QAV 444 Club

Cameron [00:00:07] Welcome back to QAV episode 444. Welcome back to  Quo Vadis,  Tony. I decided that’s probably the Latin for the show –  Quo Vadis.

Tony [00:00:17]  Wither goest?

Cameron [00:00:18] Yeah. Where are you going?

Tony [00:00:20] Where do we go?

Cameron [00:00:21] That’s what we’re asking!

Tony [00:00:22] Ah… I’m going down to  Wagga Wagga  Check out this Conservatorium of Music and the clay shooting facility.

Cameron [00:00:28] Yeah.

Tony [00:00:30] I figure it’s like a Colosseum, right? You sit around in big stone arches and in the grandstands of the back, they run a few pulleys out there and then, you know, pull.

Cameron [00:00:43] You know, I’ve got a hole in my head from one of those places, right? You know the story about my fractured skull?

Tony [00:00:48] No!

Cameron [00:00:49] Long story. And I’ll tell you some other time. Yeah. Well, if you need anything when you’re in  Wagga,  just call Gladys because she’ll just call  Dom  because your new premier apparently just does whatever she tells him.

Tony [00:01:00] I heard that.

Cameron [00:01:01] So he’s got to be happy about that coming  out.

Tony [00:01:03] Yeah. And if she’s corrupt, then he’s corrupt because he just does whatever she tells him.

Cameron [00:01:09] Yeah.

Tony [00:01:09] Just reallocate the budget for me, for my corruption. Look, you know, all jokes aside, I don’t think she’s corrupt.

Cameron [00:01:14] Really?

Tony [00:01:15] I think this is just becoming prurient now that they’re just loving to dig through the sex lives of politicians.

Cameron [00:01:21] You don’t think she is corrupt, really?

Tony [00:01:23] I think that’s how politics works. It’s like the local member agitates as hard as they can to get funding for their electorate. If they happen to know or have an inside access to the corridors of power, they use it. And the premier gets things done. I mean, I’d rather have a premier who got things done, wouldn’t you?

Cameron [00:01:38] Yeah. But if the Premier is sleeping with an MP and not revealing that to the constituents when she’s granting him money on the phone call. You don’t think that’s a little bit corrupt?

Tony [00:01:50] If it is corrupt, it’s a little bit as you said. I don’t think you have to declare who you sleep with. Tell them to fuck off. It’s nothing to do with them. I hate this media intrusion in the personal lives of politicians. They’re people too.

Cameron [00:02:01] Sure.

Tony [00:02:02] How would you like it, Cameron – how would you like it if your phone was tapped when you’re calling  Chrissy?

Cameron [00:02:06] Yeah, but if I was a politician and representing the people, then that’s a different kettle of fish. I’m not a private citizen anymore. I’m a politician.

Tony [00:02:14] You put a chastity belt on, do you, and lock it up?

Cameron [00:02:16] No! But you have a responsibility to be transparent with the people about any conflicts of interest you might have.

Tony [00:02:22] Yeah. Well, OK, maybe. No, you do – you’re right! But was it a conflict of interest?

Cameron [00:02:27] Yes.

[00:02:28] Why?

[00:02:29] She’s sleeping with a guy after he is declared to be corrupt by  ICAC  as well!

Tony [00:02:33] But that’s a different issue. Well, that’s not the clay pigeon shooting thing in the music conservatory.

Cameron [00:02:38] No, it was before.

Tony [00:02:39] He is corrupt, he was taking money from developers and then pushing their developments. Yeah, that’s incredibly corrupt and that’s appropriate.

Cameron [00:02:46] Right.

Tony [00:02:47] And it’s of poor judgment of Gladys hopping into bed with him, for sure.

Cameron [00:02:51] Yes.

Tony [00:02:52] Yeah. But it’s not illegal. It’s not corrupt. If she took money, that would be corrupt. How does she benefit from all this? In fact, she’s not benefiting at all.

Cameron [00:02:59] Unless she got to sleep with  Daryl Maguire.

Tony [00:03:01]  What was  second prize?

Cameron [00:03:05] Arthur Moses, apparently. Anyway, people didn’t come here to listen….

Tony [00:03:11] No.

Cameron [00:03:11] To us talk about Gladys’ personal life or corruption. I want to start off by congratulating a couple of QAV Club members- Brett! Brett posted on Facebook yesterday: “I’ve just completed my first 12 full months of QAV.” This is the Brett of the Brettalator, of course. “I’m up 46%, compared to 29% for the  ALL ORDS  total return. Not double, but I’ll take it. I expect it should be even higher as I only started using rule one recently and I held on to some iron stocks too long. Thank you, Tony and Cameron, for your genuine interest in helping teach financial literacy in the QAV process to the QAV community. After only one year, there is still so much to learn!” Well done, Brett.

Tony [00:03:50] Congratulations, Brett! That’s great.

Cameron [00:03:51] That’s a great result! And we’ve got another one posted last night from Rowan on the Facebook group as well. Rowan said “Thought I might share my current year to date returns using QAV. I’ve been investing since just after COVID, got lucky with the market timing, and did alright. But the best thing I ever did was transition to QAV in August last year and it’s been the funnest game I’ve ever played. Side note: I like the last episode where the guys talked about not feeling emotional about a small loss or – I think just as importantly, the emotions of a big game getting attached and holding on too long or building an ego.” His  time weighted return per annum,  according to Stock Doctor, is 59.54%.

Tony [00:04:30] Wow.

Cameron [00:04:31] So terrific results. It really makes me happy when I see QAV members getting these sorts of results.

Tony [00:04:37] Me too!

Cameron [00:04:37] Just following the recipe that you wrote down for us.

Tony [00:04:40] Yeah, it’s very fulfilling, very rewarding to see you out there and being used and being used successfully. Good on those people! Thanks for sharing.

Cameron [00:04:47] Yeah, thanks for sharing! And you’re both in the running for the inaugural QAV trophy that I haven’t bought yet, but there’s a list somewhere we have to record your results. Think on the club member resources page, you see a link to the trophy list. Go up and throw your results in that and you could get the trophy, which you’ll be able to display prominently in the trophy room of your house.

Tony [00:05:08] Yeah, that’s good. Sounds good. Don’t know what the trophy is yet. Our partner’s club has a trophy. It’s a horse cut in half and if you come first, you win the head. If you come last, you win the tail.

Cameron [00:05:18] Right? Well, I’ll have to come up with maybe a little statue of you that’s cut in half.

Tony [00:05:25] The wisdom of Solomon. A statue of Warren Buffett, I think, would be good.

Cameron [00:05:31] Right. Well, let me just commission an artist to do this. I’ll get right on that.

Tony [00:05:36] There’ll be something on the internet, for sure.

Cameron [00:05:38] We started with the good news. Great results from these guys. Bad news is rough week on the markets last week. ASX down 100 points just on Friday, I think, alone! Lots of selling. I had to sell quite a few of my stocks that either breached 3PTL or mostly rule one sells I think they were. Lots of blood in the streets, Tony, but it’s business as usual, I assume.

