Transcript QAV #504

QAV 504 Club

Cameron  00:06

Wel­come to Bird Nois­es by Mid­night Oil. Great album. “When the Gen­er­als talk. You bet­ta lis­ten to him.” I don’t know if that was on that album.

Tony  00:20

No that’s much lat­er.

Cameron  00:22

Oh okay. How are you, TK?

Tony  00:24

I’m good. Bird Nois­es was “back on the bor­der line.”

Cameron  00:30

Yeah, good stuff.

Tony  00:31

Yeah, no I’m great. Real­ly good.

Cameron  00:34

That’s good. Still down at Cape Schanck.

Tony  00:36

Still at Cape Schanck, still lots of birds. I think what’s hap­pened, we’ve had a moth infes­ta­tion here over the last week. Some­how they, they built some kind of nest in our back door. It’s been inter­est­ing in the morn­ings watch­ing the bees and the birds and the moths fight, and then in the evenings the birds come around and try and eat the moths. So, that’s prob­a­bly why there’s birds hang­ing around at the moment.

Cameron  00:59

You should be doing that in a David Atten­bor­ough voice.

Cameron  01:01

“And the, the moths are eat­ing the bees.” I think the, the title of this episode is don’t pan­ic and car­ry a tow­el. I think that’s my mot­to for this week. A bit of Hitch­hik­er’s Guide to the Galaxy.

Tony  01:01

Yeah.

Tony  01:16

Oh yeah, so good.

Cameron  01:17

It’s been anoth­er one of those weeks out there. Mar­ket has, Mr. Mar­ket has not been hap­py, not tak­ing his meds recent­ly.

Tony  01:27

Exact­ly. And I was remind­ed of a say­ing that I once came across in the punt­ing com­mu­ni­ty: “if you lose mon­ey, that’s one thing, but los­ing your nerve is every­thing.” I’ve been remind­ed of that, this week.

Cameron  01:40

I was think­ing about this, I was just cook­ing some lunch before we start­ed record­ing, and I was just think­ing about, like, I’ve had to rule 1 and 3PTL some stocks in my port­fo­lio. But I was just think­ing about the fact that I real­ly don’t give a shit. I, I have not — like, I’ve seen peo­ple, and like the peo­ple in the QAV club forum keep­ing up a good sense of humour and they seem to be han­dling the cor­rec­tion robust­ly, which is great. But, I see peo­ple talk­ing about, “oh, this is down,” “I lost that” and this and that. And like, I mean, I don’t know if this, if this is wrong, but I’m not pay­ing atten­tion to how much I’m los­ing or how much I’m miss­ing. Like I’ve, like I’ve got to a point where it’s just like cut­ting my nails if I have to sell some­thing. Like, you know, I know it’s gonna grow back, I’m not mea­sur­ing how long the nail was. I’m just like, all right, that one goes, that one goes, that one goes. I don’t have time, I don’t have time to wor­ry about num­bers. I’m just like, cut, cut, cut, add, add, add, and it’ll all work out in the long run. Is that your mind­set, Sifu?

Tony  02:45

It is, it is my mind­set. And it’s still painful, I mean, I had a con­ver­sa­tion with my wife this morn­ing and said, you know, we’re down X mil­lions of dol­lars because of the cor­rec­tion. And she was like…

Cameron  02:57

So you are pay­ing atten­tion?

Tony  02:58

She was like, “yeah, that’s okay. We’ll get it back.” I’m like, “yeah, I know. I just thought I had to let you know for full trans­paren­cy. In case you were won­der­ing.”

Cameron  03:09

She did­n’t throw her­self off the cloud tow­er bal­cony?

Tony  03:13

No, she was, she was very good about it. Did­n’t, and had the same response that we both do, which is “okay, well, that’s what hap­pens in the mar­ket. It’ll come back.”

