QAV 433 Club

SPEAKERS

Cameron, Tony

Cameron  00:06

Welcome back to the QAV Episode 433 TK in week eight of lockdown in New South Wales.

Tony  00:14

Yes, we’re now officially in a seven day lockdown.

Cameron  00:20

Tell people the gag you just told me, Tony.

Tony  00:23

The worst part of a seven day lockdown is the first six weeks.

Cameron  00:28

Well, I got to tell you I did find a bright side when we had our eight day lockdown here recently. The best thing to come out of it is at the end of it I realized I didn’t need to vacuum the car that weekend because we hadn’t used it. I was like, alright, that’s one good thing.

Tony  00:43

Yeah I haven’t paid for petrol in eight weeks either. That’s a good thing.

Cameron  00:48

There you go. I don’t know I feel for you guys and for the folks down to Melbourne right now going into…

Tony  00:53

Yes.

Cameron  00:53

… their second week down there.

Tony  00:55

We’re in week two but I expect it to be longer. There’s still 21 cases a day or something.

Cameron  01:03

It’s horrible stuff. Well yes, I don’t know what to say to really.

Tony  01:09

My heart goes out– We’re not really affected apart from lifestyle things but my heart really goes out to people who’ve lost loved ones or who’s experiencing– They’re experiencing mental health issues and things like that from the lockdown. I wish it was done quicker and sharper in Sydney, it wouldn’t have probably gotten to where it is now but it’s completely out of control now. You can go and spend the weekend at your holiday home when you can go and go anywhere in the state on the pretext of inspecting your property you think you might purchase. There are so many loopholes, it’s crazy.

Cameron  01:46

Well, you could do that.

Tony  01:49

I could but I choose not to. That’s the point. It’s, yes, bars on your windows keep out the good people, don’t keep out the criminals and there’s– It just proved we’re a bloody insane criminal society. All these people are spreading COVID and killing peoples.

Cameron  02:11

Speak for yourself for New South Wales. Up here, we did it. Eight days in, out, dusted.

Tony  02:15

Yes, you’re lucky but you did the right thing. You shut it down. [Crosstalk 00:02:21] We’re here. Oh, please don’t go more than 10K’s from your home. Well, we’re not going to check by the way. Like the cops aren’t carrying range finders to see how far away you are. Because there’s no cops checking anyway. But there’s and—Look, you can still go and play golf and tennis, but just do it with one friend today. Do with a different friend tomorrow. That’s one friend, a different friend the day after that and if you still happen to meet up with your one friend at the park at the same time and there’s 30 of you. Well, that’s OK. That’s right.

Cameron  02:54

You’re all there technically with one friend.

Tony  02:57

Correct.

Cameron  02:57

You just happen to know the rest of the people that are there.

Tony  03:00

Yes. They’re all friends. Yes. Anyway, you could drive a truck through all the lockdown rules here. They’ve tried to tighten them up but that’s eight weeks into a Delta variant. It’s running white right now. It’s just way too late. They’ve lost control. The liberal Party and the National Party are the party of the freedom, they don’t want liberties taken away. It’s just not in their nature to lock things down. This is entirely political.

Cameron  03:33

Well, you did say a month and a half ago that you could be locked down until Christmas and the way it’s looking.

Tony  03:41

Yes, I know. I think the only thing that’ll save us is vaccines. At least getting the vaccines out to people now. We’ve got some more Pfizer but the other really hard thing is they don’t tell us what’s causing the spread. You only find out if it gets into a school or an aged care home and then you know, OK, that’s how it’s spreading but how’s it spreading now? They’re not telling you. Oh, it’s because people are going to work or because people are visiting family members or because of their bubble buddies are spreading it. No one tells you how it’s being spread. You don’t know what the right– If the government’s taking the right action and what the right action should be. They don’t tell you what’s causing the spread. They should know. Contact tracing’s pretty good. They should know what’s been caused by. People buying coffees or   unvaccinated people waiting for Pfizer who still get out in the community. You just don’t know.

Cameron  04:36

They’re not reporting that.

Tony  04:37

No.

Cameron  04:38

Obviously deliberately for some reason.

Tony  04:41

Yes, I mean, I suspect there’s an element of ethnicity to this because all of the lockdown areas are there in stricter lockdown state, the 12 LGAs in Sydney are all pretty multicultural. Perhaps they’re trying not to point the finger at one ethnic race or another but yes, there’s nothing coming out to say it’s spreading through work. It’s spreading through schools. It’s spreading through homes. You just don’t know. Shopping.

Cameron  05:14

Oh, well.

Tony  05:16

Yes, sorry for my rant. I just been locked up for eight weeks.

Cameron  05:25

Starting to lose it.

Tony  05:26

Yes, starting to lose it. Exactly.

Cameron  05:28

Yes. You sent me a text message last night about a TV show which you never do. I thought, Oh shit Tony’s starting to lose it. He sent me text messages about two years to watch.

Tony  05:38

Yes, I’ve got plenty of time to watch TV now. I don’t normally watch TV, but I’m really enjoying the stand, the Stephen King book that’s been turned into a TV series.

Cameron  05:48

Right.

Tony  05:49

You haven’t caught it?

Cameron  05:50

No, you only told me about it last night and I normally, TV series based on books that I liked. I remember reading that when I was a teenager and I liked it, but usually that I’d work out very well. Even Stephen King things turn into books and films usually don’t work out with the exceptions of, if you’ve got Stanley Kubrick doing it, it’ll be OK but outside of that, I don’t think they usually do very good conversions.

Tony  06:17

I really liked Fire starter in the dead zone but they’re back in the 80s.

Cameron  06:21

Yes, well, you put this one walking and I’ll watch it.

Tony  06:23

Yes, exactly and Martin Shane. This one’s good because it’s, I mean, I haven’t read the book since I was a kid too but it’s– Every episode’s an hour long. It gets right into all of the characters and all the detail and takes its time and flashes forward and flashes back and– I heard Stephen King interviewed recently and he said that the hard part about writing the standards is he had 40 characters on the go. He didn’t know what to do with them until they all got to Atlanta and he killed off half of them. That’s– You get that from watching the series. Everyone’s in it like the cameos are incredible. Every five minutes you go, Wow. What are they doing here in this? It’s really good. James Marsden stars and let’s remember him. We saw him at the Met in New York and we were there that day.

Cameron  07:12

We did. Yes.

Tony  07:13

Yes. He’s the star but Whoopi Goldberg’s in it. Greg, Kenny’s counterpart. Heather Graham has a part. Amber Heard. Yes, just an amazing lineup of cameos.

Cameron  07:26

Well, speaking of things that go on forever, we haven’t even got into stocks yet. Let’s drill down. News. Where do you want to start today, Tony?

Tony  07:39

We’ll just race through as quick as possible, I guess and get on to the questions but it’s company reporting season. There’s been a few additions to the list. Challenger came on last week, Yancoal’s back. Coal companies are doing well at the moment and be careful of Yancoal. It’s got two big shareholders and a small average daily trade. You can get squeezed on that one when it’s time to get out. National Australia Bank and I’ve been updating the manual enter data sheet in Google sheets on our website and thanks to Gary M for updating for NAB. Check there if you’re doing your analysis. Down there EDI’s on Ryzens on. There’s a couple which are reported which haven’t made it like Unibail-Rodamco-Westfield which is a shopping center company. It’s got good numbers but the sentiment quite– Isn’t there quite yet. AGL’s got great numbers but it’s in a share price to clients. We’ll watch those and wait for them to turn up.

Cameron  08:40

I did a scorecard about an hour ago and I came up with one that wasn’t in the manual data, the shared manual data sheets. I updated it, EHL, Emeco holdings.

Tony  08:55

Emeco. OK.

Cameron  08:56

Yes. I got them with a QAV score of 0.12 and they’ve just gone into positive sentiment I think but the reason I did this is also comes back to Gary M.  Gary mentioned on– In the Facebook group on Friday, I think it was that Australian super– His super fund and my super fund have an option where you can take control of how the money is invested into shares and ETFs and stuff like that. You just have to let them know and they switch you over to a– You can directly manage it. I thought I’ll do that one but you’re limited to ASX 300 shares. I did a download today and just—I found out that Stock Doctor have a filter for ASX 300. I added that to the filter. I created a new code field and added that and really struggled to find stuff to invest in when I was limited to the ASX 300. Initially I could only– If I only came up with I think AZ. No, ING and DAO but then getting some feedback from Lee and Steve and Gary in the Facebook group. I had to drill down a lot lower that I’m used to drilling down in the list, I had to go below the preliminary QAV score of 0.1 down to things that had a preliminary score of 0.7 and stuff like that and that kicked off. Yes. [Crosstalk 00:10:33].