Tony [00:06:04] Absolutely. Yeah look I had to sell some too and I can talk about those now. I sold HZN at the start of the week and bought SFR and sold out of SUN and bought WGX during the week. And they’ve promptly dropped so they could be becoming sells themselves this week, but we’ll see. A real long way above their sell lines. Yeah, it’s been a funny patch in the market around the end of year from, say, at the start of the financial year through dividend season to now. Yeah, I haven’t seen a dividend season like this. I find it really interesting. I suspect – this is only a theory – that a lot of people were hanging on to stocks waiting for a big dividend to get paid and now those dividends have come through, they’re selling out and perhaps either taking money off the table or looking for the next dividend payout. We saw big drops in the iron ore stocks, first of all. And then, you know, the banks have been funny. I’ve been in and out of some of the banks. They pay their dividends, they drop. They should bounce back, they don’t. It’s been just a very unusual time in the market over the last few months. Psychologically, I suspect people are starting to worry about interest rates and inflation and potentially what that might mean for the property market and what that might mean for their hip pockets going forward too. So a little bit of uncertainty out there, I think is also…

Cameron [00:07:22] To be fair, it’s a really unusual time in the world right now. World economy’s struggling for a whole bunch of different reasons. Coming out of COVID, just being one of them and inflation levels and all the money that was printed in the last couple of years, et cetera, et cetera.

Tony [00:07:37] Yeah, that’s right. COVID – no one knows if there’s going to be an outbreak in the northern winters, whether double vaccinations will help with that. There’s struggles in the US for president to get his infrastructure bill passed. So a lot of people were, you know, basing investment decisions on $3 trillion hitting some of the stocks that they might want to invest in in the US. That all flows through. When they start to lose a bit of confidence that can flow through to here as well.

Cameron [00:08:01] The China issues, supply side issues… A lot of big issues right now. That’s obviously going to be reflected in instability in the markets, I guess. Our job is just to.

Tony [00:08:11] Ignore it!

Cameron [00:08:11] Stay the course, yeah.

Tony [00:08:12] Yeah, I mean. It’s right. I mean, you can probably have this conversation almost every week of the year, really. There’s always something going on.

Cameron [00:08:19] Right.

Tony [00:08:19] It’s never clear sailing. So that’s why we have a process.

Cameron [00:08:22] Yeah, there’s going to be some turbulence. People’s portfolios, if they’re new, might go backwards before they go forwards right now. If you start investing in a turbulent time, then you gotta ride through that turbulence.

Tony [00:08:34] Yeah, and not just a turbulent time. Don’t forget, you know, people who are getting good returns for the last 12 months who are investing when the market was coming off all time lows. And now that market’s back up to above average highs. So probably also another big thing feeding into the choppiness of the market is, as you’ve said,  quo vadis  where does it go from here?

Cameron [00:08:53] Some of the things that happened last week we announced KPT is our stock of the week, and then it immediately changed its code to KIL. And when I was writing my breakdown of it, when we put it out as stock of the week last week, I was going “Well”. And I was reading up on, you know, the latest results and the management statements and they were talking about they didn’t think that forest that they had that burnt down and then bushfires last year. They were like, “Well, we don’t think we’re ever going to be able to rebuild that. So we’re pivoting away from that.” They held off doing that until the day we announced the stock of the week and then came out and said changed our name to Key Land or Kiland I think. The new code is KIL. Yeah, no I don’t think the shares have suffered greatly, through all that.

Tony [00:09:37] Look, apologies for that! I knew about the fact that they weren’t going to replant their plantation and there was another issue with a  pier  that they had up for redevelopment and the state government knocked back designing for that. So those have been flagged for a quite a while now, and they had said for the last month or lease that they were going to put the land to best use, which turns out to be agriculture. So they’re moving away from the forest. But what I didn’t know was at the AGM, which happened on, I think Tuesday they changed their name to reflect the fact they were no longer Kangaroo Island plantation timbers, an agricultural company.

Cameron [00:10:08] Share price looking at our stock tips, though, page is only down 1% since we put them out there last week. All things considered, not too bad. Stock tips obviously aren’t doing too well at the moment up 0.7% overall combined since we started on the seventh September, so not quite two months ago. But again, that’s the market. It’s been a lot of blood issued. I think last week we were saying, “Yeah, it looks pretty good.” I think it was up like 4% collectively last week.

Tony [00:10:37] Yeah, it was!

Cameron [00:10:38] All disappeared overnight. Something else that happened last week. ZGL, which was, I think, the first stock tip we did after we got our  AFSL  and started republishing stock tips – it collapsed overnight! Looks like some big parcels were sold off overnight last week. I think it’s got a fairly small, average daily transaction volume amount. I think it’s like 15,000, and there was something like $130,000 worth of shares sold in one day last week. So for some reason, the price just collapsed as a result of that. I think somebody on Facebook said it was a fail to sell. I haven’t got the details on that.

Tony [00:11:20] Just did some quick research, I haven’t seen who the seller is. If it’s a fail to sell, that’s a worry. But I’ll have to have a look at it, but couldn’t see anything from when I had a look at it on the weekend. It’s still generally going up, even though it’s dropped a little bit.

Cameron [00:11:32] Yeah, but for those of us that bought it, it was a bit of a shock.

Tony [00:11:36] It does, yeah. It’s a rule one sell, I guess, if you bought it. Has it dropped that far?

Cameron [00:11:40] Yeah, it was a rule one sell for me.

Tony [00:11:44] Yes, I just wanted to call that out. So just – basically to highlight the fact that in the next couple of weeks or next month, we will see some companies giving us new numbers, including ECX, which is on our current buy list. ANZ was. I ran their numbers through the checklist and it isn’t a buy anymore. I think it failed on sentiment. So, but they have yeah – it does have negative sentiment, but it does have a good QAV score. I think it was 0.14/0.15. Apart from that sentiment, but I just wanted to highlight using ANZ as an example that there are stocks that report this month. Eclipx  is one. OFX is another one that has a September cut off. Pretty sure that two of the other three major banks will have a new numbers coming through stock doctor this month as well as will Macquarie Group, I think from memory too.

Cameron [00:12:30] You fudging iron ore, now?

Tony [00:12:31] No, I just wanted to respond to a couple of questions that have been asked over the last month or so since the great rotation is – how do we draw the five year iron ore chart? And people were pointing out, “Okay, it’s not a sell.” And it’s not, based on a five year chart, but I fudged it to reflect the latest upturn in the price of iron ore. So I went back to when that upturn started, which I think from memory was about 12 or probably 18 months ago and drew my lines from there. And I did that solely for iron ore from memory. I think all of the other commodity prices that I looked at.

Cameron [00:13:01] The sell line.

Tony [00:13:02] The five year trend held. But for iron ore, you could see it was oscillating much quicker than over a five year period, and I didn’t want to get caught holding on to it for too long. So I just wanted to explain that I did fudge iron ore to sell – that’s right, the sell line.

Cameron [00:13:17] You’re not fudging the buy line..

Tony [00:13:18] Not fudging it. It smells like it’s not too far away. And when I say that, it’s dropped off dramatically and there has been a slight upturn. But I need to see another peak or trough in there before I can decide whether it’s a buy or not. But I suspect it’ll be a buy and it’s holding up around $100 to $120 range. We’ll just take a bit of time and let that trend establish itself first.

Cameron [00:13:38] Top three stocks last week. Were there any that did well last week?

Tony [00:13:43] There was actually! Even though our Navexa Portfolio, our dummy portfolio was flat for the week, there were still some big winners – CCV. It’s the place you go and take your guitar to go and sell it when you finish playing with it. Let me look it up. Gosh, it’s too early on a Monday morning, listeners. I’m sorry. It’s CCV’s cash converters. Yes. Thanks for that, Cam. I appreciate you getting up early because I’m heading off soon to  Wagga Wagga.  So Cash Converters was up 13.7%. That was basically on the quarterly numbers being very good and an AGM update. So well, this is the AGM season, so you can see movements in stocks that happen quite quickly if the chairman or chairwoman gets up at the AGM and says “Happy days! The first quarter is gone really well and we’re upgrading our forecast for the year end numbers.” That can happen in this month or so. And it happened with cash converters. Two other stocks that went up last week in our dummy portfolioEclipx went up nearly 6% and they’ve reported some good numbers, but they haven’t flowed through stock doctor yet, but I expect that they will soon. And IGL is up 4.69%. So those three stocks did well despite the portfolio being flat for the week.

