Transcript — QAV Checklist Workshop 2021-06-18

QAV Check­list Work­shop 2021-06-18

Cameron  00:00

Well, with that, let’s kick this thing off. I guess it’s just after sev­en. Wel­come every­body to what Tay­lor sug­gest­ed to me tonight on our evening walk, we should call QAV after dark. Put a lit­tle bit of mood music on and turn the lights down and get into it. This is the– For those of you that are watch­ing a record­ed ver­sion of this, this is the QAV work­shop. We’re record­ing this on the 17th of June 2021 and this was a sug­ges­tion from Ed, who’s on the call a few weeks ago. He said, it’d be real­ly good as a work­shop and I post­ed on Face­book and every­one seemed to think it was a good idea. What we’re going to do is, I guess run through the basics of QAV. We’ve done videos on a lot of this stuff before but it’s a lit­tle bit all over the place and some of it’s a bit old and think­ing’s changed on some things or Tony’s think­ing. I say you, I mean Tony. Our think­ing because I just agree with what­ev­er Tony tells me.

The basic for­mat is we’re going to go through the check­list– Go through the columns and the check­list, explain what they are, where they come from, why they’re there, why they’re impor­tant and then do a Stock Doc­tor [Sysco 00:01:26] down­load, show you how that works, drop it into the check­list, do the man­u­al data, get a few scores, do a few charts and I think that’s pret­ty much it. Come up with a buy list maybe, talk a lit­tle bit about how– If you’re brand new buy­ing stocks, where to go, how to buy that kind of stuff, how to set up an account, what to look for.

Obvi­ous­ly, usu­al dis­claimer, none of this should be tak­en as finan­cial advice. Nei­ther Tony or I are finan­cial advi­sors. This is just an edu­ca­tion­al ses­sion about how Tony does a– Comes up with a buy list, does the check­list, does a buy list. You’ll do your own. Make your own deci­sions about what you’re going to buy and when and how and sell. But I guess the dif­fer­ence between this and lis­ten­ing to the pod­cast is feel free if you’re watch­ing this live to raise your hand at any point if you don’t under­stand some­thing and ask ques­tions. Tony’s here to do– To answer your ques­tions and explain stuff if it’s not clear.

With that, I will throw over to TK.

Tony  02:14

Thanks Cam. Where do you want to start? With the check­list and what the columns mean or just start straight into a down­load?

Cameron  02:44

No, I think prob­a­bly the columns and go through them one at a time and for the record, we’ll be using Tony’s what we call the mas­ter check­list. Toady’s ver­sion of the check­list, not my ver­sion, the sim­pli­fied ver­sion or the Andrew Fleet­mon ver­sion. But you know what, if you under­stand how tiny does his ver­sion, you’ll be able to under­stand the oth­ers the columns, the data is basi­cal­ly the same maybe in dif­fer­ent orders, but pret­ty much you know, it all means the same thing.

Tony  03:12

OK, I’m going to share my screen now, if you’re ready. Alrighty, this has still got my last down­load in it which was 31st of May but we’ll do a fresh one tonight. Mov­ing left to right, you’ve got the ASX code, the com­pa­ny name, the indus­try group and you will have remem­bered from doing a fil­ter in stock doc­tor that you select the indus­try codes and this is what they are. I’m just high­light­ing that because it has become a use­ful thing recent­ly since we took out– List­ed invest­ment com­pa­nies and ETFs. The eas­i­est way to quick­ly search for those is to look for diver­si­fied finan­cials in the indus­try group col­umn, and then check and see if it is a liq­uid ETF because some of them are our actu­al com­pa­nies that oper­ate and are giv­en that code but some are ETFs any­way. Indus­try group is there. This one, last peri­od. I’ll just expand that. Last peri­od ana­lyzed. I use– We’ll see dur­ing the down­load but I use, for exam­ple, to see if we’ve got recent data. If I do a down­load, I’ll quick­ly scan down the last peri­od ana­lyze. Some of these—

Most of these are going to be old data now and we’ll get a refresh in August but or– Yes, August which means that we’re still deal­ing with Decem­ber 2020 num­bers. In some cas­es, we have more recent ones though like the banks that we’ve got some March num­bers. This one is going back to Sep­tem­ber so we should actu­al­ly see some updat­ed num­bers on that one. It’s some­thing we’ll check dur­ing the down­load and when we go into stock doc­tor, we can check it visu­al­ly. But yes, that’s some­thing to be aware of is the last peri­od ana­lyze. Make sure you’re deal­ing with up-to-date num­bers and if you’re not, I guess, be aware of how all the num­bers are and just be aware at the moment that we’re com­ing into end of finan­cial year and we’re six weeks, maybe two months away from fresh num­bers.

Then, work­ing left to right equi­ty is just used in cal­cu­lat­ing our net equi­ty, per share, score. Aver­age Dai­ly trade is an impor­tant one and you can see up here, we’ve got units for each of these. In this case, it’s in hun­dreds of thou­sands. This is the amount on aver­age of the stock that’s trad­ed in dol­lar terms on any giv­en day and it’s impor­tant for peo­ple to know how big their port­fo­lio is, how big a posi­tion is, and look for stocks that are big enough for them to trade. Say, for exam­ple, if you’ve got $100,000 as your total port­fo­lio, you have 20 stocks. They’re $5,000 each. I would be look­ing at this num­ber here being at least three times to 5000, so $15,000. That’s a rule of thumb.

Some­times I’ll use dou­ble if I’m real­ly keen on the stock or there’s anoth­er rea­son why it’s trad­ing a bit thin­ly. But gen­er­al­ly, you want three times cov­er­age and the rea­son for that is that you don’t want to influ­ence the price on the way in all the way out for a start. If say, for exam­ple, you’re think­ing about buy­ing the stock here Board Longyear, BLY and it only trades $7,000 per day, and you’re try­ing to buy $5,000 worth, then you’re prob­a­bly going to have an effect on the price and dri­ve it up, which is not going to be help­ful for you and it’s also a bit dis­heart­en­ing, if you’ve push the price up and you’re buy­ing.

I don’t know what this one’s trad­ing at. I’ll have a quick look. The share price is 38 cents; last time I did a down­load. But if you had to– If you were sort of crunch­ing the trade that day and it went up to 40 cents, chances are the next day it’s going to drop back down to 38. You’re going to feel a bit like a fool for over­pay­ing. It will come out in the wash but that’s one issue. The big­ger issue is that when it comes time to sell a stock like this one and every­body’s rush­ing for the exits, then it’s going to real­ly crunch the sell price down. You’re going to find it dif­fi­cult to get your trades matched and dif­fi­cult to get out of the price that you want to get out at. Just be aware of that.

Next col­umn, earn­ings per share and we’re using– Well, we’re down­load­ing both earn­ings per share before and after abnor­mals. Don’t real­ly need both of them but I do that for com­plete­ness. As you’ll see in a cou­ple of these columns that we’re down­load­ing from stock doc­tor, we don’t actu­al­ly make use of them. But there is a bit of a ref­er­ence check if you want to go back and look at. For exam­ple, this one mosa­ic brands, the earn­ings per share before nor­mals is 31 cents, sor­ry, minus 31 cents. It’s a loss of 31 cents. But after abnor­mal, it’s a loss of $1.76 so big dif­fer­ence. I tend to use before abnor­mals and there’s been some debate about whether that’s right or not. I used before abnor­mals because that’s the under­ly­ing busi­ness.

Now, bear in mind, we’re talk­ing about earn­ings here and one of the rea­sons why I have an empha­sis on oper­at­ing cash flow is it’s well above the earn­ings line in the com­pa­ny and you can see just between these two num­bers here, earn­ings before abnor­mals and earn­ings per share after abnor­mal, there’s a huge vari­a­tion and that vari­a­tion is basi­cal­ly at the dis­cre­tion of the CEO on board of the com­pa­ny. They’ve decid­ed for what­ev­er rea­son, in the case of mosa­ic brands and I’m not famil­iar with that– Famil­iar with the com­pa­ny to know what the abnor­mals are. Just poten­tial­ly COVID relat­ed or some­thing like that. But they’ve decid­ed that even though the com­pa­ny lost $1.76 per share, that they should call out to investors that real­ly there’s lots of unusu­al activ­i­ty there and the steady state busi­ness­es is only los­ing 31.9 cents per share.

Big call by the board to do that and a big call, I guess by investors to look at it as to work out which one’s the rel­e­vant one to use. They’re both down­loaded. EPS fore­casts will come through but we use those to help us cal­cu­late an intrin­sic val­ue for the future earn­ings of the com­pa­ny and that’s sim­ply the future earn­ings per share fore­cast divid­ed by our hur­dle rate which in the case of the future IV is the mar­ket hur­dle rate which is cur­rent­ly 6.25 I think from mem­o­ry. That’s pret­ty low.

Again, for com­plete­ness, one of the things you can fil­ter on the stock doc­tor is to make sure the com­pa­ny’s trad­ing because some­times com­pa­nies get sus­pend­ed or delist­ed and we don’t want to both­er about those nec­es­sar­i­ly. Share price is pret­ty obvi­ous what that is, we’ll use that cal­cu­lat­ing our price to oper­at­ing cash flow met­ric. There is price to con­sen­sus tar­get and I think we don’t actu­al­ly make use of that one again but it’s there. It’s there because we use con­sen­sus tar­get or the price being below the con­sen­sus tar­get is one of the check­list items around val­ue. We’re look­ing at that num­ber there to do that and we’re look­ing for a fig­ure below 100%. This is a per­cent­age col­umn. Some stocks and cer­tain­ly what the star stock peo­ple call star stocks. Sor­ry, the stock doc­tor peo­ple call star stocks.

They give the, what they call a Lin­coln val­u­a­tion to them. I’ll just go and find one. Nation­al Bank, for exam­ple, is a star income stock from mem­o­ry and stock doc­tor over there, star income. Yes and Lin­coln have a val­u­a­tion of a $2 and the share price is cur­rent­ly sor­ry, $102. No sor­ry, that’s wrong. The price to the Lin­coln val­u­a­tion is 102%. It’s just slight­ly above the Lin­coln val­u­a­tion for that share. The share price is at $27 and you’ll notice that it’s slight­ly below the con­sen­sus tar­get and a com­pa­ny like NAB would have lots of bro­kers putting in a con­sen­sus share price val­u­a­tion for it but NAB is trad­ing around about both of those two.

Then we go across to mar­ket cap­i­tal­iza­tion. Again, we don’t use that specif­i­cal­ly, some­times because it can look a bit strange if we have a share with a small aver­age dai­ly trad­ed amount. Some­times it can have a large mar­ket cap. An exam­ple of that would be some­thing like. I think the Yan­coal. Just see if I can find Yan­coal. Here we go. The aver­age dai­ly trade for Yan­coal, which is a large coal com­pa­ny is only $49,000 and the mar­ket cap for it is– Let’s just get across to it. The mar­ket cap is 2.6– What’s that? Mil­lion. $2.6 bil­lion. That seems quite strange and we don’t– I don’t change the rule about the aver­age trade being three times the posi­tion size but it’s a bit illus­tra­tive because it’s– It means that in Yan­coal’s case, there’s one or two real­ly big share­hold­ers here who are just sit­ting on the com­pa­ny reg­is­ter and not trad­ing and that aver­age dai­ly trade is part of what they call the free-float. A com­pa­ny like Yan­coal, even though it’s big, does­n’t have much free-float. Again, don’t use mar­ket cap for any­thing more than just fig­ur­ing out those rea­sons why things look strange in the mar­ket I guess.

I’ll come to net oper­at­ing cash flow which is one of our, prob­a­bly our biggest met­ric in terms of the– Impor­tant in terms of the dri­vers or the check­list items which are doing the heavy lift­ing and that’s price to oper­at­ing cash flow. Net oper­at­ing cash flow comes straight from the cash flow state­ment, it’s the first subto­tal I guess, in the cash flow state­ment, and net oper­at­ing cash flow is I guess, in very basic terms, it’s the cost of what’s the rev­enues from all the cus­tomers list, the costs of col­lect­ing those rev­enues. There’s still a bit of allo­ca­tion that man­age­ment need to do around what’s the cost of col­lect­ing those cash flows. But gen­er­al­ly, it’s the– It’s basi­cal­ly the oper­at­ing costs of the busi­ness usu­al­ly and the cash flow state­ment sep­a­rates out, invest­ing cash flows and finan­cial cash flows from oper­at­ing cash flows. Financ­ing cash flows are things like bor­row­ings, the debt. If they’ve issued new shares, the pro­ceeds from that, they’re all in the financ­ing side of things.

In the invest­ing cash flow line, we’ll have things like if they’ve bought any large items like machin­ery or replace the large cap­i­tal items, maybe if it’s a min­ing com­pa­ny, they might have done some seri­ous work in the mine so they’re in the invest­ing. If it’s a com­pa­ny that went out and bought anoth­er com­pa­ny, that will be in the invest­ing cash flows. We’re not as con­cerned about those because the oper­at­ing cash flow is the under­ly­ing busi­ness that we’re inter­est­ed in. The oth­er two Cash Flow State­ment items are impor­tant. But we’ll prob­a­bly pick up the effects of those more in our net equi­ty per share met­ric when we’re look­ing at whether the net equi­ty is going up or down and net equi­ty is direct­ly affect­ed by how much is being bor­rowed, how much is being invest­ed, div­i­dends that are being issued, all that kind of thing which is in the non oper­at­ing parts of the cash flow. I call out net oper­at­ing cash flow as being a pret­ty impor­tant met­ric for us. It’s prob­a­bly the biggest dri­ver of our rank­ings and the biggest dri­ver or biggest indi­ca­tor of val­ue.

Next col­umn is free cash flow per share and again, there’s a lot of investors out there and even peo­ple who lis­ten to us and ask ques­tions, who say, why aren’t we using free cash flow per share? And it’s a valid ques­tion. The only, rea­son why I pre­fer oper­at­ing cash flow is that, again, oper­at­ing cash flow is a very sim­ple met­ric at the top of all the finan­cial state­ments and it’s pret­ty hard to finesse if you’re a CEO, to make it look bet­ter than what it should be. Free cash flow, even though it’s very impor­tant, does take into account things like how much has been put aside for depre­ci­a­tion, all those oth­er things I talked about before about invest­ing and debt and pay­ing div­i­dends and all that kind of stuff. It does come– Basi­cal­ly, it’s the cash left over at the bot­tom of the finan­cial state­ments which– Excuse me– Which is impor­tant to know but there may be some unusu­al activ­i­ties that have gone on that year to affect free cash flow and there’s also some or a lot of dis­cre­tionary items in the finan­cial state­ments that can be, not nec­es­sar­i­ly manip­u­lat­ed, but finessed by the CFO or the CEO or the board to make that num­ber look big­ger or small­er. Free cash flow is impor­tant. It’s often used in cal­cu­la­tions by val­ue investors. But again, I pre­fer the net oper­at­ing cash flow because it’s pur­er I guess, as well I like to say it’s– There are less sticky fin­gers involved in pro­duc­ing that num­ber.

Next col­umn is the Star Stock Sta­tus. This is using one of Lin­coln indi­ca­tors or stock doc­tor’s finan­cial health met­rics. We’ll see a cou­ple of columns to the right, there is the finan­cial health over here and that’s their rat­ings in terms of whole series of ratios in the finan­cial state­ments about how strong the com­pa­ny is finan­cial­ly. I’ll talk about those in more detail in a sec. But first, Star Stock Sta­tus takes the finan­cial health rat­ing one step fur­ther and it’s– It also adds in oth­er analy­sis and oth­er met­rics which are more than just the finan­cial health rat­ing. Things like the return on equi­ty. I think it’s also good in there whether the com­pa­ny’s grow­ing. I for­get whether it’s EPS or some­thing else but or sales but cer­tain­ly, there’s a growth ele­ment in there, there’s an ROE ele­ment in there and the finan­cial health rat­ing is in there. I think from mem­o­ry, there’s nine dif­fer­ent things that go into the Star Stock Sta­tus and peo­ple can look it up. But the vast major­i­ty of stocks on the ASX don’t have a Star Stock Sta­tus and you can see that from this down­load. Then you’ve got stocks like the banks which are star income stocks.

I guess about 10 years into the life of stock doc­tor and I was a very ear­ly user of Stock Doc­tor. They had their Star Stocks but then they intro­duce star income stocks and I guess that’s a fac­tor of oper­at­ing that ser­vice in the Aus­tralian mar­ket is there’s lots of self-fund­ed retirees who are after div­i­dend pay­ing stocks and a lot of these div­i­dend pay­ing stocks like the banks aren’t nec­es­sar­i­ly always a high growth stock and they were being over­looked in terms of the Star Stock rat­ing. But they were still very steady com­pa­nies that peo­ple could invest in and get a reli­able div­i­dend income and Star Income Stock became a thing and if I just scroll down and find some oth­er exam­ples.

They also, along the way, intro­duce Bor­der­line Star Stock and I think one of the rea­sons for that was that the star stock list, I think it’s prob­a­bly rea­son­ably big now. It might be 40 or so stocks but in the past at some stages, it’s been as low as maybe 20, maybe a dozen and they start­ed to look to expand that and they intro­duced their Bor­der­line Star Stock which the long sto­ry short was there through their analy­sis, they thought these stocks would become Star Stocks in the next six months and they’re Bor­der­line Star Stocks which is a one-tick rat­ing rather than a gold star rat­ing and then you’ve got some stocks which not only Star Stocks but they’re also Star Income Stocks, for exam­ple. Mount Gib­son Iron is one of those JB Hi-Fi is one of those. They’re Star Stocks and they’re being called out as being a good growth stock but they’re also being called out as being the div­i­dend pay­er and they’re good for investors who are look­ing for rev­enue.

