12 months it’s now quite a good com­mu­ni­ty?

Cameron Reily [1:12:27]: A lot of real­ly smart peo­ple. You stay safe; don’t leave your room for any­thing.

Tony Kynas­ton [1:12:35]: Yes, I’ll try. As I said before, I was being twice very close to COVID now and I’m not pre­pared to risk it again.

Cameron Reily [1:12:43]: Yes, good strat­e­gy. Par­tic­u­lar­ly, see­ing how sick you were when you got the vac­cine. You first show the vac­cine.

Tony Kynas­ton [1:12:49]: I know

Cameron Reily [1:12:52]: Alright, takes care mate.

Tony Kynas­ton [1:12:53]: Okay. Cheers.