QAV 441 Club

Cameron 00:04

Welcome back to QAV. This is Episode 441. We’re recording this on Monday, the 11th of October, 2:20pm; Brisbane time, 3:20pm; Sydney time. How does it feel to be free? [laughter] Tony, it is Freedom Day in Sydney.

Tony 00:21

Freedom Day. God! it’s raining here, I just went for a walk and got soaked. I think I’ll be staying inside all week.

Cameron 00:29

Were you are listening to George Michaels’ Freedom song as you walked around? [Freedom Song 00:35]]

Tony 00:40

Yes, it’s strange that restaurants are open. People are out without masks on. It just feels like I’ve gone to a strange country with strange customs and I still can’t book anywhere. I can’t– I’m like two and a half weeks away from having a haircut. It’s really annoying.

Cameron 00:58

I like your mullet. I think it’s good. Bringing it back. You’re rocking the mullet [Inaudible 1:01]. Well, very exciting. Not so exciting down in Melbourne feel pretty bad down there. But apparently Melbourne Cup’s going to go ahead. 10,000 people going to be the Melbourne Cup on November 2.

Tony 01:13

Yes, and one of my friends has a horse running too, so I’m hoping that they can get to see it at least…

Cameron 01:18

As the horse been double vaxxed?

Tony 01:20

I don’t know. I don’t think he’d double vaxxed, the jockey has. I have the owner and say, Hey, speaking of horses, my horse won yesterday, on your birthday too.

Cameron 01:31

I didn’t have a bet on it.

Tony 01:33

That was your birthday present. I got $11.50 for the win. Come on.

Cameron 01:37

What horse was that?

Tony

Never Say Nay.

Cameron 01:39

Really it had a win.

Tony 01:41

Yes.

Cameron 01:42

Wow. Congratulations. That’s a first.

Tony 01:48

Now I know why it won, you didn’t back it.

Cameron 01:51

Yes, that’s great for you.

Tony 01:54

Oh, it was, it was a great feeling one really easily and I look forward to it improving, onwards and upwards.

Cameron 02:00

Good stuff. Well, speaking of onwards and upwards. Let’s talk about hydrogen Tony.

Tony 02:04

Why not? What about your birthday?

Cameron 02:06

We don’t want to talk about that.

Tony 02:07

Happy birthday.

 

Cameron 02:08

Thanks. I don’t like birthdays. But it’s my twins’ birthdays today. They’re turning 21 that’s kind of weird, isn’t it when you kids turn 21.

Tony 02:17

Huge milestone. It happened to me last year.

Cameron 02:20

I remember when I throwing, I think they they are going out to dinner wiht their mum. They’re like me. They’re not into parties. They’re like, ‘Yes, got too much work to do. Move on.’

Tony 02:29

What work is Hunter doing?

Cameron 02:34

Making TikToks!

Cameron 02:41

And thanks to all of the QAV Club members that sent me nice gifts. I really appreciated that. Let me see there was no– There was none, OK. Hydrogen futures. There’s a new billion-dollar project been announced by Anastasia and our mate Twiggy Forrest…

Tony 03:01

Hmm.

Cameron 03:01

…to build a massive green Hydrogen production facility in Queensland. So I was running around looking for the Hydrogen futures in commodity stocks to see what that’s looking like.

Tony 03:15

I doubt If there is one,

Cameron 03:16

I’m wondering if this is why Elizabeth Gaines sold $9 million of FMG stock recently so she could get in on the ground floor with the hydrogen production business.

 

 

Tony 03:28

Well, maybe, she’s saying is to pay taxes, which I would probably believe, but she’d have lots of options. But that’s certainly why I think Twiggy’s been ramping up the dividends and taking money out of FMG.

Cameron 03:40

I got to say, I know nothing about what it takes to produce green hydrogen, but it’s nice to see an Australian mining magnate and an Australian government for that matter, making a significant investment in making Queensland a world leader in the production of green hydrogen betting on the future of energy production, not on the rapidly slipping away past energy futures.

Tony 04:06

I don’t know if it is rapidly slipping away. I mean, look at the price of oil and coal at the moment.

Cameron 04:10

Yes, they are going up at the moment going up. But come on. We all know that there’s the writing on the wall for those things. It’s just a question of when, not if?

Tony 04:19

That’s a prediction is it?

Cameron 04:22

Well, it is, and I got that straight from Steve Sammartino, who apparently, when he was on Episode-5, Season-1 of our podcast, according to Brett Fisher, who has just gone back and re-listen to it, and this would have been early 2019. Steve apparently predicted a pandemic which would shut down the global economy and force everyone to work from home. I haven’t gone back to listen to it, but that’s what Brett said on Facebook. So I pinged Steve Sammartino and said Mate you really are a futurist. Well, I’m super impressed.

Tony 04:52

He didn’t answer your ping before you pinged it. He predicted the ping?

Cameron 04:54

Yes. He said, “Hey, thanks so much for the message you’re about to send me.” Let’s talk about  MOZ if we can for a minute chart [check], I was doing this one, 5 o’clock this morning trying to get the buy list ready to compare it to your buy lists. So Mosaic Brands, it was a big collapse here, it started November 19, bottomed out with the COVID cough, but it was falling before that by the looks of it, and then it’s been bumping around down the bottom there, trying to get back over $1. It peaked September 2018, at nearly $3.50, and then it’s now trading at around 60 cents. When you look at something like this. I know we’ve talked a bit before recently about looking at shorter term graphs, particularly if companies have had major restructures, etc. For a company like this, how do you treat it? Or do you just take this as business as usual? Do we have to drill down into what’s going on there? Why it fell in late 2019?

Tony 05:54

Yes, I mean, you do, it’s just fallen off because the business is deteriorating, then it’s not worth trying to drill down any further, you take the 5-year graph and just say it’s a bad business. But if this is the business I’m thinking of at some stage in the last 5 years, they divested a company called City Chic, which is just taken off. So potentially, maybe that happened at the time that the share price went down because the investors got a spin off, the shares were spun off into something else. But I think the timing was before this, or it’s a different company. But anyway, that’s what you need to do is drill down and try and work out whether there’s a reason to look at the short term performance or not.

Cameron 06:30

Do you bother, like; you’ve obviously had a look at MOZ because it came up on my list. When do you bother to do that? When do you not bother to do that?

Tony 06:37

I didn’t bother, and the reason why is because I went back and looked at the different time periods, the 3-year time period still looks like it’s maybe it’s just getting into a buy using the three, probably not and maybe it is– I’d have to draw the lines, looking at it quickly, and eyeballing it, I’d say it’s a sell and I wouldn’t like to use a range much smaller than three years. Like if you look at the one-year chart, yes, it’s a buy on a one-year chart, but one year is only 12 data points. So there’s a fair bit of noise in a one-year chart. So if I looked at the 3-year chart in Stock Doctor, and it looked like it was compelling, I’d probably drill down further but it doesn’t look like it to me, it looks like the same sort of pattern as the 5-year chart really.

Cameron 07:16

Yes, but then I’m starting with an H1, probably September 19, I think. It would probably be my H1, if I’m taking a 3-year chart, my H2 would be January 21. It could probably go a little bit later. I could go April but still it’s going to be a buy maybe or maybe it’s got a sell after that, right?

Tony 07:39

I think the sell would be – L-1 March, 2020, and then L-2 would have originally been September 2020. So the sell would that occurred around May. So the L-2 has dropped a little bit. So it’s probably above its current sell line. But then the buy line– Yes, the buy-line is probably just crossed this month, September 21. It is little bit above it but it’s not— like it’s going sideways, and it’s not compelling, really…

Cameron 08:03

No soup for you then Moz.

Tony 08:05

I wouldn’t necessarily go any further. I’m not saying that you couldn’t go further and work out the reason why the shares dropped late 2019, and in which case, it probably is just slightly a buy at the moment. So you might want to look at investing in it. But I haven’t done the research to know if that’s true.