Tony  10:36

I’m not familiar with that filter but do you have to also include ASX 200, ASX 100s, and ASX top 20s in your list? Because you’re basically– I invest in ASX 300 stocks and there’s a lot more than the ones you’ve talked about there.

Cameron  10:52

Well, I ended up going down further. I ended up getting about 10. Westpac, SUN, NAB, ANZ, ING, EHL, CBA, Ryzen, CNU, Chorus limited, and Dao.

Tony  11:08

I don’t think Chorus– Does Chorus have sentiment?

Cameron  11:11

I think they do. Yes, it’s pretty tight that I think just. Yes.

Tony  11:17

Cameron  11:18

But that was it. That’s all I could get with a score of 0.1 or above. 10 stocks.

Tony  11:26

Yes, I think I’ve got. I would have said there was more than that but.

Cameron  11:30

Tony  11:31

Just let me have because I screened mine now. How many have I got? I don’t screen by the ASX. I screen by average daily trade which would correlate to ASX 300. I would have one, two, three, four, five, six, seven, eight, nine, 10, 11, 12, 13, 14, 15, 16, 17, 18. About 19, 20 stocks on my list.

Cameron  12:04

Wow. OK. Well, I’ll have two.

Tony  12:08

What’s the size of the 300 stock? Do you know?

Cameron  12:14

No.

Tony  12:15

Cameron  12:16

All right, well, I’ll have to–

Tony  12:20

Should have more.

Cameron  12:20

I’ll have to drill down in again and try and figure out where I’m– What I’m missing there. My question to you was going to be if I can only find 10 stocks to invest in, what should I do there? Should I take my entire fund and split it evenly between 10? Or should I take half of it and invest in 10 and put the other half in an ETF until I can find more stocks to invest in? [Crosstalk 00:12:49].

Tony  12:50

I always like being fully invested. I’d invest in 10.

Cameron  12:53

Just split it evenly between the 10.

Tony  12:57

Yes, correct.

Cameron  12:58

Right.

Tony  12:58

Yes.

Cameron  12:59

But I should be able to find more. I’m doing something wrong but it was really like a bit of an interesting process for me to go from the normal full scope of the ASX to limited into the 300 and really struggling to find stocks with a good score.

Tony  13:20

Yes, just having a look at the—I’m just running a quick filter now. Looks like the market cap. You want a market cap of about 20 million. Oh, 20 billion sorry.

Cameron  13:39

Right.

Tony  13:40

That would be the other way to filter for it perhaps it’s just to look at. Oh, hang on. No, wait. That’s not necessarily correct. I’m just trying to get the market cap. No, forget that. Let’s– Let me have a look.

Yes, no market cap for ASX top 300 goes right down to 112 million and 15 pages of output on the stock field. There’s plenty there.

Cameron  14:22

Well, can you pull up your most recent checklist for me and let’s just run through the top few, top five, or 10? I’ll see what I’m missing.

Tony  14:37

My top stock is Xycom, then Medusa Mining, Challenger, Cash Converters, Home Group, Capral, Image resources, IVE group, Michael Hill.

Cameron  14:52

Hold on. Sorry. Are these limited to ASX 300 or this is just open slather?

Tony  14:57

No this is open slather.

Cameron  14:59

Oh, OK. Well, let’s– The first one that I’ve got there is HUM group. I’m just going to. I’ve got them as negative sentiment on my list.

Tony  15:11

Have they crossed over today. Have they? They were getting close.

Cameron  15:15

Yes. Look, I’ve got them on the line or maybe slightly below the line but it’s not good.

Tony  15:27

I’m just looking at it now.

Cameron  15:28

The sell line that is.

Tony  15:31

Yes. My computer’s running very slow. Here we go. Yes, I got them right on to sell price of 95 and they’re currently 96.

Cameron  15:47

Well, according to the Stock Doctor, there’s current price is 94.5.

Tony  15:54

No, OK.

Cameron  15:54

But anyway, they’re right on the line. If I see your stuff that’s right on the line like that. I’m just going nut.

Tony  16:03

Yes, that’s fair.

Cameron  16:05

Go down your list again below HUM. What have you got after that?

Tony  16:09

I’ll just go through the big ones. Challenger. Challenger’s large.

Cameron  16:15

OK.

Tony  16:16

Let me have CGs.

Cameron  16:18

No, let me just check that. I mean, it’s on the list but I had it as a no for sentiment. I’m  going to just recheck that. Yes. Oh, actually OK. No, it’s above its sell line. Why did that not show up? Let me see the buy line.

Oh, yes. OK. It’s just above its buy line. Yes, I’ve missed that one. I’m  going to go to look at my manual data. Why? How did I miss that? It’s not even– I did haven’t even done the manual data for it. I don’t know how I missed that. OK.

Tony  17:07

By the way, when I run a Stock Doctor filter for top 300 ASX, the smallest average daily trade is 250,000. That’s leaving a lot of stocks on my top scorers list.

Cameron  17:24

Tony  17:25

Well, I’ve got to say, do you have Medusa mining, for example?

Cameron  17:29

Medusa.

Tony  17:34

QAV score 0.62.

Cameron  17:35

No, they’re not showing up on my list at all. Let me go to SD data tab here. MML right?

Tony  17:44

Yes.

Cameron  17:45

No, they’re not in the SD data. They’re not an ASX 300?

Tony  17:51

Good question. I would have thought they were.

Cameron  17:55

Well, they’re not in the download that I did from Stock Doctor.

Tony  17:58

OK, I’m not sure how I can tell you looking them up. If they’re on up they’re. It’s usually just by the market cap like they’re going to market cap of one or maybe not 169.  OK. No, it was in my– I just ran a filter then of top 300 stocks and it was saying it was there.

Cameron  18:22

Well, let’s see we.

Tony  18:23

Yes, let me just double check that.

Cameron  18:25

Beach energy. It’s another one I’ve got a zero here for but I think I did. Yes, I go Beach energy and no for cinnamon.

Tony  18:34

Correct. Yes.

Cameron  18:36

All right. Well, I’ll need to go through and just debug my checklist a little bit more. I don’t know how I missed Challenger.

Tony  18:47

Yes, right. That’s a big one.

Cameron  18:51

OK, I’ve obviously screwed something up. Anyway, thank you.

Tony  18:55

I’m just looking at. You’re right. MML is not ASX 300. Sorry.

Cameron  19:00

All right. Well, I’ll have a look and try to figure out where I’m going wrong. We don’t need to waste more time on that. What else did you want to talk about news wise, TK?

Tony  19:12

Just the stock pull apart, which is going to be challenger.

Cameron  19:15

Alright.

Cameron  19:17

Pull pork [Sysco 00:19:17]? I don’t own them. You’re allowed to talk about them because you won’t crash my portfolio.

Tony  19:24

No, hopefully, I won’t crash it. It’s interesting. Over time, one of these companies come on and off my top scorers list over a long period of time.  I’ve bought and sold Challenger in the past. It’s had a reasonably checkered career of, say the last five or so years. It’s a company that issues and sells annuities. If you’re a retiree, you can buy a guaranteed pension from these people. You invest with them and they give you a guaranteed return. I think last time I had look it was around six or 7% per annum. Better than the stock market dividend, and then they go out and try and invest and get a return which is above that so they make a profit and it’s fairly actuarial based. It’s fairly regulated to make sure that they can keep paying their annuities.

I think from memory, way back when they first started, they’re going up buying commercial property. They had rental yields above what they were offering people back when interest rates were high, and you could get 9% yields on rental property. They then diversified as they got bigger and started just investing in various different things and they would publish their threshold of what the return on investment needed to be to make the whole system work and over the last, since interest rates have been going down, I guess in the last– Heavily in the last of the five years, they’ve had to lower that threshold a couple of times which the market hasn’t liked. But these last results have turned around a fair bit and we talked about this I think in the Facebook group, their CEO is announced he’s retiring, even though he’s only been there for about four years, I think but he has been with a company for a couple of decades and it’s an orderly transition. He’s not going until March which gives the company plenty of time to board plenty of time to find a replacement.  I’m not too worried about that.