And then you’ve got– This one is a bor­der­line Star Stock and Star income stock. Basi­cal­ly, the Star Stock Sta­tus is a com­bi­na­tion of income relat­ed stocks and growth stocks and then you’ve got the bor­der­line ones which is a bit in the mid­dle and that’s the way that Stock Doc­tor rates com­pa­nies and it gen­er­al­ly comes up with their list of stocks to look at of maybe 30 or 40 stocks and they do, over time on their web­site tell you what the per­for­mance of those Star Stocks have been. It’s quite good. It’s about 18% or so from when they first start­ed back in the late 90s. Right. Mov­ing on, shares out­stand­ing which is what we’ll use when we’re cal­cu­lat­ing some of the per share met­rics. This is the num­ber of shares that are issued to the mar­ket.

Now, there’s a cou­ple of things to note here, I’m using shares out­stand­ing which is all the shares that are out in the mar­ket cur­rent­ly. There are oth­er met­rics around the num­ber of shares that the com­pa­ny has either issued or poten­tial­ly issued. This is, I guess, what you’d call an undi­lut­ed num­ber. But there were also shares out­stand­ing dilut­ed which can mean– Which means that the cal­cu­la­tion of the num­ber of shares is doing a cal­cu­la­tion to con­sid­er whether there are options out there for man­age­ment that might invest, whether they’re– Like in the bank’s cas­es, hybrid shares out there. They’ve issued a bond which you can con­vert back to com­mon stock. This is more like the old met­ric called com­mon stock and that’s the one I use but there are– You’ll see from time to time and even Stock Doc­tor, oth­er met­rics around the num­ber of shares out­stand­ing.

Div­i­dend yield­’s pret­ty straight­for­ward. It’s the div­i­dend per share divid­ed by the share price and we will use that as one of the check­list items. The finan­cial health rat­ing. That– Again, this is from Stock Doc­tor and to go into that, it’s fair­ly long the– And you can cer­tain­ly look up the ratios in Stock Doc­tor, there’s some­thing like I think 16 ratios and they’re look­ing at things like if– I think if you lis­ten to our pod­cast, you would have heard us talk about what do peo­ple do if they don’t have a Stock Doc­tor sub­scrip­tion? Well, they can go into Reuters or Yahoo Finance and look at things like the quick ratio and the debt to equi­ty ratio and start to put togeth­er a sim­ple check­list for them­selves on finan­cial health.

Stock Doc­tor have done that in a more detailed way and they’re not just look­ing at debt to equi­ty or quick ratios, they’re look­ing at oth­er things and some of them are a lit­tle bit arcane like sales to short term lia­bil­i­ties, that kind of thing and the rea­son that they do that, and it’s an inter­est­ing sto­ry, is that Lin­coln indi­ca­tors, a com­pa­ny that puts out Stock Doc­tor that was start­ed by a fel­low called Dr. Merv Lin­coln. He was, I think from mem­o­ry, an Olympian in the 56 games in Mel­bourne.

Any­way, he did a PhD into risk and he start­ed with the gen­er­al idea that I’m going to go and look at the his­to­ry of the ASX and take the com­pa­nies that have failed, that have gone bank­rupt, or being delist­ed and look at the look at their finan­cial met­rics and all the ones that I can think of and all the ones that I can ana­lyze and pull out those, look for a com­mon set that always occur when a com­pa­ny goes bank­rupt and then put them and say, Well, if com­pa­nies score well on these met­rics, they’re less like­ly to go bank­rupt and that’s the gen­e­sis of the finan­cial health rat­ing and I thought it was a very inter­est­ing PhD and he was able to start a busi­ness to sell that ser­vice and I think it was actu­al­ly used by banks for a while, just as a stand­alone ser­vice.

He was like a con­sul­tant who will pro­vide the analy­sis. If they were think­ing of pro­vid­ing a loan to a com­pa­ny, he could come back and say, well, based on my analy­sis, their finan­cial health rat­ing is x, y and z and then it was devel­oped into Stock Doc­tor by his son and just to go through them, the low­est lev­el of finan­cial health is the stress. The com­pa­ny is pret­ty– Score’s pret­ty poor­ly on the finance– On the Lin­coln finan­cial ratios check­list. They have mar­gin­al, ear­ly warn­ing, and strong– Oh, sor­ry sat­is­fac­to­ry’s in there before strong– And strong. I think from mem­o­ry, it’s a five-point scale and that’s them.

Now, I would say that occa­sion­al­ly, we’ll come up with some­thing on our top scor­ers list which scores well under the QAV analy­sis but it might still have a poor finan­cial health rat­ing, even though the finan­cial health rat­ing is one of the ele­ments in our cal­cu­la­tions and I’m– Per­son­al­ly I’m still hap­py to buy stock in that sit­u­a­tion because my expe­ri­ence is that these finan­cial health rat­ings are based on the cur­rent fig­ures and that if every­thing else looks good in the com­pa­ny, like it’s throw­ing off lots of cash in par­tic­u­lar and it’s equi­ty is increas­ing, all those things that we look for in a check­list, that it’s prob­a­bly like­ly that their finan­cial health rat­ing will improve and the clas­sic case I can think of is a com­pa­ny like Fortes­cue Met­als Group which had a dis­tressed finan­cial health rat­ing for a very long time and then, if you wait­ed for it to become sat­is­fac­to­ry or strong, you missed the boat because basi­cal­ly, it was in the stress finan­cial health because it was build­ing a mine and build­ing all the infra­struc­ture and invest­ing in the devel­op­ment of the trans­port links and ports to ship on or off the Chi­na, etc and by the time it had good finan­cial health then, it was ful­ly oper­a­tional and that the share price had long ago appre­ci­at­ed before that. It’s part of our check­list and it is use­ful but it’s not the be-all and end-all.

The next col­umn that we down­load is the health trend and we’re look­ing at whether the finan­cial health is improv­ing steady or get­ting worse and you can see they’re all the dif­fer­ent types of finan­cial health trends and that’s– Again, that’s use­ful because the finan­cial health rat­ing is steady state based on the last six months but we want to real­ly also take into account, is it get­ting bet­ter, is it get­ting worse, or is it steady? OK, we don’t use SDMAX. SDMAX, for peo­ple who don’t know, is Stock Doc­tor’s three-point trend­line, I guess you’d say for bet­ter—

For one of a bet­ter term but it’s their tech­ni­cal analy­sis or their sen­ti­ment check and they’re using a week­ly two-year graph to devel­op this and sim­ply have bear­ish or bull­ish and they did a big piece of regres­sion analy­sis done by a guy called Pro­fes­sor Neville Nor­man who some peo­ple might know or remem­ber, he had a fair­ly high pro­file back in the sort of 90s, 2000s as an econ­o­mist and he was often on TV. He was also a pro­fes­sor of eco­nom­ics at Monash Uni­ver­si­ty and he has from time to time gone back and just check things like that the Lin­coln indi­ca­tors finan­cial health rat­ing is still valid to see if the eco­nom­ic envi­ron­ment had changed to affect that.

And a sim­i­lar analy­sis was done on using this SDMAX process. For a long time, Stock Doc­tor did­n’t care about what– He did­n’t care about sen­ti­ment actu­al­ly. It used to have just a fair­ly man­u­al glob­al check to see if the share price was going up and then they devel­oped SDMAX because they felt that they could improve their returns by look­ing to see if the share price was trend­ing down, whether you should sell it. They did say they got an extra one or 2%, I for­get the num­ber now. I’ve increased per­for­mance by using it and then made it avail­able in Stock Doc­tor. I don’t use it because I find that a week­ly two-year line is a bit too volatile for me and I’d rather use a five-year month­ly graph.

The rea­son why it’s in the mas­ter check­list though is that one of our users ear­ly on was won­der­ing whether if we used SDMAX sta­tus and a cou­ple of oth­er columns which we’ll get to in a minute about whether the price has changed over the last six months, whether it’s increased in price over the last six months, and whether it’s increased in– Whether the price has increased in the last five years, and whether a com­bi­na­tion of all those three met­rics was a, I guess, an auto­mat­ed way of doing a three point trend­line equiv­a­lent? And I think it’s still in there and we’re still test­ing. But I think the jury’s a bit out there at work some­times and not oth­ers.

Next col­umn, the impor­tant one of direc­tors hold­ing. We’re look­ing for, what I call, founder investors in com­pa­nies and if you think about some of the most suc­cess­ful com­pa­nies on the Aus­tralian land­scape, you’ve got your West­field with the Lowy fam­i­lies, even though they’ve sold out. Now, you’ve got Jer­ry Har­vey and Har­vey Nor­man, John Sin­gle­ton in what was STW Com­mu­ni­ca­tions. These are peo­ple who were very good busi­ness peo­ple and they start­ed up a com­pa­ny and list­ed it, had a large equi­ty share in it, and con­tin­ue to hold and guide the com­pa­ny. That’s always been, in my opin­ion, a very good indi­ca­tor of a stock to invest in and if you think about these days, it’s Atlas­sians with Mike Can­non-Brookes and his part­ner in there, maybe WiseTech Glob­al.

I think he’s named Robert white. Yes, it’s still a good indi­ca­tor of com­pa­nies which– I think if you’re a very entre­pre­neur­ial and har­ness the ener­gy and vision of the founders and the one that springs to mind eas­i­ly at the moment is Fortes­cue Met­als with Twig­gy For­rest. That’s one that scores well for us and cer­tain­ly scores well on this met­ric. We’re down­load­ing how much of this stock do the CEO, MD, and Chair­man hold and how much is held by all direc­tors? How much skin is in the game? And which is a good indi­ca­tor of the align­ment of man­age­ment with share­hold­ers?

ROE, we don’t use. A cou­ple of these met­rics I’ve down­loaded and left in because peo­ple have asked ques­tions about them and I’ll leave them in there. If any­one wants to do their own analy­sis, they can and see whether hav­ing some par­tic­u­lar thresh­old for return on equi­ty, for exam­ple, improves their own per­for­mance. I haven’t found it to be so. The rea­son why I steer clear of ROE is main­ly because it’s almost a basic ten­ant of invest­ing that you put your mon­ey where the high­est return is and ROE is prob­a­bly the pre­dom­i­nant met­ric of mea­sur­ing where the best return is. It’s the return on the equi­ty in the com­pa­ny. Excuse me.

The prob­lem is that every fund man­ag­er in the world looks at ROE and gen­er­al­ly, if a com­pa­ny has a very good ROE, it does­n’t meet our val­ue cri­te­ria. For exam­ple, well this, some­times they do, there’s clear view at 30.57. I think that did have a good QAV score. Poten­tial­ly, ROE might be worth­while adding to the check­list.

But gen­er­al­ly, I find that com­pa­nies with good ROEs come with a high share price. If you think of CSLs of the world, in terms of our con­text, if you think of com­pa­nies like Ama­zon or Google, they have very good ROEs and in fact, real­ly those tech com­pa­nies have done so well. Not just because they’re high growth but because with very lit­tle cap­i­tal inten­sive nature to their busi­ness, all the mon­ey they gen­er­at­ed was basi­cal­ly return­ing a high ROE on the equi­ty in the busi­ness because the busi­ness was­n’t hav­ing to go out and buy a net­work of stores or build fac­to­ries.

I mean, Ama­zon does now. But Google, for exam­ple, isn’t like it’s Boe­ing which has to have bil­lions of dol­lars invest­ed in equip­ment and hangars and mate­ri­als. That’s back in the 90s, there was this big debate about ROE and how impor­tant that was as a met­ric and peo­ple like Bezos from Ama­zon exploit­ed it. He would pro­mote the fact that he was get­ting a very high ROE because he was sell­ing books online and not hav­ing to open book­stores and his cap­i­tal– He put his cap­i­tal into a few ware­hous­es that could ship any­where around Amer­i­ca and even­tu­al­ly around the world and he was a cap­i­tal like busi­ness and you had this whole evo­lu­tion from what peo­ple were call­ing werr old world or old econ­o­my busi­ness­es into new econ­o­my busi­ness­es and ROE became almost the weapon of choice for investors and again, man­age­ment– When you get this sin­gle met­ric that investors focus on man­age­ment also focus on it and there are ways to manip­u­late it to their ben­e­fit.

For exam­ple, if you want to improve the ROE of a com­pa­ny, you could have less equi­ty. You could bor­row as much mon­ey as you can, which reduces the equi­ty in the com­pa­ny because remem­ber bor­row­ings is debt and equi­ty is assets minus lia­bil­i­ties and if you have a very small e, equi­ty com­po­nent to the cal­cu­la­tion, then if the ROE goes up, even though you haven’t improved your return and again, that’s a met­ric that can be scammed to make a com­pa­ny look good when per­haps it’s not as good as it could be if you were– If you’re run­ning the com­pa­ny to give it the best long term chance of flour­ish­ing, you may not have tak­en on that bit. Any­way, ROE is in there for peo­ple to do their own analy­sis on and come to their own con­clu­sions, may well be use­ful to them. Again, I don’t use it myself.

Price to cash flow is down­loaded from Stock Doc­tor and it should be sim­i­lar to our price to oper­at­ing cash flow num­ber when we get to it in a minute. There are some dif­fer­ences though and the dif­fer­ence is basi­cal­ly due to the fact that Stock Doc­tor in this par­tic­u­lar cal­cu­la­tion are using that dilut­ed num­ber of shares where­as we’re using the shares on issue. But it is again, it’s some­thing that occa­sion­al­ly I’ll go back to and just com­pare. But if I see a big dif­fer­ence between the num­ber in Stock Doc­tor and the num­ber we’ve cal­cu­lat­ed man­u­al­ly, I might do a bit of analy­sis and try and work out why and whether that’s an anom­aly we have to be aware of or some­thing that we can just ignore.

PE, the old price to earn­ings ratio. Again, one of the heavy lis­ters of invest­ing in the 20th cen­tu­ry was to look for stocks with a low PE and even though that gen­er­al­ly cor­re­lates with a low price to oper­at­ing cash flow, it does­n’t always cor­re­late with a low priced oper­at­ing cash flow. You can see in this case, this is a stock called GLE which the last time I did a down­load was at the top of our QAV score index, it has a very low PE. Gen­er­al­ly, the mar­ket aver­age PE which you might hear peo­ple talk about to give a sense to whether the mar­kets in total over­val­ued or under­val­ued. That’s gen­er­al­ly around, I think, an aver­age of about 16 in Aus­tralia. When you see a com­pa­ny with a PE of 4.5, you get a sense of it’s a scor­ing well on a val­ue analy­sis and if we look at the price to oper­at­ing cash flow of 0.62, that’s very cheap in terms of pay­ing for the cash flow the com­pa­nies gen­er­at­ing.

Those two cor­re­late but if I go down the list here and I have a look at a com­pa­ny like The Reject Shop, I’m get­ting a price to cash flow of 1.65 which is real­ly good, that’s a real­ly low one. But I’m get­ting a PE of a high of 27 which is above the mar­ket aver­age. Same with Siemens Group here, 25 and what that is telling me is that the com­pa­ny’s throw­ing off lots of cash but it’s also con­sum­ing a fair bit of cash because by the time it gets to the earn­ings line, it’s being used or it’s being dilut­ed. That’s I guess, that’s put in there. I guess just we use PE in our cal­cu­la­tions and I’ll get to that. We’re not using the PE in terms of a met­ric by itself to look for a low PE com­pa­ny nec­es­sar­i­ly because as you can see that com­pa­nies like The Reject Shop has a high PE even though it’s throw­ing off lots of cash. But we’re using it– We’re going to use it in terms of man­u­al­ly anchor­ing whether the PE is the low­est in the last six halves which we’ll get to in a minute too. I guess it begs the ques­tion should we use PE to look at whether a com­pa­ny like The Reject Shop should score as well as it does?

Again, I tend to rely more on the oper­at­ing cash flow as I said before, a pure guide. In terms of The Reject Shop, it’s under­go­ing a bit of a turn­around sto­ry at the moment. They’re spend­ing mon­ey on reduc­ing costs qnd that could be the rea­son why at the moment it’s got a high PE. Some­times a high PE can be an abnor­mal­i­ty and– But I do like com­pa­nies which throw off lots of cash and in terms of where the man­age­men­t’s spend­ing that cash prop­er­ly. I think the prob­a­bly the sec­ond most impor­tant check­list item is, does the com­pa­ny have increas­ing equi­ty? And if a com­pa­ny, for exam­ple, and I’m pick­ing on The Reject Shop here for no good rea­son, but if The Reject Shop are going through a long peri­od of cap­i­tal inten­sive busi­ness oper­a­tions.

For exam­ple, and this is not the case with The Reject Shop but if they were, for exam­ple, going out and build­ing lots of new stores and they were using that cash flow to do that, that’s not nec­es­sar­i­ly a bad thing. We’ll see whether it’s a good thing or not in some of the oth­er met­rics and one of them is net equi­ty. If the com­pa­ny is con­tin­u­al­ly hav­ing to invest cap­i­tal, then we’ll see net equi­ty decline. But if it is doing it some­times or it’s doing it in a, I guess, a pru­dent way, then we might see some­times that the PE is high but the price oper­at­ing cash flow is low.

Alright, net tan­gi­ble assets per share. This is used in our cal­cu­la­tion of price to book. In sum­ma­ry, the NTA of a com­pa­ny per share is the assets of the com­pa­ny and on the bal­ance sheet, as I said before, there’s basi­cal­ly asset, lia­bil­i­ties, and equi­ty and all the assets added up and then divid­ed by the num­ber of shares on issue and we get a net asset per share. This is often referred to some– Or some­times referred to as the book val­ue and there is a– If I was an accoun­tant and I’m not, there we could prob­a­bly do a three-hour work­shop on the dif­fer­ence between net tan­gi­ble assets, net assets, and book val­ue and there’s a cou­ple of oth­er met­rics which investors some­times use which is sim­i­lar things and it just depends whether you’re adding in some line items and not the oth­er ones.