Cameron [00:14:53] Oh, I’m just looking at it now. As of today, for the financial year, our portfolio is up 8% versus the All Ords 200 up 2.81.

Tony [00:15:04] That’s very good.

Cameron [00:15:05] Yeah. We still have been flat, in fact, I think we dipped a little bit, but still doing great.

Tony [00:15:11] Not stock picks. I’ve got some cup tips for this week, I think was next.

Cameron [00:15:15] OK, you’ve got some stock picks for this week, Tony.

Tony [00:15:19] OK, well, people will have to wait then. All right. Stock picks? Yes, I do. And they’re both anagrams. So one’s AMI and the other one’s IMA. Image resources was the highest on the buy list that we hadn’t talked about. And Aurelia Metals (AMI) was the highest larger cap that we haven’t spoken about. So I’ve pulled out – I’ve taken AMI to talk about as a pulled pork. I should declare upfront I’m a shareholder in AMI. It was the one of those life lessons that it was a buy for me a year or so ago, and then it promptly went down and crash through my rule one price. And before I noticed and it dropped and I went “might as well hold on” because it was well above its sell line. But it still hasn’t gone back to what I paid for it. But it has had a good month. It’s up 25% for the current month, which is really good because it had been a falling knife for a long time. So gold and what they call base metals miner 60% gold, 40% zinc, lead and copper, which they collectively call base metals. The three mines it has are in or near Cobar in New South Wales. So it’s an Australian miner, and I think probably the most interesting thing in terms of news, apart from the fact I had a good quarterly update, which I think put the rocket under the share price. They have managed to secure a guy called Peter Bolton as their chairman, so the existing chair of the company retired for health reasons earlier on in the year. Someone stepped in. One of the directors stepped in and acted as chair. And while I did the search and now Peter Bolton has stepped in, which is a very good sign because he was the outgoing CEO of Oil Search, a much bigger company, not necessarily oil mining company so – in the energy sector, not necessarily gold mining company. He doesn’t have experience in the underground mining area but does have experience energy overall and in running a big business. So I think it’s a positive. I think it’s seen as being a good thing for the company. They’ve snagged someone who has the caliber to chair it. So I think that also has helped push the share price up. That’s the background to Aurelia, onto the numbers! QAV is 0.27. The score is 0.27. Good quality score of 93%, which is quite high and also good ADT. So average daily trade is $1.5 million dollars and my numbers are down in the share price of $0.38 and that’s the first of November. And we’re doing this before the market opens. Further on, the stock prices above the stock doctor IV.. This is a star growth stock, so Lincoln indicators give it a stock doctor IV, but it’s nearly half the price that the brokers have targeted for it. And it’s under our IV2. It’s less than half of our IV2, so it scores on that metric as well. Price to operating cash flow is 3.4 times and has a PE of seven, so it’s definitely in the value camp, even though it’s forecast to grow at nearly 20% next year. So it’s a good combination of a value stock that’s growing well, which I guess is the sweet spot for any sort of investment, isn’t it, that we can find something cheap to buy, that it’s growing? It’s less than book, plus 30%. It’s just over, I think it’s – NEPS, it’s net equity per share of $0.34 and it’s growth over PE is above to 2.6, in fact, and we like it when it’s above 1.5. So that’s good too. I guess probably the only question about it is that there aren’t directors that are holding much stock. I couldn’t find what happened to the outgoing chairman. He may have had a large share parcel, but during our research, I couldn’t see whether that happened or not. But anyway, they don’t hold much stock at the moment. And in terms of manually entered data, it does have record low PEs for the last three years. So that’s the scoring for Aurelia metals.

Cameron [00:19:07] Very good. Aurelia metals. Yeah, I’ve got them in one of my portfolios. In my super portfolio, actually, but they’re down 4% since I bought them. So hopefully they’re going to pick back up, keep going and not suffer the curse of the pulled pork this week, Tony.

Tony [00:19:26] Yeah. Yes, that’s right.

Cameron [00:19:28] No-one tell anybody. But we covered that this week as our stock.

Tony [00:19:34] I must admit, when I go through and work out which one to talk about, I try make it a process. So it’s the next one on the list that we haven’t talked about. Then I start second guessing it and going “Well, it went up 25% this month. Should I go and get something else?” And, you know, but you just can’t second guess things. Just stick with the process and we’ll talk about it. In time it’ll sort itself out.

Cameron [00:19:51] You’re starting to believe that you really are a god and can influence the fates of these stocks. Is that what you’re telling me? It’s starting to go to your head?

Tony [00:19:57] Or the reverse! Yeah, yeah. You lose confidence and try and improve.

Cameron [00:20:04] All right.

Tony [00:20:06] But you can’t do that! Stick to the process, everyone.

Cameron [00:20:08] All right. Ready for some questions.

Tony [00:20:10] I am, yeah!

Cameron [00:20:10] Jolly good. First one is from Stuart. Stuart says “It was really interesting on the podcast last week that Louise Bedford’s data analysis suggests that the most successful investors hold for a minimum of 12 weeks through to 30 months. What are Tony’s thoughts on a minimum 12 week hold to offset those immediate ups and downs that incredibly seem to happen straight after a purchase or sell? I’ve also got NHC past the 10% loss, but pondering holding for the 12 weeks.” What do you think about holding for 12 weeks, Tony?

Tony [00:20:43] Well, a couple of thoughts. When Louise spoke about that, she wasn’t saying people went into investing with the rule of holding for 12 weeks. She was merely saying that when she looks at all the trades in aggregate, she was saying the good investors are holding for a minimum of 12 weeks. So the three to thirty months so – well, I need to go back and test that as a rule. I don’t think it will hold up. If you go in and say the stock drops, if you then hold it and you know, Aurelia metals is an example of that. We just spoke about – became a stock on the buy list. I bought it. It was a gold base metals miners. All the commodities were looking good and it promptly went down. And that happens. And I missed the rule one sell. It went down further. And you know, then you’re in this quandry of what do you do? And in the past, I’ve done both things. I’ve still sold out if I’m 20 or 30% below, but the stock’s still above its sell line. And in this case, I held on, it’s slowly working its way back. So I don’t have enough data to work out what the answer is. If you find yourself in that situation and it sounds like Stuart does find himself there for New Hope Coal. I don’t have a process for it. I do from now on, obey the rule one and sell out if it drops 10%. It’s a fact of life that that can happen after you buy something quickly. And oftentimes I bought something and found out it drops at least 1 or 2% the next day, which is kind of normal fluctuations in the market and potentially I was pushing the price up, buying it anyway. So it’s kind of dropped back a bit, you know, because of the parcels I’m buying. But yeah, if it does, the rule one’s there for a reason is to try and protect as much capital as we can. My advice to Stuart would be, well, I don’t want to give – my general advice if I’m caught in this situation now would be to sell and then wait and buy back if you can when it gets cheaper or you see that the upturn is established. And one of the things with Aurelia metals is that – I spoke about this before and again, it’s something I haven’t got the data to back up, but it’s something I’ve noticed is that Aurelia became what I’ll call a second buy. So it’s been in a buy situation for a long time, but it has been a Josephine for a long time as well. It’s been falling off its peaks. But with a 25% upturn in the last month, it’s now back to the stage where if you were just coming in and not looking at the buy line, following the sell line and just looking at the highest point second highest point drawing a new buy line. It’s now a buy on that basis as well. So, you know, it’s kind of like a confirmation, I guess, of the fact that it’s – the uptrend may be establishing itself and the falling off might be over in Aurelia Metals’ case.

