QAV 445 Club

Cameron [00:00:00] Oh, we’re on. Hey, welcome back to QAV. 

Cameron [00:00:12] Episode 445 – quattrocento quaranta cinque.

Tony [00:00:20] Si, va bene. 

Cameron [00:00:21] You’re back in Sydney, Tony. How are you doing? 

Tony [00:00:23] Good. Yeah. Had a nice break. Thank you. 

Cameron [00:00:25] Good. 

Tony [00:00:27] In wonderful Wagga Wagga.  I finally found the clay – Australian Clay Shooting Center. 

Cameron [00:00:31] Did it look good? Did it look good? Did it look impressive? 

Tony [00:00:34]  It’s hard to see where they spent five million bucks, that’s for sure. It’s like a mown  football field with a shed at one end. 

Cameron [00:00:40] Mm-Hmm. 

Tony [00:00:41] That’s it. Yeah. 

Cameron [00:00:42] But did you go to their houses and see what they had  around? 

Tony [00:00:47] Yeah, couldn’t get close to their houses for the security guards. 

Cameron [00:00:52] Yes. And the moat that they had built? Well, that’s good. Well, it’s been – it’s been a rocky week on the markets while you’re away, Tony. You go away and the markets go rocky. Our portfolio – I just had a look at it before – dropped a couple of points last week. Some of our stocks like ZGL took the brunt, a couple of others. 

Tony [00:01:18] Saw that. 

Cameron [00:01:19] Yeah, but anyway, we’re still beating the index by 50% so, you know. 

Tony [00:01:26] We’re beating the index by 50% or we’re double index? 

Cameron [00:01:30] No, by 50%. I think the 200 was up five points for the financial year and we’re up seven. So no, it’s about 40%. Yeah. 

Tony [00:01:43] Okay. 

Cameron [00:01:43] Bit of a rocky day today! 

Tony [00:01:45] I’m just looking at the top three stocks for the week – Perseus Mining, Bell Financial Group and CVL. That’s Civmec, isn’t it? I think, yeah, CVL 

Cameron [00:01:56] What are those three again? 

Tony [00:01:56]  PRU, which is Perseus Mining, is up 3.91%. BFG – Bell Financial up 3.04%. And CVL, which I think is Civmec. Civmec mechanical, is up 2.9%. 

Cameron [00:02:10]  Hmm. Well, they didn’t help us against the others that were down eight, five, and five. But better than nothing.  

Tony [00:02:17] They didn’t help us against what? Sorry. 

Cameron [00:02:19] Oh, the three that dropped that I – 

Tony [00:02:21] Yeah, right. 

Cameron [00:02:22] Sent out in the newsletter today that dropped eight, five and five from memory. But I’ll tell you, just buy the buy. One of the quiet champions of my portfolio, which I don’t think we’ve really talked about ever in any detail, is Shine Justice – SHJ. They’re probably too small for you. I imagine they’re a small cap. 

Tony [00:02:44] Yeah, yep. 

Cameron [00:02:45] But just recently they’ve shot up. They’ve gone from $1.25 – $1.28 at the end of October, up to $1.53. Dunno why! They were trucking along. I bought them ages ago. They were trucking along. But back in August they were like a buck! Gone up 50 cents since August. So. 

Tony [00:03:04] Very nice. So there’s got to be something – looks like there was an announcement about a High Court ruling on the 5th. Could that be it? 

Cameron [00:03:11] Why would that make their share price go up? I don’t know! 

Tony [00:03:13] Well, they’re a class action lawyer. 

Cameron [00:03:16] Yeah, but what do they get? Paid by the win..? 

Tony [00:03:21] That’s exactly what they get! 

Cameron [00:03:24] You just if you’re a lawyer, you just get your fee regardless with a loose class action. You get -. 

Tony [00:03:29]   U.S. Style, This is no fee. Yeah, no win. No fee.

Cameron [00:03:34] Right. 

Tony [00:03:35] Yeah. 

Cameron [00:03:35] Well, good for them. But like a – I remember when it popped up on my checklist whenever I bought it six months ago, and I was like, “Really? Law firm? Meh. It’s on the list. Got to buy it.” And yeah, it’s done well. And I hadn’t even really noticed. I just happened to look today and was like, “Oh, it’s up 50% since I bought it!” Which -. 

Tony [00:03:53] Wow, that’s nice! 

Cameron [00:03:54] Which leads me to something I want to talk about. Which was – we had a we had a small Brisbane dinner here last week. Thank you to the guys that came along. Steven, Dave, Mark and Tim and Taylor was there and Taylor’s mate, Chris, who’s been investing with QAV and myself. It was relatively small. Don’t know what happened to everyone else from our last – well, some of them said they could make it. But anyway, one of the main topics of discussion was why you shouldn’t innovate in QAV until you’re at least a black belt. 

Tony [00:04:24] At least – at least a Black Belt, ok! 

Cameron [00:04:29] At least a black belt. And you know, some of the guys that were there were saying, “Yeah, in the early 12 months, first year of QAV I was like, “Well, I’m not going to buy this, I’m not going to buy that, but I’ll buy this one and I’ll buy that one and I’ll try. And you know, I’ll ignore rule one here. I’ll ignore the 3PTL there, and I’ll tweak this and I’ll tweak that.” And I think you’re responsible for this, Tony, because you’re always saying, “Yeah, you know, innovate. Do it your way. Like, come up with new ideas. It’s all good. You know, you’re too humble. You’re like, Yeah, I’m sure people can improve upon it, et cetera, et cetera.” But of course, what happens is – it’s like, I’m going to make the chocolate cake. I’m just – well, I don’t want to put chocolate in it. I’ll put smoked salmon. Which is great, but it’s not going to look like a chocolate cake. Don’t come back to me and go “That didn’t taste like a chocolate cake.” Well, it’s because you put smoked salmon in it! And these guys were saying, “Yeah, eventually we just went “Oh, we’ll just stop doing that and we’ll just follow the system. And it seems to work a lot better when you just follow the rules.” 

Tony [00:05:29] Yeah. Well, it’s – that’s right. I mean, I do encourage people to try new things, but in a champion challenger setting so, you know, put a small amount of your portfolio to the test, and if it works, then feed it back into the major part. But don’t give up. It’s like, I don’t know what the term is, but it’s like in chess, you don’t give up ground unless there’s a better ground to go to, right? So unless you’re sure that what you’re going to do is better than QAV, then you don’t you don’t give up QAV, 

Cameron [00:05:54] You a chess player, Tony? Why haven’t we ever have a game of  chess? 

Tony [00:05:57] No, not at all. 

Cameron [00:05:58] Well, what are you doing using chess analogies? That would be like me using a golf analogy or horse racing analogy. It’s – in chess, yeah, actually, you often give up ground, but you know. 

Tony [00:06:08] Do you? Okay. 

Cameron [00:06:09] Yeah, to be sneaky. Give up pieces, too! Taylor is good at that. Taylor’s – Taylor’s sort of very good at just sacrificing pieces to expose weaknesses in my position. And while he’s answering text messages on his phone and acting like he’s not even paying attention. Smart ass! 

Tony [00:06:25] He’s probably googling the grandmasters and their responses to your board set. Nah, you’re right. I’m not – I’m not a chess player, but that’s the – I mean – that’s the basic rule of life, and you don’t give up ground until you get better ground on offer, right? 

Cameron [00:06:37] Yeah, I guess. Yeah, so generally, look, people can do whatever they want, of course. But general idea would be if you are going to innovate, don’t use your real portfolio to do that, you know. Innovate on the site. 

Tony [00:06:50] Yeah. And there is a process.. 

Cameron [00:06:51] Test on the side. 

Tony [00:06:53] Do it on paper first. When you’re comfortable, do it with a small part of your portfolio. If it works, roll it into the main portfolio and let us all know! We can – we can look at it too! And that’s the way I do it. And that’s – I mean, that’s important because there are so many different types of risks, and oftentimes it’s the unknown unknowns, right? Because you do it on paper – might look great. Maybe you happen to pick the best period to analyze for that particular strategy. And that’s a real classic rookie mistake that “Oh, I’ve noticed over the last six months that law firms listed on the ASX are doing really well. I’m going to – I’m going to take all my money out of my portfolio and put it in law firms, right?” What? That’s – okay six months of analysis you’re correct. 

Cameron [00:07:37] Yeah. 

Tony [00:07:37] But run it live with a small part of the portfolio for the next six months. 

Cameron [00:07:41] Yeah. 

Tony [00:07:41] And just see, because there’s also operational risk. What happens if that – in that six month period when you’re running the challenger part of the portfolio? Now you get sick and don’t pay attention to the market or you get distracted with work or whatever, and you come back after a few months and go, “Oh shit, all these law firms have gone – they’ve gone well past my sell lines and well past rule one.” 

Cameron [00:08:02] Mm-Hmm. 

Tony [00:08:03] Yeah. So there’s operational risk, there’s timing. All those risks are out there. So yeah, really, if you’re going to test and try something, follow a process to do that on paper in a in a challenger part of your portfolio, no more than 10% and then roll it up into the main one if it survives. 

Cameron [00:08:21] How long should you do that on paper to know that it’s probably legit? 

Tony [00:08:26] I think 6 to 12 months. You want at least one, if not two, reporting periods in your analysis. 

Cameron [00:08:33] Right. 