But when­ev­er I talk about these things, I’m inter­change­ably using net assets per share, or net tan­gi­ble assets per share, and book val­ue and it’s just I guess, the col­lo­qui­al way that some peo­ple refer to it but I have been pulled up before for hav­ing dif­fer­ences between NTA and book val­ue and that’s true but for our pur­pos­es, I’m using net tan­gi­ble assets per share to tell me what the book val­ue of the com­pa­ny is and if you think about book val­ue, it’s a dif­fer­ent way of valu­ing a com­pa­ny. There’s always a num­ber of dif­fer­ent ways to val­ue your com­pa­ny. I said before that par­tic­u­lar­ly back in the dot-com boom ROE [Sysco 00:42:30] was a met­ric that was always at the top of the list in terms of what peo­ple would look for. That’s still there but it’s lost some impor­tant since the dot-com bub­ble burst.

There are things like PE ratios, price to cash flow ratio. We’re look­ing at how much cash the com­pa­ny is throw­ing off and what we have to pay to get our hands on that cash? Like­wise, with the earn­ings, what the earn­ings of the com­pa­ny what we have to pay to get a hands on those earn­ings? But there’s also anoth­er dimen­sion to a com­pa­ny, espe­cial­ly one that has lots of assets. For exam­ple, like a retail­er, if I go back to The Reject Shop, it’s rough­ly got $4 per share of tan­gi­ble assets which is prob­a­bly going to be it’s shops.

Some of those will be leased but some– They may own some but def­i­nite­ly the fix­tures and fit­tings, the IT equip­ment, the stock, all that stuff is wrapped up in the NTA cal­cu­la­tion. Now, why is that impor­tant? Because in some cas­es and again, some com­pa­nies will be impor­tant for more than oth­ers. I might decide that I would pre­fer to val­ue the com­pa­ny on the basis of its assets because it might be say­ing decline and– But I know if I bought the com­pa­ny and broke it up and sold it, I could make more mon­ey than what the cur­rent share price indi­cates. That’s your clas­sic pri­vate equi­ty view of a com­pa­ny or your KKRs and those com­pa­nies that will come in and try and buy a com­pa­ny and rip out all the costs and sell the assets and make mon­ey doing that com­pared to what they paid for it. They’re valu­ing the com­pa­ny not based on a going con­cern basis but based on what the assets are worth.

One of the things that we look for as a dif­fer­ent way of valu­ing a com­pa­ny and again, one more way of doing it and one more way of of hav­ing an item on the check­list which is mean­ing­ful, is to look at whether what the dif­fer­ences between the share price and its net tan­gi­ble assets? And ide­al­ly and again, this is a ratio which War­ren Buf­fett men­tions. He would rec­om­mend, for exam­ple, that peo­ple buy Berk­shire Hath­away stock when it’s trad­ing at less than 30% above its price to book and we’ll– Fur­ther on, we’ll do a cal­cu­la­tion which looks at whether these com­pa­nies are– Whether we can buy them for 30% above the net tan­gi­ble asset val­ue.

OK, I said before we use price change over five years and price change over six months as a bit of a test to see whether we could auto­mate the three point trend­line cal­cu­la­tion. Did­n’t sat­is­fy my hur­dles for that but I’ve left it in there. If peo­ple want to use it, they can have cer­tain­ly cal­cu­la­tions in the check­list which will give you a– I’m hes­i­tat­ing to say buy or sell rec­om­men­da­tion based on those three met­rics but cer­tain­ly a sen­ti­ment check based on those three met­rics.

Price to oper­at­ing cash flow, we’re start­ing to get into now I think, where are we? If we look at that price change over six months, I think that’s the last col­umn that we down­load from Stock Doc­tor in terms of a met­ric and then we start to do our own cal­cu­la­tions based on those. The first cal­cu­la­tion we’re doing is to do price to oper­at­ing cash flow. To do that, we have to cal­cu­late the oper­at­ing cash flow. First of all, I want to get all the units lined up. We do the oper­at­ing cash flow on mil­lions. Where­as I think when Stock Doc­tor down­loads it, it’s either in hun­dred thou­sand or dol­lars. Any­way, we con­vert it to mil­lions first of all to get the unit’s right and then we divide that by the num­ber of shares on issue and then we get our– We put the share price on top of that and we get our price to oper­at­ing cash flow. This is our own ver­sion of the– Of that met­ric and I guess, if peo­ple are used to PE ratios, this is our own PE ratio but it’s a POC ratio, price to oper­at­ing cash flow.

I then have a col­umn in here which just looks at the dif­fer­ence between Stock Doc­tor and the cal­cu­la­tion we just did and as I said before that dif­fer­ence is almost always due to whether we’re using shares on issue or ful­ly dilut­ed shares on issues. Most times, it’s fair­ly sim­i­lar and most times, it does­n’t make much dif­fer­ence. But you can see in some of these ones, here, there’s a rea­son­ably large dif­fer­ence in those. It may be worth­while before you decide to make a deci­sion about buy­ing or sell­ing a stock to go and research why that is dif­fer­ent?

Most of the times it’s, like I said, it’s because I got options on issue or they’ve got hybrid debt out there which might con­vert into shares at some stage and some­times that can be a pri­vate thing. When the GFC hap­pened, War­ren Buf­fett was out there loan­ing com­pa­nies mon­ey but he also had a deal where he had the right to con­vert the debt into equi­ty in the com­pa­ny under pre-arranged con­di­tions and that would be part of that dilut­ed share num­ber there. You might think twice if you look­ing at buy­ing a com­pa­ny and you saw when you dug down into your research that yes, there’s this deal on the side with Buf­fett which says that in five years’ time he can take over half the com­pa­ny by sim­ply swap­ping the debt at a pre-arranged share price.

That might go into your think­ing about whether to buy or sell. But in terms of our run-of-the-mill analy­sis on most com­pa­nies, it’s very sim­i­lar to the dilut­ed share num­ber and I think it’s a lit­tle bit sim­pler to use the sim­ple priced oper­at­ing cash flow and not wor­ry­ing about what might be out there which has­n’t been exer­cised yet because it might nev­er be exer­cised. The man­age­ment might not get their options or the hybrid own­ers might decide to roll a bit over rather than tak­ing a con­ver­sion to share. That’s one of the rea­sons why I like using the shares on issue rather than dilut­ed. That’s there is a check.

Now, we’re going into some of the– Oh sor­ry, what’s this one? BF 30, 43. This is again, part of our cal­cu­la­tions. Let me find that while I’m check­ing for their uptrend or down­trend. I don’t think we use it, may have been some­thing his­tor­i­cal that we were look­ing at. Yes, that col­umn there is the sum­ma­tion of the SDMAX being bear­ish or bull­ish and the price change over the last six years– Sor­ry, the last five years in the last six months being pos­i­tive or neg­a­tive and that was the I guess the proxy in an auto­mat­ed cal­cu­la­tor will sense for three-point trend lines and you can I guess, sat­is­fy your­selves or not whether that’s a use­ful thing for you or whether you still feel that look­ing at the trend lines your­self is bet­ter because there is a dif­fer­ence. Com­pared to this, this col­umn here say­ing that my hold­ings is an uptrend. We also think it’s an uptrend by the way, it does often coin­cide. But it some­times, it’s a lit­tle bit more volatile than what we use.

Any­way, OK. Earn­ings per share, we cal­cu­late. Again, we down­loaded it from Stock Doc­tor. We also– Oh Sor­ry, no. We do it from Stock Doc­tor and then we get it into the right unit so that we can com­pare it to the share price. That’s just a sim­ple divi­sion by 100 and then we come to two impor­tant ones for our check­list IV1 and IV2. IV stands for Intrin­sic Val­ue and this is a con­cept that Ben­jamin Gra­ham pio­neered near­ly 100 years ago about how do we know that when we go to buy a com­pa­ny that we’re not over­pay­ing for it and he said, the only way to know that is to have your own cal­cu­la­tion for what the com­pa­ny’s worth and we do some very sim­ple cal­cu­la­tions for that for IV1 and IV2 and again, we could do a 10 hour work­shop on how to cal­cu­late IVs and we’ve talked about it at length before on the pod­cast over the years about dis­count­ed cash flows and whether they’re appro­pri­ate or whether they’re bet­ter than doing the cal­cu­la­tion that we do? Roger Mont­gomery wrote a book called de label, which essen­tial­ly was a very long dis­ser­ta­tion on how to get to an inter­nal val­u­a­tion of a com­pa­ny.

I’m not say­ing it’s a bad thing, it’s cer­tain­ly valid. I use it– I use a short­hand way of doing it which I find cor­re­lates pret­ty close­ly to the the dis­count­ed cash flow val­u­a­tion for a com­pa­ny and again, I picked this up in a book about how Buffered [Sysco 00:52:20] invests and it’s sim­ply look­ing at the earn­ings per share and divid­ing it by a hur­dle rate. An again, a hur­dle rate is a eco­nom­ics term. But it’s basi­cal­ly say­ing it’s a num­ber which I want to get as a return before I’ll invest. In the first IV cal­cu­la­tion, we’re using 19.5% which is my long term return out of invest­ing in the share mar­ket and I’m say­ing if I take the earn­ings per share of a com­pa­ny and divide by 19.5%, then that num­ber, if it’s pos­i­tive should mean that the com­pa­ny’s going to return a greater hur­dle, a greater rate than the hur­dle rate of 19.5 and that’s there for IV1. IV2, we do a slight­ly dif­fer­ent cal­cu­la­tion and we’re using the con­sen­sus fore­cast­ed earn­ings per share and we’re divid­ing it by dif­fer­ent hur­dle rate this time.

We’re using what’s called– Well, it’s what most peo­ple will call the risk pre­mi­um in the mar­ket. Again, anoth­er eco­nom­ics term, Risk Pre­mi­um means how much– What kind of return should I get in addi­tion to what I would get for putting my mon­ey in the bank and earn­ing an inter­est rate for tak­ing the risk of invest­ing in the share mar­ket and his­tor­i­cal­ly, that’s gen­er­al­ly about 6% and again, there’s– You can do a whole lot of research onto this. Some peo­ple say it should be four, some peo­ple say it should be five or six. But I’m using six, which is a num­ber that is accept­able and it’s prob­a­bly at the slight­ly high end of the of the range. What I then do is I add 6%, which is the risk pre­mi­um to the long term inter­est rate– The 10-year inter­est rate that the RBA sets which is cur­rent­ly at 0.1%. We’re look­ing at point 0.061 as a hur­dle rate for IV2 and we’re tak­ing the con­sen­sus fore­cast for earn­ings per share, divid­ing one by the oth­er and get­ting an IV2 cal­cu­la­tion as the share price that we’d like to buy the or we think the share is worth.

Before you ask lots of ques­tions about this, can I say that it’s a quick and dirty way of doing an IV cal­cu­la­tion and there’s no– I could expand this into a series of num­bers where we had the cur­rent earn­ings per share over 19.5, the cur­rent earn­ings per share over 6.1, the future con­sen­sus earn­ings per share over 19.5, and the future con­cern­ing– Future con­sen­sus earn­ings per share, it’s over 6.1 and we could have had four num­bers here but gen­er­al­ly, I found that was good enough to do one IV cal­cu­la­tion using a high hur­dle rate and when I do a cal­cu­la­tion using a low hur­dle rate, that was giv­ing us the same direc­tion­al out­put as if I had have done all four com­bi­na­tions and again, why are they using dis­count­ed cash flows here? Where are they using all oth­er com­bi­na­tions of ROE, DCFs? And the answer is, I like to try and keep these things fair­ly sim­ple. But also to be hon­est, no one’s any­body good at doing intrin­sic val­ue cal­cu­la­tion in my opin­ion.

If you think about how you put togeth­er a dis­count­ed cash flow for a com­pa­ny and I know some of you out there run com­pa­nies, imag­ine if your bank man­ag­er said to you today, I may lend you mon­ey if you can do a pro­jec­tion for the next 10 years on how much your com­pa­ny is going to make and then we’ll dis­count it back in today’s dol­lars and we’ll see if that num­ber is a good num­ber and we’ll invest and will loan you mon­ey if it’s a good num­ber. For starters, if the bank man­ag­er said that to me, I’d make the num­ber com­ing out at what­ev­er the bank man­ag­er want­ed. There’s a bit of there’s so much assump­tions in that cal­cu­la­tion that it’s manip­u­lat­able.

Yes, I’m not a fan of DCFs. And, of course, DCFs are also heav­i­ly influ­enced by what the dis­count rate is. At the moment, the dis­count rates are very low because inter­est rates are low and for no real good rea­son, a com­pa­ny that five years ago was worth five bucks a share is now sud­den­ly worth 20 bucks a share sim­ply because the RBA is low on inter­est rates. Again, that’s– To me that’s in Cloud Cuck­oo land, I just don’t get that way of invest­ing. I under­stand that you’re bor­row­ing costs to buy the share and the bor­row­ing costs of the com­pa­ny or less and all that stuff. It does have a mean­ing­ful impact in some ways. But if after­pay was worth 20 bucks five years ago, now it’s worth 120 bucks because inter­est rates have gone down. It’s– That’s a bit of a stretch for me, I think. DCFs, I’m nev­er real­ly a fan of, I found this to be a good approx­i­ma­tion of it by sim­ply tak­ing the earn­ings per share over the hur­dle rate and telling us whether the earn­ings that we’re buy­ing are good val­ue or not.

Look at, we’ve cov­ered a lot in the last hour Cam. We’re going to have a break or some­thing. I’m get­ting tired of hear­ing my voice but oth­er peo­ple might or they might have some ques­tions.

Cameron  57:36

Well, I was wait­ing for peo­ple to ask ques­tions and I sug­gest that there’s a chat box there. If you have ques­tions, feel free to post them in the chat box if you don’t want to just inter­rupt Tony and we’ll take breaks from time to time and give you an oppor­tu­ni­ty to ask those but while Tony’s tak­ing a drink of whiskey, are there any ques­tions? And we near­ly fin­ished the– This part of the check­list any­way, the col­umn analy­sis, but are there any ques­tions on what Tony’s cov­ered so far? Feel free to raise your hand.

Tony  58:16

Just Cam, if you can just keep your eye on the chat box? I’m not see­ing it because I’m shar­ing my screen.

Cameron  58:22

I will do.

Tony  58:23

OK, thanks. Alrighty, I’ll just move on quick­ly, then. One of the oth­er items on our check­list is whether the future IV is twice the share price. In oth­er words, can we buy the com­pa­ny very cheap­ly based on our own intrin­sic val­ue num­ber two because the share prices is half what their intrin­sic val­ue is? That’s one of the items on our check­list. Again, that’s– All of these things are on the check­list just based on my own expe­ri­ence and it’s– Some of it– It’s a very serendip­i­tous pro­ce­dure real­ly over the years. The check­list for­mal­izes I guess; ideas or things are noticed in the mar­ket that have been use­ful to me. One of them is that if we’re see­ing the future con­sen­sus earn­ings per share has been quite high and high enough so that when you divide it by a hur­dle rate, it’s twice the share price. That’s usu­al­ly a good indi­ca­tor of deep val­ue which is some­thing that we’re look­ing for. That’s why that’s there. As are lots of these met­rics, they’ve just been– Lit­tle things I’ve seen– I’ve bought it– I’ve looked at some­thing and gone you that’s real­ly cheap.

Based on that met­ric, let’s have a look and inves­ti­gate and it’s hap­pened two or three times and it hap­pened enough for me to inves­ti­gate that met­ric and then even­tu­al­ly put it into the check­list. That’s why that’s there which is and then we start to get into some of the scor­ings of the check­list. The way that the Excel spread­sheet is work­ing is that it’s basi­cal­ly ask­ing ques­tions and this one is say­ing, is the IV2 cal­cu­la­tion more than two times the share price? And if it is, then give it a zero. I’ll give it a one and if it’s not, give it a zero and of course, because we’re deal­ing with con­sen­sus earn­ings per share fore­cast, we don’t always get one.

All of these com­pa­nies are small and I don’t get any bro­ker­age cov­er­age. I’ve also found over time– That’s often­times a hap­py hunt­ing ground for us to play in as retail investors because a com­pa­ny like GLE, if it does­n’t have con­sen­sus earn­ings per share fore­cast, then chances are it’s not get­ting much bro­ker­age cov­er­age and the retail investors have the field to them­selves. Gen­er­al­ly, these com­pa­ny will get bro­ker­age cov­er­age because an insti­tu­tion­al buy­er wants an opin­ion about or some research done about whether they should be buy­ing with or not? And that’s when you start to see con­sen­sus fore­cast num­bers come up. It’s some­thing that it’s worth pay­ing atten­tion to. I actu­al­ly haven’t for­mal­ized it in the check­list and maybe one day I will but I often find that if there’s no bro­ker­age cov­er­age and an easy way to check for that is there’s no con­sen­sus earn­ings per share fore­cast. It’s– Some­times it can slip beneath the radar and it can be an actu­al­ly real­ly good buy. Peo­ple just haven’t wok­en up to the fact that it’s cheap and it’s a good qual­i­ty com­pa­ny because there’s no bro­kers cov­er­ing it.