Cameron [00:23:22] You didn’t tell the fire department that you’re recording early this morning?

Tony [00:23:26] No, sorry.

Cameron [00:23:26] There you go, Stuart. Hope that helps. By the way, I sold NHC as well. It was a rule one sell for me last week, disappointingly. Ally asks, “GCY. She had a checklist last week – we gave them a 2 for record low PE, even though their current PE is an N/A.”

Tony [00:23:46] Yeah, good pick up Ally! I made a mistake there so sorry about that. I think what I was looking at is the June forecast for next year, where it’s got a PE forecast in there, which was lower than any in the last three years. So my mistake, and I think it’s something that we’ve noticed in the past. You’ve got to be careful with stock doctor. You sort of think you should start from the right, but that’s where the forecast PEs are. You need to start from the current. Yeah, so that’s why. Apologies for that. I didn’t fix it up in the buy list, and it hasn’t changed the scoring or the ranking much for GCY. I think it’s taken one point or two off its QAV score. The other thing about GCY, which is interesting, though – so very timely. There’s a lot going on. It’s  Gascoyne Resources.  It’s – there are two corporate activities in today’s like an important milestone for whether the companies taken over or not. So quick history,  Gascoyne  proposed a merger with another small mining company called Firefly. They’re proposing it as a scheme of arrangement, which is where both companies agree to join up. And that’s typically done through the courts so they submit a joint agreement ratified by both sets of shareholders and both boards. The court ticks it off and says, “Yep, that’s all tickety boo”, and off they go as a joint company. That goes through the courts today. In the meantime, West Gold lobbed a bid for  Gascoyne resources,  which was, I think, 30% above its share price and the share price rallied. But that bid was conditional on the Firefly merger not taking place. I think that’s dilutive and problem is that  Gascoyne  have structured the merger, so they can’t get out of it. It’s up to Firefly to – they either both have to rescind although I think Firefly has the final say. Firefly aren’t saying they’re going to rescind it. So it’s going to the court today. So it will be interesting to see what it gets argued in court today with a  Gascoyne  run dead or don’t try and stop the the merger with Firefly through the courts. And if it does, then the share price will drop. In fact, it dropped on Friday. The  Gascoyne  directors released a note explaining all this that they were still having to proceed with the merger with Firefly, even though the better offer was conditional on that not happening. So the share price dropped I think about 10% on Friday. We’ll see what happens after it goes to court today.

Cameron [00:26:09] All right, well, there you go. Good pick up, Ally. Brett, Brettalator, the Brettalator asks, “Hi Cam! Question, please! QAV provides a great balance of effort versus return. Has Tony – has Tony ever put thought into how he would approach it if he had the sudden desire to put more time into QAV apart from starting a podcast? What might level five on the QAV investment ladder look like?” I said to Brett, ” Dude, I’ll ask, but I think he’s still kind of pissed at me for getting him involved in this in the first place and ruining the nice, easy life that he had two years ago.”

Tony [00:26:51] No, I’m not pissed at you at all. In fact, I enjoy it. It’s as you – as we said before, it’s very rewarding, not pissed at all.

Cameron [00:26:57] For everybody else. What about for you? It’s very rewarding for our listeners.

Tony [00:27:05] Yeah. Well, it’s improved for me. I mean, we’ve got good, better tools than what I ever had? So that’s good. Yeah, I think that’s – it’s been really good for me as well to tighten up the process. In terms of level five for QAV, it looks exactly like level four from what I can tell. I mean, I would say, yes, definitely, my workload is going up and this sort of area because of QAV, but I would say that, you know, normally – the podcast, yeah. Correct because of the podcast – but normally, anyway, I’d say the majority of my time is reading and thinking about how to improve QAV. And yeah, that’s evolved over – the checklist has evolved over the years to where it is now. And although there is oftentimes lots of suggestions on how to improve it, it really sort of cuts the mustard and I find something which can improve the process enough to incorporate. So I don’t think there is a level five for QAV. We might – who knows? We might come across something that dramatically improves our results. That’d be great. But – and that could be things like, I apologize that we still haven’t got analysis for it. Dylan’s been caught up with his uni assignments, and we’re trying to find another person to help us with stats. But it could be things like rewaking the checklist to reflect the fact that, you know, price to operating cash flow has a dominant place to play in our scoring, as does the increasing equity. And so maybe we have a different weighting scorecard going forward. That might give us an extra two or three percentage points in performance. So. But no, I think QAV five looks like QAV four. It’s just let’s try – and I’m thinking all the time about how do we improve it and then we need to test it and research it and then upgrade it and incorporate it. But you know, I’ve thought about this a lot. It’s not that I invented QAV so I can go and play golf. It’s just that after a while I said, “Well, what do I do. I’d like to play golf.” You know, especially after I’ve raised my daughter and all that. So I had plenty of time on my hands, but I was always looking for ways to improve it. I thought, “Well, do I do QAV as a day trading exercise?” I thought, “You know, do you do you do it as a more actively trading exercise?” And I’m testing that, you know, the rebalancing trial is still on the way. Do we take the worst performing stock each month and replace it with the top performing stock. And Dylan did do some analysis on that. I forget the numbers, but without – he did that for 10 years worth of data, and the monthly rebalancing was a pretty good number. I forget now what it was. It was like I think it was 18% per annum. And that’s bearing in mind that we haven’t cracked how to incorporate the 3PTL calculation in 10 years worth of data testing. It just – even using the Brettalator it just slows things down too much to check each month, each share price over ten years. So but we’ll crack that eventually. But yeah, so rebalancing might be the next thing. So you pay attention each month, for example. But yeah, no, I can’t think of anything else to do that could improve QAV more than what we’re doing now.

Cameron [00:30:07] All of our listeners pool their money and we take it to a Berkshire Hathaway level and start buying board level stakes in companies.

Tony [00:30:19] Yeah, companies. Yeah, that could potentially be QAV five. It’s always been an interest of mine to do that, and I think it’s probably about time I went and found a mentor in the funds management industry and talk to them about what’s involved. And the people I’ve spoken to generally say things like, “Oh God, don’t do it.” It’s like it’s 80% compliance and marketing and client relationships. And, you know, at the most 20% being an investment officer, chief investment officer. And, you know, unless you’re that kind of person, you’ll be completely, you know, depressed by the amount of work you have to do just to keep the fund ticking over from a compliance and a marketing point of view. And it’s probably why a lot of funds are started by stockbrokers, right? Because they like that, that side of things – the selling side of things and the administration side of things. And they also happen to be good investment people as well, I guess, through their experience. But yeah, it’d be great to have a fund. And I mean, you know, who knows what that could take? I mean, Berkshire Hathaway started off as a partnership. Where a group of people got together and said, “Hey, let’s just pool things.” And that might be an option, but it’s on my radar, but I haven’t had much time to to deal with it yet.

Cameron [00:31:34] What do you think it will be?