Cameron  03:23

I said to Chris­sy that we were down mil­lions of dol­lars and she just laughed at me. Good prob­lem to have. We wish, one day, one day. Yeah, no, just I guess my point is just that, you know, I know, I just, It does­n’t mat­ter. Like the, this is the first cor­rec­tion. Like I was­n’t real­ly heav­i­ly invest­ed back when we went through the COVID cough. Now, I’m heav­i­ly, I’m ful­ly invest­ed with every­thing I have. So, it’s the first cor­rec­tion I’ve trad­ed through, but I just, it does­n’t mat­ter because I know it’s just, it’s a blip. You know, it’ll be back. When it’ll be back, it might be a month, might be six months, might be two years, it does­n’t real­ly mat­ter in the long scheme of things, like, it’ll be back and it’ll be big­ger and bet­ter. I like that chart that you post­ed on Face­book about the last hun­dred years of crises that the mar­kets had.

Tony  04:14

Yeah, ’cause that graph goes from bot­tom left to top right and has blips along the way. And the blips are sub­stan­tial when you’re there, because the end of the chart in time is always going to wag, always going to oscil­late a lot more because the price is high­er than pre­vi­ous ones. But yes, so like some of those cor­rec­tions were in the order of 25%, 35%, 50% for the GFC, but it just rebound­ed and kept march­ing upwards.

Cameron  04:40

I mean, I know that you said in the GFC it took the index ten years to get back to where it was, right?

Tony  04:47

Yeah, some­thing like that.

Cameron  04:48

But if you’re active­ly invest­ing and fol­low­ing a sys­tem like QAV, you would prob­a­bly get back to where you were a lot faster than look­ing at the over­all index.

Tony  04:58

Oh, well, I mean, I think I’ve said before on the show that 2009, that com­pa­ny report­ing sea­son right about now, was just a bonan­za. I tripled my mon­ey in the six months fol­low­ing that, because there were just so many bar­gains around. I mean, num­ber one, dur­ing the GFC, a lot of com­pa­nies — even maybe the major­i­ty of com­pa­nies — took the oppor­tu­ni­ty to recap­i­talise, so they all went to the mar­ket and said, “yeah, GFC’s hurt­ing us. Just to be safe, we’re going to build a buffer on our bal­ance sheet and we’ll sell some more shares.” And there were some bar­gains in that. But then you had real­ly strong, finan­cial­ly strong com­pa­nies com­ing out of the GFC, and, you know, it was even­tu­al­ly cleaned up. And you know, the GFC was dif­fi­cult to go through but it cen­tred around, what’d they call them? The, the jin­gle loans in the, in the US, you know? The peo­ple return­ing their keys rather than pay­ing their mort­gages. And then all the, then we found out how inter­con­nect­ed the bank­ing sys­tem was. But after, sort of, eigh­teen months of that all wash­ing through and recap­i­tal­is­ing bal­ance sheets, the mar­ket was in a great posi­tion but it was heav­i­ly dis­count­ed; it was 50% off its high, of its 2007 high going into the GFC. So, it was­n’t hard to make mon­ey in that sit­u­a­tion.

Tony  06:08

So, all of the gnash­ing of teeth and the rent­ing of gar­ments that’s going on out there in the media with mar­ket stuff is just, just noise?

Tony  06:19

Noise. It is.

Cameron  06:19

I mean,

Cameron  06:19

I guess it mat­ters if you’re a fund man­ag­er or some­body who lives and dies on your per­for­mance num­bers and you get bonus­es based on per­for­mance — and jour­nal­ists, obvi­ous­ly, who need some­thing to talk about. And you know, I’m sure it has real impacts for busi­ness­es in some way, shape, or form and their abil­i­ty to raise cap­i­tal or prob­a­bly the way, how much mon­ey their exec­u­tives get paid. But, for those of us that are in it as just investors… I mean, if you’ve planned on doing some­thing, if you planned on cash­ing out in the next six months, tak­ing your cash and doing some­thing with it, then I can under­stand it might be a lit­tle bit dra­mat­ic, but if you’re in it for the next ten-twen­ty years, then does­n’t mat­ter. It’s just anoth­er day, right?