Cameron 08:20

All right. Well, I was just wondering this morning, because how much time should I spend on this? How much work should I do in it?

Tony 08:28

For me, if the graph was going up sharply at the right there, I do the work, but it’s kind of just in buy territory, perhaps at the moment.

Cameron 08:36

Right. Nothing to see here.

Tony 08:37

Yes, that’s what I think.

Cameron 08:38

I want to talk a little bit about our portfolio, Tony, we were looking like chumps there a couple of weeks ago after the iron ore collapsed, and we were below the SPDR 200 for the financial year. Last week, we’re up 3%, this week, we’re up nearly 6% with the 200 up half a percent for the financial year. So right now we look like complete legends and champions. For a couple of weeks there, we looked like complete chumps. So the difference of a couple of weeks can make.

Tony 09:10

We never look like complete chumps. Come on…. Life’s all about time

Cameron 09:13

Timing [laughter]

Tony 09:16

Good time to up the advertising spend this weekend.

Cameron 09:20

So yes, it’s looking good again, it’s not as good as it looked like going back at the end of July when we were up 10%. But we were up 10% and the 200 was up 2%. So we were doing roughly 5 times better than it then, we’re doing roughly 10 times better than now. So I guess we’re doing better now than we were then relatively speaking,

Tony 09:39

Relatively speaking, yes, but again, it’s a short term data set, lot of noise in there.

Cameron 09:43

You decided this morning that we had to sell MTO because it’s breached its sell line. But what are we going to replace it with?

Tony 09:54

Our Stock Of The Week. It’s CLX.

Cameron 09:56

We’re going to replace it with CLX… CTI logistics. Is that what that is?

Tony 10:03

Correct. That’s the one. Yeah.

Tony 10:05

Okay, and you get to do a pulled pork on that I think today.

Tony 10:08

I am…. Yes.

Cameron 10:08

Before we get into that, I also want to talk about that stock tips: The stock of the week tips that we’ve been doing officially again since early September. They were all under water a week or so ago, now not so much. looking pretty good. Actually, a couple of are still down, AIS is 11%, IGL is down 9%. Myer’s down 15%. It still hasn’t recovered from the Geoff Wilson sell off. Thanks a lot, Geoff. We know you listen. Everything else is doing OK. Or at least hasn’t moved at all. CGF is at zero. KRM is at zero since we bought it. Everything else is a little bit up though. So it doesn’t look too bad. 70%?

Tony 10:50

Yes, I think we’re kind of back to square. I mean, it’s so this is, again, small sample sizes. I think once we get up to tracking sort of 15 to 20 recommendations, we might see it behave more like a portfolio rather than just be the vagaries of individual stocks shooting one way or the other.

Cameron 11:05

Yes, of course we only ever claim that we’re going to get 60% of our balls will fly right?

Tony 11:10

Correct.

Cameron 11:10

A bit too soon to be talking about balls flying right, I have to say, because I’m still working a little bit funny this week. Still a little bit tender. We don’t need to talk anymore about that. All right. What do you want to talk about today, Tony, musing on this rule to replace three PTLs?

Tony 11:27

Yes, nowhere near ready to recommend it or to use it. But I guess what triggered my thinking was that I often talk about what using 3PTL getting the first 20% of a downturn, which tends to happen, right? We’re waiting for a trend to establish itself. So then I thought, Well, why don’t we use 20% and try and see if we could fit that into graphs and started looking at some this doesn’t work for every situation, and there’s got to be a lot more work done either by myself or by doing or someone like that to analyze it. But if you just look at any particular stock graph, I’ve got Mosaic Brands open at the moment. So that’s as good as any I guess, if I have a look at it, let’s look at the 5 year that’s a longer term trend. I think H1 is still going to be September 2019. H2 looks like it’s November 2019, and you draw a line through those while I’m suggesting [crosstalk]

Cameron 12:20

Why isn’t H1 back in September 19?

Tony 12:22

Oh it is OK?  [crosstalk] Yes, probably is actually you’re right, September 2019, H2 February 19,

Cameron 12:33

They would have had a sell bad June 19. So we need an H2 after June.

Tony 12:38

OK, so then we’re using September 19 as the H2. Anyway, so my point is that, if we take the H2 and look at a 20% decrease in that share price–H2 on this case is 2.94. So it’s going to be you know, 58 cents below that, it’s going to be mid sort of 2.50s, 2.60s, it becomes a sell on that way down right off the cliff. So it’s going to be a sell probably in November 2019, or maybe December 2019, which is a good time to sell, and then if you look at the L1, L2 currently, so L1 is going to be March 2020. L2’s probably going to be August 2021. If you look at the price 20% above L2, L2 is currently at 45 and a half cents. So again, nine cents above that. So 54, it’s 20% above–54, 55. It’s probably a buy right now, almost a buy right now. Yeah current price is 60 cents. So it’s a buy right now, because it’s trending up. So this is kind of just been a rough approximation of an idea. So I’m just going to start doing some research on it. If I can flesh out some rules that work in every sort of circumstance, which this kind of does cover most bases. It doesn’t always pick the… it never picks across a buy line or a sell line, but it gets us in and out in the same sort of general area. That’s going to be a lot easier to code because we can just simply take like a 5 year monthly points work out H1, H2, L1, L2 and then apply a 20% decrease or increase on those and get our binds.

Cameron 14:12

When does the border open up with Victoria?

Tony 14:15

They haven’t announced that I’m hoping before Christmas.

Cameron 14:17

I think, Brett Fisher will be hunting you down if you just get rid of the 3PTL and say Oh, we’re just going to do 20%, 30% above L2, we don’t need that, he spent six months of his life coding this bloody thing. You’re like, nahhh.

Tony 14:32

I haven’t done enough research yet to prove this is just the musings.

Cameron 14:35

You better go into witness protection If you change that, Brett will be hunting you down.  In your email to me, You said, “Buy when it’s 30% greater than L2,” but just now you said, “20%”.

Tony 14:48

Yes, it’s 20 right now.

 

Cameron 14:51

So you got to do some regression testing on this at some point and see what it looks like.

Tony 14:56

Yes, I mean, I haven’t quite worked out how to do it yet, and if we get an analyst and get into the Refinitive data, we’ll do it that way but yes, I’ve got least 2 years’ worth of buy list now, I can go back and check that against the 3PTLs anyway. We’ll just pick a sample see if it’s worth progressing.

Cameron

How did you cook up this little idea?

Tony

Yes, like I said, I’m listening to myself talk about 3PTLs and when you’re buying in and buying out and the questions that we get, we often miss the first 20% of an upturn while the trend establishes itself and we eat the first 20% of a downturn while the trend establishes itself. If you think about Forestcue Metals Group, the high price was about 25 bucks, we got out around 20, that’s kind of 20% below the peak. I keep saying it enough to myself or to you or to other people who listen, is that actually the basis for a rule and then looked at the graph and thought yes, it actually fits L2 and H2.

Cameron 15:47

If it rises 20% above the L2, we are just saying “OK, we think there’s a trend now,” that’s it.

Tony 15:52

Well that’s the hypothesis.

Cameron 15:55

Very cool. Sorry Brett. [laughter] Back to the drawing board Brett.

Tony 15:59

No, We’ll keep using 3PTL and Brett’s fantastic calculator, which is such a great time saving device. We just do what we always do, we will challenge it. He’s the champion, we have to challenge it and see if we cando better.

Cameron 16:11

GCY is back on the buy list Tony I spotted that this morning.

Tony 16:16

Gascoyne; it’s a oil and gas company. Did a bit of research into it. Two things, it’s under a takeover offer which is potentially why it’s back above its buy price and it went to a trading halt today which I noticed when I was preparing for the show, so we can’t buy it today, so we’ll see what happens, it was last time I traded on the weekend when I had a look it was below the offer and the directors were saying take no action but obviously something’s happened in between so we’ll see.