Tony [00:08:33] So 12 months, I’d say 12 months. Because, look, things can be seasonal, you know, like with retail, if you’re testing a retail strategy and it’s over the Christmas period, it’s going to look great! but you know, 60% of the retail sales are done in the second half of the year. And then you go live in the first half of the year and suddenly you’re going, “Oh, this is not – it’s not working too well. 

Cameron [00:08:52] Yeah. 

Tony [00:08:53] And plenty of other industries are like that, too. So yeah, at least 12 months 

Cameron [00:08:56] Or at least until you get your black belt! I will be manufacturing QAV black belts. When we give you a black belt, then you can set up your own dojo and teach your style of Kynaston  Kung fu. You have the little, little black and white photo of Tony dressed in a robe up on the wall. Burn some incense when you come in every morning.

Tony [00:09:20] Sip a dram. 

Cameron [00:09:22]  A little Negroni.  All right. What else did I want to talk about? PROPCAF?  Oh my god. So last week, when you and I were doing the checklist, we discovered that I only had about – we’re not at the end of the process, but at the beginning of the process, I started the checklist process with about 50% of the stocks you had. And when we were trying to figure out why, we realized it’s because the first thing I’ve been doing before I do my manual data updates is I filter by PROPCAF – priced operating cash flow less than seven. I just like weed all those out in the first place and then I do it. And you said to me, “Nah, nah, nah! You can’t do that! Because there’s some that may have priced operating cash flow slightly higher than seven but will still get a good QAV score, and we still want to invest in those. We don’t eradicate them completely if their PROPCAF is higher than seven. 

Tony [00:10:19] Yeah, which is why I put all the shares into my watch list and then sold my priced operating cash flow. And then, look, I tend to go down. I look at the QAV score after that for those who have a price to operating cash flow greater than seven. I look at the QAV score and basically looking for ones which are about 0.04 or above. And they either haven’t scored or have a downtrend for sentiment because when you add the manually enetered data, the most you can get from doing that to add to the score is two points for sentiment, two points for price to operating cash flow, one point for your 3PTL, and one point for increasing equity. So you can add six points to the score. So there’s no point looking at anything that scores less than 0.04, but 0.04 and above you could actually get them onto the buy list. 

Cameron [00:11:05] So this is for everybody who’s been using the Flitman model checklist, because when I wrote the instructions for that some moons ago when it first came out, I said – I wrote down what I did, which is, right at the get go, filter anything with a PROPCAF seven or below. And so I’ve changed that now in the instruction that says eight and below. When you and I talked about it last week, you said, “Yeah, 8’s probably – because if something’s got a PROPCAF of higher than eight, it’s probably not going to score well enough to be high on our list, right? 

Tony [00:11:37] No, probably! Let me just have a look, though, because it could. Just going to try and find one that is on that borderline. 

Cameron [00:11:44] Or maybe just don’t filter that at all. Just take that whole line out. 

Tony [00:11:48] Yeah, well, that’s what I do. I leave all the things which have positive – my first download from Stock Doctors, everything with a positive operating cash flow. And that gives me, you know – well, my lowest download had 700 of our records in. It went to have it had 683 records in it. And then I saw the price to operating cash flow, which you know, reduces it way down to maybe 180 or so. But I still leave the other ones in. So if you look at – what’s a good company? Virtus  Health, VRT – where’s its price to operating cash flow? Yeah, 7.14. It’s just that’s on the borderline. But you said 8, didn’t you?

Cameron [00:12:26] Yeah, you got anything over 8? 

Tony [00:12:28] I’m just looking now. 

Cameron [00:12:30] When you say you saw buy that, do you then check – do all the manual data for all of the stocks with a PROPCAF higher than seven every time? 

Tony [00:12:41] No. 

Cameron [00:12:42] So what’s? 

Tony [00:12:42] No. I look at – I look at manually, so I do manually enter data. If there’s something in that 180-odd shares. So they have PROPCAF seven or less – I’ll go through and look at things which haven’t been checked for a while. So in my manually enter data sheet, I’ve got a date of when I last checked it. If it’s in the current month, I don’t bother updating it. I’ll look at in the last couple of columns of my spreadsheet anyway, there’s an automatically generated column that gives me an automated sentiment check, which is based on Stock Doctor SD Max being an uptrend and the price change for the last six months being positive, and the price change for the last five years being positive. If that says uptrend and I’ve got a sentiment score of no again, I’ll go and check, those. So I’m kind of trying to filter and save the work on that 180. 

Cameron [00:13:35] Yeah, so I’m doing that by filtering out the ones with a PROPCAF higher than seven because it normally leaves me with, I don’t know, 60 or 70 stocks rather than the full 180 that I have to go through. 

Tony [00:13:46] Well, hang on. So but my PROPCAF list of those seven or below is 180. How are you only getting a smaller list? Well, that’s more – at least that’s half of what I get.

Cameron [00:13:57] Well this week I did eight or below and I got about 180. The previous week, I did seven and below, and I ended up with, well, I don’t know. Maybe I think it was about 60 last week that I had. I don’t know what it would have been if l didn’t.. 

Tony [00:14:13] Wow, that’s a big difference!

Cameron [00:14:14] Yeah, but at the end of the day, it doesn’t make a big difference to the buy list because at the end, you know, the ones that have a PROPCAF higher than seven don’t get the two points, and they’re just unlikely that they’re going to rank very high. And particularly, you know, when I started doing it was for my – you know, we weren’t publishing it so it was for my own buy list. 

Tony [00:14:37] Yeah. 

Cameron [00:14:37] I’m only looking for the top 20 stocks, right? So the ones with a high PROPCAF aren’t going to be on that list! 

Tony [00:14:43] Yeah. And I do an ADT filter on mine too for large cap stocks, so I’m only ever getting 20 or 25 stocks on my list if I was doing it for myself. 

Cameron [00:14:53] Yeah. And so because a lot of the ADT stocks tend to have low QAV scores, they’re down 0.1/ 0.11/ 0.12 . 

Tony [00:15:03] Correct. 

Cameron [00:15:04] You know, some of those that start with a very low score, the 0.4 /0.04/ 0.05. Might get up to that, but they’re not going to – it’s unlikely that they’re going to end up with a 0.35 or 0.27. So yeah, I don’t think it’s really affected me by doing that. But now that we’re publishing, you know, a full list, it’s more important.

Tony [00:15:23] Are you -. 

Cameron [00:15:23] And if you’re investing in high ADT stocks like you.

Tony [00:15:26] Yeah. Are you filtering for anything else? Because if I do eight or below, I’m getting 257 stocks in my list. Are you filtering for commodities first or..? 

Cameron [00:15:34] Yeah. 

Tony [00:15:35] Anything else? 

Cameron [00:15:36] Yeah. So I’ll filter out things that I know have commodities in a sell thing. And because of that, I missed Zimplats again this week. I had to put Zimplats back in because platinum is back up again. I filter out things with a qualified audit. I filter out the PROPCAF. Yeah, that’s it. Before I start my analysis, usually. 

Tony [00:15:57] Okay, so that would also explain a bit of a difference. 

Cameron [00:16:00] A little bit. 

Tony [00:16:00] Yeah. 

Cameron [00:16:01] Anywho! 

Tony [00:16:01] So I’m just looking at a stock like I think it’s BIS – Bisalloy. 

Cameron [00:16:05] Yeah. 

Tony [00:16:06] So it’s on the buyer list. It’s got a PROPCAF of 7.84. 

Cameron [00:16:11] Wow, that’s high! 

Tony [00:16:12] Yeah, and there’s another one. So one I was looking at which didn’t make it on the buy list, but it came close – OFX, which we’ll have some new numbers out soon, so it may come onto the buy list. Its PROPCAF currently is 8.05 and it’s QAV score is oh, it’s only 0.02. Okay, that won’t make it. 

Cameron [00:16:32] Right. 

Tony [00:16:33] What’s going on?  There’s another one down here. So I’m getting scores. I’ve got a 7.07 for Viva Leisure, so I’d probably have a look at that and see if I can add the three points in manually enter date for that one. I’ve got a .08 for Beacon Lighting and it’s PROPCAF has blown out to 8.32. So, yeah, so there’s a couple which potentially can make it back onto the buy list, even in the eights. 

Cameron [00:17:01] Right. You know… 

Tony [00:17:03] And they’re worth checking. 

Cameron [00:17:04] Yeah, but again, those aren’t. If I was doing this for myself and just looking for the top 20. They’re not going to make it into the top 20. 

Tony [00:17:11] They won’t make it to the top 20. No, but something like Beacon Lighting. I think it’s a large cap stock from memory. So that would be something I’m interested in. 

Cameron [00:17:18] Yeah. So if people – particularly this is important for people with a high ADT. 

Tony [00:17:22] Yeah, yeah. 

Cameron [00:17:24] …Barrier. OK, moving right along. Let’s discuss Andrew’s thread on the Facebook group about rule one – rule number one. Getting back to, sort of –

Tony [00:17:37] You have to remind what that is! 