Anyway, running through the numbers, I’m getting a QAV score of 0.4 which is quite high. Takes it up to the top of the list or near the top, it’s a large cap. Average daily trade is nearly 9.9 million per day or 10 million, getting a quality score of 67%. 10 out of 15. Good financial health, strong and the financial health trend is recovering which is something I like to see.  They are recovering from this period of when they fell out of favor with the stock market and the share price tanked. It’s now turned around.

ROE is pretty good, not that we invest on our way but at 16.88%. Price to operating cash flow of two. Two times PE of nine times. Quite good on the value side of things. I’m getting an IV2 of $6.56 and the share price is $6.31. It meets that metric as well. The book plus 30% or nets plus 30% is $7.39. It’s below that and I’m using—the share price I’m using is $6.31 which was when I ran a download at lunchtime on Friday. Doesn’t have a great yield. It’s not scoring on that basis. I think it’s around 1.5%. Doesn’t have a founder hold or did have a founder holder who left the business but he’d been there for a long time as well. He left the business probably about five years ago and timed it quite well I think.

It’s a recent upturn. It’s the lowest PE in the last six halves but the equity isn’t– Hasn’t been increasing consistently. All on all scores well and a recent upturn.  I’ve bought some.

Cameron  23:18

Good. All right, thanks for that. Challenger. What else do you want to talk about?

Tony  23:24

Well, there’s lots to talk about but maybe we should do some questions. We can come back to it if you like.

Cameron  23:29

Oh,  OK. We got a lot of questions. Yes, OK. Dave from Newey. This is one of Dave’s holdover questions from several weeks ago, we’ve been slowly making our way through Dave’s questions, I hope it’s still relevant. He says, execution of the buy. My understanding of Tony’s strategy to execute a buy of QAV stock is to wait for an upturn and get in then possibly with some dollar cost averaging involved. Has he thought about or does he think his broker thinks about using some basic charting analysis? Examples I can think of are MML and KRM, both are range trading to me. MML 38 low 80 cents to mid 90 cents, KRM low five cents to mid five cents to squeeze a couple of extra percent of return. Has Tony ever tempted to wipe out the bottom of the range before buying? Or is a positive uptick in sentiment the overriding factor?

Tony  24:29

Yes, good question and I haven’t really thought about it. My experience is just to get in as quickly as possible because if I can see value in the company and there’s a reason to buy there must be someone else out there who will see it. I want to get in quickly. Yes, I do wait for an upturn day because the price is going down, you may be able to buy it cheaper tomorrow. But yes, no interesting question.

If Dave has some experience he wants to share and by experience I mean, something that’s tested, something that’s got rules around it, not just, Well, look at this candlestick chart and when it gets to the breakout bar or whatever, I need to have some rules around what to do but I’m not adverse to it. I just never– I’ve never waited around to try and finesse the buy price. Stock brokers. If you’re using a stock broker, they have a duty to provide you with the best price and that means that they should use not just the ASX but Chi-X as well to find the best price and they should try and maximize your price using their buying of the stock but that’s, you’re relying on your stock broker from that point of view. But no, I haven’t ever tried to analyze my entry or exit to finesse an extra percent out of it.

Cameron  25:50

I’m just making sure I understand what Dave’s talking about here. I’m looking at the MML price over the last month. If I look at a daily chart over the last month, it’s not actually is it– It’s not even– This is like every two hours over the last month, I think on the front page of the page on Stock Doctor.

Tony  26:17

Yes, that’s weekly over two years.

Cameron  26:21

No, I’ve changed it to one month. It starts at the 16th of July at 4pm. Then it goes 19th of July 11am, 19th of July 12, one, two, it’s an hourly thing over a month. If I go back to the 19th of July at 11am, it was trading at 93.4 cents, then it went down to 79.7 on the 28th of July and then further down to 77 cents on the 10th of August and then currently it’s trading around 81 and a half cents. Is Dave saying that if you decide you’re going to buy in to wait till it gets down to the lower area of what it’s currently trading in and buying then?

Tony  27:15

He is but the question is, I just need some rules around that because how do you know it doesn’t show the spike up like it has on some days?

Cameron  27:24

Yes.

Tony  27:26

Then keeps going and doesn’t come back. He’s saying it’s range trading, which it has been but when does that stop?

Cameron  27:32

Yes.

Tony  27:34

I just need some rules around it and it’s, if you look at the bottom, like in the bottom of my Stock Doctor chart, I have the volume graph there as well and it’s pretty erratic. There’s some really high volume days, some really low volume days, and a high volume day doesn’t necessarily follow a low volume day and vice versa. You can have three low volume days in a row.  I’m just not—I’d need to know what was driving that to make a system I guess, to exploit it.

Cameron  28:05

But your mindset is, when you’ve decided it’s a buy, you’re just going to buy it at market.

Tony  28:12

Yes, as long as the share price isn’t going down that day.  I’m doing what Dave’s saying, if the share price is going down. I wait for it to start turning up again, which should hopefully be at the bottom end of that range he was talking about. The 85 cents rather than the 95 cents.

Cameron  28:29

Yes.

Tony  28:30

Yes but I’m not trying to finish it any more than that.

Cameron  28:35

Yes. OK. Thanks, Dave. Mark. Hi, Cam. I was wondering if you could discuss the buy time.

Tony  28:42

Sorry, Cam. Sorry to interrupt. We had one carried over from Doug, which we should get to as well. It was actually before Dave’s on my list. Question from Doug, is there really much to be gained during reporting season? I guess he means they’re from buying or selling. She won’t just keep abreast of the stocks they have and then wait until the end of August before investing again. Or recall TK saying it can take time for the market to truly digest and process a company’s numbers.

Yes, I’m always trading during reporting season because again, it’s my experience that the stock can move quickly on the day. We tend to have to wait for a couple of days to get the numbers in Stock Doctor before we can make a decision anyway. He missed out on that first leg up or leg down I guess, either way, by waiting for a couple of days. I like to try as soon as I can and try and capture as much of that first tick up or down to I can.

My point about capturing the market taking a while to process is still true. That’s why I can buy and sell during in other periods outside of reporting season because the market is still processing the numbers for months after reporting season has finished, especially when the stock price is moving up or down. Those numbers will change in terms of value anyway. Yes, both things are true. I prefer to trade during reporting season but I’m also happy to trade outside of it.

Cameron  30:14

Right. During reporting– During this period, you’re not waiting for a company to issue its report before you’re buying something?

Tony  30:29

That’s a different question. Now, the question that Doug’s asking is, should you trade when the numbers first come out on a company by company basis or should you wait until the end and then stack rank them? And that’s a good question because if you’re trading– Like this week, we’ve had numbers coming out from say, Com bank down or EDI or Ryzen but there might be worse than the companies that report next week, they might have better numbers but I’m still happy to buy as the numbers come out and if I have a– If I haven’t bought the thing that which would have been top with all this at the end of reporting season will also be. They’re still– It’s still a good buy.

Cameron  31:09

Right but my take on Doug’s question, I might be misunderstanding this bit. Like I’m buying– If I’m buying stocks today that aren’t one of the companies that have published their financials that have come out yet. They haven’t reported their June figures, should I be– But they are coming up the top of my list as it is today, even though we don’t have their June figures yet. Should I be buying them because the list is the list? Or should I be not buying them and waiting for their figures to come out or waiting for everybody’s figures to come out? You want to be fully protected. Right.

Tony  31:53

That’s a different question which I’m happy to talk about as well. Now, Doug’s asking, do you buy during reporting season or do you wait till the end and stack rank and buy down the list?

Cameron  32:03

That’s what I’m saying. Is that different from what I just said?

Tony  32:06

No, you just said, if something hasn’t reported yet, do I buy it?

Cameron  32:10

Yes.

Tony  32:10

I’m not saying that. Well, that’s saying, does he buy Commonwealth Bank today? Now, it’s got new figures in Stock Doctor or is he waiting till the end of the month and see where the Com bank ranks higher or lower than something else he could have bought and I’m saying I’m buying Com bank today.

Cameron  32:25

Right.

Tony  32:26

Question which is if Com bank hasn’t reported yet but it’s still on our list and it’s high up. Will I buy? Yes, I would.

Cameron  32:33

OK, either way, you’re just working on the figures as they exist today whether they’ve reported or not reported, the list is the list, the scorecards are the scorecard?