Cameron 16:41

And remind us what Gascoyne do?

Tony 16:44

Oil and gas explorer but I’ll just look it up in Stock Doctor and get my answer spot on.

Cameron 16:49

And oil is continuing to go well. Gold exploration and development according to Stock Doctor.

Tony 16:55

Got it wrong have I sorry. I thought it was a real company. No you’re right it’s a gold mining company, my mistake…

Cameron 17:01

Same thing. Oil, gold….

Tony 17:05

Black gold and gold gold.

Cameron 17:06

Yes, gold is still doing well who’s making the offer or just downloading their statement, doesn’t say…

Tony 17:12

Westgold I think.

Cameron 17:15

So this might be one of those cases where we’re not the only ones who think it’s undervalued.

Tony 17:20

Correct. Exactly. Yes, Westgold do obviously and potentially more it’s the first bid, so, you know, the first shot is never the last show in the war. I’d expect there to be higher bids… Or Gascoyne does something left field and does a Logan Roy and tries to take over a big company in a shitload of debt as a defense.

Cameron 17:39

You’re still watching Succession, I see.

 

Tony 17:41

I finished.

Cameron

good stuff isn’t it?

Cameron 17:43

Yes. Good to know. I don’t own it, so out in the cold here, I wish I did by the sounds of it

Tony 17:51

Well you still might be able to– I mean it was trading below its bid price on the weekend, which is why I put it on the list to talk about, and who knows what comes out of a trading halt. We’ll see. I suspect another bid but we’ll see.

Cameron 18:01

CTP is back on our list, who are CTP?

Tony 18:06

This was the oil and gas explorer, Central Petroleum. There you go , I knew we had one somewhere.

Cameron 18:11

CTP baby you know me.

Tony 18:13

Yes, just might be of interest to people as it’s down 4% today, so I’ll warn people on that.

Cameron 18:18

They’re not oil either, they are gas, onshore gas….

Tony 18:23

Good point. They often go hand in hand.

Cameron 18:25

Oil and gas from their Murrini Palm Valley and Dingo Fields, etc. Oil and Gas. [crosstalk] You said that last week, right? It’s like the gas and the oil.

Tony 18:36

Oftentimes, oil contracts and gas contracts are written at parity to the oil price. They often go in lockstep but generally if you’re drilling for oil you’ll find gas as well.

 

Cameron 18:44

ADT of about 33,000 these guys, so they’re so good for the bigger investor.

Tony 18:49

They’re small.

Cameron 18:51

Yes, that’s big for me. [laughter] Indoor skydiving, they have a qualified audit.

Tony 18:59

Yes, man, and this is like, I guess this is topical, given that I’ve asked Steve Mabb, from the ASA to take a look at appendix 4Es for me, and while doing prep for a submission on that, I look at the ASX rules, and one of the appendix 4E questions is:

  1. Are your Financials audited.

 

  1. In that audit process was there a material concern or a qualified audit.
  1. If your financials aren’t audited do you expect when they are audited that they will contain some kind of qualification.

So in the space of like 30 days, indoor skydiving put out their appendix 4E and said no, the financials haven’t been audited yet. That’s it. 30 days later, report comes out, qualified audit, material concern over the going concern, so we’ll give IDT a pass and that maybe they didn’t know but really…

Cameron 19:54

IDZ, I think it is?

Tony 19:55

IDZ. Sorry. I called IDT. IDT is a different company. “Indoor Skydiving” — Anyway I’ll give them a pass, we’ve got no reason to say they didn’t know. I mean the ASX should at least look at it. 30 days away from an audit being handed down and you didn’t know that the auditors were looking at whether you could continue trading.

Cameron 20:13

Yes, right.

 

Tony 20:14

They hadn’t discussed that with you? So anyway, I don’t want to skate on thin ice in terms of falling foul of some kind of libel law, but please give me a break– Come on ASX Have a look.

Cameron 20:26

Very strange

Tony 20:28

And just another example of you know, just the strange things that come on with his appendix 4E’s that.. I shouldn’t just single out indoor skydiving. There are other companies that either don’t answer the question full stop or answer it with his remarks like check out annual report for our audit, which is not the answer that the ASX is wanting, it’s quite clear what you have to answer. ‘Yes’, No’, ‘Maybe’ is hardly answers to the questions and it just gets ignored so often, which means you have to go through the annual reports, and it just adds time to your analysis, and on top of that, Alex and I will as an example about how to find a qualified audit, I was showing her I thought I’ll pick a big company and show her how to find and an audit statement in a big company. So I picked one of the biggest BHP. In fact, she asked me She said, how do I find audit statement BHPs annual report. It took us like 20 minutes to find. Seriously members who are listening to this, go and look up BHPs announcements, you’ll find something like 600 pages of stuff they’ve announced and the audit report is not near the end, it’s buried away in the middle. It’s not even in the contents to the reports to the filings, you know, the US filings, the UK filings, the Australian filings and the Australian fiings kind of rolls up some of the other ones. It’s like, hundreds of pages long.

The annual report doesn’t appear in the index or table of contents– Sorry, the auditor statement, and you say you have to go digging for it. It’s probably the most important thing of Any annual report is, what is the objective auditor, the Eye of Sauron, think about the landscape for BHP. It’s the first thing an investor should look a.

Cameron 22:18

Yes, BHP is not going to have an audit problem. Surely.

Tony 22:21

No, and we’d read about them on the front page of the Fin Review if they did, by the time it took Rear Window to go through and comb through 600 pages of text to try and find the audit report without an index. But yes, no, you’re right. If BHP can get away with it, this kind of obfuscation, how can the ASX beat up on a small company…

 

Cameron 22:40

Getting back to the tendency some of these companies have to– not be clear about it in their 4Es. What do you think’s going on? It seems like a pretty simple thing to do. Just state clearly what the position is with your audit. Why would they say things like refer to our annual report?

Tony 22:59

I suspect and I think I’d be the same and if I was in the company secretar’s shoes, I think they see it as bureaucracy. They have filed the annual report, they filed it with the auditor statement; Why do they have to also do an appendix 4E filing?

Cameron 23:10

But they’re doing an appendix 4E anyway.

Tony 23:13

It’s a listing rule.

Cameron 23:14

Yes, when I’ve seen these appendix 4Es, and I’ve seen the audit statement, it’s a couple of lines anyway, it’s not an onerous thing that they have to do, what’s the big deal?

Tony 23:22

I just think it’s been let slide for a long time by the ASX. They haven’t pulled anybody up, haven’t made an example of anyone, and I think it’s because you know, people don’t– Yes, it’s the law of large numbers. There’s half a dozen companies on our watch list who have qualified audits, there’s only a dozen companies out there on the ASX that have a qualified audit. So most times, it’s completely irrelevant but it’s so important in the times where it’s not that they need to put their returns in properly.

Cameron 23:47

OK, mixed commodity miners– I was looking at MIN this morning actually trying to work out how to think about commodities for somebody like MIN.

Tony 23:58

Yes. So when we talked about AIS in particular, I gave it a pass because it’s a mixed commodity miner, and even though it sells iron ore, which has gone down in value, At the time, I wasn’t sure whether that was good enough just for it to be a sell based on the commodity sell situation, but I think it probably is now, if you look at MIN, the first thing I go to to try and work out what the ratio of the different commodities is, is to go down to, I’m in Stock Doctor, I go down to the earnings breakdown section, which is almost at the bottom of the right hand part of the front page in Stock Doctor, and oftentimes it gives you an earnings breakdown by the product it’s selling but in this case, it doesn’t always, this time is giving it to us by division, which is just listed as central commodities and mining services, and you can see from the breakdown that commodities is by far the biggest part of revenue and profit. So we can’t tell the breakup of commodities that simply, so we then have to go to, again the annual report or sometimes I go to an announcement which is the company talking about its financial numbers, presentation to analysts on their financial numbers – In general, you’ll find it there either in the annual report or in the presentation, which will say here’s how each of our commodities are going. But the bigger question is, once you know that, if we know that there’s a sort of sizable part of MIN is coming from iron ore, but not all of it, because it’s also I think, from memory has lithium, yes, that you know whether we should make it a sell or not, but you can see on the share price, certainly, the market factored into the share price the decline in the iron ore price, it was a mistake, but I didn’t have experience in this area. But I think going forward, I’m going to make these commodity sells  if a large enough portion, and you know, what’s a large enough portion, maybe 30% or more comes from a commodity, that’s a three point sell.