Tony  07:04

Yeah, I mean, I think prob­a­bly the only peo­ple who real­ly get affect­ed by a long-term down­trend are peo­ple who are just about to retire, and then they might have to retire with a low­er super bal­ance or some­thing like that and read­just their plans. And, you know, my rec­om­men­da­tion to them would be to try to stay ful­ly invest­ed for as long as you can, even after you start retire­ment. Tight­en your belt. If you have to touch your cap­i­tal be fru­gal with that, because it will rebound back to where it was when you planned to retire. So yeah, and you hit it on the head with the jour­nal­ists and I guess some of the fund man­agers. Their, the old sto­ry that if it bleeds, it leads is obvi­ous. And this time there’s — all the jour­nal­ists want to talk about are peo­ple who have lost mon­ey or peo­ple who want to pre­dict the future. I mean, Jere­my Grantham, again, is out there say­ing it’s going to be a per­ma-bear and the mar­kets 50% over­val­ued, like he’s been say­ing every sec­ond year for the last twen­ty or thir­ty years. So, he’s a bro­ken clock; he’s right twice a day. And he’s built a rep­u­ta­tion around that. And there’s oth­er peo­ple like that, who are out there talk­ing about what mar­kets will do, what inter­est rates will do, what infla­tion will do, like they have some kind of crys­tal ball and they don’t. So, turn it down, turn down the noise and just con­cen­trate on the process.

Cameron  08:16

I read an arti­cle this morn­ing about all of the evan­gel­i­cal pas­tors in the US that were pre­dict­ing that Trump would be pres­i­dent again by the end of 2021, that God was going to inter­vene, and how they’ve all just gone under­ground. They’re like “what! What’re you talk­ing about?” They should join forces with the pun­dits.

Tony  08:38

End of the, yeah, end of the world peo­ple who pre­dict it’s gonna, the world’s gonna end on a cer­tain date then they get up the next day and say, “well, I think I got that lit­tle bit out, but it’s kind end now in five years’ time, not, not yes­ter­day.”

Cameron  08:48

They would just say “you weren’t ready. It was gonna come, but you weren’t right­eous enough. It’s your faults.”

Tony  08:55

I liked Andy Borowitz’s’ line, do you read Andy Borowitz? He’s on Face­book for me. But I like his line that if Trump claims he won the last elec­tion, that means he’s into his sec­ond term and he can go after two terms.

Cameron  09:09

All right. Gold. Let’s talk about gold, Tony.

Tony  09:12

Yeah, so inter­est­ing sit­u­a­tion with gold. You point­ed out yes­ter­day, which I think is right, that I had­n’t tak­en prop­er­ly into account the fat flat bot­tom for gold in my gold graph. And I’ve been using, just to fill peo­ple in, in Stock Doc­tor, I think it’s XAU_ from mem­o­ry. And that’s the one that, that we get from, you know, the night­ly news or the morn­ing news. It’s cur­rent­ly show­ing $1,797 US per tonne as the price and I had said a cou­ple of weeks ago that I thought the sell price was going to be around 1690 I think from mem­o­ry, so its about $100 above that. But then you point­ed out yes­ter­day that there was a flat bot­tom I had­n’t tak­en into account on the gold price, and I guess the rea­son why I’d miss that was if you look at the graph it’s been going up, except for about the last few months-say last year, it’s been going up. So, it’s kind of an inter­est­ing flat bot­tom which is tilt­ed upwards on one side. But any­way, the low point is Sep­tem­ber 2018. Price then, the clos­ing price then, was $1,191. Sec­ond low point is Novem­ber 18, clos­ing price of 1221, which is with­in 8%. So, we keep going up, and then we have April 2019, clos­ing price 1283, which is about $4 below the 8% line. So, that should real­ly have been L1. And then if you use one of the most recent troughs, which is 30th of Novem­ber 2021, gold has just been become a sell using that line. So, on the US dol­lar basis, it’s a sell. So, how­ev­er, I had noticed in the last week or so that the Aus­tralian dol­lar has deval­ued; some­thing like 4% over the last cou­ple of weeks. So, it prompt­ed me to look at what the Aus­tralian dol­lar val­ue of gold is, and find­ing a gold price chart for that, and I found one on a site called goldprice.com-sorry .org, all one word. And that gives us the Aus­tralian gold price in Aus­tralian dol­lars and you can select a five-year chart for that, and if you have a look at that it’s still above its sell line, even though it has been going side­ways as well for the last, sort of, five years. So, giv­en that there’s been a depre­ci­a­tion in the Aus­tralian dol­lar, our gold pro­duc­ers are still mak­ing mon­ey even though the-and the gold price is still above a sell, even though in US dol­lar terms it’s not. So, I’m inclined to hang on to gold stocks, or my gold stocks, just for a lit­tle bit longer and just see what hap­pens with the Aus­tralian chart. It’s not that dis­sim­i­lar from the US chart, but it is slight­ly above its sell line at the moment.