Tony  32:43

Correct.

Cameron  32:43

Yes. OK. Because we’ve got a few questions about that and I’ve been wondering that myself, there was a bit a few people asking that, obviously, in the last couple of weeks, should we wait until reporting season’s over before we start investing or should we just keep moving?

Tony  32:58

Keep moving. My experience is that if you wait, yes, you might finish the order in which you buy because you’ll have all of the numbers into the top scores list but you may have missed out on a 30% upturn for those companies which reported good figures.

Cameron  33:16

Yes, you may have missed out on WWG which is one that I bought just a week or two ago. It’s up to 21%. Right. [Crosstalk 00:33:27].

Tony  33:29

Well done. The converse too is that like I bought Suncorp before it reported and then it reported good numbers and shares went up.

Cameron  33:38

Yes.

Tony  33:38

Was already on the list and that’s often a thing you’ll notice in reporting season, like a week or two before the numbers come out. If the markets got a pretty clear indication, they’re going to be good numbers, they’ll start buying the shares before the report comes out and then if they’re pleasantly surprised, after that they’ll keep buying which often happens.

Cameron  34:00

Yes. All right. Thank you Day– Doug. Mark. Hi cam. I was wondering if you could discuss the buy timing to try to reduce the risk of a stock dropping by greater than 5% on the next day or so. Tony says that he normally doesn’t buy on down days thinking that it could be cheaper– Much cheaper tomorrow buys are done at 11:30am after the market is settled. Is there anything to consider? Also, what timeframe is used to decide between selling with a 5% loss of breakeven? If a stock goes up the day after you bought it then goes back down to your buy price on day two. Is it a breakeven sell or do you let it go for the 5% loss before considering to sell it? Cheers Mark.

Tony  34:46

I don’t really have hard and fast rules on all this stuff. I know people are craving them but my experience is that I just try and ignore it after I buy. If I happen to find out, it’s dropped five to 10% and yes, I will sell it but there’s no– Is that a– The next day, a week, a month after, there’s no hard and fast rule. I wouldn’t want to keep it if it drops more than 10% but there’s cases where I have cause I think it might turn around and it hasn’t and there’s been cases where I’ve sold it and it has. Yes, it’s—

Cameron  35:29

You’re hitting refresh every half hour after you buy it. Just like I am. [Inaudible 00:35:34].

Tony  35:25

Because–

Cameron  35:38

Its nice to be rich, Tony. [Inaudible 00:35:39].

Tony  35:42

That’s not the reason at all. You’ve got 15 to 20 stocks and you’re talking about one stock dropping 5%. That’s 5% of 20%. It’s a hit to your portfolio of 1% at the most.

Cameron  35:55

Yes but if you buy 10 stocks that day, and they all go down 10%. That’s a lot.

Tony  36:01

Well, and maybe the rule needs to relate to the concentration in your portfolio as well, mathematically. I don’t know. Yes, there’s no rule.

Cameron  36:09

Right. Rule number one is, don’t lose money with the caveat that don’t drive yourself crazy by hitting refresh on the stock every half hour.

Tony  36:21

Yes, and please don’t buy it today and then in the afternoon sell it because it went down 1%. You’ll just– Eventually, you will get through all your capital doing well and try have it for a while.

Cameron  36:38

Yes, I have since we’ve been talking about robot over the last couple of weeks, I have sold a lot of stuff that did drop five or 10% and replaced it with something else but now it’s at a point where my everything’s up. Like everything is well and truly. Oh that actually that’s not true OK. There’s a couple of things that are still borderline. There’s still 0.1% down, 0.01% down my total return Vita group. Come on Vita group. What are you doing to me? Lindsay, Australia is 1.28% down but everything else is up. I feel a lot less worried about  to check it now. I’m like, OK, now it’ll just tick along until something reaches a three-point trend line. I’ll just update my sell lines every month and get alerts from Stock Doctor.

Tony  37:33

Yes, I mean, the way I started doing this was to look for a 10%. Stop loss, I guess you’d call it. I don’t put a stop loss in. I don’t put a stop loss into the market but yes, I feel uncomfortable something dropped more than 10% from what I paid for it. That’s not going to happen in the– Usually, in a day or two after you’ve bought, its going to happen over time. I’m not watching it as soon as I buy it. I’m watching it over the long haul.

Cameron  38:00

Yes but I mean, I understand the temptation. If you’re building a portfolio for the first time and you’re buying stuff in it and you see it going backwards immediately to go Oh, shit, at some point, you need to cut it. If you buy it and over the next week or two weeks, it drops by 10%, then I’m  going to cut it and find something else. Yes.

Tony  38:28

Yes. It’s got to be more than just about normal volatility in the share price I think too.

Cameron  38:33

Yes. Just bad luck.

Tony  38:36

If you’re looking at the share and like as Dave was before and it’s going up and down between 85 and 92 cents or whatever the numbers are. Don’t get too upset if it drops back to 85 cents again.

Cameron  38:47

That’s a good point. Look at the normal trading range of the stock and if it’s in between that, if it’s always going up between 80 and 90 cents in the last few weeks, then don’t worry too much about it.

Tony  38:59

Yes, that’s a good point. I mean, I’m sure all this stuff can feed into some math somewhere to really find, put a fine point on these rules but I’ve just never done it. It’s never been an issue for me.

Cameron  39:13

The Iceman.

Tony  39:15

Not that. It just hasn’t happened yet. You will drive yourself crazy if you buy something and then check the price and [Inaudible 00:39:25].

Cameron  39:28

It doesn’t drive me crazy but it’s just extra effort and then you need to do another download and all that crap and then of course, brokerage fees and all that stuff which– It doesn’t really matter for most people listening to this. The brokerage fees are going to be a big whack but it’s only when you hit– Kids like Taylor and his mates that are investing a small amount of money in the brokerage fees a lot but they’re doing very well. They’re not complaining. Their QAV portfolios are great. He tells me he keeps getting– Giving you a hard time about what an investing genius he is. What does he just say that walks in the morning? Oh, Tony. Oh god Tony doesn’t know what he’s doing. I’ve only been doing this for like two months and I’m like 50% up. I’m a complete legend.

Tony  40:16

Is he really 50% up in two weeks– In two months?

Cameron  40:20

Yes, he bought five stocks and three of them are up like 50%.

Tony  40:26

That’s great.

Cameron  40:26

Yes. A) I told you what to buy. B) I did it using Tony’s system. Don’t pat yourself on the back too much sweetheart but yes, he’s joking anyway but yes.

Tony  40:39

Yes.

Cameron  40:39

Oh, hey. We’re setting up a Brisbane meetup  probably in the next week or two with all of the Brisbane crews. Taylor and his mate and Hunter are coming along. They want to come along and there’s we got a bunch of interest from the folks in Brisbane. We need to get it in before some of you people from New South Wales leak over the border and put us into lockdown again. Need to get on that show right now he’s organizing.

Tony  41:05

We can’t inspect some property up there.

Cameron  41:06

Yes.

Tony  41:07

Yes. Second homes.

Cameron  41:08

Sure.

Tony  41:08

I can nominate you as a bubble buddy and come and see you if you’re.

Cameron  41:12

Bubble. A bubble buddy?

Tony  41:15

Yes. [Cross talk 00:41:17] to nominate one person to visit your house.

Cameron  41:21

Well, that should be right. Ray was actually a bubble boy when he was born. He was in a bubble for two months.

Tony  41:29

Oh, really?

Cameron  41:30

Yes.

Tony  41:30

Wow.

Cameron  41:30

Yes, I make fun of him for that all the time. Explains a lot of his psychological and emotional issues.

Tony  41:38

I thought the five years without sex explaining.

Cameron  41:41

Well that’s the fact that– The bubble boy thing explains the five years without sex when he’s dating his wife.

Ray is my other podcast co-host for people who don’t know who we’re talking about.

Petra. Hi Cam, can we get Tony to discuss his latest on the sell for commodity stocks? I think we did that one last week.

Tony  42:01

Yes, did this one last week. Yes, if you have any other questions give me a call. Sorry, put in a question.

