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.