Cameron 25:39

I’m going through their FY 21 investor presentation, trying to find a breakdown of iron ore versus lithium in their revenues, haven’t found it yet– PAGE 33 of their investor presentation has a pie graph revenue by end user and iron ore is 75%. Lithium is maybe 20%, 15% Gold, construction and other is what makes up the balance.

Tony 26:10

Right. Well, this is saying mining services, which is another part of the business. So it’s like the contracting part of the business. So we need the commodities part of the business. So you’d expect that they’ll contract into iron ore miners, and the contracting tap might turn off when the price is low, but that will be less than the effect of the iron ore export section of the business– A couple of pages so that’s I’m on page 75, it’s the commodity segments of mineral resources, and you can see that 1.5 billion out of 1.68 billion is iron ore sales. I should have called this as three point trend line sell even though commodities is not their total business they have that mining services section as well. But yes, it’s a lot.

Cameron 26:50

And they also produce Spodumene…

Tony 26:54

I think that’s the underlying Lithium mineral.

 

Cameron 26:59

Spodumene is a pyroxene mineral consisting of lithium aluminium inosilicate, LiAl(SiO3)2, and is a source of lithium, we need to do a little bit of work with these mixed miners and figure out exactly what their exposure is.

Tony 27:15

Yes, so I think the upshot is I should have taken both MIN and AIS off our buyer list because of iron ore declines. I think AIS from memory wasn’t as quite as skewed to iron ores as mineral is but yes, we should take them off. Someone pointed out that is AIS had iron ore in it when I was removing FMG and BHP and RIO from our buy list.

Cameron 27:36

Let’s talk about MMS, back on the buy list.

Tony 27:40

So Macmillan Shakespeare; it’s a company I watch and I guess when you’ve done this for as long as I have there are companies which continually come on and off the buy list, not necessarily quickly but they come and go and Macmillan Shakespeare and Credit Corp, for a long time, were a cornerstone of my investing portfolio over the years. Macmillan Shakespeare and Credit Corp will again soon become too expensive to be on the buy list but they do pop in and pop out, they’ve always been good investments for me, FMG is similar over the years so yeah, so you know that’s why kinda like when Oh MacMillan Shakespeare’s back on the buy list. It’s worth having a look at people when they have a look. It’s not at the top of the buy list, it’s got a QAV score of 0.13, but it’s got a very largeish annual daily traded for people who are interested in such things. The company without doing a full pulled pork it’s a company which packages ups or salary packages. So it handles the paperwork for HR departments. If you want to take out a lease as part of your remuneration package or you know, there are other things in there, they pay for your golf club membership or whatever. It handles all the paperwork for that.

It did fall foul of the federal government when Kevin Rudd was in power and Wayne Swan the world’s greatest treasure at the time decided to do something funny with fringe benefits tax around salary sacrifice and changed the rules, and Macmillan Shakespeare took a nosedive in terms of share prices, people thought that salary packaging was dead but then funnily enough the government reversed its decision and then salary packaging came back again the way it had been, lasted about two weeks I think before they backtracked from lots of pressure I imagine. Yes, so that’s what it does. It’s one of those bread and butter companies that’s all it does been doing it for years. You know, probably has a large market share. I don’t want to do a full pulled pork on it. But yes, good to see it back on the buy list. So if people are interested in adding something that’s got a large ADT to their portfolio.

Cameron 29:39

Does well on the founder owner score too, I think because William Shakespeare still owns a chunk of stock in that. [laughter]

Tony 29:47

With Harold McMillan.

Cameron 29:49

Yes, the two of them teamed up.

And you want to do your pulled pork for the week. Our stocks of the week by the way, our large cap is EHL, You did a pulled pork on them a few weeks ago. I think you going to talk about CLX today.

Tony 30:02

I am yes… Interesting thing happened about Emeco, EHL, before I leave it, I again deciding whether to do the to do the pulled pork on and looking at their announcements and their CFO has resigned for EHL, but I just did a quick look and it looks like it’s some kind of staged transition, he’s going to hang around for six months while they transition to a new replacement. So I don’t think it’s anything to be worried about in this particular case. CLX logistics. Speaking of owner founders, the founder still holds nearly 40% of the company, so 35 ish percent of the company– So yes, very strong owner founder contingent, I think the board in total hold around 40% of the company. Not a big company, it’s only got ADT of $8,000. So that’s why it’s our small cap pick and the market cap’s only around 80 million. So it’s not huge. It’s for people who don’t know, which they may not know about… It’s a logistics company. I think the interesting thing now is that it’s a Perth based logistics company, and at least a large part of the company is operating with small transport companies and courier companies in Perth and what’s the thing we know about Perth, Cam, in the last two years, “No COVID”, so probably the only transport company in Australia that’s got all the uptick from deliveries to home but none of the downsides of having staff on the bench because of COVID, so it’s doing well. Sales are up, profits up and also to not just the Perth side of it’s up but they do long haul to the Eastern states and that’s up too, just generally parcel deliveries are up because of COVID, So yes it’s riding a bit of a wave here and it’s in a good space going through its numbers QAVs score 0.36, the quality score is 83%, PE is less than 9 (8.8), price to operating cash flow 2.32, so obviously a value play for us.

Tony 31:59

Another good thing I like about a stock like this, low broker coverage, so we’ve got no forecast IV, no forecast earnings per share or anything like that in Stock Doctor. So this is one of the ones that will eventually I think come onto the radar of some of the stock brokers but at the moment it hasn’t. One downside which is interesting, the financial health has gone down from strong to satisfactory but it does tend to oscillate between those two metrics, so I’m not overly terribly worried about that I think it’s probably just a six-month thing but it’s company strong yield, current yield is over 4% so it scores well for us there. Equity consistently increasing. Equity score is zero over the last 6 halves but if you look at the last four halves it’s increasing so it’s even though I’ll score it as zero it’s not overly worrying from that side of things, net equity per share is $1.18 which is higher than the current share price of 96 cents as of when I looked this morning, the 11th of October so we’re actually buying this for less than its fire sale value which is always attractive if you’re an investor and it scores a 2 for having a record low PE, so all in all, good investment I think.

Cameron 33:09

What did you say the price to operating cash flow was again?

Tony 33:13

2.32.

Cameron 33:15

Very good. All right. CLX. Thank you for that. Have another look at that one. Time to get into the questions for this week, Tony.

Tony 33:23

Yes, good.

Cameron 33:24

David says, “Hi! Tony and Cameron, I enjoy your podcast and may consider joining at some stage.

Tony 33:30

Well let’s just stop there. I mean, if you’re not a member, Come on. [laughter] We know only smart people join up because… Come on! Are we going to give this guy some airtime really?

Cameron 33:39

Well, the funny thing is, he won’t hear this cuz he hasn’t joined up.

Tony 33:45

OK, well read away. [laughter] Let’s give him another reason to join.

Cameron 33:50

He says, I have a strong leaning.

Tony 33:52

That’s a good question.