Alright, mov­ing on, equi­ty per share. We use that in some of the oth­er cal­cu­la­tions going for­ward. This is com­par­ing the price to book. We got equi­ty per share. I’m just get this straight. This is look­ing at a B which is the net tan­gi­ble assets per share. OK, this is equi­ty. This is com­par­ing equi­ty per share with the tan­gi­ble assets. As you recall before, I said that there’s a num­ber of ways of try­ing to work out what a break­out val­ue of the com­pa­ny is and one of them is price to work, one of them is net tan­gi­ble assets, and one of them is equi­ty per share. This is look­ing at the dif­fer­ence between all those things. Now, they should be dif­fer­ent because assets as assets and equi­ty as assets minus lia­bil­i­ties. You’ll see some big num­bers here. But some­times you’ll look at them and go, well, that’s a bit strange and you might want to inves­ti­gate that a bit fur­ther before buy­ing. But again, this is one col­umn which is there for your own research. We don’t use it in our check­list at all. Book plus 30, we do. This is telling us what the net tan­gi­ble assets plus 30% is and we’ll use that when we go a bit fur­ther on the cal­cu­la­tor score on that met­ric.

Earn­ings per share growth. Growth over PE is one of the things we– That we look at and again, peo­ple may have come across some­thing called the PEG ratio or PE to growth ratio and again, that’s– I think it was Peter Lynch’s, one of his key met­rics when he was doing analy­sis on a com­pa­ny and again, it’s– A lot of fund man­agers or large insti­tu­tion­al investors will talk about the growth to PE ratio or they’ll express it the oth­er way to the PE ratio to growth and what they’re doing there is, Peter Lynch said that you can still have a com­pa­ny which has a high PE ratio but if it’s grow­ing fast and faster than that ratio, then it was still worth buy­ing because yes, peo­ple were pay­ing up for the growth but the growth was still high enough to jus­ti­fy the price to the high price to earn­ings ratio. We’re incor­po­rat­ing that into the check­list here and we’re look­ing for growth to PE of greater than 1.5 and again, there’ll be a cal­cu­la­tion for that.

Yield, it’s a div­i­dend yield. Fair­ly easy one. I’ve– There’s two schools of thought when it comes to yield. One is that par­tic­u­lar­ly for a growth com­pa­ny that man­age­ment should be putting all of the avail­able cap­i­tal back into invest­ing for growth and that’s cer­tain­ly a good max­i­mum busi­ness. The oth­er school of thought says that if a com­pa­ny is throw­ing off a div­i­dend, it’s got to have a sol­id out­look and man­age­ment have to feel com­fort­able about its future earn­ings abil­i­ty to start pay­ing div­i­dends because once you start pay­ing them, it’s a real red flag for investors if they get low­ered or if they stop. Yes, that’s basi­cal­ly say­ing, we’re in so much finan­cial trou­ble that we can’t make the promise we made to investors in the past to pay them a three or 4% yield or what­ev­er that num­ber is.

It’s almost the last thing that the board would do is to low­er or stop its div­i­dend. Once you see a com­pa­ny start to pay a div­i­dend, then it’s real­ly almost the com­pa­ny giv­ing itself a good qual­i­ty rat­ing going for­ward because I expect to be able to at least pay that div­i­dend going for­ward. I under­stand the no div­i­dend invest in the growth of the com­pa­ny argu­ment. But I’ve also found that a com­pa­ny that pays a div­i­dend yield and I’m look­ing at a rea­son­able div­i­dend yield and I use the cur­rent mort­gage rate as the thresh­old for that. That it’s gen­er­al­ly, it’s a good sign of or a vote of in the qual­i­ty of the com­pa­ny going for­ward. It’s not a bad met­ric. We look at the yield being high­er than the cur­rent mort­gage rate and the mort­gage rate is a bit arbi­trary.

I gen­er­al­ly just go to one of the big banks and look at what their inter­est rate is and look at the, they call the APR. Like the fore­cast of the mort­gage not just the inter­est rate but any fees that are in there as well, the com­pa­ra­ble rate sor­ry, or com­par­i­son rate and then I’ll use that as my thresh­old. Here again, no real sci­ence in that num­ber, it was just that his­tor­i­cal­ly, I have had some gear­ing in the port­fo­lio and I’ve been using div­i­dends to cov­er the inter­est pay­ments on that. For me, a com­pa­ny that has a yield high­er than the inter­est rate was a good thing just for my own per­son­al cir­cum­stances and I would score it high­ly. But it also turned out to be not a bad qual­i­ty met­ric for a com­pa­ny as well. That’s why that’s there.

And Yield minus PE, I’m not sure what we’re using that one for? Oh, yes, I do. Yes, of course. Way back when– I’m going back a long time now, there was a com­pa­ny called Jubilee Mines and it was a nick­el com­pa­ny. This is like in the last, maybe even the last– Before the last nick­el boom. Going back about 20 years ago now and I came across Jubilee Mines, again, search­ing for qual­i­ty com­pa­nies that had good yield so I could ser­vice my debt and it struck me as strange that the yield on Jubilee Mines was high­er than the PE ratio.

You can buy it so cheap­ly that the price you paid for it was com­ing back to you in div­i­dends or maybe a quar­ter of the price you paid. It was almost fund­ing itself in a very short time­frame, two, three, four years and from time to time com­pa­nies get into that sit­u­a­tion for what­ev­er rea­son that they, either their div­i­dend yields are quite high or their PE ratios are low because they’re under­val­ued by the mar­ket. But it’s a quick and dirty met­ric of some­thing which has deep val­ue any­way and it goes on the check­list there. I’m always search­ing for the next Jubilee Mines because it went up four or five times in a year. It was a home run in a very short amount of time as the mar­ket woke up to the fact that it was cheap and also there was– After I bought it, there was a boom in the nick­el price. Both those things could have coin­cid­ed and it was a bonan­za for investors. That’s why the yield minus PE num­ber is there. I said before about the yield greater than bank debt.

Cur­rent­ly, I’m using 2.69%. That num­ber will change and it’s a vari­able there for you guys. If you want to change it your­self and put your own thresh­old in there. If you want to look for com­pa­nies to ser­vice your own bor­row­ings, you can work out what your inter­est rate is and chuck it in there. Or you can use it just sim­ply as a way of test­ing for qual­i­ty in the com­pa­ny and just use your own mort­gage rate or a big bank mort­gage rate which is what I do and that’s the col­umn which is scor­ing that. In this case, again, GLE cor­po­rate– Or GLE or GLG cor­po­ra­tion is get­ting a score of one there because its yield is about the bank debt rate.

Mov­ing on all direc­tors’ hold­ings, we con­vert that to the units that we want to work in. In this case, we’re divid­ing it by a mil­lion and we’re get­ting a per­cent­age of hold­ings of all direc­tors which we’ll score in a minute. We do a big test here to see if the com­pa­ny is a Star Stock and you can see up here we’ve got all the nest­ed if com­bi­na­tions in there about whether it’s Star Income, whether it’s Star Growth, and you can also see we’re giv­ing it a score. Star Income Stocks have a score of point five, Star Growth Stocks have a score of one, and Bor­der­line Stocks have a score of 0.5 and then we have some stocks which are com­bi­na­tions of those things and we give them– The sum of those ones. If it’s a Bor­der­line Star Stock and also a Star Income star stuff, it gets a one. If it’s a Star Growth Stock and a new Star Income Stock, it gets 1.5, etc. That’s scored in that col­umn there and that’s what that test is for.

OK, that– This– These next few columns here and these ones here are all about– From was it BF– From AX to BF is a step by step, I guess break­down of the cal­cu­la­tion of what we talked about before about whether some­thing was in an uptrend or a down­trend. The share price being an uptrend or down­trend based on SDMAX being bull­ish or not and the price growth over the last six months and the last five years and that gets down to all those cal­cu­la­tions are there because they get quite com­plex because you– Some­times you’ll have some­thing which is going up in the last six months but not for the five years and some­times it was an invoice trend. We asked, again, this is like ask­ing ques­tions.

The col­umn head­ings say, do we have both the five year and six months change pos­i­tive? And then we have a test for that. Do– Is SDMAX bull­ish? We have a test for that. We sum those two togeth­er and if it’s greater than zero, I think we give it a one. If it scores on those items, we give it a one. But again, by all means, have a look at this and see if it sat­is­fies your need to auto­mate doing three-point trend­lines. If it came– It’s not bad but it’s not one to one, the cor­re­la­tion with a three-point trend­line analy­sis but I’ve left it in there, you can have a look at it and play with it your­self if you like.

OK, now we’re test­ing to see whether the share price is less than the Stock Doc­tor IV and recall that the Stock Doc­tor IV is only there for Star Stock. Not many oth­er stocks that we ana­lyze are going to have a Stock Doc­tor eval­u­a­tion. If they don’t, we defer to the con­sen­sus IV and we check to see if the share price is less than the con­sen­sus intrin­sic val­ue. If there’s no Stock Doc­tor intrin­sic val­ue, again, a lot of if state­ments in there. But basi­cal­ly, what it’s doing is doing that test which is what we’re talk­ing about.

There is a share price is the Stock Doc­tor IV or if there’s no Stock Doc­tor IV is less than the con­sen­sus IV. In some cas­es, it’s blank because we don’t have either. Again, because the com­pa­ny does­n’t have any bro­ker­age cov­er­age and it’s not a Star Stock. That’s why there are some blanks there. Again, anoth­er quick and dirty met­ric for val­ue and we’re rely­ing on oth­er peo­ple to cal­cu­late IVs there and the rea­son I’m doing that is because I said before, I do my own sim­ple cal­cu­la­tions for IV but it’s also– We should­n’t ignore what the mar­ket’s done in terms of a more tra­di­tion­al IV cal­cu­la­tion. I’m using those there as well. Stock Doc­tor haven’t released how they do their IV cal­cu­la­tion, they claim it’s pro­pri­etary but they have said it’s a form of dis­count­ed cash flow val­u­a­tion as I would think the con­sen­sus bro­ker­age num­ber would be as well, most bro­ker­age hous­es would do an intrin­sic val­ue cal­cu­la­tion based on some DCF and I often talk about mod­i­fied DCF because they have their own herbs and spices in there. But that’s essen­tial­ly a DCF type val­u­a­tion. We’re not giv­ing it much weigh­ing in the check­list but it goes get a score of one or zero as part of our, I like to call it the heat map of intrin­sic val­ue cal­cu­la­tion. We’re using ours, we’re using theirs, and we’re scor­ing it and they will go into the mix in terms of help­ing us under­stand whether we’re buy­ing some­thing for less than IV or not. But it’s not—

Again, it’s not the be-all and end-all. For me, the best indi­ca­tor of val­ue is that price to oper­at­ing cash flow ratio but these ones are sim­ply there as a way of of help­ing the rank­ing sort things through. Again, because like I said before, I don’t think any­one’s got– Has cor­nered the mar­ket on intrin­sic val­ue cal­cu­la­tions and it’s good to have a num­ber of dif­fer­ent ones, a num­ber of dif­fer­ent ROEs in that quiver, if you like.

Con­sis­tent finan­cial health we spoke about before, that’s the Stock Doc­tor health rat­ing and as you can see up here in the cal­cu­la­tion, we’re check­ing to see if it’s steady or not. We give it a one. Recov­er­ing, we give it a two which is some­thing I like because again, that’s more for­ward look­ing, I guess, than the steady state one and I’ve seen in the past that recov­er­ing can be– The com­pa­nies that are in the recov­er­ing process can often also be in an upward growth process­es, espe­cial­ly in terms of their finances. Dete­ri­o­rat­ing gets a minus one and if there’s noth­ing there, we get a blank. That’s what that score is for.

And then we come to– Some of the ones that will have to refer to the man­u­al­ly entered scores spread­sheet, which I’ll jump to there but just to show you where it is on our spread­sheet. But at the moment, this is refer­ring to the man­u­al entrance, man­u­al­ly entered scores spread­sheet and it’s going to give us a score if we have a qual­i­fied order or not and I think I can– I might just leave that till the end to go through and show peo­ple how to get a qual­i­fied audit or would you like to jump to it now?

Cameron  1:16:32

Now, let’s do the man­u­al data as a sec­ond step after this and–

Tony  1:16:36

Yes.

 

 

Cameron  1:16:37

Some­body, I can’t remem­ber who it was, some­one was hav­ing an email thread with me today and we’ve decid­ed we’re going to call it a red flag order but there you go.

Tony  1:16:46

Red flag. All right. But the ter­mi­nol­o­gy used in invest­ing cir­cles is a qual­i­fied audit. But yes, OK I under­stand. We’re check­ing to see if it’s a Star Stock. Basi­cal­ly, what I’m doing here is I’m start­ing to put into these check­list columns, all of the scores and then I’m going to sum them up at the end and give it an over­all QVA– The over­all qual­i­ty score first of all. There’s a cou­ple of blank columns here, I’ve recent­ly tak­en out some of the check­list items and they– I think they all relat­ed to the fact that we used to have anoth­er stock screen­ing tool called share analy­sis which unfor­tu­nate­ly, went bel­ly up last year so we don’t have access to that any­more. I haven’t delet­ed those columns and if you want­ed to, you could just go across and close them off so that you can ignore them in your own spread­sheet ver­sion.

If I delete them, it’s a fair bit of work to go back and make all the ref­er­ences in the Vlookup tables, mar­ry up with ref­er­ences to oth­er ones like the man­u­al­ly entered score. I can just to clear things out and leave those columns blank for the moment. One day, we’ll pay some­one to come through and clean all this up. But at the moment, it’s fine the way it is, it does­n’t hurt. But there are a cou­ple of blank columns in there.

OK, we’ve got price less than or equal to the Stock Doc­tor IV. Again, we’re scor­ing that com­pared to our IV1 and IV2 cal­cu­la­tions. We’re scor­ing that is the price to book less than 30%. It’s there is a three-point uptrend and that will be scored. That will be some­thing we’ll talk about in a minute in the man­u­al­ly entered data tab record low six PEs in the man­u­al into data. We’ll talk about that in a minute when we’re doing our three-point trend analy­sis which we’ll spend some time on. I’ve found that if some­thing is new­ly turned upwards, it’s prob­a­bly the best time to buy it because it’s got the most upside and again, I think it’s worth­while say­ing that all of these met­rics and scores are sta­tis­ti­cal in nature and it’s designed to give us the best chance of buy­ing into a com­pa­ny that’s going to improve and share price but it does­n’t always work out.

The idea is it works out more times than not and a com­pa­ny that share price may have recent­ly turned up, of course, the share price can turn down again, it’s just a line on the graph. There’s a lot of oth­er things that play besides whether the share price has momen­tum or not. But any­way, I have found that the best time to buy a stock is when it’s at the bot­tom and it’s turn­ing and just start­ed its upward jour­ney and we’ll talk about that more when we start to look at sen­ti­ment graphs.

Here’s the score for growth over PE being greater than 1.5. The score for price to book con­sis­tent­ly increas­ing equi­ties and man­u­al­ly entered data one so we’ll get to that in a minute. The PE less than yield, we’ve got else­where in the check­list. These are all repeat­ing so that I can sim­ply go across at the end here and sum them up. Just to fin­ish those off, we’ve got PE less than yield greater than bank debt, health sta­ble or increas­ing IV to being twice the share price, cash flow per share less than sev­en, and that gets a two because at the moment, it might actu­al­ly get more our– In turn, Dylan Beau­mont has done some work on that which shows it is the heavy lift there in our cal­cu­la­tion. Val­ue is much more impor­tant in cre­at­ing a check­list than the qual­i­ty items, that’s some­thing I found over time.

I did at some stage is to have a qual­i­ty thresh­old in my scor­ing of 75%. But I’ve also found that was a bit of an arbi­trary num­ber and that we could get some good buys for com­pa­nies that had a low­er score if they had a low price to cash flow ratio. Any­way, this is going to count all the items that the com­pa­ny has scored and then the score and then divide one by the oth­er. Just to explain that, if we look at say, this com­pa­ny here. Again, GLE. I’ll use anoth­er one form group; it’s got a blank for fore­cast IV being twice the share price. We don’t have a score for that.

This met­ric here, a num­ber of items is sim­ply count­ing how many columns have we scored the com­pa­ny on and then it’s adding out the scores to give us the score that we were able to get. You can see that in not every case can we get enough data to score every met­ric. This com­pa­ny here Vir­gin Mon­ey, UK, we’ve got 15 items. This one down here, Cash Con­vert­ers, we have 16. 16, I think is about the total but not all com­pa­nies will have enough data. For exam­ple, there might not be a con­sen­sus earn­ings per share fore­cast for them. Some com­pa­nies, we don’t have a lot about them. Kan­ga­roo Island Plan­ta­tion Tim­bers here, we only have nine met­rics that we can score them on but they score pret­ty well on those nine. They get a score of six out of those nine and there­fore a qual­i­ty score of 67%.

Now, in terms of the QAV score, what we’re try­ing to find is a high num­ber in the qual­i­ty score and a low num­ber in the price to oper­at­ing cash flow. We sim­ply divide the qual­i­ty score by the price to oper­at­ing cash flow and we get to QAV score. It’s the mar­ry­ing togeth­er of the qual­i­ty of the com­pa­ny and how cheap­ly we can buy its oper­at­ing cash flow for? And then you could say it is fair­ly arbi­trary. We then rank these com­pa­nies and we’re look­ing at ones that have a score of 0.15 or bet­ter as being some­thing we want to invest in and if I go down the list here, you’ll see that as the fur­ther down I go, there are num­bers which fall below com­pa­nies– Which fall below that num­ber.