Cameron  11:55

So, what are the impli­ca­tions of this for all the com­modi­ties that we look at? Because we nor­mal­ly look at them in US dol­lars, right?

Tony  12:03

Yeah, no, there’s, the impli­ca­tion is we should be using Aus­tralian dol­lars, I guess, ’cause that’s, our exporters will ben­e­fit from a low­er dol­lar and they’ll hurt more if the Aus­tralian dol­lar ris­es. So per­haps we should, but I’m not sure we’re going to be able to find Aus­tralian dol­lar five-year charts for all the com­modi­ties because, I mean, gold’s a fair­ly big one, prob­a­bly could find one for iron ore if I, if I do some Googling, but yeah, I just, I did know that there was an Aus­tralian dol­lar one for gold, so I looked up that one. But I guess we should be using Aus­tralian dol­lar ones for all them, if we can find them.

Cameron  12:35

I don’t under­stand why there would be any dif­fer­ence, because the — I guess, okay, so it’s the fluc­tu­a­tion, the arbi­trage between the cur­ren­cies, that changes the chart? Is that how it works? You could­n’t over­lay the AUD chart and the USD chart and end up with the same chart because of the arbi­trage between the cur­ren­cies?

Tony  12:58

Yeah, I think if you did that — I could do some research to try and do that — but you could do that and you’d prob­a­bly find that the trends are fair­ly sim­i­lar because we’re only see­ing the fluc­tu­a­tions in the Aus­tralian dol­lar that’re mak­ing up the dif­fer­ences, real­ly. But, because the Aus­tralian dol­lar’s-in par­tic­u­lar, the US dol­lar’s been appre­ci­at­ing recent­ly, that does buoy the Aus­tralian chart a lit­tle bit. And if I have a look at the Aus­tralian chart any­way, it’s still only about $100, maybe $200 Aus­tralian away from a sell, so it’s not like it’s, you know, it’s com­plete­ly dif­fer­ent to the US dol­lar chart, it’s slight­ly dif­fer­ent to it.

Cameron  13:30

Well, I sell the gold stocks out of the QAV port­fo­lio, and I think I sold them out of my own port­fo­lio too, but…

Tony  13:40

Sor­ry.

Cameron  13:40

No, that’s all right. I mean, you know, I, if it has­n’t become a sell on the Aus­tralian chart you’re look­ing at, the way it’s look­ing on the US dol­lar chart it does­n’t look… well it’s kind of going side­ways I guess at the moment.

Tony  13:53

Yeah, look, I think the fact that gold is going side­ways is prob­a­bly more of the issue, and, and it’s how long do you hold on to it when that’s hap­pen­ing. The thing, which is kind of the, I guess, the con­text that I’m oper­at­ing in, and I don’t nec­es­sar­i­ly like doing this, but some­times I’m slow to act, and I think the rea­son why I’m slow to act with gold is because if inter­est rates, if infla­tion takes hold, it’s not just tem­po­rary but it’s ongo­ing. If inter­est rates rise quick­ly then gold should too as a store of funds. I mean, the idea being that if you have $1,000 in the bank, and infla­tion is going at, say, 5 or 10%, then that’s worth 950 or $900, you know, in a year’s time depend­ing on what infla­tion does,  but if you bought a bar of gold then it’s not going to go down with infla­tion, you should be able to sell it in a year’s time because enough peo­ple are try­ing to store their val­ue in that that it keeps the price up.

Cameron  14:46

Or Bit­coin.