Cameron 33:53

Well, I thought there was some interesting points that I hadn’t thought about before. “I have a strong leaning against investing in fossil fuel companies. I understand why they may be good stocks to trade different from investing. I disagree with Tony’s reasoning that investing in coal is okay from supply side; if we don’t sell it, and there is demand someone else will or our coal is cleaner than other countries so it’s better that we sell it or it is important for Australian jobs in our economy. Unfortunately, I have to say that none of these reasons satisfy my ethical framework, but I realized that ethics and values are very personal. To me the environment is so important that every opportunity to make a statement by my actions should be grabbed. Buying coal companies provides a price signal i.e. more buyers push up the price and value. Public companies raise capital at IPO or share issues. Would you turn down a share purchase plan offer from a coal company you own at a discount and if not taken would dilute the value of your shares. Those funds go to the company not the shareholder who sold them to you. Finally, employees and management are rewarded with shares and options. So increasing the value of shares increases incentives to keep the company operating longer. We need strong action on climate change, including leadership by people like you who have a significant audience. Coal prices might increase in the short term, and those companies may be more profitable in the short term, but they are dead assets long term. Finally, Tony, I implore you to use your wealth for the benefit of the world community and for the benefit of your children and their children by producing more of Cameron’s documentaries.”

Cameron 35:31

Oh wow thank you. Nice of you to say that.

Cameron 35:35

“There are plenty of other investments with good returns. Sorry about the comment on Cameron’s documentaries still like your podcast, David.”

Tony 35:43

Good. Well, thanks for the question, David, Look, I mean, at this stage, I generally agree with all of your points except how they apply to investments. So yes, I’m very much in agreement with the majority position on climate change. I Do whatever I can to reduce my usage of fossil fuels, I pay more and get my clean energy from my electricity supplier, we’re in an apartment that doesn’t have gas, you know, drive a car, which is meant to take some of the carbon out of its emissions. You know, there’s been scandals around that. So who knows, but that was my intent. I agree with David around all those things that we should be doing to reduce the problems for ourselves and for our kids. But my challenge to David is, how does me not throwing a couple of million bucks at New Hope Coal shares save the planet. How does it stop any of those things from occurring? It doesn’t make a statement, because no one would know that I didn’t buy the shares, I guess unless I came onto a show and said, Hey, I’m not buying coal shares. That’s a statement, and I had to smirk when you read out the question, because I just haven’t thought of myself of having an audience that was worth making a political point too– But anyway, maybe there’s some degree of soapbox that I can stand on to talk to people? And I certainly would say, yeah, try and do what you can to stop climate change. But I don’t think not buying shares is one of those things. I disagree.

I think I do see David’s point about making a statement, and obviously if we make enough statements and it sways political pressure, then that will have an effect. Making a biggest statment  would be to buy shares of New Hope Goal and then going to the AGM and calling out the board for not doing what something like Twiggy Forrest is doing and investing in renewables are having a plan to move away from coal mining to get into renewables. That’s the thing. I mean, if we close down all the coal mines tomorrow, we kind of cut off our nose to spite our face. I don’t think we’re ready for that yet, even if we could do it. So it’s a tragedy of the commons issue, I still see this as being a supply side problem, you don’t solve tragedy of the commons issues by saying, OK, I’ll voluntarily not graze my sheep on the commons, because the grass is dying and not going to be able to regrow in time because then someone’s going to just elbow you out the way and put their sheep there, it only gets solved when the mayor of town comes in and goes, right, you you and you take your sheep and piss off, you know, where there’s overgrazing going on here. So that’s my solution, and I think I’m fully supportive of that happening but if I can make some money along the way, because the coal prices going up, and that’s David’s point, I guess, maybe I’m a trader, rather than an investor in this kind of situation, that I’ll hold it until the commodity turns down. Whether that’s next week, next month, next year, next decade, I just don’t know, I’m not going to predict. But I also will say for what it’s worth, I don’t own shares in coal companies, I do have shares in Santos, which is an oil and gas producer. But again, what do we drive if we say we’re not going to allow petrol fired cars to run on our streets.

So I think it’s going to be, as probably will happen in the Glasgow Climate Conference, there’s going to be a roadmap out, which will take until 2050, to get us to the targets that we need to get to, and some countries will get there in 2030, including maybe China which will kill most of our fossil fuels industries anyway, or certainly damage them, and we’ll just make those calls as they present themselves as investment decisions for us. But until then, I’m not fazed by buying shares in a coal company.

I take David’s point that, would I work for a coal company, I don’t know, if they made me a good enough offer, maybe but it’s a case by case decision, I think.

 

Cameron 39:15

What kind of offer would any company need to make to get you to go work for them now, Tony?

Tony 39:19

Yes, 8 to 9 figures, mate.

Cameron 39:22

Well, let’s answer some of David’s specific questions. Would you turn down a share purchase plan offer from a coal company; you won’t get a discount? And if not taken would dilute the value of your shares?

Tony 39:34

Yes, good question. I’d have to look at the numbers and see whether it was a good deal or not, don’t know. I’m assuming what David means is that they’re going to use that to buy another mine or another coal company or whatever. If the share purchase plan was to build a hydrogen plant, then yes, maybe I would. But yeah, it’s a case by case. I think what David’s trying to do there is negate my argument that I’m not buying shares, where the money flows through to the company. I’m buying shares from someone who’s selling out of their shares.

Cameron 40:01

Yes. But your answer is, well, if they were going to use the money to dig more coal out of the ground, you wouldn’t or you still might?

Tony 40:09

I’m not going to be categorical. I’m here to make money in the share market first of all. With one hand, I can buy shares and with the other hand, I can lobby my local Member of Parliament, to shut down coal mines, I don’t see incongruity in that.

Cameron 40:21

Oh, his second point, which I thought was interesting is, well, by buying shares, you are propping up the share price. — To some degree, the share price is the basis of incentives for the executives. So by buying fossil fuel company shares, you’re in fact rewarding fossil fuel company executives indirectly.

Tony 40:42

Yes, because I want them to do a good job while  I’m an investor. Yes, I am. There’s a whole thing. A lot of things at play here. One is I guess– Let’s start from the top and work down, other companies, I would feel terrible being an investor in, and I think there probably are, for me, it would be tobacco companies, and maybe some arms manufacturers.

Cameron 41:01

What’s the difference?

Tony 41:01

Yes, exactly. It’s personal ethics. I think with a tobacco company. In both cases, potentially, we know they’re harming us. I think with the coal company; I think there will be, if there’s not already a plan to move away from fossil fuels. With the tobacco company, I think there’s always going to be a rump of the population, which is seems to be settling around 10% who are going to smoke, even if it kills them. That’s why I think I would not necessarily favor investing in a coal company. Coal companies fit the sweet spot for me, like they’re a contrarian investment, right? Because we have to have these kinds of discussions, if they were— I mean, from a value point of view, they’re a no brainer, and they’re a value investment because of that, because there’s people out there opposing their continuance as a going company, which drives the price down so that, you know, it’s a contrarian investment. Would I buy shares in a tobacco company? I don’t think so. But that didn’t really serve things because all it meant was that enough  investors didn’t want to buy their shares and they went private. Now there’s no one scrutinizing tobacco companies it’s like laissez-faire again, at least when they were listed People would go along and make protests at their AGMs, they’d have a soapbox that they could step on to highlight the fact that all these bad things are being done by the company. You know, now they’re private, probably not even resident domiciled in Australia. It’s harder to do.