Tony [00:31:35] I don’t know, Cam. Potentially the whole, even at my current level, I’m sort of limited in terms of what I can buy because there’s many large ADT stocks and there’s only a certain number of those on the checklist. So I’ve got to crack that nut, you know, which will happen to me at some stage of my future and if we set up a fund it’ll certainly happen. And how do you solve that? Well, maybe you know, we buy stocks which are below 0.1 on the checklist or we go overseas or we hold more than 15 to 20 stocks in the portfolio. So there’s a fair bit of work that needs to be done on that. Buying a fund, I think, would give us resources and potentially access to buy unlisted assets if we happen to come across businesses that we like that weren’t listed, but they score well from a QAV point of view. It might- it might facilitate going overseas, which will, I think, probably solve the ADT problem because, you know, if there’s a 15 stocks in Australia that fit that profile of QAV scores above 0.1 plus a high ADT, there’s got to be 100 in the US and, you know, many more in other countries as well. So having a fund might give me the resources to be able to do that. But yeah….Yeah, it’s a – it’s a hard one. I mean, yeah, otherwise I sit here and do it for myself as I’m doing. Which is good too.

Cameron [00:32:58] I was more wondering if having the wherewithal to buy a big enough stake in these companies where you can get, you know, some board representation and some say over the business, can you then get involved and, you know, lend a bit of the Coniston magic to it to improve the returns of their share price in your portfolio as Buffet does? Get in and go, “Cut this bullshit out, cut that out. Do this.”.

Tony [00:33:26] Well, I think that’s the thing, Buffet doesn’t do that, right? He’s famously hands off. “I’m buying your company. I want you to run it for the rest of your life and don’t change anything.” So all he does is change capital allocation. So the cash flows into Berkshire Hathaway and gets some of it gets redistributed back to the operating companies, but some gets used to buy new companies as well – wherever the best return is, which is the sort of famous Berkshire Hathaway motto. And it could be the way that, you know, we get a benefit from it. If we have stakes in enough companies that we can – if we start taking them over and redirect their cash flows, that can be of help to us. It could also – something which would be interesting would be to have an influence on a company that said to them, “Look, here’s how we invest. Here’s what we look for and like as investors. Please make this an emphasis for your management going forward. You know, we like to see founders who have or directors who have skin in the game. We like to see, you know, this kind of growth on a low PE.” I mean, valuation probably won’t play as big a part in our directions to management after we’ve invested. But things like, you know, dividend yield, financial health in particular, you know, all the metrics that stock doctor look at in terms of financial health – that would be the first thing on my board agenda if I was a director of a company. “Guys, why are we straying from this tried and true method of, you know, running a company and making sure it doesn’t start to have risks that can eventually erode its ability to keep trading? You know, let’s get the debt down, let’s get the cash up, all that kind of thing.” So I think that would be really interesting to have that kind of influence on a company.

Cameron [00:35:01] So you might be a little bit more hands on, than Buffet.

Tony [00:35:05] Yeah, but I haven’t really thought about it much, Cam. I’ll be probably one director’s voice pushing the QAV  barrow.  But it would be interesting to see what effect on the share price, what effect on the longitudinal, you know, success of the company if it actually managed itself to score well on the checklist, especially from a quality point of view?

Cameron [00:35:26] All right. Well, there you go, Bret. Well, I hope that gives you something to think about. What would Tony do? WWTD. Duncan asks, “I guess this is one of these gray areas. I’m not fast, as I don’t currently hold ECX and I’m not currently planning to do so.” OK, this is part of a longer conversation I had with Duncan about ECX. He said, “I just wanted to understand the flat bottom rule in this context and how Tony might have drawn the sell line.” Something Duncan posted on Facebook, right? What’s the sell line look like for ECX? I put up my graph. He said, “I see Tony likes your line, so I’ll go with that as a clarification. It would be good to know the reasoning for it, though.” And then I asked him to drill down into his thoughts on it a little bit more. And this is what he said, “In March 2019, the low point was $0.64, plus 8% equals $0.6912. In March 2020, the low point was $0.68 cents, plus 8% equals $0.7344. This is less than the 8% increase over $0.64. So then I looked to the April 2020 low point and that is $0.725. This is less than 8% greater than the March low point of $0.68.” All right. So I think what was happening here is we were drawing, I was picking my L1 using the fudge rule, but not going, not continuing to jump 8% from point to point to point

Tony [00:37:06] Correct, which is not the fudge rule. The fudge rule as you take 8% from the first…

Cameron [00:37:09] Yes.

Tony [00:37:10] Lowest point.

Cameron [00:37:10] So even if you get to another low point, you don’t go and look at 8% from that and 8% from that and 8% from that.

Tony [00:37:17] Correct. Yeah, because potentially you could be going way up the graph from its low point. Yeah. So it’s the first two in this case anyway. So it’s March 19 at $0.64. And as Duncan correctly pointed out, March 2020 was within that 8% at $0.68. But then April 2020 was 72.5, which was more than 8% above the March 19 number of $0.64. So we don’t go past them, so L1 becomes March 2020.

Cameron [00:37:49] Yeah.

Tony [00:37:50] L2 then becomes April 2020, and the line is well below the current share price.

Cameron [00:37:55] So in terms of the rationale, the reasoning for that?

Tony [00:37:59] Yeah. So the reasoning is if people want to have a look at a good example, ECX is a pretty good example of the rationale for it. We’re using five year monthly graphs. If we were using like a  daily  graph, you probably could find an L1. You picked the absolute bottom. But because we’re using monthly to, the granularity isn’t there. So if you look at the ECX graph, it’s almost like a river valley, for example, that’s probably got two rivers going through this valley. But if you go back to say, December 2017, the share price starts to drop from there. It gets caught up in the COVID cough at March 2019, which is the low point. It does rise and then drop again, has that second low point in March 2020 and it starts to rise from there. So the overall pattern for this graph, if you like, is a kind of flattened out U-shape. And even though at the bottom, it’s more like a W. I guess it has a drop in March 2019. It rises and drops again in March 2020. If you take that out, it’s pretty much a U-shaped bottom, and that’s the idea of the flat bottom. If – there’ll be some other cases where the graph doesn’t go down, then up, then down, then up again, and they tend to have that kind of very shallow bottom to them. So absolute L1 number does occur somewhere in the months between the ones we look at because the bottoming out of the sheer graph is taken two or three months to happen. It’s a flat bottom, and that’s where the concept comes from. We can’t see the actual L1 because the graph isn’t granular, so we look for the lowest point and then look for an 8% tolerance from then.

Cameron [00:39:47] River deep mountain’s high is what this one is saying. Okay. Well, hopefully that helps. But yeah, that’s the way we draw – that’s the way we calculate the flat bottom. Just start from the lowest point and see if there’s any lower points to the right that are within 8% of that. And if there are, we use that one as the L1, but we don’t go beyond that. Okay. Reg! My mate Reg responding to, I think Brett’s post on Facebook about his results, said “I’m about six months in and not going too well, but I’m merging in slowly and only replacing my existing portfolio stocks when they give me a stop loss trigger. May I ask, though, do you follow the process of simply buying the highest scoring stock provided it passes sentiment audit and your ADT requirement? I’ve been buying more selectively and maybe that’s not good process.” And I asked Reg to sort of expand a little bit for me on what “not going too well” meant. He said, “I guess in summary, I’m wondering if the way I’m doing things kind of massaging the QAV process, according to my own thoughts, is serving me well. I’m certainly not at odds with the QAV process itself, which is proven to achieve very good returns and I’m process driven. So I’ve really been looking for a system such as QAV, which is strongly process oriented. What I’ve been doing is reviewing what comes up on the buy list, as I said, as I sell for my current portfolio but not replacing with the top QAV scorers down. I’ve looked at all the stocks and bought selectively – the larger market caps, avoiding stocks which would increase my exposure in industries where I’m already well exposed, etc. I’ve also been going carefully in buying in smaller lots, about 25,000 per stock, smaller than I would normally. I bought my first QAV holding in July – MML, which I sold at a sizable loss, but I don’t think I followed rule one. And I’ve also bailed out of HLS and  ASG  at losses. Now I’m holding CJF, CVW, ECX, ING, NAB, SUL, and TRS. Of those, five are in profit and the others below what I paid.” One, two, three, four, five, six, seven. So five out of the seven are in profit. “Please understand. I realize, of course, that as you guys say, if I get six out of 10 right, I’m doing well and in no way am I being critical of the QAV process. In addition, I’d probably say that July to now is not sufficient time on which to draw conclusions, and I’m not doing that. I’m simply wondering if I could be doing things differently and better. So according to stock doctor, my one year return on QAVstocks, which is in effect only four months, is -27%, whereas the return on my whole portfolio is greater than 20%. Cheers and thanks, Reg.” What are your thoughts, Tony?