Cameron [00:17:38] So Andrew on the Facebook group posted “Rule number one – don’t lose money. It’s been brought up a few times, and I’m still trying to work on a strategy personally about how far below my entry price I’m willing to wait for a stock to turn back upwards. I compared everything I’ve sold to its current share price as at the third of November 21. Most of them haven’t really kicked on to great highs, especially when you consider that some of these were sold up to 12 months ago. But nearly all of them have come good, which just reinforces to me the whole reason for buying them in the first place. Good businesses are good prices. It also highlights the importance of watching the underlying commodity sentiment is evident with AIS, CIA and FMG are still significantly down. A great piece of info, TK! This list hasn’t taken into account the stocks I went on to buy with the proceeds of selling the above mentioned stocks, but since I haven’t sold those, they’re nearly all doing better than their predecessors. Forgive me, Tony, for I have sinned and bought a non-QAV stock – JLG. In my defense, it could have been bitcoin!” And then there was a ton of commentary on that from people. Let’s see! Doug said, “I’m 100% with you here. I struggle with this one, too. I’m going to do the same analysis. I’m also concerned we’re interpreting Buffett’s rule in an odd way. Effectively, you don’t lose money until you do actually sell. And having just read another book interpreting the rule number one, they say you avoid losing money by buying wonderful businesses at fair prices. Technically, our QAV checklist finds these wonderful businesses, so we should be fine for a set and forget strategy almost. I also wonder if you’d be better off buying more of those positions that are down knowing that with QAV, they will come good over time. Food for thought.” Alice said, “I found it a pretty difficult adjustment also to steer away from long term buy and hold. I didn’t expect to be doing as much buying and selling and it got beyond my comfort zone. Then I froze and just stopped doing anything.” Brett said, “We tend to use 10% as the rule number one, but I’m not sure if there’s much behind this number apart from it being what Tony was offered as an insurance policy once. Have you measured the maximum drawdown per company? A good sample size of these can help refine the 10% rule. Also, you make a really good point about the proceeds of what you sold. Our successors profit over time, so if you can minimize the time in a downturn, then it will boost success. Get your money working where it’s appreciated.” Duncan said, “This is an excellent and simple analysis that has prompted me to do something similar with my portfolio. I too have started to grow weary of doling out cash to my broker because of high churn and have now moved from [00:20:21]CommSec[0.0s] to Self-Wealth with a view to mitigating this. When I did the analysis, I was horrified to see that I’d had apparently sold out on some really good performers.” Which reminds me of what you told me once – “Don’t check when you sell something, don’t look at it.” “Some were ones I don’t expect. I did not refine it to exclude 3PTL sales, just all sale transactions. Turns out that since about February, when I started to apply QAV in earnest, I’ve sold about 52 stocks. I have repurchased some of these – 44 of these sales were due to some variation of rule one rather than other reasons. 32 of those have risen since I sold, but only 17 by more than 10%. Only 5 have risen by more than 20%; 3 of those 5 were rule one decisions. But a similar number of greater than 20% loss has appeared on the list too. All of those were rule one too.” Interesting. So it spurred a lot of conversations, so I thought it was worth bringing up and getting your thoughts on it. 

Tony [00:21:16] Well, my thoughts are the rules. So first of all, Buffett’s rule one isn’t sell at 10% of your purchase price. Rule one is just don’t lose money. We’ve just paraphrased that to apply to our stop loss. Yeah. So that’s a fair comment. Brett was right in his comments that I started to think about this when I was offered insurance to protect my portfolio from falling more than 10%. So I said, “Well, I can do that for nothing by selling things 10% below what I paid for them.” And that’s when I started doing it. Again it’s one of these statistical things. Not everything you sell when it drops 10% per cent will keep going down. And won’t, you know, at some stage in the future, turn around and go up and make money for you. The way I approach it is that it’s – am I better off holding onto something and waiting for it to turn round and it’s got to improve by 10% and more over time? Or am I better off taking 90% of the cash and putting it into something which I think is more certain to go up by 10% in the short term. So it’s an opportunity cost thing and my experiences and I haven’t crunched the numbers on this – my experience is it’s the latter, right? If something drops 10%, it’s probably going to keep dropping. And sure, it’s probably a good quality company that will come around eventually. But in the meantime, I could have made up my 10% by investing in something where the share price is clearly going up, scores well on the checklist and sentiments. Yeah, in its favor, 

Cameron [00:22:46] And you’re probably paying a lot more transaction brokerage than most of us. 

Tony [00:22:52] I am! I’m paying – I’m paying 40 bips, roughly. Depending on the amount. 

Cameron [00:22:58] 40 bips? 

Tony [00:22:59] 0.4% 

Cameron [00:23:01] So like chickens? No, what? 

Tony [00:23:03] Basis points – it’s 40 basis points. So it’s less than one. It’s 40 points compared to 1%. 

Cameron [00:23:11] And your average transaction size is how much, Tony?…….

Tony [00:23:18] Hahahahaha. 

Cameron [00:23:18] Dammit, so close! So close. 

Tony [00:23:24] Oh yeah, it’s over a million dollars, 

Cameron [00:23:28] Right. So what’s forty basis points of a million dollars? My brain can’t calculate anything in that figure. 

Tony [00:23:35] Well, 1% to ten thousand. So 0.4 is $4,000 a trade. 

Cameron [00:23:40] Right. $4,000, let’s say, at least $4,000. 

Tony [00:23:44] Or more. 

Cameron [00:23:44] A trade.

Tony [00:23:45] Right, right. What, what are you laughing at? 

Cameron [00:23:49] Because we live in different worlds. We live in different worlds, so… 

Tony [00:23:55] I’m not going to sit – I’m not going to sit on Self Wealth…. yay, $2000 bought – Wow got $500 of stock. Fantastic. I’m leaving it to the pros. 

Cameron [00:24:10] Come on, I thought you were, you know, conservative, fiscally conservative. 

Tony [00:24:14] I am! 

Cameron [00:24:14] You could be making – you could be saving money, there by doing it in small parcels. 

Tony [00:24:19] Possibly could. And possibly I’d get enough experience over time to, you know, trade big numbers on the stock market. But I’d rather leave it to the experts. 

Cameron [00:24:27] My camera’s lost focus, apparently if I laugh too hard, it can’t focus. Yeah, OK. So $4,000 in brokerage and you’re not fazed by that. 

Tony [00:24:39] No. 

Cameron [00:24:39] And you’re doing rule one sells because you’re like, “Yeah, you know, oh, I’ll make it back up. And then some.” 

Tony [00:24:44] Yes, it’s always the question of are you better off holding or redeploying the cash into something which has got a better chance of improving. 

Cameron [00:24:51] Right. 

Tony [00:24:52] If something’s dropped 10%? Well, first of all, if it’s dropped 10% straight away, then you know, we got the idea wrong – we got the thesis wrong. Something happened, we didn’t see it, and it’s dropped quickly. So you’re better off getting out. Just to protect yourself from the downside. If you bought something and over time, it’s – and you bought it and it was above the sell price? And over time, it sort of works back towards your buy price and getting out. It’s on a long, slow decline back towards its sell price. So again, it could turn up from there. I mean, things can drop below their sell line and turn around and improve again. It’s the same argument. 

Cameron [00:25:28] Sure! 

Tony [00:25:28] It’s the same argument where we’re just using, you know, we’re trusting sentiment. We’re trusting that the trend continues. The trend is our friend and we just, you know, drawing in a position where we think that the trend is going to keep going – 10% buy price or three point sell line breach.  But the same argument applies to both, right? We just said at the start of this program that my download originally had 180 stocks below price to operating cash flow of seven. And our buy list has half that on it, right? So half the stocks are in negative sentiment. If you think that because it’s a QAV stock and the half that we’ve knocked off for sentiment reasons could have really good QAV scores. Would you buy those? If you buy those, you’re probably going to hold them while they continue to lose before they turn around and make money. It’s a similar sort of thing. 

Cameron [00:26:24] Hmm. 

Tony [00:26:24] Yeah. I know from experience that’s not the way to invest. It can take six months. You can take another set of numbers that come out before something will turn around. 

Cameron [00:26:32] Mm-Hmm. 

Tony [00:26:32] It’s on the decline. It’s not worth waiting and tying your money up. 

Cameron [00:26:36] Yeah. So you’re still advocating rule one makes sense. 

Tony [00:26:43] Correct. 

Cameron [00:26:44] There you go. Let’s see what’s next. Stocks of the week, Tony. You want to do those now? 

Tony [00:26:50] Yeah, yeah. Sure, do you want me to go through my news things first before we do that. Well. 

Cameron [00:26:55] OK, well, then it’s no. You don’t want to do this first. Go through your news things. 

Tony [00:27:02] I got an the email from the Navexa saying our portfolio was up 6.21% for the month of October. 

Cameron [00:27:07] That’s pretty good. 

Tony [00:27:08] Yeah. Despite the downturn you spoke about in the first week of November. 

Cameron [00:27:12] Yes. 

Tony [00:27:13] I wanted to plug our Charity Exchange raffle one more time. It’s the last week. I think there’s only about 700 tickets left, and that’s the one where we’re raffling off a full set of Callaway clubs and a bag for Charity Exchange, which is a business that your son and I’m in. And we’re hoping to sell out and raise a substantial amount of money for Sporting Chance, a cancer charity that helps kids. And, you know, particularly trying to do a good job this time. It’s our first raffle with them, which is Mark Taylor’s charity for anyone who knows sports people or cricket in our listening audience. And if we can do a good job for them and, you know, prove the model and, we hope to keep doing it for them and for others. So this is our kind of proof of concept. So if people can, I know we’ve got good support from our listeners before for it and I apologize for pitching something on our podcast, but it’s important to us and raising money for charity. 

Cameron [00:28:08] It’s 

Tony [00:28:15] Yeah, thank you. That’s it. 

Cameron [00:28:18] /golf 

Tony [00:28:20] Right, because there’s been other ones too. 

Cameron [00:28:23] Right. Alright! Go and support that everyone! Particularly you rich guys and girls. Let’s talk about Gascoigne! 