Tony  14:47

Or Bit­coin, that’s right. Although Bit­coin I think’s got lots of oth­er issues at the moment besides… and I think one of the rea­sons why gold has been going side­ways is that some of the mon­ey that’s look­ing to hedge infla­tion has been going into Bit­coin and not into gold.

Cameron  15:00

Right.

Tony  15:00

Any­way, so yeah, that’s my thoughts on gold at the moment. I’m going to hold on for a bit longer, not that I’ve got many gold stocks, I think I’ve only got, I’ve got three: Aure­lia Met­als, Perseus Min­ing and West African resources. And all of those have been going back­wards any­way, so maybe I should sell them. But I’m going to hold on a bit and see what hap­pens with the Aus­tralian dol­lar.

Cameron  15:18

Gold as a hold. That’s the alter­na­tive title for this week’s episode. Let’s talk about iron ore.

Tony  15:26

Yeah, I just noticed in the paper last week iron ore has hit $150 a tonne again.

Cameron  15:31

US or Aus­tralian?

Tony  15:34

The US, I’m pret­ty sure.

Cameron  15:36

Ah, what is it in Aus­tralian?

Tony  15:37

It’s prob­a­bly even high­er than that in Aus­tralian terms, yeah. It’d be high­er than that. Yeah, which is I mean, it’s just show­ing you what a short-term cycle iron ore has and how much it’s regained very quick­ly, which is kind of sur­pris­ing but com­plete­ly under­stand­able in these kinds of mar­kets. There’s been lots of sto­ries about Chi­na and their econ­o­my’s flow­ing, so the gov­ern­men­t’s pump­ing mon­ey into the econ­o­my which means there’ll be more build­ings built and infra­struc­ture built. So, that’s sup­port­ing the iron ore price. But yeah, again, it’s all just crys­tal ball gaz­ing. Who knows? But I just thought it was inter­est­ing that it’s get­ting back up again to its highs.

Cameron  16:10

Yeah. Which one are you look­ing at for that? CFR, TIO, TR# in Stock Doc­tor?

Tony  16:17

Yeah, that’s the one — let me just have a look. I actu­al­ly picked up that num­ber from an arti­cle. TR# is what I nor­mal­ly use in Stock Doc­tor. It’s say­ing, it’s say­ing 130, so maybe I am quot­ing the Aus­tralian dol­lar num­ber then? Sor­ry, $131 is the TR# num­ber, so it must be Aus­tralian that’s up to 150.

Cameron  16:35

Okay, good stuff. Iron ore. Ooh, CCP results are out. Oh, that’s what I haven’t sold. I got that one, I’ve had that for a long time, CCP.

Tony  16:45

I know. Just, it’s, it’s been in my port­fo­lio for a long time, too, and it was only ever out of the port­fo­lio I think dur­ing the GFC. So, it’s been a long-term hold for me. Yeah, and they do this every year, they’re always the first cab off the rank in terms of report­ing, which is always a good sign I think. Fund man­agers will often say that the lat­er into the cycle the com­pa­ny reports the worse the results are, because they’re try­ing to delay the inevitable. And they’re also poten­tial­ly try­ing to lose them­selves in a lot of report­ing, which has to hap­pen before the end of the month. So, often, I think Stephen Mayne every year puts out an arti­cle about all the com­pa­nies that dump their results at four o’clock in the after­noon on the last day of Feb­ru­ary. There’s always a lot of them, and they’re always, or uni­form­ly near­ly always, bad results. But any­way, yeah, CCP is always up there and proud com­ing out first and the share price is up 7% in the last two days, so the reports well received by the mar­ket which is nice.

Cameron  17:41

Cur­rent­ly trad­ing at around $35, bot­tomed out in the COVID cough at 13. So, it’s had a good run.

Tony  17:51

Yeah, triple your mon­ey if you bought it then.

Cameron  17:53

All right, well, good on you CCP. That’s Cred­it Corp Group for peo­ple who don’t know what CCP is, and they do real­ly well.

Tony  18:01

And not the Chi­nese Com­mu­nist Par­ty, who also do well.