Tony [00:42:35] Yeah. So do you know if that -27% is the four month return? Or is it annualized? In other words, it’s three times the four month return.

Cameron [00:42:45] I’m assuming it’s annualized. He says, “It’s my one year return on my QAV stocks” which he’s only held for four months.

Tony [00:42:52] Okay.

Cameron [00:42:53] Yeah.

Tony [00:42:54] Because yeah, I can see why he’s right if it was 27% down in four months. But anyway, I think in terms of his process, the only thing I would add, I don’t know if we’re just doing this is – look for Josephines before you buy. Some of the stocks he named there, I know, have been falling knives for a while, so he might just be careful of that. In terms of buying down the list – again, it’s something I need to research, and it’s on the list of things to research. My experience is that the higher up the list you go, the better your chance of getting a good return. But having said that, because of the ADT rule for me, I am buying stocks towards the bottom of the list too, and sometimes they do outperform. So I’m not that worried if Reg is going down the list and finding stocks that he likes for whatever reason, whether it’s an ESG overlay, whether it’s – he said he was looking for stocks that weren’t in industries he already has investments in, but I wouldn’t be doing that. I mean, it’s certainly been a feature of my investment history that you don’t go out to try and invest in a particular industry. But when you’ve invested and you turn around and look, you find you’ve got lots of stocks from one industry because of that particular industry is, you know, going through a cyclical correction or whatever. Like gold stocks like iron ore stocks. Prior to those, it was like airline stocks. So I wouldn’t be too worried about not buying into an industry that you already have, Reg. That’s not a comment I’d make, but certainly be careful of Josephine. So stocks like MML, for example. I don’t know when you bought it, but it does have a quite an up and down pattern to it, so you may have bought it at the top of one of those patterns. I’m not sure if you’re buying it on the way down. Just be careful not to do that because it’s been a Josephine. The Reject Shop was one of those too. For a long time it was a falling knife, and I think it actually fell below its sell line earlier this year when I sold out of it. But it has rebounded since then as things open up after COVID, so I think it’ll be fine going forward. I certainly hold some of the stocks that Reg holds. Challenger, Eclipx, Inghams, NAB, so I’ve got no problems with those holdings. I think they they should do well going forward. Potentially Reg’s problem has just been the time period he’s been investing. As I said at the start of the recording, this last sort of few months has been particularly choppy, certainly compared to last year when everything was just going up. Yeah, but we do have these kinds of times in the market when we’re in and out of stocks more than we’d like to be.

Cameron [00:45:23] Yeah. But generally speaking, the process, once you’ve filtered for ADT based on your ADT limitations, it’s to buy from the top of the list, right?

Tony [00:45:34] Correct.

Cameron [00:45:35] And work your way down. Avoid buying something if it’s a Josephine, obviously sentiment, audit checks, make sure it’s in your ADT level. But generally you just start from the top and work your way down. In theory, the stocks with the highest QAV score statistically have the chance of performing best. Although, you know..

Tony [00:45:58] That’s my experience, but I haven’t, you know, haven’t tested that to give you the numbers on that. But yeah, that’s my experience. And certainly, if you look at even since we’ve been doing the podcast, stocks like Fortescue Metals Group was very high on the buy list. Probably the highest stock on the buy list in terms of the ADTs I could get into. And that did incredibly well. And before that, other stocks like Qantas did that for me. Going back a long while, stocks like Northern Star Resources did it for me. So yeah, my experience is the higher up the list, the better. But having said that, I know the ones down the bottom still perform as well.

Cameron [00:46:30] Yeah, right. But generally, you wouldn’t tell people that to cherry pick through the list. You would start at the top and just buy down.

Tony [00:46:40] Correct. Yeah, I mean, unless you’ve got a process or a reason for screening, yeah. You know, like ESG, you don’t want to buy a coal stock or whatever. Then yeah, you should buy from the top down.

Cameron [00:46:49] I should I should listen to that guy that said, don’t buy  coal  stocks

Tony [00:46:52] Yeah, he was actually giving us investment advice rather than moral advice.

Cameron [00:47:01] Yeah, well, there you go, Reg. I hope that helps! You know, for the record, that’s, you know, I just buy from the top. And when I’m talking to new folks, that’s what I say I do, too. I just start from the top and buy down. And when I sell something, I see what’s at the top of the new list. And if I don’t own it or I don’t own enough of it, I buy it and just keep going. I’m, you know, no cherry picking for me, just buy from the top. And so far that’s worked out okay for me. But, you know, I think with Reg, you know, we know that the process obviously works. You know, Brett and Ron’s results and everyone else’s results that have reported over the last year seem to indicate that’s just – stick with it. Should all come out of the wash.

Tony [00:47:44] And a dummy portfolio certainly has those kinds of results as well.

Cameron [00:47:50] Yeah. And the other thing I’d say, too, is – so he’s holding one, two, three, four, five, six, seven stocks at the moment. Hmm. Might be a little bit of a narrow field. You want to have sort of 15 to 20 in order to – because, you know, looking at my portfolios and the QAV portfolio over the last couple of years, it always seems to be that there’s sort of what, 15 to 20% of the portfolio that really kicks ass that does the like 70%/80%/100% sort of returns. And then you have – we have another 20% that sort of don’t go anywhere, you know, even after you’ve sold the rule one sells or whatever, you’ve got another 20% that go up 2%, 3%, 5%, but don’t really kick the stars out. And then the balance do reasonable returns 20%-30% over the course of a year. That’s sort of been my take on it, but the ones you have to have a big enough field of horses in the race to get the ones that really kick the lights out and pull the whole portfolio up.

Tony [00:48:53] Yeah, I mean, that’s a good point, just statistically, if we get 60% right and you have one stock in your portfolio or it could be a losing stock a lot, you know, 40% of the time. If you have two stocks, well, one of them might be that 60%. But again, statistically they might both go down. If you have three, one might. So in terms of that 60%, you want probably at least 10, if not 15 or 20 before that. So the the stats sort of go your way rather than being just too constrained by small portfolio.

Cameron [00:49:22] Unless you’re Taylor, who bought five stocks, and I think three of them are up 80%, which is why he says he’s an investing god, you know. All right. Thank you, Reg. I don’t think Reg is going to make it into the Brisbane dinner this week, but we’re having a Brisbane dinner Wednesday this week. Looking forward to seeing everyone who comes along to that. It’s always a good time to catch up with QAV club members over a meal. Glenn says, “Just checking the tab on my AF version spreadsheet for bank debt rate? Currently set at 2.69%, I haven’t changed it for a while. I was wondering what rate people are using. Seems the SVR rates may be moving up.” What’s SVR, Tony?

Tony [00:50:05] Don’t know.