Cameron 41:01

In the Psychopath Epidemic book I had a chapter about ethics and values, and I remember speaking to a variety of leading Australian ethicists and QC’s around, how do you develop an ethical framework, I wasn’t thinking about investing then, just living — You know, one of the things that I always come back to is, the more I drill down into that in terms of my behavior as a consumer, and I think that plays into investing, it’s incredibly difficult. If I talk about buying the latest iPhone, or MacBook, or whatever it is, I know that these get manufactured in China, I know the staff at Foxconn and places like that work intolerable hours for very low pay, again, to what we are used to in terms of working conditions in the West. Am I happy about that? Well, yes and no. But it’s complicated. Again, China’s pulled 850 million people out of poverty, and a large part of that is they’re working manufacturing goods for Western consumers at much lower salaries and much worse working conditions than we would expect. But it’s better than poverty. So, I would like to see them paid more, I would like to see their working conditions improve. Does this mean I’m not going to buy an iPhone though? Probably not. So, figuring out where I’m going to draw the line and why I’m drawing the line there. What’s my underlying rationale for where I draw the line? OK, we can all agree that coal is probably really bad thing for the environment. Flipside is it’s necessary for heating and cooling and lots of running electricity for hospitals and saving lives these days. When I was running my marketing consulting business, I had some clients that were in the mining industry, and you know, they were very clear about their ethics. It’s like, Hey, our society runs on coal, you take away coal tomorrow, and society shuts down, there isn’t enough electricity that can be generated today by green energy. So right now it’s critical.

Tony 44:24

I mean, that’s part of the issue Cam, I think we will get to a stage where we’ll move away from coal. But it’s got to be a planned exit to keep everything running. I mean, I used to run the research department of the company, and researchers solve these kinds of dilemmas by conjoint analysis. Going back to your iPhone example; the research question would be, would you like to buy the new iPhone pro at $1300 a pop and know that was built by Foxconn which pays salve labor wages, or would you buy an iPhone that was put together by people in Australia being paid unionized wages but it costs five times as much. $5,500, which iPhone are you going to buy and it’s the same with with coal.

Do you support shutting down coal mines?

Yes.

Do you support shutting them down tomorrow with no alternative source of power? Or even if there is with no infrastructure set up to support it yet?

No.

So yes, you got to look at these things as a conduit.

Cameron 45:19

While they continue to exist, should we invest in them or not If they’re the best investment in the marketplace?

Tony 45:26

Yes, and so I fall in the camp of– Yes, happy to wait for the government to shut them down, happy for government have a plan to move away from them. But at the moment, they’re actually providing a vital asset for most of the world, and I guess, we keep talking about thermal coal, but there’s also coking coal, if you shut that down, there’s no iron ore smelters, there’s no steel. So there’s no construction. So there’s no new schools or hospitals or buildings. So yes, there’s, it’s a simple solution to say don’t buy coal shares, but I think it can exist with a more complex solution, which is, let’s plan our way out of this and we can still make a bit of money on the way.

Cameron 46:05

Well, that was my point in the book, is, when I started trying to write my own ethical framework, and I think it’s important that we all do this. I don’t think we do it enough. I don’t think it’s talked about enough. I don’t think it’s taught to us as children enough to write your own ethical framework, and if you don’t have one, it’s easy to slide unknowingly into doing all sorts of horrible shit particularly if you work for the Australian CEO of Sony apparently, for the last 30 odd years, whatever his name was. But when you start doing that for yourself, and you do start asking yourself the five levels of why questions: Well, why do I believe this is bad? And how do I know that to be true? And— When you start getting into the nitty-gritties of it, it’s actually incredibly difficult to say; Ok, well, if coal is bad, why is an investment in agricultural companies, not bad… When cattle and they’re giving off methane and then all of this land where we can grow trees that could be pulling carbon out of the atmosphere, instead, we’re producing methane, so now we can’t invest in farming businesses, either. So what happens to all of Australia’s farmers and our food supply? You know, the more you drill down into it and try and be consistent, it gets incredibly difficult. It’s not simplistic.

Tony 47:30

And I’m not saying we should abrogate our responsibility for someone to come along over the top and solve those for us, we should solve them ourselves, and certainly vote for people who have solutions for these problems, but you just can’t solve it overnight. Not investing in coal companies only spites me, it doesn’t affect the coal company at all, or save climate change at all.

Cameron 47:52

Thank you for your question, David. If you ever get around to listening to this, I hope you’ll like your answer. My mate Brisbane Reg from the ASA, He said “Hi, team on this week’s podcast there was some chat about other parameters or filters that might be useful. I wonder if Tony or any other members consider a stock’s price relative to its 25 day moving average when analyzing a buy. I used to buy my data from investor center before I joined Stock Doctor and their founder, a pretty wiley investor, always said; ‘Never buy a stock if it is trading below its 25 DMA’. Unfortunately, this is not a factor that can be built into Stock Doctor as a fundamental filter which complicates things I know but the gurus there have programmed it for me as a technical filter, as they call it, which can be overlaid on a stock doctor watch list. I haven’t played much with it yet, but I intend to, any thoughts. Tony, what do you think about 25 DMA’s?

Tony 48:51

Well, it’s the moving average for the last 25 days. It sounds to me like a Josephine, we’ve been talking about our definitions for Josephine, So perhaps the 25 moving day averages is a good one to look at. Because we’ve been using is the current price below the end of month from the prior month, you know, three weeks into it and that tends to have more value as you go into the month– the further on into the month you are. So obviously 25 days in is a more valuable test then the first day of the month. So yes, I think it’s worthwhile looking at this, might be our Josephine proxy, but I’m not familiar with it. Haven’t done the research. I can look at it though, but would be interested to get more from Reg on his— If he’s done any research on using it. Is it better to use it or not use it? Is 25 days a magic number. Is it better than 30 or 50 or 10? I mean, all the things that we need to answer before we can go out and a limb and say it works.

Tony 48:53

Well that is going to be my next question to you. Any idea why it’s 25 days? Why is that the magic number?

Tony 50:06

I don’t know.

Cameron 50:07

OK, thanks Reg. Something to add to our list for the team of research analysts that we have. Quietly working away deep inside of a coal mine to back test al this stuff, Inside of Foxconn, a coal mine in Foxconn. Gary asks, can you please run through the timing for 3PTL sells again for example, I held WAF for a little while, I think that’s West African Resources… Had the bad news about the coup in that area and broke through the 3PTL during the month and now has recovered significantly and doesn’t show being below the sell line at all. You know, I looked at the chart for that this morning and it’s had a huge spike.

Tony 51:00

I don’t think it, well for my own WAF so full disclosure, I don’t think it broke through its 3 PTL thought. But what it did do was it came very close to being a rule one for me, and I think from memory the share price around the time that we talked about it or at least we put it on the buy list was around 90 cents and they got back to around that in the last couple of weeks, and it’s shot back up from there.

Cameron 51:25

$1.26 it is today. Were you say it didn’t break through the 3PTL.  Do you mean it didn’t break through its sell line?

Tony 51:32

Correct. Have a look at it. It’s got a really low Sell line. I’ve just called up on the Brettalator.

Cameron 51:37

Yes, I’ve got it now, it’s about 66 cents, dropped down to about 75 back in March of this year but is way back up since then.

 

Tony 51:50

I think we might have talked about it after that or I think I might have bought mine after that. I’m pretty sure I pay 90, 91 cents for it something like that.

Cameron 52:01

Yes, I did see it wasn’t that long ago you talked about the coup, It was Episode 438- Oh, same episode you did EHL as your pulled pork by the way, but yes Mark asked why it was dropping and you said there was a coup in Guinea This is back in just the 28th of September, only a couple of weeks ago.

Tony 52:24

Yes, but what I’m saying is I bought it before then and it got back to close to my buy price, actually I may have bought it for like 98 cents and it dropped 10% below that, was 90 cents but I remember I was focusing on 90 cents as the sell price for me. But either way still way above its 3PTL sell price.

Cameron 52:48

So Gary’s question was about the timing of 3PTL sells. I’m not really sure what he means but the sell is it breaches the line you sell.