Ori­gin Ener­gy, for exam­ple, has a score of 0.07. Now, 0.1 is arbi­trary, right? The rea­son why I set­tled on 0.1 is that I don’t want to boil the ocean and work on every com­pa­ny in the ASX because I know I’m not going to be inter­est­ed in the ones that have high priced oper­at­ing cash flow ratios or that have poor qual­i­ty scores or var­i­ous com­bi­na­tions of both of those. I just said, let’s look at the ones above 0.1 and rank and focus on those. Now gen­er­al­ly, that’s going to give us a list which has more than 20 shares and it cer­tain­ly has since I’ve been doing this and at the moment, com­ing out of COVID in par­tic­u­lar, the num­ber of com­pa­nies which score at 0.1 or bet­ter is more like 120. There’s a lot of com­pa­nies to work with. You could say, why don’t you raise the QAV thresh­old than you could to work with a small num­ber of com­pa­nies? But I think one of the things I like about the check­list is you can fil­ter the QAV score and the com­pa­nies in the QAV top scor­ers list any way you like and you might want to just focus on those which have a QAV score of 0.2 or bet­ter, for exam­ple, or you might want to look at those which pay a high div­i­dend because you’re look­ing for income. Or you might want to look at those as I do which have a very large aver­age dai­ly trans­ac­tion vol­ume. I main­tain the 0.1 num­ber but please don’t think it’s any­thing sci­en­tif­ic. It’s just try­ing to man­age the list going for­ward that we can have a small enough amount of com­pa­nies to do fur­ther analy­sis on that. That’s use­ful to us. But yes, set the num­ber of what you like. That’s the QAV score.

I think the rest of these are just tak­ing items from oth­er parts of the spread­sheet. This is basi­cal­ly sen­ti­ment which we’ll talk about in a minute and aver­age dai­ly trans­ac­tion vol­umes and the rea­son why I’ve got these columns here is because it’s, I find it easy. But the things I’m most inter­est­ed in when I’m doing analy­sis is qual­i­ty score, QAV score, does­n’t have a qual­i­fied audit, the cal­cu­lat­ed sen­ti­ment. Again, I said was some­thing that we were play­ing with in the past. I don’t nec­es­sar­i­ly use it now and you can see here, this is the three-point trend line analy­sis I’ve done man­u­al­ly myself. It does often cor­re­late but does­n’t always cor­re­late.

Here’s an exam­ple where dur­ing the cal­cu­la­tion of SDMAX from Stock Doc­tor being bear– By being bull­ish or bear­ish and then the price change over six months and the price change over five years and cal­cu­lat­ing whether we think the share price is in an uptrend based on those things or not, can have a dif­fer­ent num– Dif­fer­ent score. But if you go through it, it’s not too bad in terms of its cor­re­la­tion. If you’re find­ing that it’s dif­fi­cult for you to do three-point trend lines auto­mat­i­cal­ly, you might want to have a look at that cal­cu­lat­ed sen­ti­ment col­umn and use that as your start­ing point to see what that comes up with and then go and have a look at the share price graph and it might help you clar­i­fy your think­ing about whether it’s in a three-point uptrend or not. Any­way, that’s why that’s there.

And then the aver­age dai­ly trans­ac­tion vol­ume is there. They’re the ones I focus on, they’re in the last columns of the spread­sheet, even though they’re repeat­ed ear­li­er in the spread­sheet. It look it’s a large spread­sheet, some might say unwieldy and I know that the foot­man one can be used as well and it’s prob­a­bly a bit more stream­lined. I still use this one because it’s the one I’ve used all along, I know all the nuts and bolts are and what I’m look­ing for and how to manip­u­late it. It does have some his­tor­i­cal stuff in there that we’re not using much any­more. But it’s– Once you get the hang of it, it’s a pret­ty– You’re not touch­ing most of the spread­sheet. You’re down­load­ing data from Stock Doc­tor and it’s doing all the cal­cu­la­tions for you and then I come across and look at these last half a dozen columns and I can get some quick and dirty or quick and not dirty, I should say real­ly quick and help­ful scores on what to look at. That’s the col­umn by col­umn.

We’ll just have a quick look at the man­u­al­ly entered scores tab now because these are the ones which are down­loaded from Stock Doc­tor and then cal­cu­lat­ed but that cal­cu­la­tion process also requires a bit of man­u­al input into the score. If I just quick­ly run through those, this spread­sheet here. Because it’s ref­er­enced by the oth­er spread­sheets, it needs to be kept in alpha­bet­i­cal order because we’re using what’s called Vlookup func­tion in Excel which is a bit dif­fer­ent to the Flip­man mod­el ver­sion which uses a dif­fer­ent way of cre­at­ing a data­base or a table to look up. But any­way, this is the way that I’ve learned over the years to do it. From time to time, we’ll find that we might get an error after we do a down­load on some of the items over here. It’ll say some­thing like NA and gen­er­al­ly, that will be on things like– It’ll be on things like the price to record low six PEs, for exam­ple, it might say NA and the rea­son for that is it’s try­ing to look up a com­pa­ny like Apol­lo Tourism and Leisure in this data­base of com­pa­nies here and Apol­lo Tourism and Leisure isn’t there because we have nev­er down­loaded that before.

In that case, you do have to come up to the right alpha­bet­i­cal line and add ATL in here. ATL is here because we’re scor­ing it but the first time ATL appeared in down­load, you’d have to come in, do an insert, and put Apol­lo Tourism and Leisure there and then fill in the data for it and then when you go back to the down­load data page, it will have num­bers there and it won’t say an error any­more. That’s some­thing to be aware of when you’re doing down­loads. I mean, after doing this for the last cou­ple of years and it hap­pens less and less. Gen­er­al­ly, the com­pa­nies that we’ve down­loaded before, some­times they dis­ap­pear, of course, because they go off the check­list. But it’s fair­ly rare instances that we get a new com­pa­ny com­ing on to our check­list that we haven’t seen before and– But if it hap­pens and this is where you go to enter it in and it must be done alpha­bet­i­cal­ly. Sen­ti­ment con­firmed.

This is prob­a­bly the work­horse of where I do a lot of work when I’m need­ing to do analy­sis on tocks and there’s a whole– I think we’re going to do an episode on or at least just some ques­tions about this com­ing up in the pod­cast. But some­one asked, what do I do when it’s not com­pa­ny report­ing sea­son or not buy­ing or sell­ing stocks? Often­times, it’ll be an item I read in the news­pa­per, for exam­ple, about a par­tic­u­lar stock or a par­tic­u­lar indus­try that I want to research and I’ll come in and it might be in the gold min­ing sec­tor or the price of gold’s gone up or down or what­ev­er. I’ll come in, and I might go and look at the sen­ti­ment on the graph of that par­tic­u­lar stock. I might go and then change it, for exam­ple and what I tried to do, although I can see I haven’t done it for a lace of gold [Sysco 01:31:12], sor­ry. I must­n’t have looked at it for a while but I will—

Every time I’ve come in and looked at sen­ti­ment and either change that or not. I’ll reg­is­ter the date of when I last had a look at that com­pa­ny here and that’s just makes it easy for me to see that. If, for exam­ple, I’m check­ing the sen­ti­ment on this com­pa­ny here. Ash­ley Ser­vices Group, back in Sep­tem­ber, it did­n’t have a score. We thought it was­n’t in an uptrend for us to buy but it might be the case if I go and have a look at Ash­ley now that is in an uptrend to buy. That’s a way of of decid­ing whether or not to do any fur­ther analy­sis based on sen­ti­ment. If the last date checked, if I have a look at some of these down here. If the last date checked was in the last cou­ple of weeks or the last month or so. Here’s one CogState, 24th of May was the last time I looked at it and it was in pos­i­tive sen­ti­ment. I prob­a­bly would­n’t go back and look at CogState for a while and just rely on the fact that I looked at it a week or two ago and it’s prob­a­bly not going to have changed. That’s just a help­ful thing there for me to short cir­cuit the sen­ti­ment trend check­ing.

But this is the col­umn where we go through and we– I record man­u­al­ly whether it’s in a three-point trend up. If it’s above a three-point trend line or if it’s below at three-point Sell Line, three-point Buy Line or three-point Sell Line that’s there, and we’ll talk about those sep­a­rate­ly in a lit­tle while and how to do that.

Next thing is. Sor­ry [Crosstalk 01:32:50].

Cameron  1:32:52

Phillip got a ques­tion.

Tony  1:32:53

Sure.

Cameron  1:32:53

Phillip, do you want to ask it your­self?

Phillip  1:33:01

Yes, good day guys. I think I was just won­der­ing, back in the man­u­al­ly entered data com­pa­ny name. Exam­ple, The Humm Group recent­ly rebrand­ed itself.

Tony  1:33:01

Yes.

Phillip  1:33:14

We need to go back to that page and insert Humm Group at the cor­rect place?

Tony  1:33:18

You do. Yes, you can see it there. I had to do that when it rebrand­ed. Just have a look and see if Flexi Group’s still there which is its old name. I think it’s FXL. Yes, I did­n’t both­er to take Flexi Group out. There was no need to do that but I did have to go and put Humm Group in and you have to do it in the right alpha­bet­i­cal place. Again, if you don’t, you’ll get an error when it refers to it in the Vlookups in the QAV down­load data tab.

Phillip  1:33:50

All right.

Tony  1:33:51

All right. Good.

Phillip  1:33:52

Thank you.

Tony  1:33:53

Yes. Qual­i­fied audits. Now, do we want to go through and look at the qual­i­fied audit, Cam?

Cameron  1:33:59

Well, I think we will but let’s just take a break for a sec­ond. I think we should do some charts maybe before we do that. But does any­one have any more ques­tions while Tony takes a sip of a drink and rests his vocal cords?

1:34:24

No? Well, while he’s tak­ing a break there what I’ll say and I said this on the show, I think this week. What I found is, this looks– I know for peo­ple that are new, this can look pret­ty daunt­ing. But as Tony said, when you’re actu­al­ly run­ning a check­list for your­self, it’s actu­al­ly not that huge, or no deal par­tic­u­lar­ly when you’ve got a bit of prac­tice with it.

You do the Stock Doc­tor down­load which will show short­ly you just dumped that data in most of the cal­cu­la­tions are then done for you out­side of the man­u­al­ly entered scores and then we will usu­al­ly fil­ter it and we’ll show this live lat­er on price to oper­at­ing cash flow that’ll knock out a large chunk of the com­pa­nies, you’re left with a first short­list and then I’ll stack rank by QAV score, the pre­lim­i­nary QAV score, high­est to low­est and then I’ll start look­ing at the charts to do the sen­ti­ment. What I’ve found is that when I’m doing this, look­ing at sen­ti­ment, look­ing at the charts, when you get used to it, it’s most of them are rel­a­tive­ly easy to do, there are still some tricky ones. But usu­al­ly, they’re pret­ty straight­for­ward when you get used to them and you can pret­ty quick­ly give it a yes or no rank­ing on that and then that will knock out anoth­er 50% of what was in the first short­list. Then you’re left with the short list. Maybe, Tony, if we can do a cou­ple of charts? And peo­ple can– Peo­ple will prob­a­bly have a ton of ques­tions. I don’t know where you want to start with, charts you want to?

Tony  1:36:07

Yes, and just to go with what you’re say­ing on that line of ques­tion­ing. You can leave the qual­i­fied audit check until the very end if you like. There’s no need to go through every com­pa­ny on this spread­sheet and have an opin­ion about its order or do it sen­ti­ment check. Yes, as Cameron said, I do it iter­a­tive­ly. You go through and as you down­load data you get most of the input there; you can start to look at the list there. If you want­ed to decide you might want to look fur­ther at some­thing and then go in and put the man­u­al­ly entered data in, then look at the chart, then look at the qual­i­fied order if you still think you might want to buy it, it’s a fun­nel­ing research process. You don’t have to have a per­fect top scor­ers list every time you do a down­loads. Well, I guess what we’re say­ing is, it’s dif­fer­ent if you know when to buy or sell some­thing. But again, if you do it iter­a­tive­ly then when it comes time to make that deci­sion, if you find that you haven’t got all the columns filled out, you’re only fill­ing them out for a cou­ple of com­pa­nies not a whole lot.

OK, let’s do charts. Does any­one want– Do you want to nom­i­nate one to look at? Or should we just pick a few or what? Do peo­ple have favorite ones you want to talk about or prob­lem ones you want to talk about?

Cameron  1:37:33

Well, actu­al­ly, as a sug­ges­tion, why don’t we jump to a down­load, do a fresh down­load, and then go through the process of doing the man­u­al data for stocks in the down­load–

Tony  1:37:46

Sure.

Cameron  1:37:46

Some of them.

Tony  1:37:47

Alright. OK, at this stage the– You can see that the spread­sheet has some win­dows in it to make it– Some frozen win­dows in it to make it easy to scroll through and work with. The first thing I’ll do before I do a down­load is I’ll just go into the Excel oper­a­tion and win­dows and unfreeze the panes and you can see now that I can see the fil­ter matrix over here as well which are at the top. Then I will go into Stock Doc­tor now. Cam, tell me if I lose you with the screen shares here.

Cameron  1:38:26

OK.

Tony  1:38:29

Can you see that I’m in Stock Doc­tor now?

 

Cameron  1:38:32

No, still see­ing Excel.

Tony  1:38:34

1. Let me just try and change that for you then. OK. How’s that?

Cameron  1:38:46

Yes, that’s good.

Tony  1:38:47

Good. All right. That’s the home­page for Stock Doc­tor. You get a bit of infor­ma­tion there about how the mar­ket’s going. There’s a share price graph. There’s some inter­est­ing stuff up here about dif­fer­ent things you can graph like com­modi­ties and here they’re say­ing that there are 17 out of the two and a half thou­sand com­pa­nies on the share mar­ket. 76 of them are either Star Growth, Star Income, or Bor­der­line Stocks. It’s a fair­ly exact­ing and rig­or­ous process they go through in cal­cu­lat­ing those stocks in. In some respects, it’s a bit like ours because we have about 110 and 120 QAV com­pa­nies on the list. But any­way, once I get to the front page of Stock Doc­tor, we go into tools and in the very first thing is called stock fil­ter and then I have a fil­ter set up here called QAV and before– I might recall before I spoke about the GICs clas­si­fi­ca­tions here, it used to be that we had them all ticked but I unchecked the unclas­si­fied box because that’s where the– A lot of the ETF com­pa­nies live and we don’t want to put those into our fil­ter.

Then if I go down, you can see all the things that we fil­ter on here and these are basi­cal­ly all the columns that we spoke about before in the check­list. We’ve got things like equi­ty, aver­age dai­ly trades, earn­ings per share, etc. and they’re all there and they can be edit­ed, if you want to. I tend not to touch them because they line up with the spread­sheet but that’s the fil­ter. Cam, we share that? Is it in the Bible or is it some­where else?

Cameron  1:40:41

Yes, those are all in the Bible.

Tony  1:40:43

OK, they’re all in the Bible, you need to set them up like that and I think also to get them in the right order because that will mar­ry up with the spread­sheet and then you do a run and it’s quite quick and there are the– There’s the out­put there and then we’re going to save it to a CSV which is very old IT, speak for com­ma sep­a­rat­ed val­ues file. It’ll take you to a blank screen which means it’s been down­loaded and on the Mac, you can see it here in the down­loads sec­tion. But the next thing I do is I’ll jump back into Excel now and we’ll get us back to the cor­rect Excel spread­sheet and now I will open the down­load. I’m run­ning a Mac here, it’s always in my down­load file and it’s fil­ter num­ber 70. I’ve done a few down­loads over the years. I’m going to open it up.

OK, the first thing to notice is the top line gives us a date and time­stamp which is always good to–

Cameron  1:42:02

Sor­ry, we’re still see­ing your check­list Tony.

Tony  1:42:05

Oh, right. Yes, OK. Because every time I open a new win­dow, then I must. This one fil­ter. How’s that?

Cameron  1:42:14

That’s good. Thanks.

Tony  1:42:15

Good. Sor­ry. OK, first thing we can see is the date and time­stamp and then all the cri­te­ria that were in the fil­ter are also list­ed and then we come down to the data here. I’m just going to scroll across because this is just the down­load data, it fin­ish­es in col­umn ID which is dif­fer­ent to the mas­ter check­list which keeps going. Just bear that in mind when you’re copy­ing and past­ing, you don’t want to select the whole spread­sheet. You just want to select the data up the col­umn ID. I’m just going to do that. Ao across to ID and go down. Now, I’m just going to copy, paste this. Just a straight copy, paste and I’m going to go back to the mas­ter spread­sheet and I have to change the screen shar­ing for that. You can see that Cam now? We’re back to the mas­ter.

Cameron  1:42:15

Yes. All good.

Tony  1:42:15

Good. OK. Yes, the last time I did it was the 31st of May. I’m now going to over­write the data that was down­loaded last time with the new data. I’m doing a paste. OK, and you can see that the data is there. The first thing that I need to check for is that this new down­load might be a dif­fer­ent length to the pre­vi­ous down­loads. I’m going to scroll to the bot­tom. As it turns out, it’s at least as long if not longer than the last down­load. Some­times you’ll see there are still rows in the spread­sheet there and it’s worth delet­ing those because once we do a sort, they’ll mud­dy up the sort, you’ll see– For a par­tic­u­lar com­pa­ny, you’ll see two entries for it. Just make sure that you don’t have any excess data there and I also go across to– As I said before, the down­load data from Stock Doc­tor goes up to col­umn ID and then we start doing our cal­cu­la­tion. You can see that in this case, there is an extra four com­pa­nies down­loaded with this down­load com­pared to last time. I just need to go across and copy the cal­cu­la­tion cells down oth­er four lines so that we get scores for those extra four com­pa­nies that were down­loaded.

OK, that’s that. Now I just do a bit of cos­met­ic work here. I’m going to take the date and time­stamp and I’m going to copy it down to the bot­tom down there. That’s the row that’s emp­ty after it says 6900– 692 records were returned. I’m going to put that there. I’m going to bold it so it’s easy to read. The rea­son I’m doing that is because I’m now going to freeze the panes so I can scroll through this eas­i­ly and I’m going to freeze them in col­umn C there. Going into the win­dows tab, freeze panes, and that now allows me to scroll and still have the com­pa­ny name at the start of the row and when I go down, I’ve got the col­umn head­ings in place and I copy that down there so that I can be aware of when that last­ed. If I come back to this spread­sheet next week, I know when I did my last down­load, I would­n’t see it because I’ve frozen the win­dows if I did­n’t do that.