Cameron  42:06

Sorry Petra, we probably took a little bit too long to get to that but we did get to it. We got to it last week, yes. Mark again or another Mark? Hi Cam, re-above calculating annualized portfolio returns. Oh, OK. This is my portfolio. Yes. When cash is constantly being deposited withdrawn from the portfolio throughout the period is obviously difficult. The problem with time weighted and money weighted return calculations is that they ignore the source of funds for the share purchase e.g. purchases from portfolio capital gains and reinvested dividends. That is cash, the portfolio has earned as opposed to cash added from external funds. Separating the portfolio’s contributions from your own external contributions is important for calculating Kagger/IRR. One way to allow for this is to use the Excel XIRR function and then he goes into a bunch of stuff.

This isn’t flawless as it ignores the exact dates of dividend capital gains, deposits, portfolio cost withdrawals. Obviously, Tony’s view and suggestions from the class of other methods would benefit all. A lot of this goes over my head Mark, I haven’t actually taken time to play with it but Thank you for that.

I tell you what I have been doing since we last spoke about this, Tony. If I just go to Stock Doctor where I keep track of my portfolio and they do have a time weighted return per annum figure there, which says 41.54% and I’m just assuming that they’re right. I don’t know if that’s right or wrong but I’m just assuming that that’s a good number I’m going to go with it. What do you think?

Tony  43:53

Well, I think we’ve spoken about this. I don’t know without looking at your portfolio on Stock Doctor whether it’s right or not. There’s no reason to think it isn’t. The points that Mark was making was also correct. We dealt with this a couple of weeks ago, XIRR in Excel allows you to have a long formula which has all the ins and outs in your portfolio and then calculates the return given all those ins and outs over the period of time. That’s as typically it’s used, not necessarily for portfolio analysis but if you’re like building a coffee shop, you’ll have a bit of money and it gets paid a council a year out, we get your applications in you pay the architects, you put a deposit to the builder, you build the thing, then you start making money, you operate for three years. You make this much in the first year, this much in the second, this much in the third. All the time putting money in, taking it out and it tells you then what’s you’re in– It’s called internal rate of return which is like Kagger that tends to be used by Engineers in the main are all developers for that very reason that you can front load a whole heap of costs and then have the returns ramp up and work out whether it was a decent project or not.  You can do the same thing for a portfolio as Mark says.

The other way, which I’m happy to do for you want to send me $3, just to break it down over time period. You had this much money invested for this week and it was a starting balance and a closing balance.  That means you weren’t that amount of return per week and then waited for how much capital you have for that week and then do it for every week, and then get a weighted average over the whole lot, which is another way of doing it.

Cameron  45:42

Yes, look, I don’t really care that much.  I’m not going to put you to any of it. If I could sit down and try and nut it out myself and run it past you. If I get time to scratch myself. I’ll do that. For right now, I’m just assuming that Stock Doctor’s somewhat correct and it’s– I know my portfolio is bigger now than when I started and what I’ve put into it. It’s good enough.

Mark, if it’s the same mark, I think Mark Dugmore did send me a spreadsheet of his own portfolio where he did something like this to work it out.  I can appreciate that and I can use that as a template to try and build my own and see if the number is close to the Stock Doctor number and if it is, then I can stop worrying about it.

Tony  46:28

Well, if it works, throw something up on our website too so other people can use it.

Cameron  46:32

I will. Thank you Mark. Another Mark question. Not sure if it’s the same Mark. We have lots of Marks. We’ll go to this other one by Mark. TK mentioned he currently holds some Aurelia that was now below his purchase price as is mine and also more than 5% below his purchase price as is mine and he was keeping his Aurelia position Robert as a reminder to adhere to rule one. What TK didn’t say was how he will deal with selling the Aurelia position if he has to? I’m presuming he’ll wait until it reaches its three-point trend line sell line which will be greater than 5% below the purchase price rather than just sell now and cut his losses. I’m trying to get a handle on what to do with positions when I’ve missed the less than 5% rule. Wait for 3PTL sell on breach or hope that it goes up? Cheers, Mark.

Tony  47:25

Yes, well, you can use a 10% stop loss for a start or sell point which is generally more I do. Yes, Aurelia. There are a couple of cases. I think Romelus resources was one with a dummy portfolio where it got back to what we paid for it or slightly less than that after holding it for a long time and I said let’s dump it and buy something else and then it surrounded almost the next day.

Cameron  47:53

Yes.

Tony  47:54

Then, it comes time for me to sell it really and I go, Oh, it could be another instead of applying my rules and it’s gone down since then. I’m waiting for it to turn up again. I would– Yes, I would sell it for all the normal reason. If it breaches its three-point trend sell line, I’ll just take the loss. If there’s bad news coming out, I’ll sell it but I’m probably at this stage sell it if I need a an offset against capital gains–

Cameron  48:25

Yes, right.

Tony  48:26

At some stage. They’re the reasons why I’d sell from now but hopefully it turns around. All the numbers are good for it.  Hopefully it turns around. I got something from my stockbroker from research into Aurelia and the analyst that values was saying or it’s now ord minette was saying that people don’t understand the value of Aurelia because it’s actually not just a gold company. It’s got a whole heap of metals, it’s copper and it’s half a dozen other metals in there as well. It should be of a different valuation profile. I’m hopefully that message gets spread far and wide and Aurelia will turn around again.

Cameron  49:06

Well, the way it’s currently looking, it’s a 33 cents and I think it’s sell price is probably about 28 cents. It’s not far off its sell price.

Tony  49:16

No.

Cameron  49:19

But if you, the bottom line there is if you missed it dropping below its buy price, then you’re just  going to hold on to it and hope it climbs back up and if it doesn’t and it hits its sell price, take your licks.

Tony  49:38

Yes, exactly and I mean– Hopefully, I mean, the sell price for a stock like this, the sell line is usually rock bottom. Yes, the trend is way down. It gets to that price in the COVID times or GFC time. If it does cross, it’s pretty bad. You’d sell it but hopefully it’ll turn around. Hope isn’t really a strategy when it comes to sharing. We’ll just apply the rules.

Cameron  50:05

Come on.

Tony  50:06

[Inaudible 00:50:06] Rule one.

Cameron  50:09

Hope worked for all of the afterpay investors well. The ones that didn’t get to the top anyway. J

James. Hi Cameron, continue to enjoy the QAV club, loved the new pulled pork segment. The explanation is succinct and easy to understand.

Tony  50:28

James has been shorting our pulled porks probably and making money.

Cameron  50:32

That’s  going to be clever if you did, yes. I’m putting that in the checklist now, has Tony done a pulled pork on it recently? If he has, give it a minus one. I’ve been looking at commodities, trying to match the upward trends with stocks on the checklist and was interested to hear yours and/or TK’s thoughts.

No one wants to hear my thoughts, James, I know you’re just being polite. Thank you for that. One, natural gas looks to be gaining momentum in terms of demand but this is not coming through share prices to this point but hopefully, this should eventuate CTPH, ZN, and STO. All look likely to benefit to my experience—Inexperienced eye. What do you think about natural gas, Tony?

Tony  51:10

Yes, it’s definitely the commodity itself definitely on the increase but price wise, but those three stocks, I don’t know central petroleum, CTP very well but Ryzen and Santos both have other issues. Other things that play Santos in particular with its proposed merger with oil search, plus the crude oil prices topping out I think, potentially without trying to make a prediction. I think that’s put a cap on Ryzen and Santos. We went through this last week though on the great rotation.  James goes on to talk about nickel and palladium and zimplats because of palladium but zimplats is actually a platinum company. It’s the– Platinum price has gone through its sell line.

The one that is going up which is mentioned is aluminum and the only aluminum stock we have on our checklist is Capral which has done really well and even though Capral is a bit of a proxy for the aluminum price because it takes the aluminum and then makes aluminum siding and other products out of it and gutters and things like that to sell. It’s been doing well, your main price is rising which means that Capral probably does have some pricing strength there and can pass on price increases but that’s the only one I can think of.

There are a couple of companies that have exposure to some of these increasing commodities, like there is an aluminum company IWC, but it’s way down. It’s like a score of 0.01 or something on the checklist.

Cameron  52:52

Yikes.

Tony  52:52

Western areas is another one. Very low score and they haven’t done well and I think that makes sense to me because they score badly even though upturn in the commodity prices isn’t going to save them, I don’t think.

Cameron  53:06

Right.

Tony  53:07

I have other issues. Yes, we pretty much covered up on the rest of that question last week.

Cameron  53:13

Well, what we’re talking about natural gas? I just went into Stock Doctor’s commodities, I can find natural gas futures current. Would that be the one you’d be looking at?