Tony [00:28:34] Back to stocks Gascoigne. So Gascoigne has been dropped last week and… 

Cameron [00:28:41] Dropped? 

Tony [00:28:41] And West Gold… Yeah.

Cameron [00:28:42] What do you mean dropped? Dropped by whom?

Tony [00:28:45] Share price dropped.

Cameron [00:28:46]  Oh the share price dropped, right! Yes. 

Tony [00:28:49] Which of course it did, because it was our stock of the week. It was a while ago. 

Cameron [00:28:52] Yeah. 

Tony [00:28:53] Now it’s up today 3%. That’s good. So quick. Quick summary: Gascoigne is entering into a partnership with another company called Firefly, and then West Gold, a larger gold company, came in and lobbed a more attractive bid as long as the merger with Firefly didn’t go ahead. Gascoigne found out that they were at such an advanced stage with via Firefly that they couldn’t get out of it, and it was approved by the Supreme Court on Monday, at which time – Monday last week, at which time Gascoigne shares dropped because West Gold withdrew their offer because their condition was to take over Gascoigne without Firefly So it’s been a bit of argy bargy all week. I think West Gold is going to the – to ASIC to see if they can appeal the merger, but they’re not holding much hope. So that’s that’s the update on Gascoigne. 

Cameron [00:29:49] Right. 

Tony [00:29:49] And probably a good time to talk about West Gold! 

Cameron [00:29:52] Yes. 

Tony [00:29:53] Pulled pork stock of the week. 

Cameron [00:29:54] Right. 

Tony [00:29:55] OK, so West Gold code is WGX and West Gold has been rising since the merger didn’t go through. So obviously the shareholders prefer West Gold to keep its powder dry. Although just today they came – West Gold came out with an announcement that they are starting work on a new mine of their own. So West Gold is a gold miner  in WA.  It’s largely in the Meekatharra area, has three current gold mines: Fortnum, Meekatharra and Cue, and it has various explorations, tenements around those mines. One of them, they decided, was good enough to expand or to start another gold mine in the Cue area, and that’s seen favorably by the market. Shares are up 4.6% today. They were up on Friday as well, which I took to be because of the Gascoigne deal falling through. But maybe there was a leak about the new mine going ahead. Either way – full disclosure I own this stuff. I bought it when it came onto our buy list. It’s a largish ADT. It’s around $3 million ADT, which is – that makes it pretty big. It’s something interesting. It’s got a female CEO, which is unusual in the mining space, Deborah Fullerton. And she took over from the – one of the – don’t know who’s the founder but he’d been around for a long time, Peter Cook, I think his name is and he’s now the chair of the company. He owned something around about 4% of the company, but not enough to give us – us to give the company a score for owner founder shareholding in our checklist. Onto the numbers. The share price for the numbers I’m using was the share price yesterday, which is $1.96, but the share price is up to $2.04 today, so the QAV score will be down a little bit – one or two points. The QAV score is 0.24 based on a$1.95/ $1.96 share price. I think it’s probably going to be like 0.23 or 0.22 based on the share price today. But if the price keeps going up, it certainly will have an effect on the QAV ranking. Quality score is 80%, which is pretty good. The numbers – So let’s have a look at the – when I did my analysis at $1.96, it was the share price was less than the Stock Doctor IVF $2.00 that I wanted. It’s just gone above that, so it loses a point. But it did have a point yesterday. It’s still below the consensus target share price. So that’s good. It’s a star growth stock. So it was added recently. I think around the time that we put it on the buy list,  Stock Doctor also made it a star growth stock, which is always good to see. There’s been cases in the past where I’ve enjoyed a bit of an uplift from having something come onto the buy list and then buy it and then soon after that Stock Doctor make it a star growth stock and it gets another leg up, which is really good. It doesn’t have any dividends, so there’s no yield. The financial health is strong and steady for this one. Price to operating cash flow was only three point three four times and the PE is ten point seven nine times. So a good value play this one. IV2 is $3.91. So again, at $1.95, it would have been just above two times the share price. But at $2.04, it’s just below that. It’s a new three point uptrend just came onto the – onto the scanner in the last week or so. It does have good manually enter data, saw record lows, six PEs, consistently increasing equity and, as I said, a ABnew three point trend up line. And that’s probably about it! Quality score 80% and QAV 0.24. 

Cameron [00:33:51] Thanks, Tony. So that’s the large cap and the small cap stock of the week – ABA

Tony [00:33:58] ABA

Cameron [00:33:59] A bank – they used to be Wide Bay.  Headquartered where, Tony? 

Tony [00:34:04] Yes, Wide Bay would have been in Rockhampton, I think from memory. 

Cameron [00:34:08] Bundaberg, Barolin Street, Bundaberg. And there’s an extra point on the checklist because they’re based in my old hometown. 

Tony [00:34:17] Auswide bank.  Yeah. Interesting one – I mean all of these ones, when I first started getting back, first started getting into investing a really good play was to go and open a passbook with all of the little credit unions and, no actually permanent building societies back then as well, up and down the east coast of Queensland. So there was Wide Bay, there was Makai, there was the Rock – there were three that I can remember and then they all demutualised. Rock was the first to go and they demutualised and listed and the share price went up and it did for the other ones, too. So there’s a history here. What’s happening now is, from my understanding, is that a lot of these little banks are being touted as takeover targets, so I think, I could be wrong, I think Oswald was in discussions with what’s it called now, My State, which is the Tasmanian bank about joining up. I think they fell through, but I think at some stage it’s likely that some of these smaller regional banks will get gobbled up by the larger ones. 

Cameron [00:35:25] Hmm. Well, for the record, I owned both ABA and WGX – our two stocks of the week, so they’ll no doubt crash over the next week as a result of us talking about them. So that’s great. CLX is now a sell, Tony. 

Tony [00:35:41] Yeah, I just wanted to highlight that. So it did fall below its sell line, even though it’s had a great run up. But I know a lot of people listeners to the podcast had benefited from it. Just have a look at its sentiment chart in the last couple of days. 

Cameron [00:35:55] And Damstra  – your friend. 

Tony [00:35:58] So I wanted to talk about  Damstra,  not because of the company, and we’ve had Johannes or Jan Risseeuw on the show, taking you through how the process for floating a company. He’s not doing too well. Damstra, listed at 90 cents, went up quite a way above that, but is now down to around 60 cents, something so he’s not doing too well. The reason why I wanted to talk about today is not, not that I know the executive chairman, although I have any special insights into it because both Jan and I are quite scrupulous about not getting caught out, divulging any sort of insider trading information. But it came up on another investing podcast and when I was driving back from Wagga Wagga yesterday, I had them playing in the car, just sort of scrolling through the next one on the list. And because I was Hands-Free, I didn’t really care what was coming up next. And this one came on and I thought I was listening to it and it was about Damstra, so I didn’t sort of skip it. And this was four, I think, three or four – I guess they’re in their thirties kind of youngish investors talking about Damstra. They also – one of them also talked about  Pro Medicus,  which is his pet stock, and he claims he’s made 50 times his money on it, which was really good. But I’m listening to these guys talk, and first of all, I’m not. This is not a hatchet job, you know, I think any investing podcast that tries to educate people on investing is a good thing, but I was just listening to it thinking, “Yeah, that’s a lesson. And that’s the lesson. That’s a lesson.” There were so many things that they were doing, which I think should be called out and highlighted as lessons, but they were just skipping over it that it’s worthwhile discussing. So what had happened was Damstra – the share price fell since the results came out, so two things happened. They lost a big customer, and I think the other numbers weren’t what everyone thought they’d be. Alright, sorry, they lost a big company, had lost a big customer and they acquired a company called Vault during the year and the CEO of Vault has now resigned, which is not a good look. So the share price has tanked. So there’s this chap who who’d owned Damstra and had been bullish on it and had been buying into the software as a service companies. I don’t know if that was indiscriminate, but it’s certainly been a booster for them. He was faced with the situation of the rule one situation we spoke about before of “Ok I bought something, the share price has dropped. What do I do?” And judging by what he said and what the conversation was like on the podcast, they had no idea. He had no idea. And that’s fine. If you’re a young investor and you haven’t, that hasn’t happened to you before. That’s a learning point. But the process is – well, if it happened to me and it hadn’t happened before – and that still happens to me – you know, I either make a call and move on or I park it and do as much research as I can into that situation. And then, you know, write it down, put it in my checklist, put it in my process for next time. So when it happens again, I don’t have to think about it. I know what to do, but our process, if something falls quickly, is to use rule one and sell it or to use the 3PTL and sell it. But this person didn’t know what to do. What they ended up doing was the price dropped and they bought more, which is what someone was saying before when we were reading out the thread from Facebook, “Ah, it’s a good quality company. It’s now cheaper. I’ll buy more.” Guess what happened? The price went down again. So, you know, it’s fine if you’re young and you’re starting out and new things happen to you in the market. What’s not fine is you don’t just make it up and wing it and use your gut to decide what to do. You think about it, you research it. You come up with a plan and a strategy. So when it happens to you again, it’s written down and you know what to do, which is not what these guys were doing. And in the other one, the flip side of that was the person who was the Pro Medicus  booster had written it all up, right up from sort of a dollar a share to whatever it is now, $50 a share and was selling. And one of the other co-hosts said, “Oh yeah, why are you selling?” “Oh, I just think it’s time to sell?” Like there was no clear reason for it, there was no articulated reason for it. And again, we have in QAV, I have clear rules of when to sell something. So you know, it might be that I don’t know the full story maybe he needs the money for something. Who knows? Maybe he has a view that after it’s risen 50 times, it’s not going to rise another 50 times, I’m not sure. But it and to be fair, this was just three or four mates talking about the shares they owned on the podcast. But really, it’s fine to talk about it and work out what you’re going to do, but write it down, make it part of your framework. Research it if you have to. But don’t let the surprise factor hit you twice. 