OK, now I’m going to go through– The first thing I’m going to rank is price to oper­at­ing cash flow. Just go across to the end and then down to the bot­tom and I’ll do a sort and my list has head­ers and because I’ve done it before, it’s giv­ing me the, it’s already pre­filled out. The fact that I want to sort on price to oper­at­ing cash flow, small­est to largest. If you’re new to this, you’ll need to go through and just select that from a drop down box. We’re basi­cal­ly doing a sort on the small­est price oper­at­ing cash flow to the largest, I’ll just do that and again, it’s– The rea­son why I do that is that, again, it’s an inter­me­di­ate step but I’ll go across to that col­umn where price to oper­at­ing cash flow is which is col­umn AG, price to oper­at­ing cash flow and what I’m going to do is just go down to when the score is greater than sev­en. I’m just scrolling down here and I get to the last one and I’m going to be con­cerned with is SLK, SILK Laser, Aus­tralia has a priced oper­at­ing cash flow of 6.99. All the rest are above that.

Just for– Again, for ease of use, I’m going to leave those uncol­ored and I’m going to col­or the rest red and I’ll tell you why. The rea­son I do that is because if I’m doing some research on a com­pa­ny. For exam­ple, like I said before, if I read in the finan­cial review that there’d been a some big move in gold price and I want to have a look at gold stocks or if I read an arti­cle about a par­tic­u­lar com­pa­ny and I want­ed to see if it was on– If it’s one that we need to be con­cerned about, if I just sim­ply look it up. What’s a good exam­ple? Have a look at Wool­worths. I’ll search on Wool­worths and straight­away, I can see that the price to oper­at­ing cash flow was not less than sev­en and there­fore, I don’t need to go any fur­ther in terms of analy­sis, it’s not going to score well with us. It’s this this col­or cod­ing isn’t used dur­ing our check­list scor­ing pro­ce­dure but I do find it use­ful when I come back in time and do some quick analy­sis on the com­pa­ny if I know straight away whether its price to cash flow is above or below sev­en. That’s the first thing I do.

Next thing I do is I’ll work from right to left. But I’m going to go through and I like to delete the ETFs enlist­ed invest­ment com­pa­nies. You can leave them in, does­n’t make any dif­fer­ence. Just be aware though that what we found over the last 12 to 18 months is that they don’t per­form as well as invest­ing in a com­pa­ny– An oper­at­ing com­pa­ny rather than an ETF or an LLC and I guess the flip side of that is if we can find an LLC or ETF that works bet­ter for us in the QAV method, then we should put our mon­ey into that but that’s pret­ty rare, I think and I cer­tain­ly haven’t found one that does it con­sis­tent­ly over a long peri­od of time. I’m look­ing for diver­si­fied finan­cial. I go down and search on diver­si­fied finan­cials. I am hop­ing to find a way of automat­ing this in our down­load but at the moment I haven’t. Clearview wealth I know is an oper­at­ing com­pa­ny from mem­o­ry. It pro­vides plat­forms to the finan­cial advice indus­try. Pio­neer Cred­it is a is a cred­it com­pa­ny. Cash Con­vert­ers, I think we all know what the Cash Con­vert­er is.

Eclipse group is a vehi­cle leas­ing com­pa­ny. Humm Group we just spoke about before. It’s the old Flexi group that pro­vides cred­it and retail stores. But here we go, Con­tan­go Income Gen­er­a­tor, I know is a list­ed invest­ment com­pa­ny.

And I can if I’m not sure, let’s go back into it Stock Doc­tor and I’ll just share that screen with you again. If I go back into the main page of Stock Doc­tor and the com­pa­ny code was CIE, Con­tan­go Income Gen­er­a­tor Lim­it­ed. I can go in here and I can see that it says here in the ana­lyst com­ment sec­tion. It’s the list­ed invest­ment com­pa­ny and we’re not going to be wor­ried about that dur­ing our QAV scor­ing process and there’s more infor­ma­tion down here but it also talks about being list­ed invest­ment com­pa­ny. I’m going to delete that.

You don’t need to, you can leave it in there. But again, as the last stage of your process, before you might decide to buy this one, just check and make sure it’s not an LLC or an ETF. Noth­ing wrong with buy­ing into LLCs and ETFs and com­ing out of the GFC– Oh sor­ry, out of the COVID cough, there was a cou­ple of geared ETFs. One for these high­er sec­tor, one for the US that kept pop­ping up on our list and they did well. But I’m assum­ing that because they’re geared that as soon as things turn down, they’re going to do worse than nor­mal so just be care­ful with them. But I’ll delete CIE and let’s just keep going in diver­si­fied finan­cials.

Cameron  1:51:26

We can still see your Stock Doc­tor win­dow, Tony.

Tony  1:51:28

Oh, sor­ry. OK, thanks for that. There we go. OK, I’m just going to keep going down through diver­si­fied finan­cials here. Prime Finan­cial Group is not an LLC [Sysco 01:51:50]. Pros­per group, I’m not sure just– Actu­al­ly, it’s not worth going through and doing that now. I’ll just– Even if I leave them in, that’s fine. I’ll just– You just need to be aware that you have to make a con­scious deci­sion. If you’re think­ing about buy­ing into it to check to see if it’s an ETF or not. Bill Finan­cial Group isn’t. It’s a stock bro­ker, etc. Basi­cal­ly, cap­i­tal is a man­aged fund. I’ll get rid of that.

Any­way, that’s the next thing I would do is to man­u­al­ly go through. It’s not an oner­ous task. It might take you 10 min­utes to do that but that’s delet­ing the LLCs and ETFs and I do hope that we get a man­u­al process to do that at some stage. Next thing I’ll do is, as I said before, look at the last peri­od ana­lyzed, it’s not going to be all that rel­e­vant to us at the moment. But dur­ing com­pa­ny report­ing sea­son, it’s incred­i­bly impor­tant to know whether you’re work­ing with the most recent results or the old results. Come August and we get to the stage of doing down­loads. I want to know in par­tic­u­lar, because I’m look­ing at the June 2020– 2021 num­bers here and not the Decem­ber 2020 num­bers. It is a lit­tle bit impor­tant now, for exam­ple, if I was think­ing about con­sid­er­ing about mak­ing a pur­chase of Thorne group, I might hold off because we’re still using Sep­tem­ber num­bers and we’d real­ly want to see the March num­bers at this stage. They should have come through by now.

I’m not sure why they haven’t in Stock Doc­tor. Most com­pa­nies will have a Decem­ber or June report­ing date. A small num­ber will have March and Sep­tem­ber and a small num­ber, again, will have oth­er type. Dates and retail­ers are one of those which have gen­er­al­ly a Jan­u­ary and July finan­cial year end or finan­cial year half– Finan­cial half date and the rea­son for that is because of Christ­mas. Com­pa­nies like Mai do most of their trad­ing in the Christ­mas sea­son. I don’t want to be try­ing to roll off their books on Decem­ber 31 and wor­ry about get­ting all the num­bers accu­rate when there’s lots of stock mov­ing around. But most of them, you can see here, Decem­ber 2020. Some­thing to be aware of there.

Next, I’m just going to go across. The next thing I’m just look­ing for is if there are any errors, if I can see some of those NAS or what­ev­er, it’s just the Vlookup table needs to be hav­ing new com­pa­ny insert­ed but I’m not see­ing any with this down­load. That’s fine. I’ve done all of that work now. Now, I’m going to want to look at start­ing to put in some of the man­u­al­ly entered data scores and again, you could go through and sort them all first which is what this spread­sheet does– This tab in the spread­sheet, sor­ry– Into their QAV scores and then if you want­ed to, then go back and put the man­u­al­ly entered data there if you see it’s not there. But gen­er­al­ly what I do is, I’ll first of all scroll up and down these last cou­ple of columns here and I’ll make sure that I have either a no or yes or a zero in there.

Here we go.

What’s this one? MOQ lim­it­ed. MOQ, I’m guess­ing has­n’t been added to the check­list yet. I’m get­ting a– Sor­ry, I’ll just do that again slow­er. I’m doing a search on MOQ and it’s telling me that it can’t find it and I’m in the man­u­al­ly entered scores data tab. I’m going to have to go down and look up for a place to put MOQ in and of course, the fac­tor that’s come up for the first time on our down­load means it might be worth look­ing at. MOQ is going to go after MOG and before MOT. I’ll do an insert and it’s MOQ and I’ll go back to the down­load sheet. It’s just sim­ply called MOQ Lim­it­ed but I’ll copy that across.

And now we have a com­pa­ny we need to add some data for. That’s where we’ll start. Why don’t we have a look at the sen­ti­ment chart on MOQ as a way of start­ing our process? I’m going to have to go back into Stock Doc­tor and change the screen share and then go up and find MOQ. I’m not famil­iar with this com­pa­ny either by the way, it’s going to be a learn­ing for all of us. MOQ Lim­it­ed and the first thing I’ll do is usu­al­ly just have a look at it. It’s the for­mer­ly known as Mon­tek Hold­ing. I’m in the prin­ci­pal activ­i­ties sec­tion in Stock Doc­tor and it says it’s a busi­ness that pro­vides a range of ser­vices and solu­tions to enable dig­i­tal busi­ness trans­for­ma­tion includ­ing con­sult­ing, inte­gra­tion, and man­aged ser­vices across appli­ca­tions data and infra­struc­ture plat­forms.

Essen­tial­ly an IT com­pa­ny and a con­sul­tan­cy in that space. Any­way, I’m going to go into the advanced chart­ing sec­tion of Stock Doc­tor and I now have a chart for it. Now, the first thing that I do when I look at dis­cussing or check­ing sen­ti­ment is I can see rough­ly that it’s been in a down­trend. But in the last– What’s that? From about March 2020 onwards, it’s been turn­ing up, since the COVID cough, it’s been recov­er­ing well. The ques­tion is, has this new uptrend cov­ered off on it exceed­ed the pro­ceed­ing down­trend? I guess is the way to put it and I know if I would take a ruler out and put it across those peaks but you won’t see that.

I’m just going to do it here using this. I have a sen­si­tive mouse that likes to redraw things for me. There’s the high­est point on the on the graph and I then look for the next high­est point to the right and I’m going to draw a line that comes down through all of those and the eas­i­est way to do it with­out hold­ing a ruler up to the screen is to go into that lit­tle sec­tion is a cam­era icon and it’s called charts snap­shot. It’s now just down­loaded a copy or a pic­ture of that chart and there it is there and now I’m going to be able to draw a line. Sor­ry. Up here. I’m using pre­view which is where I’ve opened the pic­ture of the chart in. I’m going to anno­tate a line so I’ve gone into pre­view tools. Anno­tate line.

Cameron  1:59:23

[Inaudi­ble 01:59:26].

Tony  1:59:25

Sor­ry?

Cameron  1:59:25

Screen share it.

 

Tony  1:59:27

Oh, sor­ry. Yes, got you. OK, where are we? There and share. Thanks for that. Sor­ry about that. Now, first of all, I’m going to see if it has a Buy Line. I’m going to just out of con­ven­tion, use green and I’m going to go across to that top point and the sec­ond point and just get a line that touch­es those two points to start off with and that’s about it there. I’m going to extend that line out and you can see it was a buy. It– The share price graph went above that line back here in about– Looks about August 2019.

The next ques­tion is, was there a sell since then? I’m going to draw a red line. Sor­ry. I’m going to go back up into tools, anno­tate line and I’ll make it red because we’re see­ing if there’s a Sell Line fol­low­ing that Buy Line and even though that’s the low point on the graph down there, we’re look­ing at whether look­ing at the low point that pre­ced­ed the buy to see when the next sell was, if that makes sense and we can see that the low point that came before we decid­ed to buy the shares was there and the next low­est point to the right was there. We can see pret­ty sim­ply that we would have sold the shares going into the COVID cor­rec­tion back in Feb­ru­ary or March of last year.

Then, what we want to do is, we want to see if there has been an anoth­er Buy Line that fol­lows that Sell Line. We’re trac­ing the his­to­ry of it and ask­ing whether we– Tell us that– Tell us the buys and sells lead­ing up to today, basi­cal­ly. I’m going to make this one a green line. I’m going to go back up to the high­est point. But now I’m look­ing for a point to touch which is going to have the line extend past that sell. OK, and we’re see­ing that’s cross­ing there. This is some­times referred to as the right­most peak. I know that’s the right­most peak there but it’s touch­ing a peak there and the line is able to go from that high point, touch that peak, and cross the share price graph after the sell line. We’ve had a buy, a sell, and anoth­er buy and the very last thing we have to check is, is there a sell fol­low­ing that buy? I’ll just draw one last line and I take line red. There’s the low point and there’s the next low point and we can see that it’s quite a way above the sell line.

Now, as I said before, these are just lines on the graph. But a cou­ple of– Just a cou­ple of points to make about this process. One is, I use a five-year month­ly graph and we could use two years week­ly like Stock Doc­tor does. We could use any– We could use a dai­ly graph; the– You can real­ly go down the rab­bit hole on this stuff which is called tech­ni­cal analy­sis. It’s basi­cal­ly using the share price graphs to decide when to buy or sell. There’s a lot of good work done on things like mov­ing aver­ages, is say the last 60 days in the line, the aver­age for the share price over the last 60 days and the line that draws above or below its longer term aver­age, all that stuff is pret­ty use­ful. But I’ve always want­ed to take a longer term hori­zon rather than the short­er term hori­zon.

Using any­thing less than five years month­ly for me has always been way more volatile than using a five year month­ly. The sec­ond point to note is that in draw­ing the graphs that we’ve drawn here, we can start to see that share prices by mov­ing in ranges, I guess, if I take that one there and drop it down a lit­tle bit and do that with it, you can see that what we’ve seen is that the share price has been going down and if you look at the line– The gap between these two red lines, it’s now going up and that’s all I real­ly want to know in terms of the sen­ti­ment on the share graph is. What’s– Its broad brush move­ments. It can’t– As we know– As we all know, from look­ing at these graphs and try­ing to draw these lines, it can get tricky and it can get finicky. But if we try and keep it at a high lev­el, I think it gets use­ful. It’s– Any of the rules around tech­ni­cal analy­sis.

Again, large­ly sta­tis­ti­cal, they don’t work in every cir­cum­stance but one of the impor­tant checks for us is to just try to avoid a val­ue trap and what I mean by that is that tra­di­tion­al val­ue investors would­n’t care about whether the share price graph is going up or down, they’ll buy if the price is right and they’ll hold and wait for aggres­sion to the main. I found that to be trou­ble­some dur­ing the GFC when I was hold­ing shares and all dropped a large amount and, stayed down for a long time. I tried to find a way to avoid that or at least you can’t avoid it because they’ll always be drops in the mar­ket but to get out, on the way down, as– Just as we saw here that the share price went down quite dra­mat­i­cal­ly because of COVID. But we would have got­ten out around it– You don’t always get out exact­ly there, maybe got out there. Depends on liq­uid­i­ty and how quick­ly the share price drops but you’re not get­ting out here and that’s– That saves us mon­ey and that’s impor­tant. Yes, I guess that’s prob­a­bly in a nut­shell and I just want­ed to make rein­force those com­ments that were judg­ing sen­ti­ment here in a way that stops us from being caught out by val­ue traps and gets us back in when things start to turn around again and that’s all we’re doing. I would­n’t get too caught up on whether the buy price is 20 cents or 20 and a half cents or 19 cents. These are direc­tion­al­i­ties rather than nec­es­sar­i­ly finite math­e­mat­ics because there’s no math­e­mat­ics behind it. Yes. Cam, do you want to open this up to ques­tions now maybe or do you have some ques­tions about this?

Cameron  2:06:46

Tay­lor sug­gest­ed we should invite every­one on the call to do their own graphs and then we can all com­pare them and you can cat­alyze them and I said that, well, that’d be an hour.

Tony  2:06:55

Good break for me, though.

Cameron  2:06:59

Yes, it would. Does any­one want to vol­un­teer? Tay­lor, do you want to vol­un­teer to do a chart since it is your clever idea? Sparky?

Tay­lor  2:07:09

What chart you want me to do?

Tony  2:07:11

Hey, Tay­lor.

Cameron  2:07:12

Hey, guys. This is my son, Tay­lor, every­body. New QAV investor.

Tay­lor  2:07:18

Tell me a chart and I’ll give it a try.

Tony  2:07:20

Let me just see if there’s anoth­er one we need to do on the check­list. I’ll go back and share that screen again.

Cameron  2:07:29

Mean­while, I’ll give you shar­ing per­mis­sions Tay­lor.

Tay­lor  2:07:32

Yes, I mean, I don’t know how I’ll go. I’ve spent maybe two hours on this Mac, it should be inter­est­ing but–

Tony  2:07:42

It looks like MOQ was the only one that need­ed to have its sen­ti­ment checked but just pick one. Oh, here we go. SST, Steamships Trad­ing com­pa­ny.

Tay­lor  2:07:52

All right.

Tony  2:07:53

The peo­ple see what I’m doing now. I’m just going down the row of stocks in the lat­est down­load look­ing for an NA error and that’s over on the right hand columns of the spread­sheet and that’s telling me that SST needs to be added to the man­u­al­ly entered data and after we add that, we have to do a share price check for it. Go ahead, Tay­lor.

Tay­lor  2:08:19

Alright, let me give this a try. Is there a rea­son why Stock Doc­tor just spins on mine for ages? Do you know?