Cameron [00:50:06] Okay. “EG NAB choice package principal and interest equals 3.67%. CBA package SVR equals 3.85%. ANZ discounted package equals 3.59%. Westpack 3.84%.”

Tony [00:50:20] Standard variable rate.

Cameron [00:50:21] Standard variable. “There are so many variable package options, but if I average the four above, I was thinking of adjusting my figure to 3.73% or taking the lowest of 3.59%. Any thoughts on this or recent changes to your bank debt rate being used in the spreadsheets?”

Tony [00:50:38] Yeah, good point, Glenn. I’m still using 2.69% and I wasn’t going to update it until the RBA raised rates. But as it’s been in the news a lot this week or so, the bond traders are doing the RBA’s rate raising for them and the long term bomb rates have been rising. So I looked up. I tend to use the ANZ standard home loan comparison rate, and that’s sitting at 3.42%. So I will change the spreadsheet going forward to be 3.42, not 2.69 from now on.

Cameron [00:51:08] Right? Okay.

Tony [00:51:10] So  so well spotted  Glenn.

Cameron [00:51:11] Yeah, good thinking, Glenn. Alright, last question! Short show this week so you can get on the road. Alice says, “I enjoyed the chat with Louise, especially on the behavioral aspects of investing trading. It would be great to hear both of your experiences. Did you need to make any behavioral shifts to become a better investor?”

Tony [00:51:32] Very much so, yes!

Cameron [00:51:33] Really?

Tony [00:51:34] Well, yeah. I’ve told the story before, but you know, my first year as an investor, which I call my Bachelor of Investing was just abysmal. I did everything wrong, took stock tips from brokers. Listened to the exploration guys at Shell on what was a hot two cent oil explorer tip. All that kind of stuff. Got some good investment advice and pooh poohed it because it was so mundane. We were a bit like Taylor. “We don’t want just 20% per year. Come on, we want to double our money, triple our money.” You know, some of our mates were getting 10 times their money from internet stocks and all that kind of stuff. So yeah, I had to change my training after I lost half my capital in that first year. So that was a behavioral change. And it became, you know, it’s through the research. Let’s read everything I can. Let’s try and get a framework to a process to use going forward. So that was probably the first thing that the GFC was my high degree in education. So that’s when I started to think, “Well, buy and hold for me was dead.” After the GFC, I didn’t, you know, I didn’t want to buy and hold, and people who did buy and hold it took them a long time. If you’re like an index investor, to get back to where the ASX index was anyway after the GFC, I think it was something like eight or nine years. So you were a long time in the wilderness trying to make up ground doing that. And that’s when I started the 3PTL, or incorporated the 3PTL into my checklist. So that was another behavioral change because before that, I was a classic, you know, follow what Buffett does, which is to buy something and hold it forever. And that two things happened to sort of sway me from doing that. One was the GFC, but another one was, you know, someone pointed out to me and I forget who it was that if you look at the ASX over a hundred years, I don’t think any of the companies that were there in the past are still there now. Mm-Hmm. Over a shorter timeframe, like 50 years, or maybe BHP would be the only one that’s still there. And certainly some companies have evolved, like Myer was there and it became Coles Myer and things like that. But the point that they were making is that companies have a life cycle and that this decade’s heroes aren’t going to be there next decade. So buying and hold can have a limited shelf life, and so that was a behavioral change for me, I guess, to be more investing and then looking for signals when to buy and sell. Mm-Hmm. And, you know, classically buying and holding is what behavioral economists call anchoring. So, you know, if I had anchored my buying of Fortescue Metals, I would have watched the share price drop from $25 back to $14. And it may get back up to $25. But what you lose in doing that is the opportunity cost of taking, of getting out and using that larger portion of capital to invest in something that’s going up and not waiting for it to come back. So that was a learning for me is not to anchor, and it was actually really hard for me to sell my Fortescue stock when I decided it was time to sell because it was a week or two before a very large dividend was being paid. And, you know, it was probably a bit of anchoring going on. This has been a great stock for me over the years. Am I going to ride it out or not? And luckily, I followed the process and got out. So that was another thing that in terms of behavioral changes, it was to follow the process, not try and second guess the process. So, yeah, really good question. I think some other things that I can think of, it’s I’ll call it. I don’t know if this is actually a feature of behavioral economics, but I’ll call it being comfortable with surprises. So it’s often a surprise to me that, you know, the next stock I’m going to buy is the highest on the buy list. I’m like, I sort of sometimes scratch my head and say, “You know, why are the banks scoring so well on our list? I mean, surely every super fund in Australia owns Commonwealth Bank and ANZ, et cetera, you know, how come they’re coming up as a good buy for a value investor?” It’s being able to sort of go “huh” and step back and go, “Yeah, but it’s the next thing to buy so I’m going to buy it.” So, yeah, oftentimes I’m surprised by what spits out of the checklist. But you know, I still apply the checklist because that works over a long period of time. If Stuart’s interested, well, who was the question asked I’m sorry?

Cameron [00:55:42] Alice.

Tony [00:55:42] Sorry I’ve got the wrong page on my notes open. If Alice is interested, a great book on behavioral economics, although it’s not about behavioral economics, is called Influence by a guy called Robert Cialdini, it’s actually about marketing. But what he goes through is five or six, I guess things that are hardwired into your brain that marketers can use to fool you. And it’s things like confirmation bias not called confirmation bias and influence. It’s called following the crowd, but it’s Cialdini’s example is if you want to look at a quick look at confirmation bias, go and stand out in the busy side walk and look up and people will start to go by you and look up as well. And some of them will stop and try and they’ll ask you “What are you looking at?” So, you know, that’s hardwired in us through evolution – if you see someone doing something, at least investigate it and you see it in the share market all the time! Why are people buying Afterpay? All because everyone stopped and looked at Afterpay and they’re buying it, so, you know, there are probably half a dozen blind spots. They’re not blind spots, evolutionary. There’s good reasons why we do these things, but if you’re not aware of them, you can get mugged by them in the crowd. And so Influence is a good book to start to read about that and to start developing your thinking around it.

Cameron [00:56:51] Oh, I’m really shocked to hear that you struggled to sell FMG, Tony. You almost sound human there.

Cameron [00:56:58] Yeah, yeah. Well, I shouldn’t say struggled. It’s again, it’s coping with surprise, right? I actually thought FMG might be a buy and hold stock for a long time, and I was surprised at how much the iron ore price dropped and how quickly and that it was a sell and that we had to sell it. So there was – I won’t call it emotion, but it’s coping with that surprise. Oh yeah, the market’s always throwing up curveballs at you, and you’ve got to have a process to deal with them.

Cameron [00:57:28] Right? Well, very good. Thanks for sharing that in terms of my behavioral shifts. I don’t know. Yeah, becoming an investor. That was my behavioral shift.

Tony [00:57:36] Yeah, right.

Cameron [00:57:37] Just to think of myself again as an investor. And you know, this was like as anyone who’s listened to those first six months of podcasts will know, a completely different way of thinking for me. I had to pay attention and get interested in corporate mumbo jumbo.

Tony [00:58:00] And I was the same. I mean, even though I was working working for big companies like Shell and Coles Myer, I, you know, I started off my career with a healthy dose of skepticism on the capitalist way of doing things. Yeah.

Cameron [00:58:12] Where do you stand now with that?

Tony [00:58:14] Well, I think I think everything has its place. Capitalism, socialism, all those things have good and bad.

Cameron [00:58:19] Yeah.