Cameron [00:40:51] Yeah, it’s like having a framework I think is the key thing there. You know, it’s – I know it took you a long time to develop your framework. And when I’ve been reading what works on Wall Street you know, he’s very adamant – if you can hear this, but it’s pouring rain outside my house – in his book about you have to have a framework. You have to know – have to have a framework that tells you when to buy and when to sell, what to buy, when to buy, when to sell. And it’s, you know, if you’re just starting as an investor or even if you’ve been doing it for a while, it’s very hard to develop one of those. Oh, sorry. The other thing he says, it has to be a framework that’s tried and tested. So if you’re starting and you’re developing it yourself, it’s going to take a lot of time. And I know what you did was eventually go out there and study the frameworks of the most successful investors you could and develop your own as a result of your study. 

Tony [00:41:55] No, exactly. And that’s the other thing about what we were talking before about, you know, improving the checklist. I think it can be improved. It’s not a perfect checklist by any means. I think it’s right up there in terms of, you know, top quartile performance over a long period of time. But it has evolved a lot over the time and things have been added only when they’re proven and sometimes they’re counterintuitive when they go in. So yeah, I mean, and I don’t follow exactly what Warren Buffett says or Charlie Munger or any – Ben Graham or any of those people. It’s an evolved process for me. Yeah. And like I said, it probably takes about 12 months before something new comes onto the checklist after it’s being tested in trial. 

Cameron [00:42:38] Alright. 

Tony [00:42:40] Yeah, I just – so like I was sitting there listening this. I couldn’t believe it. Here are these, you know, three or four guys sitting around giving general financial advice. And yeah, they just hadn’t sort of caught on to some of the basics of investing. 

Cameron [00:42:52] Don’t know why and don’t know when to sell? And I don’t know why I’m selling. 

Tony [00:42:59] Don’t know when to sell. Don’t know what to do when the share price drops. 

Cameron [00:43:02] Yeah, yeah. Or when it goes up. 

Tony [00:43:04] When it goes up. Yeah, yeah. So what else is there in investing? 

Cameron [00:43:09] Picking stocks. 

Tony [00:43:11] Picking stocks yeah. 

Cameron [00:43:12] Time for Q&A? 

Tony [00:43:14] Yeah, sure. 

Cameron [00:43:15] Daniel asks, “Has insider activity ever persuaded T.K. to take a position at a stock further down the checklist? For example, one of Sandfire Resources directors recently took a large position with the value of $1.16 million. Or even a certain fund he respects, such as WAM taking a large position in a company. I know this will definitely come across his thought process before, but just hard to add it as a checklist item. Cheers, Daniel.” 

Tony [00:43:45] Yeah, I agree. It’s hard. Sorry. Sorry I’m interrupting. I agree. It’s hard. No, look, I’ve looked at it. I’ve always looked at it. I still look at, you know, directors buying and selling. But I haven’t been able to put it on the checklist for a couple of reasons. One, because it’s so infrequent. So Daniel’s mentioned Sandfire Resources, but I’m going back to maybe last year when we sold our Hawthorne, I think it was Hawthorne stock because I think it was Chris Corrigan had 30% of the company sold. So, so it for me, it tends to be a bad news event rather than any particular rule for the checklist for directors buying or selling. And another reason is exactly what Daniel said there. The director who bought into Sandfire has been burnt because Sandfire came off our buy list this week. I sold it last week. It’s breached its 3PTL position, so the directors don’t always get it right. And again, you know, maybe in the long term they’ll be fine, but I’d rather take the money and deploy it somewhere else until Sandfire comes back into having some positive sentiment. 

Cameron [00:44:52] And what about Wilson asset management (WAM) buying in? 

Tony [00:44:56] Yeah, well, same thing. Look, it makes me feel good if I own my shares when WAM took a stake in it. I don’t – did we need to add another item to the checklist before we bought mine? We already bought it. Well, you had already bought it. We already owned. I didn’t own it. Sorry. 

Cameron [00:45:11] It didn’t make me feel good when Jeff Wilson sold it. 

Tony [00:45:14] Correct. Correct. Yeah, but. 

Cameron [00:45:17] Or a portion of it. 

Tony [00:45:19] But it hasn’t been the end of the world for mine either. I don’t know if you want to necessarily follow those trades. We don’t know what the reason for that sale was. He’s not disclosing what the reason for that sale was, and he still has some in the, you know, it’s a particularly high shareholding in the company. It’s just less than 5%. 

Cameron [00:45:37] Steven Mabb. 

Tony [00:45:40] No, I haven’t found the rule yet for it. For directors trades. 

Cameron [00:45:45] Steven Mab was telling me at dinner the other night he attended the AGM, the Myer AGM the other day because it’s one of the companies that he monitors, I think, for Australian Shareholders Association. 

Tony [00:45:56] Mm hmm. And they survived. I remember reading about them. There was some talk of a board spill, but yeah, one of the shareholders… 

Cameron [00:46:05] No, the Rem  report got approved and all that sort of stuff. 

Tony [00:46:08] Yeah. The other – sorry, the other before I forget the other issue with directors deeds is you don’t find out about them straight away. So sorry, if you want to say directors deeds that’s what it’s called in the Eureka  Report. Once every two weeks, they publish large buys and sells. But the big problem with director transactions is they – by the time you’ve probably – it’s come across your radar, it’s too late. The share price may have moved already. 

Cameron [00:46:31] The directors deeds are done dirt cheap, but by the time you find out about it, they’re expensive. Yeah. Little known fact that was the original version of the song that AC/DC put out because Bon Scott was a big investor. A lot of people didn’t know that, but it didn’t really get  – didn’t survive market testing that song. They had to change it to dirty deeds. Gary asks, “Out of curiosity, how are we drawing the sell line on CBA? Or is a case of rule one for inclines like this?” Yeah, the CBA… 

Tony [00:47:09] You can answer that. 

Cameron [00:47:11] In the CBA chart’s a weird one, and we talked about that this morning in our pre meeting, didn’t we?

Tony [00:47:18] Yeah. So and as a new version of the Brettalator coming out, particularly for this kind of example. So I think it’s in the Bible, but certainly it’s always been a rule that I’ve applied. If you’re drawing up a sell line, for example, with a company like CBA and there were other examples of these companies coming out of the COVID cough, Nick Scali was one – super cheap. What’s it called? Supergroup. Super, used to be old super cheap auto is another where they’re coming out of the COVID cough they’re going up at a nice angle, but they do zig zag back and forwards. And if you draw a sell line, the share price can drop below that sell line, even though it’s still overall trending upwards. And so the rule is if you draw your sell line the way you would normally, lowest point and the next lowest point to the right, but there is still a trough to the right of that then you need to use that trough as L2. And redraw the line so you don’t want to see any low points to the right of the sell line when you draw and Brett’s kindly coded that into the Brettalator. And you and I’ve been testing it, although I think it’s just me – me testing it and it should be good to go now. 

Cameron [00:48:33] Right. And for people who don’t have the graph in front of them, the problem with the CBA graph is it’s been going exponentially up, almost going up in a straight line since around the COVID cough, I guess. But the problem here, Tony, is I have for you is buy line follows the sell line. So if I start with an L1 in Sep 20 and then draw through, say, L2 of Feb 21, and it also seems to go through April 21, it gives me a sell around about July 21, even though the share price has been going straight up in that period of time. And I continue to go up after that. So I sort of struggle to draw a sell line for this and then I’d struggle to a new buy line. After that, I’d have to get a buy line to come after the breach of the sell line in July 21. 

Tony [00:49:32] Yes, it’s a good point. So unless you draw the sell line using that trough out to the right, which is now October 21…

Cameron [00:49:44] Yeah, that’s the current sell line. But it had a previous sell line, correct? 

Tony [00:49:48] It had. So just like me, you would have sold it back then like I did. 

Cameron [00:49:52] You would have sold it. You sold it in July. I think I did too, actually, but that’s crazy. It was going up and we sold it. 

Tony [00:49:59] Yeah. But if you look at July, if you look at it from May through until August, it was going sideways. 

Cameron [00:50:07] Yeah, went sideways, but then it went up. 

Tony [00:50:08] And that’s correct. So again it’s a classic case of do you want to hold a stock that’s going sideways or do you want to sell it, take a profit and redeploy the cash? 

Cameron [00:50:17] Right? It’s gone up. 

Tony [00:50:19] Look, I’m not making apologies for these. These are unusual circumstances. I can’t think of another time where we’ve seen stocks rise like this from the COVID cough or something similar. But yeah, I think we’re going to buy and sell along the way on these, and I have been buying and selling on the way on these. 

Cameron [00:50:35] Okay. But the second part of my question is, OK, so if we draw the sell line, it looks bizarre, goes straight up and we sold in July. Where’s the new buy line then? 

Tony [00:50:45] Well, if you draw the new sell line, it’s not – the share price is always above the sell line, so it’s the old buy price. The old buy line, which is H1 January 2020 H2 January 2021. So it’s a buy in February 2021. So it’s been just a buy again now. It’s back on the buy list. Back on the buy list, baby. 