 

Cameron  2:08:26

Does it on mine too. I don’t know what’s going on.

Tony  2:08:28

Yes, I don’t know what’s going on there. It does on mine too.

Tay­lor  2:08:30

It real­ly mat­ter.

Tony  2:08:33

Not real­ly.

Tay­lor  2:08:36

OK.

Tony  2:08:39

Tay­lor, rather than do that because you got the spin­ning icon in it going to get back to where you were on your screen in Stock Doc­tor. See the cam­era icon on the right hand side of the– Yes, click on that and then down­load it and you won’t get that spin­ning icon.

Tay­lor  2:08:56

OK.

Tony  2:08:56

You’ll need to change your screen share to show us that one. Thanks.

Tay­lor  2:09:03

All right.

Tony  2:09:04

Yes.

Tay­lor  2:09:05

Can I draw on this? I nor­mal­ly use mod­els.

Tony  2:09:07

Yes. If you’re in pre­view, go to tools anno­tate.

 

Tay­lor  2:09:11

Yes, I’ve got–

Tony  2:09:13

And then a line.

Tay­lor  2:09:15

Damn zooms set­tings line.

Tony  2:09:19

Yes. Give it a col­or. Give it– Do the Buy Line first. Yes, there you go.

Tay­lor  2:09:22

1. I feel like I remem­ber doing this one but I’ll give it a try. I’m assum­ing this is the high­est point right here, right there and if we put it here, it’s going to– That’s going to cut things off right, poten­tial­ly. I don’t know, maybe. Maybe, that’s not too bad. I don’t know. Yes, I don’t know. I think that I’m pret­ty hap­py with that. I think if I went any­where else, it’s going to cut off peaks.

Tony  2:09:55

Yes. You’re right.

Tay­lor  2:09:58

Would you go with that for the Buy Line?

Tony  2:10:00

Yes.

Tay­lor  2:10:01

OK, was­n’t too bad. I can just do that. OK. This is inter­est­ing. You’re say­ing, I should­n’t be start­ing down here, right? Because tech­ni­cal­ly that’s the low­est peak. Right? I should prob­a­bly be start­ing some­where like here and run­ning it there. I don’t know.

Tony  2:10:26

Well, you could do that. I think this is a pret­ty unique case. The first thing to note is it was nev­er buy.

Tay­lor  2:10:33

Yes.

Tony  2:10:34

And the Sell Line should be fol­low­ing the Buy Line. I’ll be using that low peak on the right.

Tay­lor  2:10:39

Low peak on down all the way to here.

Tony  2:10:41

Yes. Down– Right down the bot­tom.

Tay­lor  2:10:43

Yes. You’re think­ing just that?

Tony  2:10:45

Yes, but you don’t even know you don’t have a sec­ond point. I’d be using that. I’d be tak­ing that last uptick as the sell. Yes, that’s it.

Tay­lor  2:10:53

OK.

Tony  2:10:54

Yes.

Tay­lor  2:10:54

Right. OK. That’s an inter­est­ing one.

Tony  2:10:56

Yes.

Tay­lor  2:10:57

OK.

Tony  2:10:58

What is it Tay­lor, a buy or sell?

Tay­lor  2:11:01

Oh, it’s def­i­nite­ly not a buy. Yes.

 

Tony  2:11:06

And it’s a sell this cur­rent price?

Tay­lor  2:11:08

Yes. All right. Well, that was­n’t too bad.

Tony  2:11:15

Yes.

Cameron  2:11:18

What do you expect for a com­pa­ny that’s still deal­ing in steamship trad­ing in 2021? What are they think­ing?

Tay­lor  2:11:18

OK.

Tony  2:11:24

That’s right. Do we want to go back into the check­list now and add some data in for these com­pa­nies? We have to add them to the man­u­al tabs or do you want to do some more charts?

Cameron  2:11:31

No. Well, unless any­one wants to do more charts, I’d sug­gest maybe we have a quick look at how you would look for a qual­i­fied audit for a com­pa­ny, Tony.

Tony  2:11:48

Yes. OK. Let’s get back into–

Cameron  2:11:56

Good work. Tay­lor, by the way. Round of applause for Tay­lor.

Tony  2:12:05

I’m going back into my mas­ter spread­sheet here. I’ll now share it. Can you see the mas­ter spread­sheet guys?

All right, thank you. We need to– We just added MOQ, we need to add SST. I’m going down to SST and where it fits in. I’m in the man­u­al­ly entered score sec­tion. There’s SSO so the next one must be SST. I’ll just insert a row. I’ll put in SST. It’s going to go back and copy its name rather than type it in case I get it wrong. Copy that in and then we know from the sen­ti­ment. Sen­ti­ment was a no and I’m not going to go any fur­ther with analy­sis on this com­pa­ny because I’m not going to buy it. It has neg­a­tive sen­ti­ment. I’m just going to put a date in there, today’s date so I know that I last checked the sen­ti­ment on 17th of June. If we go back up to MOQ though, which was the one that we added before, we check the sen­ti­ment there, I think it was a buy, was­n’t it? I think we said sen­ti­ment was yes for MOQ. Yes, it was– Now qual­i­fied audit. Let’s go and have a look at MOQ and see if it has­n’t qual­i­fied or going to go back into Stock Doc­tor and share that screen with you. Alright, I’m going back into the MOQ screen and I’m going to scroll down. Just get out of the chart sec­tion.

Going down to price sen­si­tive announce­ments. Over here, there’s a tab which says more. Some­times you can see it’s half year­ly report and accounts is what we want. I could just click on that. But just to show peo­ple what you do if you can’t see the accounts, there is to go into more and then cur­rent­ly Stock Doc­tor defaults to price sen­si­tive announce­ments only and you would think that the accounts were price sen­si­tive, some­times they’re not. I’m going to des­e­lect every­thing. Hit the refresh but­ton and that will give me all of the announce­ments for the com­pa­ny.

Now, some­times that’s too much. There’s a lot but often­times, it’s an easy way of get­ting what we need. Gen­er­al­ly, the audit state­ments are always in the account sec­tion and gen­er­al­ly, the accounts is the largest file that’s released as an announce­ment so I can see straight away that the biggest one on this page is 30 pages long and it’s the half year­ly reports and accounts, I’m going to click on that. I’m going to open the full announce­ment and I get all the nice and pret­ty stuff from the com­pa­ny. The audit is– The audi­tors nor­mal­ly have this state­ment at the end. I go there, I just scrolled all the way down to the bot­tom. I start going up.

I’m see­ing here it is right at the very bot­tom. Inde­pen­dent audi­tors review report. The first thing they’re talk­ing about is the con­clu­sion and they’re say­ing down here that based on their review, it’s say­ing it’s not an audit and what that means is that it’s the half year­ly accounts and they haven’t done a full audit but they still could put a qual­i­fied nature on the on the audit. What they’ve done basi­cal­ly is they’ve done a check of man­age­men­t’s accounts but they haven’t done a full audit. But any­way, what they’re say­ing here is noth­ing’s made them aware of any mat­ters that makes them believe that the half year finan­cial reports does not com­ply with the Cor­po­ra­tions Act includ­ing giv­ing a true and fair view of MOQ as at 31 Decem­ber and com­ply with the account­ing stan­dards. They then go on to talk about what they did do to form that con­clu­sion and then some oth­er blurb.

Half of your reports are often short and sharp like that from the audi­tors because they haven’t done an audit, they’ve just checked the accounts. They still could though around here have some­thing like wait­ing which says some­thing like query over the or mate­r­i­al con­cern over the ongo­ing nature of the busi­ness and that’s where I make a state­ment say­ing that they haven’t sat­is­fied them­selves that this com­pa­ny can make or meet its finan­cial oblig­a­tions dur­ing the next six months and that’s what we’re look­ing for. It’s a red flag. In this case, there’s noth­ing there. What I’ll do, just to show peo­ple what it looks like, is to go and find one where there is some­thing there. I’m just going to pick one. I’ve gone back into my spread­sheet. I’m not going to share it with you because I’ll just do it quick­ly. I’m going to look for qual­i­fied audit or a com­pa­ny that has a qual­i­fied audit and, for exam­ple, we have Ignite Group IGN. I’m going back into Stock Doc­tor, I’m going to call up IGN.

OK, and I’m going to go again, down the page to. Here we go. We can’t see any­thing there about half you full year or your reports. I’m going to have to go into more announce­ments and then des­e­lect price sen­si­tive. I only des­e­lect all types and get every­thing and straight­away, I can see there’s 27 pages here and that relates to the half year­ly report and account so I’m going to click on that. Down­load the full announce­ment. Scroll down to the bot­tom and then page up from there and here’s the audi­tor’s report, inde­pen­dent audi­tors review report to the mem­bers of Ignite Ltd. Same blurbs con­clu­sion so what they’re say­ing here is that it gives a true and the accounts are what they should be.

They give a true and fair view of the finan­cial posi­tion and they con­firm with the stan­dards around finan­cial account­ing. How­ev­er, straight around under­neath there it says mate­r­i­al uncer­tain­ty regard­ing going con­cern and we don’t want to say those words mate­r­i­al uncer­tain­ty regard­ing going con­cern. They talk about refer­ring to note two-and-a-half-year finan­cial report, if you want to you can go and search on that and find it and we have looked at this recent­ly and note two relates to the fact that man­age­ment have made a whole heap of assump­tions that all have to go their way in order to meet their oblig­a­tions going for­ward.

The audi­tors have called that out and raised what’s called a qual­i­fi­ca­tion on the audit and by qual­i­fi­ca­tion, does that mean it’s received a qual­i­fi­ca­tion and grad­u­at­ed from school? It– What they mean is that the accounts have been qual­i­fied by they are not 100% per­fect, there’s a prob­lem. They’re or rather hap­pen­ing with the audi­tors are qual­i­fy­ing their sign off on the com­pa­ny. They– If it was unqual­i­fied, they’re say­ing 100% this com­pa­ny, we’ve seen no prob­lems with this com­pa­ny but because they’re qual­i­fy­ing what they’re say­ing. They’re see­ing prob­lems does­n’t mean the com­pa­ny will go under, they could obvi­ous­ly restruc­ture or change, tack or piv­ot and meet their oblig­a­tions. But they’re– The audi­tors are high­light­ing that they may not.

They also, as well as that they draw– They have a thing here called empha­sis of mat­ter relat­ing to con­tin­gent lia­bil­i­ties and they’re draw­ing atten­tion to note 15 where they’re say­ing that they’ve had to put a large amount of mon­ey aside because of a court case and I think from Emory in this sit­u­a­tion, this par­tic­u­lar exam­ple, the court rul­ing has gone against them but they may appeal and they haven’t worked out what dam­ages it. There’s– They’re also say­ing that there’s anoth­er– We’ve audit­ed the com­pa­ny ensure that the last six months’ num­bers look good but we’re draw­ing peo­ple’s atten­tion to the fact that there could be some­thing which would Side­swipe the com­pa­ny in the next six months. Both of those two things are red flags.

Cameron  2:12:11

Yes.

Tony  2:21:25

And I’m going to– I’ll go back into the mas­ter check­list and record that accord­ing­ly. Any ques­tions there about that before I leave? OK, I’m going back to there and man­u­al­ly entered scores. I’m going to have a look at– Go back to MOQ which we’re work­ing on and MOQ had, did it have a qual­i­fied audit or not? If it did like an ING, it would say yes there. Now, mov­ing right along because we have pos­i­tive sen­ti­ment and no qual­i­fied audit for MOQ, I just want to com­plete the man­u­al­ly entered data while I’m at it. I’m going to look at record low six PEs, new three-point trend upturn and con­sis­tent increase in equi­ty. Unfor­tu­nate­ly, all these three things can’t be down­loaded from Stock Doc­tor, there’s no met­ric or fil­ter for that. We have to do it man­u­al­ly.

I’m going to go back into Stock Doc­tor for MOQ. I’m going to share the screen. Go back into MOQ and the first thing I want­ed to look at was the PE ratio. Again, this is some­thing that we have found over time that if a com­pa­ny has– Is trad­ing in its low­est PE in the last three years, it’s actu­al­ly a good sign of val­ue. What I’m look­ing at here, first of all, this com­pa­ny does­n’t have a PE ratio which means it did­n’t make any mon­ey. The lat­est PE is NA, the Decem­ber PE is NA. We’re going to go and score it here and we’re going to give it a zero because the fact that it did­n’t earn any mon­ey is not a good thing. It’s a zero in– Is it the low­est PE of the last six peri­ods and just if I can just walk you through that, we have a light­est peri­od, then we have the peri­ods before that. In this case, the last six peri­ods are one, two, three, four, five, six, they start it June 18 and we can see the PEs are 35, 22, 14, 36, loss. For exam­ple, if we were back here, that would be the low­est PE and it was score two because we have no PE, we can’t score.

Just one oth­er thing before I leave is that in doing this cal­cu­la­tion, I take the light– The low­er of either the cen­ter, the lat­est one there, Decem­ber 20 and the lat­est one which is the cur­rent one. If this com­pa­ny did make mon­ey, then the lat­est PE would refer to the PE as at today’s date, June 17. Because the PE changes as the share price moves because it’s the price to earn­ings ratio. OK, we’ve got the PE scor­ing.

Now, if I have a look at con­sis­tent­ly increas­ing equi­ty, I’m going up here in Stock Doc­tor to the finan­cial state­ments tab. In finan­cial state­ments as a series of tabs on going into bal­ance sheet. Again, I’m using a three-year trend here. Again, it’s just expe­ri­enced that three years is a good one to work with that six num­bers to look at. You can go longer but then the trend can be bro­ken just because of the fact that you’re going back so far. I use three years and we’re look­ing at equi­ty which is the bot­tom line here. This is just a sim­ple sum­ma­ry of the bal­ance sheet, assets, lia­bil­i­ties, equi­ty and we’re look­ing at the last six and we’re see­ing if it’s going up con­sis­tent­ly. June 18, was 18.8 mil­lion and we have 19.6, 21.2, 24.3 but then we go down to 10.5. It does­n’t score on this met­ric.

The trend was going up and then it drops, it does­n’t get a score there and the last thing I want to look at while I’m still in the Stock Doc­tor screen because I’m going to go back to the main screen and go back to that share price graph again. Because I want to see if the three-point uptrend was recent and by recent I mean did that occur since the last finan­cial results came out? We saw before that if I draw a line down here across there between those two months, let’s say it’s that month there. That’s Feb­ru­ary 2021. The last results we have are Decem­ber 2021. That upturn is recent. If I go back into the mas­ter spread­sheet and just bear with me while I change the screen back.

I’ve got a zero for record low six PEs. I have a one for a recent upturn for new three-point upturn. If it’s not, I don’t. I leave it as blank. I don’t want to pun­ish it because it’s not recent. But if it is recent, I want to boost it and then it was there con­sis­tent increas­ing equi­ty? No, there was­n’t. I’m going to make that a zero and then I’m going to put today’s date in here so I know if I come back and check it lat­er, when was the last time I looked at it. I’ve done the man­u­al­ly entered data for MOQ. If I go back to the down­load data page and I find MOQ and then scroll across to those last few columns. MOQ is going to be added to the top scores with a score of 0.20. That’s where we are with that.

The next thing I will do is to take all the data here actu­al. Sor­ry, I’ll unfreeze the panes so I can see every­thing again and I’ll just copy all that data. I’ll select all that data, sor­ry. All data is select­ed, now copy it across into the top scor­ers tab and again, I’ll just unfreeze the pane so I can work with it. I’ll go up here and I’ll copy that down­load data in there. Yes, I’ve tak­en our QAV down­load data. I’ve unfrozen the pan­el so I can see all the data I need to copy across. I’ve gone back to the top scor­ers list and I have now got 17th of June data into the top scor­ers list. I’m not going to do a sort on the top scor­ers list. If I go across and then go to the bot­tom. That’s all that might have been the prob­lem. Yes, it was a cou­ple of lines I delet­ed maybe that does do is the rea­son we had some dupli­cates before.

Any­way, I’ve select­ed all my data and I’m now going to do a data sort. I told it that I includ­ed the head­er list and there­fore, I could see my sort cri­te­ria. I’m going to stack rank this by QAV score. But first of all, I’m going to do it, I’m going to elim­i­nate those with a qual­i­fied audit and elim­i­nate those where the three point trend lines sen­ti­ment was­n’t con­firmed as being pos­i­tive. I’ve done my sort. I’m going to scroll across to the right hand side now so I can look at those last columns. The impor­tant ones, we’re going to focus on qual­i­fied audit first and we can see there’s lots of NAs there. That’s because we haven’t entered qual­i­fied audit data for every com­pa­ny. I’m not going to wor­ry about those. We’re going to make those red which they are. I’m also going to make red, the com­pa­nies with a qual­i­fied audit. Let me just select those again.

OK, next up we have– Because of the sort­ing, we have the com­pa­nies with a qual­i­fied audit which is here and I’m going to make those red. Actu­al­ly, sor­ry, I’m going to jump around here a bit. I’m going to go back and freeze the pane so I can work with this a bit eas­i­er. I’m going into win­dow, freeze panes and going back down to the last row I col­or cod­ed there red which is the ones with a qual­i­fied audit.

Next up, I can see that we have com­pa­nies which don’t have a qual­i­fied audit, have three-point sen­ti­ment con­firmed and have a QAV score which has been stack ranked and I’m then going to go down that list and just arbi­trar­i­ly draw a line at point one which is there. AGG, Anglo Gold is the last of the com­pa­nies I’m going to pay atten­tion to in terms of its QAV score and that’s, as I said before, that gives me a nice rea­son­ably large list these days to work with. I’m just going to go down and just recol­or all the ones below that QAV score of 0.1 red and again, the rea­son for col­or cod­ing this is that if I come back in in a week’s time, I want to do some quick research and ask whether Tel­stra is a com­pa­ny worth inves­ti­gat­ing fur­ther on and I do a search on Tel­stra, I can see it’s got a QAV score of 0.09. There are oth­er com­pa­nies which are bet­ter than it in terms of the ones I’m going to be inter­est­ed in.