Tony [00:58:21] I’ve just been able to profit out of the capitalist side of things. So I’m not – I’m not gonna flag away for capitalism like Buffett does. Yeah, he thinks it’s the greatest thing in the history of man. And perhaps he’s right. I mean, it’s, you know, it has progressed evolution, progressed society and has evolved. But it does have lots of negatives that we’ve talked about and you’ve got to be aware of those. But yeah, I’ve been able to harness it to my advantage. So, you know, I guess I’m pragmatic about capitalism.

Cameron [00:58:50] For me you know, I, as you know, I’ve spent the vast majority of the last 20 years reading history books and talking about history and studying history and politics and behavior and that kind of stuff. So to dedicate a large chunk of my time to reading financial reports and looking at numbers and reading the Financial Review and doing this kind of stuff is completely out of – not only out of my wheelhouse, but out of my interest when we started this show. I mean, I’m just not interested in all of this kind of gumph. But you know, I’ve realized that if I’m going to be a successful investor, I have to be interested. I have to take this stuff seriously and develop a passion for it. I have to reinvent myself as somebody who cares about this kind of stuff. And yeah, I’m pretty good at reinventing myself. And I think I’m a pretty good student. Like when I really want to learn some of that I find someone like you who I believe you know what you’re talking about and you’re making yourself available as a mentor, I’m willing to commit to the learning process, you know. Okay, I’m just going to – I don’t have an opinion. If Tony says it’s this way, then it’s this way. I’m going to learn everything Tony knows. And then if I think Tony’s full of shit, I’ll be, you know, I’ll be able to say so, or if I think it can be improved or whatever. But until that point in time, I’m just going to, you know, download Tony’s brain and find out everything that he knows about this. And, you know, do it. Follow the recipe. I’m good at following recipes I think. If I’m given one by somebody I trust and believe what I spend most of my time picking holes in what everyone else is doing, but only when I, particularly if it’s something I know a lot about, like if I read a book on ancient Rome or ancient Greece or the Cold War, and I’m going, “Yeah, this author’s got a bias and this is obviously bullshit.” And I can tell very quickly if they’re favoring the American narrative for something that happened in the Cold War versus the North Korean narrative or the Vietnamese narrative, or giving equal weighting to narratives and that kind of stuff. But with something like this, you know that part of my brain just switches off and I’m just like, Tony says, it’s this way. Then for right now, it’s this way. It’s like going to a kung fu school. I’m just – I’m here to learn. Teach me everything you know. I will do everything you tell me, exactly the way you tell me to do it to the best of my ability, and I’m just not going to question it or challenge it because you’ve been doing this for 20 years. I’m a beginner, an empty mind, empty cup. Fill me up. Let me go, you know, get me to at least black belt level, and then I might start to have an opinion on this thing. But until I’m a black belt, you know, my opinion is worthless.

Tony [01:01:52] Fill me up, buttercup. Huh? No, it’s good. It’s a good way to be. It’s a great way to learn. And that might be QAV five as well. What you said about as people learn the process, they might actually start, you know, amending it. That’s what I’ve always hoped for was QAV hive mind is that someone – and it is happening on the Brettalator came out of it and there’s other things that come out which are really good. You know, someone might turn around and say, “Hey, I’ve modified it to invest to hype stocks or stocks or, you know, high growth stocks.” And we could all benefit from that because certainly, like, you know, sticking to my knitting, you develop biases, not because you’ve taken an opinion on things, but because your method works and it does screen out the Afterpay’s of the world from your investment horizon. But maybe someone can figure out a way of fixing that bias.

Cameron [01:02:50] I guess maybe Level five is investing in crypto. Yeah, I read the story in the media this morning about some guy that invested $10,000 in one minor crypto like two years ago I think. It was like it wasn’t Dogecoin, but it was a Shibu, another dog based joke bitcoin, and his $10,000 investment is currently worth $7.5 billion. But they’re saying the person who owns this wallet hasn’t touched it for, like 18 months, 19 months. So they think maybe they’ve A) either forgotten about it or B) lost the password and can’t get in. So they’ve got $7.5 billion sitting in the Shibu coin that they can’t touch.

Tony [01:03:41] And if they go and try and cash out, that will drive the price down as well, I guess. But look, that’s speaking of behavioral economics that article’s a survival bias example right? After the Melbourne Cup runs tomorrow, there’ll be someone who’s, you know, picked the first four winners in the water and gets paid tremendous odds for doing that 100 grand or whatever. Yeah, and he’ll be – he or she’ll be interviewing, you know, they’ll people will follow their tips going forward and they’ll never win another thing again because it was just luck.

Cameron [01:04:09] Speaking of that, let’s get into after hours. Your Melbourne Cup tips, Tony. I think last year they sucked.

Tony [01:04:17] They did.

Cameron [01:04:17] Yeah. So just I want to put that out there for new listeners to whatever you do, don’t invest everything you have in Tony’s Melbourne Cup tips. But with that out of the way, what are your Melbourne Cup tips, Tony?

Tony [01:04:31] Yeah, it’s again, it’s a 60/40 thing. Like I’ve picked the winner about three out of the last five years. Last year I sucked. This year, I’m sticking to the formula, which is to look for a lightweight, a well, weighted horse in the race. And I’m going with the bottom weight Sir Lucan and I think it will just beat the favorite Incentivize. To provide some story around that Incentivize won I think its last nine starts, won the Caulfield Cup, but that means it carries a weight penalty into the Melbourne Cup. And there’s, I think, only been about four or five horses in the history of the Melbourne Cup over the last hundred and fifty odd years that have carried the weight Incentivize will carry to victory. And so, you know, Incentivize is a very, very good horse. The last horse, I think, to do the Caulfield Cup, Melbourne Cup double was Might and Power from memory, and that was a very good horse. Incentivize might be in that league, but it’s going to be up there with the top five in history to do it. And that’s a question mark for me and I’d certainly want better odds than $2.70 or whatever it is currently before I’d back Incentivize. But I think it will run the place. I think it will get beaten by a horse like Sir Lucan, which is has got much – it’s got a bit of a weight drop. So I’m not looking at the Caulfield Cup form. I’m looking at the Bart Cummings form, which is another lead up race to the Melbourne Cup, and I think people have forgotten about that. The winner of that. I think the top three horses in that race are in the Melbourne Cup. The winner gets a weight penalty, which often happens when you win the league that race. But the other two dropping weights dramatically. So I’m thinking Master of Wine and Pondis will also do well. So there’s my first four. Sir Lucan, Incentivize, Master of Wine, and Pondis.

Cameron [01:06:15] Very good. Well, good luck.

Tony [01:06:19] I should put those in the Facebook group, too, because this may not go out in time for them to hear it.

Cameron [01:06:23] Anything else you have to recommend this week, TK?

Tony [01:06:26] No, I haven’t – I’ve been – my nose has been in the Form Guide, but – and in the share market with its choppy nature this last week, so I haven’t had much time to read anything else beside the Fin and the Form Guide. That’s how it’s going to be this week as well going forward.

Cameron [01:06:42] Right.

Tony [01:06:42] With a bit, with a bit of golf and a bit of wine down in  Wagga Wagga.

Cameron [01:06:46] Lovely. Well, safe travels. Enjoy your trip!

Tony [01:06:50] Thank you.

Cameron [01:06:51] Talk to you next week. Thanks, mate!

Tony [01:06:53] All right, mate. Have a good week!

Cameron [01:06:54] You too.

Cameron [01:07:00] The QAV podcast is a production of Space Craft Publishing Proprietary Limited authorized representative of AFSL 520442 AFC Representative Number 001292718. Please don’t make any investment decisions based solely on listening to this podcast. This is presented as general advice only, not personal financial advice. We don’t know your personal financial circumstances. Please see a financial planner before making any investing decisions.

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