Cameron [00:51:11] But the buy line has to follow the sell line time  and we had a sell event. 

Tony [00:51:18] Yeah. Mm hmm. Yeah, we did. 

Cameron [00:51:21] So it doesn’t H2 need to come after the sell event? 

Tony [00:51:25] Yeah, but we’ve redrawn the sell line. So at the time – going back in time when we sold it back in July. 

Cameron [00:51:33] August. 

Tony [00:51:34] Yeah, we couldn’t draw a buy line after the sell line. So we’re out of it, out of the market. 

Cameron [00:51:41] Yeah. 

Tony [00:51:41] Then now time’s moved on. We move L2 to October 2021. The share price is above the sell line, and the old buy price is back in -. 

Cameron [00:51:52] Really? You can do that? 

Tony [00:51:56] Yeah. 

Cameron [00:51:56] That’s – that seems like a little bit of jiggery pokery to me, Tony. 

Tony [00:52:00] Okay, good. 

Cameron [00:52:04] I didn’t know you could just like rewrite history here. What are you, Scott Morrison? You can’t just go, “Oh, it didn’t happen that way. I sent him a text message five minutes before I canceled the deal. He should have read it. It’s not my fault if he didn’t read it.” And the sell line was the sell line. And we have to, we have to now – don’t we have to get a new H2 after the sell event? 

Tony [00:52:24] No. 

Cameron [00:52:26] Oh okay. I’m going to – I’m going to have to think about that. 

Tony [00:52:33] Okay. Have a look at the new version of the Brettalator. It’ll say the same thing. It was a sell. It’s come back on to the buy line with the original buy price. 

Cameron [00:52:45] Yeah, but you’re not the one who’s going to get 50 emails from people going, “Oh, wait a second. It says in the Bible that this buy line follows the sell line.” You’ve just said, “Well, that sell line doesn’t exist anymore. Those are the new sell lines. The old buy line is back where it was.” And then how the hell do I explain that to people? 

Tony [00:53:04] Just outsource the help line to Pakistan. 

Cameron [00:53:08] OK, I’m outsourcing it to your daughter, so be careful she’ll have to deal with that. Just talk to Alex. Not my problem. 

Tony [00:53:18] Yeah, I’ll have to tell her. Call Cam, not me! 

Cameron [00:53:26] She’ll outsource it to her boyfriend and then. Yeah. 

Tony [00:53:29] Well, I think, yes, you’re right. There could be a clash of the rules here. However, I think they’re all consistent. I think the Bible still says and always has said if there’s a trough to the right of a sell line, redraw the sell line with that is L2. 

Cameron [00:53:42] That’s – but that’s the new sell line. I didn’t know that negated the old sell line. I thought we had series of buy line, sell line, buy line, sell line, buy line, sell line so on. 

Tony [00:53:54] Yeah. 

Cameron [00:53:54] But in this case, you go “Well that sell line. Let’s pretend it never happened.” 

Tony [00:54:00] No, I’m not necessarily saying that. 

Cameron [00:54:01] This is your version of Terra Nullius. You’re going terra nullius on the sell line. “Well, no-one lived there. What are you talking about? It was empty!”. 

Tony [00:54:09]  No. Sorry, I just spit up my tea then. 

Cameron [00:54:16] Oh, that’s going on YouTube. 

Tony [00:54:21] Cameron made me laugh.

Cameron [00:54:26] Did it come out your nose? 

Tony [00:54:27] Well, if the rules aren’t specified correctly, this is how I’m doing it. So the rules will have to keep up. 

Cameron [00:54:34] Listeners, if I’m the only one who’s confused by this, let me know. But I’m hoping everyone else is as confused as I am. Okay. That’s why I’m always learning. Dave.. 

Tony [00:54:44] I think we all are. Like I say, I haven’t seen this situation before, where the line keeps going up like this. And so we’re in a buy line. Sorry? 

Cameron [00:54:53] I’m trying to think of the title of this episode is either “The trend is your friend” or. 

Tony [00:54:58] Swallow your tea. 

Cameron [00:55:02] So far…Dave says, “Hi, Cameron! Question: I was fortunate to pick up made a group MAD in early July when it was hovering around the bottom of the list. My question is about the share ownership structure. Stock Doctor reports 200 million fully paid ordinary shares yet equity share capital of $2000. The annual report Page 62, confirms these numbers are Note 19 says “fully paid ordinary shares carry one vote per share and entitle the holders to participate in dividends and the proceeds on the winding up of a company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limit on the amount of authorized capital.” From what I can tell at IPO for $1 a share, in the short while I’ve been traipsing around the investing block, I’ve not seen something like this. I don’t understand how 200 million shares at $1 equals $2000 share capital. Is Tony able to help? Thanks, Dave from Newy.” 

Tony [00:56:02] Dave from Newey. Well, first of all, the beers are on Dave from Newy because I look at the share price graph for MAD, it’s like, I think it was on the buy list back when it was around a dollar a share. It’s now $2.37 in the space of a couple of months. 

Cameron [00:56:16] Oh, good work, Dave! 

Tony [00:56:18] Well done, Dave! And it’s up 7.7% today as well. So something’s lit a fire under it. Unfortunately, it’s well off the buy list now because of share price appreciation. Dave, I had a quick look at the numbers this morning and I think they’re wrong is my only comment. Might be worth if you want to email Stock Doctor and ask them. They’ll probably go back to Reuters and ask them. But the concepts that you’re talking about, I think you’ve got spot on. So the equity share capital should be well, reflects whatever proceeds were made when shares were sold and the money went to the company. So that should have been during the IPO process. And as you say, the IPO shares for a dollar and there’s 200,000 shares on issue. So maybe no sorry, 200 million shares on issue. Maybe not all those 200 million went out during the IPO. Maybe there was some other capital raisings in the past, but certainly the average of all those share sales wouldn’t be $2000 of paid up equity share capital. So I think there’s probably a few zeros missing off that number. So perhaps they’ve got the units wrong or something, something similar, but just to give. 

Cameron [00:57:27] But he said he checked it in the annual report and confirmed the numbers. 

Tony [00:57:31] Yeah, I can’t explain it, Cam. It doesn’t make any sense to me. So that line in the balance sheet should be the proceeds of selling shares where the money went to the company. Sometimes it’s called things like fully, fully paid up equity capital, which distinguishes it from, you know, options and things like that which haven’t been paid for yet. But yeah, it should reflect share sales where the money went to the company, and as Dave said, there was an IPO of a dollar a share and there’s a couple of hundred million dollars a million shares outstanding. So this should be a large, much larger number in that line in the balance sheet. I can’t explain it. And just to give people some idea, the market cap for this company is $440 million and equity is $60 million. So you know, the fully paid share – what’s it? Fully paid equity share capital won’t be either of those two numbers because the market price has gone up or the share price has gone up since the IPO. But with $60 million worth of equity. You know, unless they spent all the money from the IPO. I’m guessing they should be something like, oh, you know, $20 million maybe? In that number, I’m not sure. I can only be guessing, but it looks wrong to me as it does to Dave. 

Cameron [00:58:50] Page 62 just checking to see what it says. Not that I don’t believe you, Dave. No. Shares 200 million. Issued capital 2000. 

Tony [00:59:04] It doesn’t make any sense, does it? 

Cameron [00:59:07] I think they screwed up the annual report. 

Tony [00:59:09] Well, unless they issue the shares for like $0.001 per share or something, which is possible, but I think they screwed it up. 

Cameron [00:59:16] Yeah. Interesting. All right. 

Tony [00:59:18] It’s possible. I mean, this is like, so you know, $2,000 paid up share Capital is a very small company usually. It’s like something we’d set up to run QAV or something like that, where you be issue 10 shares at $100 each or something to start a company or 10 shares at $10 each to start a company. And then those shares have been traded a couple of times. And so you get up to $2,000 per share, maybe. But yeah, it doesn’t look right for the company. 

Cameron [00:59:46] Well, you’re a shareholder, Dave. Reach out to them. Reach out to their shareholder information services and ask them to explain it. Yeah. Jolly good. Let us know what happens, Dave. Andrew, “Hi, Cam, TK. You gents are doing such a great job. This really should be taught in school.” Thank you, Andrew. 

Tony [01:00:04] We’d be good school teachers, wouldn’t we? 

Cameron [01:00:06] Oh, fantastic. Oh, I have so much tolerance for kids. Question for this week. 

Tony [01:00:15] Who wants to know who’s going to win the Melbourne Cup? Right? Kids get the form guide out. 

Cameron [01:00:21] Yeah, that’d be your side of the class. Mine would be like if you want to learn something about investing, we need to go back to Ancient Greece. Alexander the Great. 

Tony [01:00:30] We use the Socratic method. I’ll ask questions. I’ll ask the questions. 

Cameron [01:00:35] Yeah, I can’t talk about Alexander the Great without talking about his father, Philip the Great. So let’s go back to Philip the Great. When he was a child.. Anyway, he says, “Question for the show. Slightly different to the usual. My son turned 18 this year and as a present, my wife and I wanted to get him into the market. He’s not at the QAV stage yet, so I bought him an ETF, IHVV S&P 500 hedged, very much set and forget, add to it from time to time, reinvest the dividends and let compound interest work its magic, etc. What I don’t quite understand is the return the capital gains since I bought it for him on the 25th of March, this year’s – 1.98%, but at one point it was -18% or thereabouts. If you look at its graph, the share price fell off the cliff in July, which is when the dividend was paid. Conversely, the dividend is 19.99%, giving an annual return of 18.01%. Although he’s delighted, I’m trying to think forward. If he were on a serious salary, it would be a tax problem given the income. And if you’re a retiree, I guess you’d be doing cartwheels. Does Tony have any observations as to why such a big dividend? Is it typical for an ETF to pay a large dividend?” 