Now I’ve got my top scor­ers list­band I’m going to start at the top. In this case, it’s GLE and have a look at that, is that some­thing as if I need­ed to buy a share? For exam­ple, if I have sold some­thing recent­ly or if it was com­pa­ny report­ing sea­son, I would then come in and say, am I inter­est­ed in GLE? Well, I’m not because the aver­age dai­ly trans­ac­tion val­ue is $1,000. I could­n’t pos­si­bly– I could buy 300 bucks worth of GLE but that’s not going to move the nee­dle for me, even if it does real­ly well. We’re all going to have our own fil­ters on these things.

Some peo­ple might want to go down and see with­in this QAV score rank­ing, they might want to sort them on say div­i­dend yield, for exam­ple. I know some peo­ple are inter­est­ed in the eth­i­cal side of the com­pa­ny. They might want to do their research on this list based on what GLE does and does I con­sid­er that to be eth­i­cal or not. I tend to look at the, go down the list and look for com­pa­nies which are big enough for me to invest in and not have any prob­lems get­ting out when they’re going gets rough and the first com­pa­ny I do some research on will be Vir­gin UK and when I say do some research on, I would per­son­al­ly if I was look­ing to buy some­thing and I did­n’t own vir­gin UK, I would go back to the man­u­al input scores tab and I would do a search on the UK and I’d say that I last checked it on the 30th of April, excuse me and there­fore, I prob­a­bly don’t need to do anoth­er check for it because it’s not going to change much.

I might go look at the share graph and just con­firm again that the sen­ti­ment still good but chances are it will be because it was only checked a cou­ple of weeks ago. Then I’ll move down the list and keep look­ing. I’ll look for anoth­er big one that I can invest in. The next big one might be this one which is Sand­fire Resources and I’ll do the same thing. When did I last look at Sand­fire Resources? That occurred in April– Oh sor­ry, March– 4th of March. You don’t have to go back and and revis­it the man­u­al­ly entered data for Sand­fire Resources par­tic­u­lar­ly for the sen­ti­ment con­firmed and qual­i­fied audit. Sen­ti­ment con­firmed because the share price obvi­ous­ly would have moved on, qual­i­fied audit is inter­est­ing one too because the accounts are due out two months after the end of the finan­cial year.

Again, there’s a bit of a lag and when you find out what the audit state­ment is for the most recent accounts, it always– Some­times it pays to go and just make sure that you’re not going back too far in his­to­ry. You’re not going back to, for exam­ple, the annu­al Report which would have come out maybe in sort of August last year. But you’ve got some accounts which are based on the Decem­ber accounts which will come out in Feb­ru­ary. But some­times that can be a lit­tle bit slow in being released because like the audit report might be part of the annu­al report and the annu­al report comes out after the finan­cial state­ments.

Some­times you can, if it’s a June 30, end of year, this– The finan­cial state­ments are out in two months’ time but the annu­al report might be out for three or four or five months’ time and you just want to make sure you’re work­ing with the most recent data when it comes to audit reports because they can lag even more than the finan­cial state­ments and that’s pret­ty much it, guys. That’s a sim­ple– That was a sim­ple process tonight because we only had to real­ly look at two com­pa­nies that were new to the check­list in this down­load. But if it was a com­pa­ny report­ing sea­son, we would find that there were prob­a­bly lots more com­pa­nies we need to add to the man­u­al­ly entered data sheet. But also, we find that com­ing back to this down­load sheet that we see that if this was August, we might start to seize some data, some last peri­od ana­lyzed num­bers here being 30th of June 2021 and I’d be focus­ing on those and that can be a larg­er num­ber to work with and ensur­ing com­pa­ny report­ing sea­sons, you do have to put the hours into update your man­u­al entered data for those com­pa­nies.

Cameron  2:36:38

Tony, we’re com­ing up to three hours. You must be exhaust­ed. I think we should prob­a­bly try and wrap it up and go but what I was going to ask you to talk a lit­tle bit about just quick­ly is, how often you do this in a nor­mal course of events out­side of doing stuff for the show? How often do you nor­mal­ly have to go through this process? And when you do that, how long does it take you? How much time do you tend to spend on it on aver­age?

Tony  2:37:06

Answer the first ques­tion. Com­pa­ny report­ing sea­son, I’m doing it maybe twice a week because par­tic­u­lar­ly– Not for the whole month but par­tic­u­lar­ly for weeks three and four, you get lots of data com­ing out for com­pa­nies because they have their fig­ures out before the dead­line of two months after the end of finan­cial year or end of half. Yes, that’s a fair bit of work. But out­side of that, I only do a down­load if I need to buy some­thing. It’s and that only occurs if I need to sell some­thing. I don’t watch the trend lines all the time. If I was buy­ing this stock and it was I thought it was rea­son­ably close to its Sell Line but it was still a buy, then I would put a share price alert in Stock Doc­tor to see if the share price drops below this num­ber, send me an email and that would be one rea­son why I look at the sen­ti­ment chart for a com­pa­ny. Anoth­er rea­son would be just sim­ply that I picked up some­thing in the finan­cial press about that com­pa­ny and when– As you know, when you own a stock, you do tend to see that– See it every­where. You pick it up much eas­i­er in the finan­cial press when you own it and if you don’t and that might cause me to go and have a look at the sen­ti­ment on it. That might cause me to sell a cou­ple of stocks, maybe three or four over the course of the peri­ods between report­ing sea­sons out of 20 and then of course, in report­ing sea­son, we might turn over a few like a lot more not that much turnover, maybe eight to 10 some­times, some­times less but we’re doing a lot more. Yes. In terms of how long it takes to do a down­load? Between com­pa­ny report­ing sea­sons, it’s be no more than an hour. It’s just drop it out of Stock Doc­tor, do a quick scan for—

The first thing I’ll be scan­ning for is any new results. For exam­ple, in May, the bank results were com­ing through. I go down here and just do a quick look for 31st of the third num­bers and because there’s not many com­pa­nies which have that, there might be half a dozen. It’s not going to be much work to go and update the man­u­al­ly entered data for that. Yes. Oth­er­wise, it’s like we did tonight, I found two com­pa­nies that we had­n’t entered before and they had to be entered and the data found for them. But that’s five min­utes’ work on each com­pa­ny. It’s not much.

Cameron  2:39:52

Yes, dur­ing report­ing sea­sons, prob­a­bly a few hours work over the course of a week?

Tony  2:39:58

Yes. What you’ll find like I said is, you’ll come, you’ll start to scroll down and see that there is, maybe 20 com­pa­nies today that had their June num­bers put in. I would then go into the man­u­al­ly entered scores and start look­ing at those. Often– Often­times, you’ll– The sen­ti­ment will still be the same. You call up the chart has­n’t changed, right? Not doing much work there you’re going through, does­n’t have a qual­i­fied audit. I prob­a­bly leave qual­i­fied audit for a while. I put in these ones which again, are pret­ty easy to see on in Stock Doc­tor. It’s two clicks to get the record lows, six PEs that con­sis­tent­ly increas­ing equi­ty and look at the chart which you’ve done over here to see if it’s a new three point up turn. If that’s for 20 stocks, it has­n’t tak­en me too long and bear in mind that maybe half of those have neg­a­tive sen­ti­ment and some­times, I don’t even go past the front page of Stock Doc­tor. I just open the chart, and it’s going down with a bul­let, I just go yuck. Just put sen­ti­ment now in there and move on. Yes.

Cameron  2:41:11

I sat down with Tay­lor and his mate, Chris last week as I talked about on a show recent­ly and they were look­ing to invest for the first time and I was look­ing at buy some stocks and we did a full down­load and went through the process to get our buy list and we did a lot of talk­ing and back­wards and for­wards and they were doing some charts and I was look­ing at the charts and agree­ing or dis­agree­ing. But I think we prob­a­bly spent three hours from where to go to come up with our buy­er list and then we com­pared it– When we had our buy­er list, I com­pared it to your most recent score­card which was a cou­ple of weeks old at the time and just con­firmed that our top 20 seemed to align pret­ty well with your top 20 from the last time you did it and thought, OK well, we haven’t com­plete­ly screwed up here, it looks pret­ty much the same as Tony’s.

That gave me a lev­el of con­fi­dence with it. But what I’ve been telling peo­ple is it’s a some­thing you can do on a Sun­day after­noon with a cou­ple of negronies, right? Or a Sun­day night. When­ev­er you have to do it, It’s not as oner­ous as it first appears and its got a bit of a prac­tice.

Tony  2:42:19

Prac­tice and also, when you have the data in there already, that’s when it becomes a bit eas­i­er as well. If you’re hav­ing to put data in there. If it’s your first down­load, you’re going through and doing all the man­u­al­ly entered data from scratch. Yes, it’s takes a few hours but once you get data in there, like I said, I’m just going along and see­ing how old the data is and then going back and check­ing it if I need to. But if it’s like a cou­ple of weeks old, I’ll prob­a­bly skip it.

Cameron  2:42:45

Yes. Then once you have your buy list, you got to buy some stocks and we’ve talked about this on the show, you need a bro­ker. You have been work­ing with Bai­ley’s for 30 years. They’re a full ser­vice old school bro­ker and you think there are some advan­tages, par­tic­u­lar­ly the size of mon­ey that you’re deal­ing with for them?

Tony  2:43:08

Yes.

Cameron  2:43:09

But for a lot of peo­ple like myself and Tay­lor, deal­ing with small­er amounts of mon­ey, we signed up for an online bro­ker, self-wealth, or super­hero where you’re pay­ing. I think self wealth is about 10 bucks a trade, super­heroes about five bucks a trade and is there any­thing peo­ple should be look­ing for when they’re buy­ing stuff, Tony?

Tony  2:43:36

Yes. I’ve got to be care­ful here because– Yes, I’ll just be care­ful. Some of the low­er cost bro­kers actu­al­ly, when you buy shares with them, you don’t get the share own­er­ship, they keep it in a trust. When I buy a share with val­ues, I get an SRN or a HIN. They’re the two num­bers, share­hold­er reg­is­tra­tion num­ber and I think it’s hold­er iden­ti­fi­ca­tion num­ber and it depends whether you’re going through a spon­sor bro­ker or not. But they’re basi­cal­ly your proof that you own shares in the com­pa­ny. For some of these new entrants that offer very cheap trad­ing plat­forms, they keep the sheer own­er­ship in a trust on your behalf.

Now, that’s– I would say in 99% of cas­es, that’s fine. But one thing I would look at if you want­ed to real­ly grow some­one as a bro­ker about how robust their sys­tems are, is if they do have– If they don’t keep the share own­er­ship cen­ter in a trust. He’s that trust man­aged by the same peo­ple who are man­ag­ing this the stock bro­ker. Because when push comes to shove, if they’ve got finan­cial dif­fi­cul­ties in the stock bro­ker, they’re hold­ing your ass­es and they could be tempt­ed to dip into them to fix their prob­lems else­where in their busi­ness and I’d hate– I would real­ly hate for some­one to be patient­ly build­ing up a nice nest egg to find out that things went south with their bro­ker and they don’t actu­al­ly own what they thought they owned.

I’ll just call that out. I’m not nam­ing any par­tic­u­lar bro­kers or any par­tic­u­lar style of bro­kers, it could even hap­pen with a full ser­vice bro­ker real­ly, but most of them will give you an SRN and when you get your SRN, every– It’s every quar­ter, might be every month even chess which is the cen­tral reg­istry of shares will send you out a state­ment say­ing here is your hold­ing of Vir­gin UK or what­ev­er and here’s the move­ments that were made on your hold­ing dur­ing the last peri­od and that’s your state­ment to say that you own the shares that you thought you owned. That took over from the old I was like when I first start­ed share invest­ing, we used to get sent a cer­tifi­cate, you could take– You could buy and sell the shares before you got the cer­tifi­cate. It’s like, occa­sion­al­ly you’d stick them on the wall at work because they’d gone to zero or some­thing. It was that’s all they’re worth, you pin them to the wall. But that was replaced by the chess sys­tem. But any­way, that’s a long way of say­ing that make sure that you are com­fort­able that you have– You own the assets and you’ll have access to them if you don’t.

Cameron  2:46:33

OK, and then if you do sign up for an online bro­ker, I know one of the things that con­fused me ini­tial­ly is you have to decide whether you want to buy it at mar­ket or you want to buy it at lim­it. Fair­ly straight­for­ward though, right? Mar­ket, as you’re basi­cal­ly say­ing buy or sell at what­ev­er price the bro­ker can get for on the day, your best price they get for it. Lim­it is you say no, don’t buy it for any more than this price or don’t sell it for any less than that price.

Tony  2:47:05

And they both have pros and cons, obvi­ous­ly. Buy­ing– I tend to always buy at mar­ket but then I’m deal­ing in heav­i­ly liq­uid stocks. I’m not going to be– There’s not too much of a gap in the mar­ket. If peo­ple are using plat­forms, they can see the mar­ket or they can see either side of the buy sell spread. Some­times I’ll say there’s a gap– Big gap between what peo­ple want to sell the shares for and what peo­ple are bid­ding to buy the shares at. But if you’re deal­ing in big com­pa­nies like Fortes­cue met­als group and the banks and things like that, gen­er­al­ly, that’s but the sell­er match­es the buy­er in 99% of cas­es. Buy­ing it mar­ket, I feel com­fort­able doing that. If you’re putting you’re at lim­it in and a com­pa­ny has is thin­ly trad­ed, then of course, you may not exe­cute a trade when it would have been to your advan­tage to do so just because you put a lim­it in there which was exceed­ed quick­ly and what I mean by that is say you decide you want­ed to sell shares in a thin­ly trad­ed com­pa­ny at $10 and the mar­ket was at 12 and you put a lim­it of there in there of 10. Just because there was a look like enough buffer in the stock price and it was going down. It could quick­ly go from 12 to nine and you’ve been dubbed.

Cameron  2:48:28

Alright. Well, does any­one have any final ques­tions before we call it a night and let Tony relax?

Tony  2:48:39

I’m sure that peo­ple do have ques­tions and we’re hap­py to take them on the pod­cast too. If you want to think about it more and come back to us at a lat­er stage.

Cameron  2:48:48

Yes, or shoot us an email.

Tony  2:48:49

Yes.

Cameron  2:48:51

Ed says there’s a whole seg­ment on the chart­ing side, I feel. Yes, and we’ve done some zoom calls on chart­ing that are up on our YouTube page, Ed and it’s one of those things that you could prob­a­bly do hours and hours of, it’s a lot of fun.

Tony  2:49:11

And we are try­ing to auto­mate at the moment. We’re work­ing with Dylan, the intern on doing that. It’s yes, it’s mak­ing a lot of good progress. I feel we’re not too far away from hav­ing some code to do that. But I do cau­tion peo­ple that it will be code that gets it right most of the time and not all the time. Because as peo­ple know from doing it them­selves that there are– Some times there are just excep­tions out there.

Cameron  2:49:39

One of the things we’ve been talk­ing about on the chat over the course of the last hour is that what I would encour­age peo­ple to do is if you are test­ing your­self and whether or not you’re get­ting this stuff, right. When you do a chart if you want to check it, throw it up in the Face­book group and let every­one com­ment on it. There’s a lot of real­ly smart peo­ple in our Face­book group that will give you imme­di­ate feed­back on whether or not they agree or dis­agree and the same with your score­card. If you run a check­list and you get a score­card, throw it up in the Face­book group and say, just ran a check­list. This is my score­card. What does every­one think? Because, as I said before, what I did when I sat down with Tay­lor is, I came up with a score­card and I com­pared it to the most recent one Tony had put out and it just made me feel com­fort­able that I had­n’t com­plete­ly bol­stered up. Feel free to either send it to me, if you want or post it up on the Face­book group and get the hive mind to eval­u­ate it for you. I think that would be a real­ly good prac­tice. Tony and I would love to see peo­ple doing in the Face­book group. Throw­ing that up there takes the pres­sure off of Tony to have to do one, two, if every­one else’s.

Tony  2:50:56

Yes, it’s not just that but I like it’s part of the learn­ing process. Right? If peo­ple are teach­ing each oth­er, that’s they’re learn­ing as well. That’s good and also to on the chart­ing side of things that we’re get­ting emails from peo­ple all the time say­ing, Hey, I do three-point trend lines but I then also sup­ple­ment it with some oth­er piece of tech­ni­cal analy­sis like a mov­ing aver­age or what’s it called? RSI. If you go into Stock Doc­tor and you can go into all sorts of things, you can over­lay on the graph to give you some oth­er guides to it. This whole– The whole point of this whole series is not to teach you how to slav­ish­ly fol­low what I do. It’s to teach you to learn real­ly and if you find that you like doing three-point trend line graphs dif­fer­ent­ly to how we do it. Great. Good luck. I mean, it’s real­ly good. If you thought about it and you’ve– You feel you’ve got some­thing that works for you or you feel it works bet­ter. Fan­tas­tic. Yes. Share it with us. It’s always great to learn.

Cameron  2:52:02

Yes, ter­rif­ic. All right. Well, on behalf of every­one, Tony here and who’s watch­ing the record­ing, thanks for tak­ing three hours of your night to talk your­self horse on that and thanks to every­one who tuned in live and again, if you have any ques­tions, shoot me an email, throw it up in Face­book.

Tony  2:52:28

Good. Thanks, peo­ple. Thanks for shar­ing your night with us.

Cameron  2:52:31

Thanks, every­one.