Tony  53:24

I think. From memory, I’ll go and have a look.

Cameron  53:27

OK, it’s ng#, is the code for that. We’ve got a couple of other NGs.

Tony  53:36

OK, it’s interesting because I know we say an oil search, they often price natural gas contracts and pegged them to the oil price. It’s surprising that oil is turned down a little bit, natural gas is still going up but I’m not that familiar with the natural gas market.

Cameron  53:53

Well, according to this chart, natural gas futures card has come back a little bit this month, it was at four bucks at the end of July. It’s now at 386 but generally, it’s been going up since the COVID cough.

Tony  54:08

Yes, I’ll just call it up. Now, I would be using that ng# in Stock Doctor which is a futures contract.

Cameron  54:14

Right.

Tony  54:15

It does look a lot like the old price chart too. You could probably overlay it.

Cameron  54:19

Yes, it’s come back a little bit more hesitant than that.

Tony  54:24

Yes, your price may have come back a little bit from there.

Cameron  54:29

How do you overlay it? Can you actually overlay it with Stock on them?

Tony  54:32

I’m just having a look. There used to be a compare. It’s not giving me that option though.

Cameron  54:38

If I look at—

Tony  54:39

Might only be available for stocks.

Cameron  54:41

If I look at the Crude Oil Futures, it’s– You’re right. It’s peaked at the end of June of the end of July but has been coming back. It’s like a month ahead. The sell price though for Crude Oil Futures current is a lot closer to the current price than it is for gas.

Tony  55:05

I’m looking out for oil. I usually try and find Brent crude which affects Australia’s oil price.

Cameron  55:11

Right.

Tony  55:11

Stock Doctor has a North American Brent crude price which is a bit of a surprise because Brent, I think comes out of the UK normally. Yes, it looks a little bit like the

Cameron  55:24

Oh, yes. It does. Exactly the same. Yes.

Tony  55:28

Yes. They are both above their sell lines but they both turned down in the last month.

Cameron  55:35

Alright, well, hopefully that answers what you wanted, Jame. We’re at an hour now. Do you want to put– Roll a line under it there? Do you want to do a couple more? What do you want to do?

Tony  55:49

I can do a couple more.

Cameron  55:51

Tony  55:51

If you want to, you got time.

Cameron  55:52

Yes, for you always. Ben says, Hey, CR and TK. Question for discussion please, does TK take quality of management into consideration and not just skin in the game? Tony’s just shaking his head there.

Tony  56:10

Well, the numbers tell me if management’s any good. Yes. Otherwise, you’re assessing a politician basically if you’re trying to assess what a CEO is like.

Cameron  56:18

Well, Ben asks, more common in the smaller end of the market where management may hold a significant amount of shares but it’s being run as a lifestyle company, would TK steer away from a high QAV scoring company where a board member may have previously been involved in a failed business or being given the AST from another company? You’re saying you’re, you’re just shaking your head? No.

Tony  56:38

Yes. The first question there was about companies being run as a lifestyle company. The only one I can think of that fits that bill will be Harvey Norman and that’s a bit harsh on Jerry Harvey. I don’t want to besmirch his name. It’s been alleged that he runs it as a lifestyle company because he invests in.

Cameron  56:57

What does that mean? I don’t even know what that means. What does that mean?

Tony  57:00

Oh, it’s being run to benefit the owner.  Like Harvey Norman’s case, they have taken it which is basically a home furniture and electrical retailer but they’ve owned rural properties where horses can be adjusted.

Cameron  57:17

The company owns the cattle properties?

Tony  57:20

Yes.

Cameron  57:20

Then he goes and spends time on the farm on the weekend just to make sure it’s being run well?

Tony  57:25

Well, allegedly. It’s—

Cameron  57:28

Well, no there would be nothing wrong with then doing something close to the wind here.

Tony  57:32

Well, the lifestyle companies.

Cameron  57:33

Well, if the company owns properties, he’s the CEO, he’s allowed to go and spend time on those properties. There’s nothing wrong with that.

Tony  57:40

Yes and he would always argue that investing in cattle properties is a valid investment. He’s just stacking up the returns versus opening another Harvey Norman.

Cameron  57:51

Warren Buffett owning seized candy and a big steak in Coca Cola, right. Are they lifestyle? They seem to be lifestyle investments for him but they’ve also done very well as investments.

Tony  58:02

Well, the classic thing is corporate jet. When a company, the CEO goes out and buys a corporate jet, which a lot of our resource companies do on the basis that they need to fly into the Pilbara and the Kimberley and fly to the States and I’d say, totally get it but they don’t disclose the usage of the corporate jet. Who uses it? Where they fly, etc.? Is that a lifestyle decision or not? And Buffett had a corporate jet until net jets came along and he refused to buy one and then he bought one and call it the indefensible and then after he used it for a couple years, he called it the indispensable. That was definitely just to help his lifestyle.

Cameron  58:47

Yes.

Tony  58:48

Then he sold at night and when Berkshire Hathaway bought into net jets.

Cameron  58:53

Yes, when are you going to buy us the QAV jet?

Tony  58:59

The QAV paper plane?

Cameron  59:01

Come on.

Tony  59:02

Just when you stop paying me.

Cameron  59:03

Just a junior jet. It doesn’t have to be like a fancy one. Just the junior QAV jet.

Tony  59:12

Yes. Anyway, get going back to the lifestyle issue. If a company did come up on our QAV checklist and the numbers were good, I’d still buy it.

Cameron  59:23

Yes.

Tony  59:23

That could be an issue with lifestyle. The company owner was driving lavish company cars and corporate jets and all the rest. That’s an issue to take up at the AGM I guess but I can’t really think of many where that happens. I mean, they’re not good companies usually. Harvey Norman has been on our top scorers list but I don’t think it’s there now.

Cameron  59:45

No, I actually– They came up on my list this morning and I don’t think they passed sentiment but if you’re looking at– Even if the company is spending a lot of money on farms and jets and all that stuff but their figures still stack up and they get to the top of that list, then they’re doing it. Doesn’t matter really.

Tony  1:00:04

Correct. They’re doing something right.

Cameron  1:00:06

Yes, I’ll buy and then the other question that and I’m sorry, I should say, I’m not alleging anything about Harvey Norman or Jerry Harvey at all. I’m just picking out an example which has been talked about a lot in the financial press about Harvey Norman buying into non-retail assets.

The second part of the question from Ben was, will I invest in a company where a board member may have previously been involved in a failed business? Absolutely, Cookie Forest went bankrupt in a nickel mining company about 20 years ago and Fortescue emerged after that and people still backed him and it’s gone two huge things and another guy called John Simon. Was he John from Ozzie home loans, did the same thing. Set up a home loan company, went bankrupt, and then kept at it and build a big business out of it which was sold off to Com bank a few years ago.  No, I give people a second chance.

Again, I’m looking at the numbers. If the numbers are good, then yes, I mean.

Cameron  1:01:11

I think [inaudible 01:01:11].

Tony  1:01:11

That’s the best judge of management.

Cameron  1:01:13

Yes. Most of the statistics say most successful entrepreneurs have failed three or four times I think before they–

Tony  1:01:20

Correct.

Cameron  1:01:21

Get the right one.

Tony  1:01:23

They often– Like if you have written interviews with people like John Simon, he said, it was the best thing that ever happened to me, I learned so much. I knew what to avoid. I knew what the mistakes were. I’m not  going to make them again. Yes and that’s why if you’re running a company and someone stuffs up, if they do it fraudulently or stupidly, you got to let them go but if you– If they’re acting in the best and honest intentions and they made a mistake, well, it’s what do we learn. Now you’ve made that mistake, you’re not  going to make it again. Why would I sack you? You’re the only person in this business who’s suffered from it.

Cameron  1:01:55

Well, I remember Bill Gates’s day running Microsoft before he got into the business of implanting invisible microchips in people through vaccines. Chinese microchips through vaccines.

Tony  1:02:06

Oh, we can track them. We can see if they go into their bubble buddy’s place and second homes on the weekend.

Cameron  1:02:14

That’s it. You have to use a Windows phone which don’t exist anymore but if you can get, if you have one of the Windows phones, you can do that.

He used to have– I was tracking the chip with Bill Gates has and it keeps coming up with Jeffrey Epstein.