Tony [01:01:47] It’s not typical, no, but this is a special ETF. I just did a quick bit of research before the show, so IHVV it’s in the name. It’s a hedged share fund. So I do look at their annual report, which is actually a bit hard to do for some of these BlackRock ETFs, because I guess the save money they pool half a dozen of them together into the same ETF. So you’ve got to sort of really weed through finding the details for the particular ETF you’re after. But IHVV has a number of assets, one of which is IVV so another BlackRock S&P 500 index fund. And then it also has is that IVV also has his assets US dollars, Australian dollars and futures contracts on both because it’s hedging. So that’s that’s the difference between IVV, which is the underlying ETF and IHPV. And what I think has happened is there’s been a hedge profit in the six months and they distribute that as a dividend. So I don’t know if if the hedging profit between the Australian dollar and the US dollar is quite 20%. But it’ll be a component of that, so they can’t hold onto the money. They they give it to their shareholders. I did do some googling and Motley Fool reckon that the dividend is due to rebalancing of the portfolio. So every six months they sell their outsized positions. And I would have thought I’m a bit skeptical. I would have thought they would have reinvested the, you know, the outsized positions into the underperforming positions and it should all even out. But Motley Fool reckon that they give back the surplus cash as a dividend, so it’s probably a bit of both of those. Probably, I think definitely the hedging profits because I know the US dollar has fallen and possibly also due to rebalancing. So you can’t bank on it being 20% going forward. 

Cameron [01:03:53] And as with all these hedged funds, you know, what I would say is if there is a bustle in your hedgerow, don’t be alarmed now. It’s just a spring clean for the May Queen. 

Tony [01:04:08] That’s all great to me. 

Cameron [01:04:10] Yes, there are two paths you can go by, but in the long run, there’s still time to change the road you’re on. 

Tony [01:04:16]  Is this Robert Frost? 

Cameron [01:04:18] Close, Robert Plant. “If there’s a bustle in your hedgerow. Don’t be alarmed now. It’s just the spring clean for the May Queen.” 

Tony [01:04:29] I must admit, I’ve always found it hard to understand Robert Plant’s lyrics. 

Cameron [01:04:33] No one understands Robert Plant, including Robert Plant. It’s 50th anniversary of Stairway to Heaven this week, I believe. 

Tony [01:04:42] Andrew Denton should release the money or the box cover set. 

Cameron [01:04:48] Yes. Yes. Released 8th of November 1971. 50 years ago today. I read an article about it this morning. Plant was saying that they were sitting in a house that they were using as a studio, and he said for some reason he doesn’t remember why, but he was just really angry and he was sitting in front of the fireplace one night. He had a pen, and a pad, and he wrote down. There’s a lady who sure all that glitters as gold and she’s buying a stairway to heaven. And then he went. He said he looked at it went, “Oh my God, what’s that all about? Where did that come from?” He had no idea where the lyric, what the lyrics meant, where they came from. I told Chris and she goes, “Yeah, well, no one knows what those lyrics ever mean.” Like including Robert Plant apparently. 

Tony [01:05:31] Yeah, weren’t they sued for stealing the melody from their support act or something. 

Cameron [01:05:38] No, no. From another band called Taurus, I think. Yeah, I’m not sure if that case won. The band was called Spirit. The song was called Taurus. 

Tony [01:05:50] Right. No, I think they lost. I think Spirit lost. 

Cameron [01:05:53] Oh, did, they? 

Tony [01:05:54] I think so. 

Cameron [01:05:56] The case? Yeah, right. Oh, there you go. I remember going back and listening to it. It does sound very similar – the opening to it. But yeah, they – Led Zeppelin prevailed in a long standing copyright battle over their signature song Stairway to Heaven. 

Tony [01:06:12] I remember, you know, like being at uni and every time you go to a pub and someone would pick up a guitar and play Stairway to Heaven, we’d just used to cover our ears. It was just – ugh. You could tell if someone.. 

Cameron [01:06:25] Well, it’s like that famous scene in Wayne’s World, right, where Mike Myers does that. 

Tony [01:06:30] I don’t recall it. Sorry. 

Cameron [01:06:32] Oh, he’s in it. Goes into a music shop and he picks up a guitar and starts playing stairway in. An employee comes over and taps him on the shoulder, and points to a sign on the wall that says “No Stairway to Heaven.” 

Tony [01:06:46] Yeah. 

Cameron [01:06:46] And that movie came out 30 years ago. Well, 29 years ago, I think ’92. So that was a joke about the song 30 years ago.  

Tony [01:06:58] Yeah, it’s the hater..

Cameron [01:07:01] Yeah. Well, I went down the LED Zeppelin rabbit hole this morning while I was doing comparisons and check lists and stuff. It was good. Good times! 

Tony [01:07:10] Did I tell you I saw Robert Plant? 

Cameron [01:07:12] No. 

Tony [01:07:13] Not Robert Plant. No, who’s the guitarist? 

Cameron [01:07:15] Jimmy Page. 

Tony [01:07:15] Jimmy Page. I saw Jimmy Page. Did you hear my Jimmy Page story? 

Cameron [01:07:18] No. 

Tony [01:07:19] We went to the closing ceremony of the Beijing Olympics. We’re in the Bird’s Nest in Beijing, and at the end of the ceremony they do all the pageantry. It was fantastic. Chinese acrobats flying through the air, streamers, all that kind of stuff, fireworks. And then the very last thing they do is they hand over the Olympic flame or torch to the next country, which is going to be the Olympics in London, right? So a double decker bus comes out into the stadium and Jimmy Page is on top of it with a loud – much like the scene the entry of Doctor Who when – 

Cameron [01:07:49] Yeah, Peter Capaldi comes in. 

Tony [01:07:51] Yeah, yeah, yeah, right. So he’s playing the guitar and it’s all of the love, and it’s just the whole stadiums. 

Cameron [01:07:58] Wow

Tony [01:08:01] It was just fantastic.

Cameron [01:08:02] Oh wow

Tony [01:08:04] And then halfway around, David Beckham pops up on the roof of the bus and starts kicking footballs into the crowd as well. Amazing seeing that.

Cameron [01:08:12] Except the audience would have been singing a whole rot of rove,  but probably can’t say that anymore, so edit that out. 

Tony [01:08:23] That was such a surprise, and so, so welcome. It was great. 

Cameron [01:08:27] That was what 2008? 

Tony [01:08:28] Yeah. Yeah, sounds right, right? I think so. Yeah. 

Cameron [01:08:31] Wow. Good. Good times?

Tony [01:08:33] Oh, great times! I mean, well, you know, it was a great trip. We walked the Great Wall of China. And what else did we do? Went drinking in some of the bars. Yes, good time. What did we see? We saw.. Ah, another great highlight for us was there was an Australian pole vaulter who won a gold medal. And so we’re in the again the Beijing Stadium. I think we’re, you know, maybe a dozen Australians there and or at least in our area in the stands. And the Australian gets his medal. And we stand up and, you know, sing the Australian national anthem at full gusto and then we sit down and these four Italian guys in front of us turn around and give us a clap, you know, like “Magnifico,” you know, “Fantastico! Bravo.” And then a bit later that night, an Italian wins a medal and they get up and they are like, I don’t know who they were. They was like the three tenors. It was Pavarotti, and they sang the Italian national anthem. And that was so good. We just felt so embarrassed the rest of the night after that. 

Cameron [01:09:40] Yeah, that’s great. All right, Jeremy, “If you were holding MQG, would you take up the SPP coming up soon? I’ve held MQG for decades. It’s my longest held stock and it’s done very well. I feel somewhat overweight on MQG though, and since taking up QAV, I’m looking to dispose when I get the appropriate sell signal rather than hold forever, as I have done so far. Perhaps the question about SPP in general from a QAV perspective? Thanks.” 

Tony [01:10:14] Yeah. So that’s –

Cameron [01:10:15] You do hold MQG, I think?

Tony [01:10:16] I bought it again last week. Maybe, maybe when I sold Sandfire. I think I sold two stocks last week – Inghams and Sandfire and I bought Macquarie and Super Retail, SUL. So, yeah, I’m probably making that decision myself, Jeremy. A bit surprised you’ve had it for a long time because I bought MQG and then sold it again. I think it was a sell earlier this year or last year. Again one of those regretful ones because it kept on going up after I sold it. But anyway, that’s the way it goes. I got back into it now with the new figures. So Macquarie is one of those banks that reports September end of year, so the numbers have just hit Stock Doctor in the last week. So I guess do yourself a favor and update your spreadsheets if you haven’t. They’ve come back on the buy list. SPP short for share purchase plan. So a lot of acronyms going around MQG, SPP. So the shares have gone ex-dividend today and they’ve also announced the share purchase plan. So they’re giving retail shareholders the right to buy up to $30,000 worth of shares direct from the company. So no brokerage is involved. And the deal is that you can buy them for the lower of $190.20 or 2% under the weighted average price five days before the SPX closes, which is, I think, 25th of November. So the share price last time I had a look was just a little over $200, about $202, so it’s a no brainer to take it up. Having said that, $30,000 is, you know, not material in my portfolio. And oftentimes with these kinds of SPPs you probably will get scale back so you’ll get less than the full $30,000. So just bear that in mind, if $30,000 is meaningful to you, it will be tied up for at least probably a month, usually while they process everything work out. How much they’re going to scale people back by and put the money back into your account. So you know you might apply for 30 and get 15, but you’ve had the other 15 tied up for maybe a couple of months or up to a couple of months. So just bear that in mind if you need it for something else. But yeah, at the moment it’s a good deal, right? It’s – what’s that 5% also below the current share price? 