Cameron  18:04

Yes, their results.

Tony  18:06

Did you see the arti­cle today that George Soros is tip­ping that Pres­i­dent Xi won’t be around for much longer,

Cameron  18:11

Oh, real­ly? What’s his the­o­ry on that?

Tony  18:14

That once the Win­ter Olympic Games are fin­ished in Bei­jing, so is Xi. He’s pick­ing up, he said even though it’s dif­fi­cult to track the oppo­si­tion state­ments because of the press cen­sor­ship, he’s pick­ing up lots of crit­i­cism of Pres­i­dent Xi through oth­er par­ty offi­cials.

Cameron  18:30

Oh right, they think he’ll get thrown out, not retir­ing?

Tony  18:34

Yes. But you know, that could just be noise from Soros who’s try­ing to influ­ence the mar­ket. Who knows?

Cameron  18:40

All right, well, what else you want to talk about? Just our port­fo­lio ver­sus the mar­ket?

Tony  18:46

Yes please, for Jan­u­ary. We’re record­ing this on the first of Feb­ru­ary, so peo­ple will be see­ing Jan­u­ary results in their feeds and in their papers soon. So, what did we do?

Cameron  18:56

I sent you an email ear­li­er, did­n’t get that?

Tony  18:59

Oh, sor­ry.

Cameron  19:01

No that’s alright, I’ll pull it up.

Tony  19:03

Okay, I’ve got your email. It was, I’ve got us down… yeah, 2.98% ver­sus the mar­ket down 6.43. So, dou­ble, dou­ble mar­ket. If that’s com­fort.

Cameron  19:18

Lucky, we did­n’t drop dou­ble the mar­ket.

Tony  19:20

Yeah. Half the mar­ket.

Cameron  19:22

This finan­cial year to date, accord­ing to Navexa, we’re up 2.45% ver­sus the 200 down 0.53%. So, you know, that’s not a lot of growth for us but com­pared to the mar­ket, it’s pret­ty good.

Tony  19:43

Yeah, we’re out­per­form­ing which is nice.

Cameron  19:45

And I think since incep­tion when I looked at it yes­ter­day, we’re still doing sort of three or four times the 200 since incep­tion, which is Sep­tem­ber 2019 when we were ful­ly invest­ed, so still track­ing well on that front as well.

Tony  20:00

Yeah, good.

Cameron  20:01

All right. Well, you ready to get into the ques­tions?

Tony  20:04

Do you want to do a pulled pork first?

Cameron  20:06

Did you prep for one?

Tony  20:07

I did. I can do a quick one if you like.

Cameron  20:09

Yeah, do a quick one so we can get into the Q&A. I guess I was gonna say don’t both­er about it because we’ve got so many ques­tions, but if you’ve done it, let’s do it.

Tony  20:18

All right, very, very quick­ly. I think there was only one stock that we liked this week. I think there were two that went out in the email, but one was ALG, which is Ardent Leisure Group, and I was look­ing for­ward to doing that one as a pulled pork because it’s got such a con­tro­ver­sial his­to­ry. But I had a look at it again today and it’s a bit of a Josephine. I think, even though I think month on month it was flat, but it’s come off its highs like every­thing else has in the last few months. But peo­ple might want to be aware of it, it’s Ardent Leisure Group is at the bot­tom of our buy list with a QAV of 0.10, but it’s just made an appear­ance for the first time.

Tony  20:51

It’s actu­al­ly not a Josephine today, accord­ing to Stock Doc­tor. Fin­ished end of last month at a $1.35, and it’s $1.36 today.

Tony  21:01

Yeah, right. But I think if you look at the last sort of cou­ple of months, it’s down, isn’t it?

Tony  21:04

Oh, if you go back to Sep­tem­ber, it’s down, yeah. But it’s picked, it’s turned around. It’s picked back up since.

Tony  21:11

Yeah, well, maybe let’s have a look at it next week. Maybe that’ll be our stock of the week next week. But I did pull Wellard apart, WLD is the small-cap…

Cameron  21:19

You Paul Wellard? What?

Tony  21:21

Paul Weller. No, pulled Wellard apart.