Tony 53:04

I mean it’s a couple of things, I’ve got a couple of stocks at the moment that breach their sell lines and I’m kind of hanging on just for a bit longer because it’s a bit like the CBA experience, it goes ex dividend, it breaches, we add the dividend back, it comes back up. Dividend gets paid and it’s still below its buy line but it’s still going up. So yes, when we’re down to sort of cents. It’s like a couple of cents below its sell price. It looks like it might be trending up. I’m going to hold and see if it really crosses. If it drops again, I’ll sell. So yes, it’s a little bit of finesse going on there. But if it was like, dropping fast, and had rocketed past its sell line definitely sell straight away. But I tend to linger when it’s like a cent below or it’s just gone ex dividend, and you can make sort of a case for it. Once it settles down, it’ll turn around again. But generally we just go rules is rules, and if it drops below we sell.

Cameron 54:03

Yes, unless you don’t. Unless you want to fudge it a little bit. Hold on for a bit. OK, hope that helps, Gary. Scott asks for you to give a dissertation on Elliot Wave theory, and follow that up, The second point of that question is, can you explain quantum wave theory at the same time?

Tony 54:27

Yes, sure.

Cameron 54:28

What’s Elliot wave theory, Tony.

Tony 54:31

Yes, so this is a part of technical analysis. So it’s goes way back to the 1930s, and it talks about, it’s sometimes called the triple peak or triple head. Sometimes it’s called head and shoulders, there is always different names for it. But basically, it looks for a series of, I think from memory, it’s 5 peaks on the way up and then 3 peaks on the way down and uses those as buy and sell signals. So like I think it’s a sell Signal after it has 5 peaks in a row, it’s a buy signal after has three peaks on the way down. So successive peaks are lower for three times it’s a buy signal. I looked into it, like about at least a dozen years ago, like I looked into all of other technical analysis things after the GFC trying to find out a way if I could improve my returns, you know, in a dropping market, and I settled on the 3PTL algorithm, which is much simpler and seemed to work for me. I couldn’t find a reason for Elliott Wave to work and it didn’t work when I looked into it for myself, you know, I picked out a sample of stocks and tried to trade them with the Elliott Wave and it didn’t work. I could go into Investopedia today on investment terms anyway, and they agree with me, they explain what it was but they there was a quote here saying not all traders interpret the theory the same way, or agree it is a successful trading strategy, and I think that’s probably the Elliot wave theory in a nutshell. It’s rules and sub-rules and sub-rules of sub-rules about when to apply it, when not to apply it, and it’s pretty subjective.

Cameron 56:11

Now explain Heisenberg’s Uncertainty Principle.

Tony 56:15

If you have a cat, and you put it in a box, you close the box– Heisenberg’s Uncertainty principle is the act of measuring something will influence the thing you’re trying to measure. So you can never really measure something. See I did university physics, Cam.

Cameron 56:32

Yes, well, there goes 3PTL. We can’t measure anything. What’s the point?

Cameron 56:38

Yes, true.

Cameron 56:39

It only goes up– Your price only goes up because you’re looking at it.

 

Tony 56:44

Well, actually, that’s probably true. There’s probably something in that. If enough people are looking at the price, there’s probably enough people buying it and the price goes up. But no I wouldn’t recommend any of these technical analysis things, they promise the world and well just like we are with the three point trend lines, you can spend a lot of time trying to finesse it and get it nailed down. But they work more in the general than they do in this specific sometimes.

Cameron 57:09

You ever hear Buffett talk about any of this technical analysis stuff?

Tony 57:14

Oh, good question. I haven’t, no. I’d be sure he wouldn’t be a user of them though. I can’t think of any quick quote– I say things like the only person that makes money out of graphs is a mapmaker.

Cameron 57:23

You see the cartoon I posted on Facebook today.

Tony 57:32

I did, did you see my reply.

Cameron 57:33

No. What was your reply?

Tony 57:35

I said, well, the cartoon was asking a value investor about whether they should use bleach on their undergarments.

Cameron 57:42

It was a wife in the laundry doing the laundry and her husband’s reading a book on Warren Buffett, she says Oh yes, please tell me what Buffett has to say about using bleach on your delicates, and you said…

Tony 57:54

I said, Buffett would do a discounted cash flow on the cost of bleach and then work out it was better investing in Berkshire Hathaway.

Cameron 58:01

And then you said…

Tony 58:03

Why would you have to bleach your undergarments anyway?

Cameron 58:06

And I replied, you’ve obviously never seen my undergarments. But I thought it was good because that’s what it must be like being married to a value investor. Well, according to Warren Buffett….

Tony 58:24

Well, I said I think it was in the making of an American capitalist that his wife wanted to replace the curtains in their home, and Buffett would not let her because he did the DCF on what the curtains were actually worth If you took it out long enough into the future with the money invest, I think Berkshire Hathaway

Cameron 58:39

For memory, it was going to cost $10,000 and he worked out what he could do with that $10,000 over 20 years, what he could turn it into. So she divorced him and so it’s the moral of that story. 30 years later, but still– Thank you Scott. Trent asks Tony’s view on letting emotions impact in investing decision and a review of ATLs price with a reaction from Cam…. ha-ha thanks.

Tony 59:09

Have a look at ATL; it’s nearly doubled in value since it came back on the buy list and got taken off even though it doesn’t have a qualified audit But I was concerned it was raised as a key audit item that the company may face problems if COVID keeps going. So yes, what do we do? Do We put it back on the buy list now is the market proved us wrong that ATL actually is a good investment.

Cameron 59:32

One of our subscribers I can’t remember who it was but somebody sent me an email the other day saying that ATL was the best performer in their portfolio, and I said, “Good luck. Let me know how that works out for you.”

Tony 59:49

Wel lit has a QAV score of 0.46, I looked it up this morning when I saw the question and it’s share price has rocketed since we talked about it and didn’t buy it. So that’s the reverse, we’ve got the reverse curse. We’re not buying things and they go up, we talk about– Well, if we had have done a pulled pork or bought it, it would have gone down for sure.

 

Cameron 1:00:11

Back at the end of August, it was trading at 38 cents, it is currently trading at 72 cents. It’s doubled. A little over a month. Oh my god. As I said on Facebook, when somebody was ribbing me about ATL recently, I will never, ever, ever buy Apollo Tourism and Leisure again, unless you tell me to, and then unless it has a good score.

Tony 1:00:40

I am tempted to take the qualified audit off it and put it back on to the buy list.

Cameron 1:00:44

It’s too late. Now it’s already up 100% I guess it could go down. But it was [crosstalk]

Tony 1:00:49

I’ll stick to the Original plan. I’ll wait till the half, and we see some new numbers and make sure it gets through COVID.

Cameron 1:00:54

It was up as high as $1.85 back in January 2018. But it’s been a long time since it’s been up in those areas. No,all joking aside. Yes, if it came up on my buy list, and we were quite happy it didn’t have a qualified audit or any taint around that had been removed. Sure I’d buy, you know, numbers are numbers, rules are rules. Yes, it’s burned us a few times in the past that I don’t hold grudges. If people know anything about me. It’s apart from the fact that I’m insanely good looking, It’s that I don’t hold grudges.

Tony 1:01:27

Really?

Cameron 1:01:28

OK, I was joking about good looking thing. OK, there’s a few people I’d happily push into a wood chipper. But that happened to a cousin of mine.

Tony 1:01:43

Yes, I know you said that. That’s terrible. Yes, I’ll stick with the original plan, which is to see what happens next half with ATL but yes, good luck to the people who took a risk, that’s often the way it works. It is big, big risk, big reward.

Cameron 1:01:57

And also big failures if you get it wrong, but yes, Live on the edge. Alright. This is the last question. This came in via email from Sue today. Did you see this email from Sue?

Tony 1:02:09

No. OK, go ahead.