Cameron [01:12:37] And off the top of your head, where does it score in our checklist today, $200 a share? It’s gone through the roof. 

Tony [01:12:44] Yeah, it wouldn’t be high up. I don’t think. Let me just have a – oh, maybe it is. Hang on!  Looking at it now. It’s 0.17 on the checklist. 

Cameron [01:12:53] Right. Hmm. Well, it’s been a good one. 

Tony [01:12:56] Again, a large a very large ADT stock. 

Cameron [01:12:58] Yeah. Well, good on you, Jeremy. Done well out of that, no doubt over the years. Brett, “Hi Cam! Working my way through past episodes and in season 3, episode 16, Tony said for a long while, he used a trading strategy where he would buy LICs that were discounted to the assets they had. I’m curious what his returns were like and why did he stop?” 

Tony [01:13:25] Sorry, I’m joking. That reminded me of – I once heard.. Who was the guy? Robert Harris, the author. He wrote the book about the UK being taken over by the Nazis as an alternative history, and also that Pompeii. 

Cameron [01:13:38] Yeah, I interviewed him. He’s been on “Life of Caesar Show.” 

Tony [01:13:41] Maybe I heard it there anyway. He tells a story about how he was at some literary festival and someone stands up and goes “On page 436 of the novel written twenty years ago, you said you’re in Berlin and it’s an overcast day. I checked the records. It was not overcast.” Brett’s preamble reminded me of that. “Season 3, episode 16 I said something.” Anyway, I digress. LICs, why did I stop doing it? First of all, I never went through and calculated my long term returns for that strategy, so I’m not sure if it’s better or worse than QAV. I suspect it’s good, but not as good as QAV. But the main reason is that the opportunities are very lumpy. So it’s a good thing to do during the COVID cough when the markets are down or after the GFC, when the markets are down and everyone’s wondering whether the LICs, the value of their mark to market shares are going to go down further and they’re not trusting and say, you know, you could buy WAM Capital at the 30% discount to its NTA, and it would have been something similar like that during the GFC. Would have been something similar like that during the COVID cough. But the problem is the majority of the time LICs trade around their NTAs, you can download all this now and you can get them from Morningstar. They put out a report every month. And I think the ASX might as well. Anyway, I’ve used the Morningstar one. It’s free. It’ll tell you all the LICs on the market, and their most recent NTAs and their share price discount or premium to their NTAs. It’s a good thing to have a look at. There will always be LICs on that, which is trading at a discount. But some of them, you know, if you look at their share price, for example, they’re falling knife, so you wouldn’t want to invest in those. So I can’t give any more definitive answers than that because I never tracked the numbers. It was more of an opportunistic play for me when some of the good quality ones that are out there and you know, you can pretty much work that out quickly by just looking at the Morningstar report also has their market cap size you want big ones. Yeah. And if you look at it, they generally trade within a 10% range of their NTA, sometimes within the 1-2% range of their NTAS. Oftentimes above their NTA right because in the case of, say, the Wilson Asset Management LICs, people are buying them because they’re yielding 7%, so they’re happy to overpay for the shares. Yeah, which might be a short term pain for them, but in the long term, they’re getting the benefits of dividends for their retirements. But yeah, but there have been times when you can buy Wilson Asset Management for $0.70, and it’s just a very lumpy way to invest that. 

Cameron [01:16:35] Right. Okay, thank you. Last question for the day! Mark, “Hi, Cam! If an individual has property in his or her investment portfolio, would it be best to not buy any real estate or property related stocks in the QAV portfolio?” 

Tony [01:16:53] Well, I don’t care about sector concentration. If property’s the thing, then I want more in property rather than less in property. No, I don’t worry about sector investments or how much they’ve got in one particular sector or another. I like to fish where the fish are. So if it just happens to be the sector, which was unloved but is now turning like it has been for iron ore in the past, like it has been for gold in the past, like it has been for airline stocks in the past, et cetera, et cetera. And you find out these things after the fact, but I don’t go top down. Then you know you want to invest. You can go on in that sector if you have enough opportunities in that sector. So I wouldn’t be worried about it. I think you’ll find I can’t think of any property stocks that are on our buy list. Perhaps Sunland Wars, which is a property developer. You could count the retail banks as being involved in the property sector because they’re big mortgage lenders. So that’s potentially in the property sector as well. But again, yeah, I don’t worry about my sector allocations. I’m happy buying stocks on the QAV buy list according to normal processes. That’s why I always feel it’s funny like, you know, if you go into the Navexa or I’m not picking on them, Sharestar or any of the portfolio tracking software companies, one of the things I’ll show you is a pie chart with you’ve got this much in industrials and this much in resources, etc., etc. It’s meaningless. Doesn’t mean anything.

Cameron [01:18:21] Yeah. Well, but you know, the conventional wisdom out there is that you diversify and spread your risk across different sectors and different investment categories and all that kind of stuff, right? So they’re just, you know, they have to do that because that’s what most people are told they should pay attention to. 

Tony [01:18:37] Yeah, but it’s wrong. I guess it’s not wrong if you’re a set and forget person, if you, you know, put your money into an index fund or something and you don’t pay attention to it. But for someone who’s active in the market like we are with QAV, then it’s the wrong thing to do. 

Cameron [01:18:55] You know, for passive investors, it probably makes sense. 

Tony [01:18:58] Yeah. Well, it makes sense in that if you do go overweight in one sector and you don’t sell when the trend turns then yeah, you’ll get burnt. 

Cameron [01:19:06] Yeah. Jolly good. Well, that’s a full lid for this week air and a half. It’s hot. We’re tired. Tony still hasn’t been able to get a haircut by the looks of it. 

Tony [01:19:18] No, I have one. 

Cameron [01:19:20] Did you? 

Tony [01:19:22] No, I washed it this morning. So my hair’s all frizzy in the humid weather. No, I have. Well, I think I can’t work out – like it has been so busy and difficult to get haircuts. I can’t work out whether my hairdresser was just trying to get me out of a seat quickly, which he goes, “Oh, looks great. I’ll just give it a trim.” 

Cameron [01:19:38] Yeah. Yeah, yeah, 70 bucks. Thanks very much. 

Tony [01:19:42] Yeah, exactly. 

Cameron [01:19:43] Jenny, doesn’t cut your hair? 

Tony [01:19:44] No. 

Cameron [01:19:45] Chrissy cuts my hair usually. You should get Jenny to cut your hair for you. 

Tony [01:19:50] No. How much do you pay Chrissy? 

Cameron [01:19:57] I pay her in kind. Okay. After hours, watched anything good? 

Tony [01:20:07] Oh, I don’t think so. Still watching Succession each week, which is lots of fun. Still watching Shetland, which is good fun, but mostly watching the horse races over the last week with Ruddy. 

Cameron [01:20:16] Was that fun? 

Tony [01:20:17] Great. It was! It was huge fun. Great. We were both doing our dough and then Mark’s, the departed mother, whose name is Evelyn, cropped up in conversation and there was a horse called Flying Evelyn in the last race on Cup Day. And of course, it won at twenty to one and we had the trifecta. So it made us whole, which was great. Yeah. 

Cameron [01:20:36] That’s good. Nice! 

Tony [01:20:38] Yeah, it’s good fun. Yeah. Oh, how about you? 

Cameron [01:20:42] Yeah, succession. You know, Kevin can f himself, what we do in the shadows. Just the usual things. I don’t think we’ve watched much.. Oh we took Fox to the cinema the other night to see an animated film. Ron’s Gone Wrong, set in the high tech future where kids have these little pet, sort of toy robots that do everything for them. And this poor kid, his parents can’t afford one, but they get one that’s literally fill at the back of a truck and it’s not working properly, and it’s voiced by Zach Galifianakis doing this faulty robot companion, which he did a great job. Fox liked it too. It was a good film. Chrissy and I though this week are going to see the Many Saints of Newark. Not with very high expectations based on the reviews, but just out of a sense of Sopranos loyalty we’ve got to go see it. I want to see a young Olivia Soprano go, “Oh poor you!” And a young Paulie Walnuts and that kind ..

Tony [01:21:38] And it’s Gandolfini’s son is playing the young Gandolfini in it, too. 

Cameron [01:21:42] Yeah, I know. I don’t think he’s got a very big role. I don’t think Tony’s a big role in it. From what I’ve heard, it’s more about Dickie Moltisanti. 

Tony [01:21:49] Okay. And of course, Moltisanti means many saints. That’s why it’s called the Many saints of Newark.

Cameron [01:21:55] Yeah, Moltisanti. Very good. Yeah, yeah. So, yeah, so that’s about it. Yeah. 

Tony [01:22:03] Oh, let me know how it goes. I’d like to see it as well, but I might wait until it gets to a streaming service. 

Cameron [01:22:08] Yeah, yeah. All right. Well, good luck. Everybody have a good week, Tony, and we’ll be back next time.

Tony [01:22:15] Thanks, Mate! See you!

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