Oh, that whole thing is fascinating. The whole Melinda divorce and the allegations that have been swirling around that it’s fascinating. Anyhow where I was going with that is he used to the policy in Microsoft was, a senior manager that had a big value with one of their divisions or something like that would get promoted.

Tony  1:02:54

Right.

Cameron  1:02:54

Yes. His Bill’s philosophy was, well, you’re a smart guy or girl and you’re probably not going to make the same mistake twice.

Tony  1:03:02

Correct.

Cameron  1:03:03

We’ve just—We’ve just lost $50 million on your education. Now we want to see a return for that.

Tony  1:03:10

I think that’s really smart because as I say, as long as long as it wasn’t stupid or wasn’t fraudulent, then yes, they’ve learned something very valuable.

Cameron  1:03:18

Yes. Samuel. Botswana Cameron, I would first like to thank you and TK for the excellent work on the podcast. I’ve been listening since pretty much the beginning and believe I have not missed a single episode. Well, we will get a badge made up for you Sam. That’s impressive that you stuck with this this long. My question for the show is about the CBA announcement regarding an off market buyback, would it be possible civil play to run through the different benefits and perhaps negative sides of this process for this shareholder? Merci beaucoup.

Tony  1:03:54

Well, thanks, Samuel. I’m glad you’re enjoying the podcast and learning stuff. I was hoping someone wouldn’t ask this question because it’s going to be a detailed answer, unfortunately, and preface with the fact you need to get financial advice on this one or at least tax advice on this one because different outcomes depending on if you’re investing through a Superfund, like a self managed Superfund or if you’re investing in your own name, or a company name, it all have different treatments for franking credits. This is all about franking credits in the main. Six months or  ago, I said a lot of these companies have franking credit balances. A franking credit arises when the company’s paid tax and then it can go out on a dividend  that the receiver of the dividend gets a credit for the tax that’s been paid by the company. But if the total profit doesn’t go out as a dividend, then the franking credits build up on the balance sheets of companies.

What Com bank has done is they’ve trotted off to the Australian tax office and said, we would like to issue us a special dividend. We’re going to do was a share buyback, though. It’s a path through the tax code in Australia, which allows companies to do this and it’s happened before with BHP and a few of the other big companies, Telstra, I think did it too and it’s a way of releasing franking credits which would build up on their balance sheet.

In this case, Com Bank has been doing very well recently and it’s now well within the guidelines that APRA, the Australian Prudential regulator has set for banks in terms of how much equity they must hold and the bank is saying we’re going to reduce our equity down a little bit to come back within the APRA guidelines and we’re going to do that by offering a buyback which is mainly treated as a special dividend, which means the large part of the payment rule maker someone who wants to sell their shares back to us is in a fully franked dividend and long story short, that means, for example, if you’re on a Superfund or self managed Superfund, the franking credits get added to the buy price of the buyback.

The way this is going to work and it’s I think from memory, today is the last day you can buy Com Bank shares and be eligible to be tendering into the buyback and it’s an off market buyback. The way it works is that next month, I think it is, the Com Bank will allow you to either enter into a tender to sell your shares back to them at between a 10 and 14% discount or wait until the end and once the average buy prices have worked out, sell your shares back to them at that price.

Of the amount they pay you, the Australian Tax Office has ruled that $21.66 is a capital component and the remainder is by– Is considered a special dividend and is fully franked. Current share price is 100 and 304 bucks, a 10% discount brings it back to in a 90 somewhere. Take off your $22 and about somewhere around $67 is going to be a dividend treated as a dividend by the tax office and is fully Frank.

Now the way to work out what the franking is worth is you divide by 0.7. Com bank’s been paying tax at the corporate tax rate of 30%. You’re adding back to 30% by dividing by 0.7. $67 dividend grossed up by dividing by 0.7 and then adding back the $21.66 Capital component, do all the math and it comes out to be worth about $117 to someone who is able to claim all the franking credits, which you are in a Superfund.

You’re actually getting an above market buyback, even though you’ve accepted a 10 to 14% discount, if you can get a rebate for all the franking credits. Now, it will differ person, individual by individual or holder by holder. I have shares in my Superfund, I’ll get maybe $112 worth of value in the buyback because of the way the franking credits work but if the shares are held in my own name, I can only put the franking credits against my tax return.  That may or may not reduce my tax and I’ve got to work out what my tax might be in and decide whether getting a franking credit reduces my tax or not because I might be paying tax this year and depending on how things are structured and then family trusts work a similar way.

There’s different tax treatments for franking credits and it’s different depending on whether you’re earning a lot or only a little in your own name as to how much benefit the franking credit will have to you. It really is horses for courses and that’s why they allow people to tender into the process, some or all of their shares or none of their shares and depending on this the way that shares are held, the benefit will differ. That’s from the shareholder side of things.

How does it help the company? Well, they’re buying back $6 billion worth of shares, their market caps about 180 something billion dollars, the share price should go up by 3% once this is all finished, but it takes six weeks to happen and 3% is not a huge variation in the share price. May or may not be noticeable in the wash of things in terms of how it will benefit someone who doesn’t sell into the buyback. Most people focus on whether they can make an added premium by selling the shares into the tender process.

It’s a detailed answer, Samuel you need to work it out for yourself. You need to work out what you’re holding is? What tax you’re paying? What threshold you’re at and how much those franking credits are worth to you?

Cameron  1:10:00

Or ask your financial planner or tax accountant.

Tony  1:10:05

Exactly.

Cameron  1:10:05

Spend $1,000 getting an answer from them on it and say.

Cameron  1:10:08

Yes, and the good news is that will be talked about in the financial press. I think Stock Doctor have done something on it in a very general way. Be surprised if you can’t find something on the interwebs about it. You can calculate it, yes.

Cameron  1:10:28

Oh.

Tony  1:10:29

In fact, I did. When I was doing, looking at the Commonwealth Bank booklet, and what the details were today. There’s a hotline you can call to talk through with them. They won’t give you tax advice but they’ll probably explain things to you one on one.

Cameron  1:10:44

Well, thank you, Tony. Hope that helps. Sam. Can I ask a question? [Cross talk 01:1:56]. This was actually the top I take priority, but I did and I was actually in last week’s show and then we didn’t get to it last week. MXI’s five for one consolidation. As an owner of MXI, Taylor called me up and said, What does this mean? Is this good? And I said, Yes, it’s good to give why and then I tried to explain it, and I got confused. Can you explain why consolidations are good again?

Cameron  1:11:28

I don’t think they are personally but it’s just all psychology. Well, the share price is in the cents, it’s like 50 or 60 cents and  when they consolidate, it’ll go up to $2.50 or something like that. It’s just really trying to get around people’s perception that if the, if a company has a share price in the cents, it’s a small company and it’s not worth investing in but it’s the same company with the same valuation, it’s just changed the way number of shares it has on issue.

Someone else asked the question about what the sell price would be for MXI because its share price went up  dramatically after they announced that I was selling a trailer parts business and, yes, long story short, the way I do it is, I think the numbers are something like the MXI is returning to the shareholders, the proceeds from the sell of its trailer parts business and some property associated with it. It’s about I think it’s 12 and a half cents per share from memory. I would simply– Until it’s payable, I would simply add that to the sell price and raise it up. It’ll still be a long way below where the share price is currently.

Cameron  1:12:40

Yes, I get the sell price at the moment are roughly about 37, 38 cents. It’s currently trading at 74 cents.

Tony  1:12:49

Right. If you add 12 and a half to that, 34 sell price, it’s still going to be 44, 40, 50 cents, which is 50. Yes. The other thing now is that as each month rolls forward, that sell price will go up, I think too.

Cameron  1:13:07

Yes.

Tony  1:13:10

But that’s about all I can suggest.

Cameron  1:13:11

Right. OK, the other– Probably the only  other comment I’d make is if it hasn’t happened in Maxitrans case because it’s still on the buyer list or on the top scorers list but if the share price had risen  dramatically, so quickly that we sell right down to a really low QAV score. I might consider taking some profits in that case but it’s not the case with Maxitrans.

Cameron  1:13:35

Right. Thank you for that. Steve’s question.

Tony  1:13:43

Don’t bombard us with, what are the rules for doing that? It’s, yes, common sense, rule one.

Cameron  1:13:50

Right. Do you want to do, knock Steve’s off? Or do you want to?

Tony  1:13:54

Just last one, isn’t it?