Cameron 1:02:11

It’s easy for you. Anyway, she says; “Hello Cam! Continue to love the show. I’m assuming it’s not my first wife, Sue. If it is Hi, how you doing? It’s been a long time. I’ve also started listening to your cold war podcast, which I’m enjoying. Then I think I noticed that she had some sort of catholic.edu thing in her email address, and I was like, Oh, Sue, I’m not sure Catholics should be listening to my cold war show because it gets pretty nasty, but good luck with that. Anyway, she asks a question for the QAV show with the ever narrative of inflation fears, what is Tony’s take or explanation or experience with investing in QAV theory, I’m still learning but with inflation, if goods and services prices increase, won’t the value of shares business property and assets also increase? Thanks again, lovely shows Cheerio Sue.

Tony 1:02:58

All right, I can’t see the question that Sue say would business values decrease if inflation increased?

Cameron 1:03:04

No increase. If inflation of goods and services prices increase won’t the value of shares, business, property and assets?

Tony 1:03:14

Well, potentially, inflation is generally seen as being a bad thing for markets because the borrowing costs for business goes up, that’s probably the main driver, and unless wages keep pace with inflation, then people can afford to buy less. So that’s generally inflation seen as an anchor on the economy. But you know, as we said last week, with a similar question, we don’t care. It’s… we’ll find stocks which will profit during inflationary periods. I don’t know what they are now. They’ll present themselves at the time and we’ll invest in those even if the markets going down, we’ll probably still find some stocks to invest in. So yes, I’ll be, I’ll be lead by what’s in front of me at the time rather than trying to make a prediction. But yeah, I mean, I have spoken about inflation in the past I think it is, at some stage in the future going to  be a headwind for the share market generally. I think you know, those kinds of things play out with a  move in bonds in the US which affects the share market because you know, the borrowing costs are priced on bond prices, bond yields, and America will suddenly have a hissy fit and the share market will drop 10% in a day and then we’ll wake up in the morning going oh shit really don’t know what’s going on but I better sell. So hysteria takes over and our market’s then down 15% suddenly, you know, I’ve seen the whole thing play out like that before but we’ll just keep doing our thing, which is what if our individual stocks go below their sell prices, we’ll sell them and if they don’t, we’ll hold them and if we find ones which are infected by, aren’t affected by inflation, and maybe Sue is already into some of those, and we’ll buy them. Usually inflation works well for commodity stocks. So it’s a bit of a chicken and egg thing, but if we start to see inflation we normally see iron ore, copper and stocks like that go up in value as well. Sometimes an increase in commodity prices drives inflation, and sometimes the underlying inflation drives commodity prices. So for example, gold will generally go up if inflation is there because people want an asset to protect the value of the cash or the cash equivalents, so they will buy Gold as a store of value, some of that rubs off onto some of the other commodities. So there’ll be businesses out there which will be benefiting from inflation, for sure.

Cameron 1:05:34

And if we wake up that morning and the market’s down 10 to 15% and we have to sell two thirds of our portfolio, we then just replace them with stocks that we’ve decided are looking good or undervalued and wait for the market to ride back up again.

Tony 1:05:52

Yes, I mean, the worst case is it goes down for 10, 15% on one day and backup the next day as it kind of did during the COVID cough but even in the COVID Cough we’re able to profit from it. So it gives us a cash portfolio to deploy when and if we find something better to deploy to.

Cameron 1:06:10

Yes, and you’ve said before like the COVID turnaround was remarkably quick for a variety of reasons but sometimes it’s not that quick. Sometimes it can take a year for the market to bounce back but our job is to find the stocks that are undervalued and get in on them and wait for them to revert to the mean.

Tony 1:06:31

Yes, I think there’s kind of two things to consider in terms of market corrections. One is the Black Swan event. You don’t know what’s going to hit you and when it does everyone goes; oh yeah, I should have seen that and the markets down 20, 30% right, and you put the GFC in that category, sometimes it comes with a bubble so you can put the tech wreck in that category, people knew it was coming but when and if, who knoew and then you got the other ones which are more run of the mill downturns, I’ll call them and I think inflation might fall into that camp. I remember a couple of years ago maybe three years ago now I think it was in a January, the market dropped 10% in a month and it gets your attention, I didn’t sell any stocks because none of them breached their sell lines in that time and the market clawed its way back in in the following months to get back up to where it was but yes, when the market drops 10% quickly you certainly look at it and watch your portfolios and set your price alerts and things like that but you don’t change what you do. You don’t sort of follow the herd and say the sky is falling and I should go to cash completely because if you did and you’re out of the market turns back quickly you missed out.

 

Cameron 1:07:44

There you go, Sue.

Tony 1:07:45

I suspect that all of the metrics the markets that are valued at the moment and it  wouldn’t surprise me if we see a 10% correction. As you said before with the ASX it hasn’t performed very well this financial year because the other thing that can happen is it goes sideways for a long time. It doesn’t just keep increasing at the rate it has been which has been unusually fast since COVID. So wouldn’t surprise me if the market goes sideways. Even goes down a couple of percent a month for the next six months. So that’s normal behavior. We’ll just keep investing the way we invest now.

Cameron 1:08:19

Good stuff. Well there you go. That’s a full lid TK, after hours apart from Succession, What’s been taking your fancy lately.

Tony 1:08:28

Nothing to really recommend. I’ve gone on a Ted Lasso bandwagon on the weekend. So I’ve watched a few episodes of that, quite light and fun, and I did that because I watched the first four episodes of Foundation. The Isaac Asimov series which is coming out on Apple Plus.

Cameron

Any good?

Tony

50/50 like I’m a big fan of the books I grew up on them and you know listen to stage radio plays by the BBC and read the books from beginning to end probably three or four times and love it. Love the idea of science being progressed as a religion, to spread it through the universe. All that kind of stuff, was just so groundbreaking in terms of its ideas. This production is just lush, it’s like, visually really good to look at but haven’t really got a handle on the script I don’t think, it jumps around a lot, which has always been the problem. It’s very hard to turn, like a three volume series of books, densely packed with ideas into a TV show or a movie. But yes, not a bad effort, it’s certainly worth watching and seeing if you like it.

Cameron 1:09:29

My concern with Denis Villeneuve ‘s upcoming Dune remake, it’s the same thing like I grew up on those books, read them many times, huge fan. It’s just really, really hard. I’m sure it’ll be beautiful and lush. But you know whether or not it’s going to have any sort of richness to the story, I don’t know, we will see, very hard.

Tony 1:09:49

Yes, exactly. I’m in the same camp. The Dune that came out in the 80s was flawed, but gee, it was good. It’s what you want from a book made into a movie. It adds extra dimensions to the story. Everything doesn’t look the way you picture it in your head but it just adds to the book it doesn’t try and just turn the page and show you how that scene looks, it was good…

Cameron 1:10:13

[crosstalk] Lynch’s version

Tony 1:10:14

Yes, definitely.

Cameron 1:10:15

I’m a huge fan of that. I mean, it’s doesn’t have a lot in common with the book but it’s just such a crazy messed up film. It’s a lot of fun.

Tony 1:10:32

And a great cast. It’s one of those movies where you didn’t know that at the time, but all those people went on to great things like Patrick Stewart, Geurney Halleck, Kyle McLaughlin, Sting. Great cast.

Cameron 1:10:52

All right. Well, I don’t have anything to add. That’s the show for the week. hope everyone’s stay safe. Sydney enjoying your newfound freedoms. Melbourne, hang in there. Another couple of weeks Melbourne. people stay safe, and hopefully we’ll be doing some more QAV dinners around the country very soon.

Tony 1:11:14

Yes. Any whiskey lovers out there hit us up. We might go along to the Australian Whisky Association annual awards in January in Sydney,

Cameron 1:11:23

QAV Australian Whiskey Awards.

Tony 1:11:28

Or at least the QAV table at the Australian Whiskey Awards.

Cameron 1:11:31

Yes. Keep an eye out for that. Thanks, man. Have a good night.

Tony 1:11:36

Thank you. Bye.

 

Cameron 1:11:43

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