Cameron  1:13:55

Yes.

Tony  1:13:55

No, it’s the last one.

Cameron  1:13:56

  1. This is from Steve. Hey, guys, I know you’ve covered in the past but to be really helpful to give you a latest thoughts on stocks breaching the three-points sells when they go ex dividend specifically, Sun and Ben. They’re both buys now, of course, but both go X-DIV either today or in a couple of weeks, which will probably get them close to this sell lines.

Tony  1:14:21

I would add the dividend back until you get paid it because it’s money at your own and sometimes like especially with banks, for some reason, I’m not sure why they like to hang on to money. You don’t get the dividend bank for a while. I’m not sure what the case is with Suncorp and Bendigo but I know with some banks, they declare a dividend in March and you get on the first of July, which suits their tax treatment. Maybe not yours, but anyway.  Yes, I would add that that dividend back in terms of working out the sale.

Cameron  1:14:54

What does that mean?

Tony  1:14:54

Doesn’t always.

Cameron  1:14:55

Can you can you explain that?

Tony  1:14:56

  1. Yes, if a Bendigo Bank pays a dividend of $1. I’m not sure what the numbers are here and it drops. When it goes ex dividend it drops by $1, I’d still add that dollar back to its share price when you’re working out the sell line.

Cameron  1:15:13

Right.

Tony  1:15:14

You don’t want it to because all the shares will drop by the dividend. In fact, a lot of shares will drop by more than a dividend because there’s a whole tribe of people out there who put together investment portfolios, high yield investment portfolios for retirees, and they just move on then to the next stock that is going to pay a dividend and I’ll sell out straight away. You can get some selling pressure 2hen the stock goes ex dividend. Rio Tinto is a classic example of that pulled up numbers on Rio today, it paid a– Its yield was about six or 7% and the share price is down 10% after it went ex dividend. I think that’s probably a combination of the iron ore price going down as well but it’s not unusual to see a company dropped by more than its dividend yield. Yes, if you before you sell it, add the dividend back and just make sure it’s still above that three-point trend line and also to be aware, when you’re buying and selling during company reporting season what the dividend dates are, because it might suit you knowing that a company is going to go ex dividend and probably fall by more than the dividend, potentially any way to buy it after that happens. You’ll get it cheaper. If you don’t need a dividend.

Cameron  1:16:30

But you don’t get the dividend. Yes, in that case.

Tony  1:16:30

But you don’t get the dividend. Yes.

Cameron  1:16:34

You said earlier added back until you get the money. What changes when you get the money?

Tony  1:16:42

Well, when you– When the share price has dropped by the dividend amount and you haven’t been paid, that money is just floating out in the ether there. When you get paid, you’ve got the share whatever price it is plus the money in your bank and you might hold again. If it was still below its three-point trendline then I wouldn’t be any backward dividend cause you’re double counting the dividend. If that makes sense.

Cameron  1:17:05

Right. You’ve got the money and the price is the price then.

Tony  1:17:10

Yes and generally like it’s very rare to receive the dividend in your account quickly. It’s usually a month at least between when they go ex dividend and you get paid and that’s an issue the ASA should be taking up as a cause I think, that’s just wrong. Anyway, it happens

Cameron  1:17:27

Mentioned that before.

Tony  1:17:29

Yes and I’m adding it back to the share price until I receive it just as a way of making sure I’m not making a rash decision without taking into account the full value of what I’m getting.

Cameron  1:17:43

All right. Well, that is a full lid TK. Big Show again. You must be exhausted.

Tony  1:17:54

No, I’m good.

Cameron  1:17:57

Oh, that good.

Tony  1:17:57

I’m going to cook dinner now.

Cameron  1:16:30

You’re still cooking?

Tony  1:17:58

Day tomorrow.

Cameron  1:17:59

Oh, is it really?

Tony  1:17:59

Yes.

Cameron  1:17:59

I wish her a happy birthday from us. What are you going to do to celebrate tomorrow? You’re going to invite your sunbathing neighbor up from.

Tony  1:18:13

Oh, that was an eyeful. I tell you what. It’s just. Oh my Gosh.

No, I mean, she can’t hear me but we have a caterer that we’ve used here before, she’s bringing out a special– Dropping off a special meal for us for the two of us tomorrow night and a birthday cake.

Cameron  1:18:29

From the slippy spoon place or different one?

Tony  1:18:33

No, it’s a different one. Jackie’s catering.

Cameron  1:18:36

Right, but you’ve been cooking. What are you cooking tonight, TK?

Tony  1:18:40

I’ll see whatever meat needs to be used. Just following expiry dates, just trying to stay ahead of them but I’m thinking it might be a sirloin roast.

Cameron  1:18:48

Oh, very nice.

Tony  1:18:50

Lots of veggies. Eating really healthy these days. Yes, fruit for breakfast.

Cameron  1:18:54

That’s great.

Tony  1:18:54

Skipping breakfast, fruit for lunch, and veggies and a bit of meat for dinner.

Cameron  1:18:58

Tell you the best thing a couple of scotches. Best thing we’ve done is we bought a Vitamix a month or sonago and we’ve been having green smoothies a couple of times a day. Just throw a bunch of spinach and broccoli and celery and some nuts and a bit of fruit in it  blend it up. It’s great. Getting all right veggies. Yes, I wish I’d had one of those years ago.

Yes, well, I think we should. I know we– The show’s going on but we should do a Tony’s recipe of the day from now on. When we’re doing this? See what you’re cooking. I want photos posted up on Twitter and Instagram.

I wanted, I mean I just quickly to wrap up, Vexa, our portfolio and the Vexa looks like we’ve completely crashed all the way back to the ASX. We’re at 4%. I did email than the Vexa guys last week and said I can’t make sense of this. If I look at one of their charts. It doesn’t seem like we’ve dropped more than about 5%. If I look at this chart, it looks like we’ve dropped all the way back down. I’m following that up with them.

Cameron  1:20:03

I did have a look at it. The portfolio dollar value still looks right and it couldn’t have dropped back that far based on that dollar value. I think there’s something screwing.

Cameron  1:20:11

Something screwy. That’s why I’m not posting in Vexa updates at the moment and your recommendation was the strand.

Tony  1:20:20

The stamp.

Cameron  1:20:21

The stamp.

Tony  1:20:21

Amazon prime. Yes, pretty good.

Cameron  1:20:25

Mine, I just still pristine. I watched on Saturday night blood simple first cone brothers. I hadn’t seen it for 25 years, completely forgotten all about it. It was Joel and Ethan Cohen’s first film, Barry sonnenfeld first film as he was the do PR before he became a director, and Francis McDormand first film and it’s good MMM Walsh in it. Dan had died. MMM Walsh is one of my favorites. I love him. He never fails to be fantastic. Just a great film on every level, like the cinematography was great. That story, the acting just really 1984 but it holds up really well.

Tony  1:21:10

Very different, isn’t it? Yes. When we get getting dragged along by a friend to go and see it and I thought, What’s this and coming up thinking, Fantastic.

Cameron  1:21:18

Yes, really good. Yes and it doesn’t have the same level of humor that their films have had since after that when they did raising Arizona. There’s always been a lot of humor in their films. I think after that, except for maybe No Country for Old Men, which was a little bit more serious. Mike McCarthy was a connector. Yes, that’s right. Great film though. But this led symbol  for people who haven’t seen or haven’t seen it for a long time. That’s my recommendation for this week. It’s on one of the streaming services. I know it’s not I think I bought it anyway. Yes, check it out blood simple really holds up very well and as Bob Dylan he’s latest albums fantastic.

Tony  1:21:59

Oh, yes, I did listen to the Fat top pop fat pop pet pop album last week. I enjoyed that. I didn’t get to the Dylan well check that one out this way.

Cameron  1:22:11

Rough and rowdy wise very good. Right very laid back God great. Reminds me of the one that the stones put out five years ago or  with the blues. Yes. CD. It’s really good too.

Oh, that’s great. Good love Bobby. Still going after all these years. He’s like 150 he’s still going. Yes, he was around before rock and roll and he’ll be around after rock and roll when the world or when the world ends. It’ll just be him and Bob in him and Keith Richards case. Yes, death match. Alright, guys have a good week.

Want free weekly stock tips?

Every Monday we publish an email containing two ASX stocks (one small cap and one large cap) that Tony thinks offer the best value buys for that week. Sign up now to get your copy completely free!