Tony  21:24

Oh, Okay.

Tony  21:25

WL D, which was our small-cap stock of the week, and it’s very small. ADTs I think about $8,000 a day, so that’s pret­ty tiny. We did talk about it once before, and just a brief pot­ted his­to­ry of Wellard; it’s a live cat­tle exporter. It did suf­fer ter­ri­bly when live export was banned from Aus­tralia, prob­a­bly about ten years ago, but it’s been able to rebuild itself. It still does a lot of cat­tle export­ing, but it also has an abat­toir. It also does oth­er things in that sort of sup­ply chain for I say cat­tle, but it does also do live sheep and goats and all sorts of live­stock over­seas as well. Any­way, so it’s a, it’s a cat­tle exporter real­ly, and plays a part in the sup­ply chain once the live­stock leaves the farm. So, quick­ly, one of the high­lights that has hap­pened to it recent­ly is that it just got a $12 mil­lion pay­out after a cou­ple of years of court action and arbi­tra­tion because it had made pay­ments to a ship­builder in Ser­bia which did­n’t fin­ish the boat, and so it’s been try­ing to col­lect back on the insur­ance and back on the pay­ments it made and recent­ly had $12 mil­lion award­ed to it. Which is a big deal for this com­pa­ny. So, I’m assum­ing that the recent upturn in the share price is prob­a­bly in antic­i­pa­tion of what they do with that cash. But, again, small-cap stock, it’s 11 cents, when I did my analy­sis this morn­ing, 58 mil­lion mar­ket cap. Stock Doc­tor isn’t report­ing a con­sen­sus tar­get, but the down­load is, and in the past I’ve been told that that’s because they like to see, I think, two or three stock­bro­kers cov­er it before they put a con­sen­sus tar­get on the front page, but if one stock one stock bro­ker cov­ers it, they do put it in the fil­ter. So, we do have some­one cov­er­ing it, and it’s just below, sor­ry, 10% above their tar­get price. Does­n’t have a yield so it does­n’t score there. The finan­cial health is what real­ly car­ries the day for this stock, it’s both strong and recov­er­ing, so it gets extra points for recov­er­ing. And I guess the bad finan­cial health would have been when it was bat­tling the live export ban. So, that’s recov­er­ing. Some inter­est­ing num­bers; low ROE of only 4% but it does have very low-price to oper­at­ing cash flow of four times as well. Inter­est­ing­ly enough, it has a PE of 23 which sug­gests to me that it’s a low mar­gin busi­ness — high cash flow, low prof­it. It does­n’t, because we don’t have the bro­kers cov­er­age, it does­n’t have an IV 2. And I actu­al­ly like that in stocks, even though it’s this one’s way too small for me to invest in, I like to get ahead of the oth­er ana­lysts and ride the stock up in price until it does come on the radar of some of the fund man­agers who might want to cov­er it. So that’s good. No IV 2 I’ve said. The net equi­ty per share is about the share price but less than book plus 30%, so it scores for that. It does­n’t have very high direc­tor hold­ings, so does­n’t score there. It does have a record low PE even though it’s so high, as at the last results it was a PE of 16 which was the low­est in six halves, but real­ly there was only PE for three halves. So, not too hard to do that but does score for that. Equi­ty is bounc­ing around so it does­n’t get an increas­ing equi­ty score. All up, qual­i­ty score of 90%, QAV score of 0.22, and the under­ly­ing com­mod­i­ty which I’ve used beef cat­tle for has been going up, so it’s anoth­er pos­i­tive for this stock.

Cameron  24:54

And I know that when I was look­ing at it yes­ter­day for the newslet­ter, I noticed that when we talked about it a year or so ago it had a qual­i­fied audit. But I pulled up the lat­est report and that seems to have gone.

Tony  25:07

Yes. Cor­rect. Thanks for that.

Cameron  25:08

Because they got a tonne of cash, I guess. Yeah, okay WLD. By the way, I’m just think­ing com­plete­ly unre­lat­ed, we need QAV tow­els; should be “Don’t Pan­ic and Car­ry a QAV Tow­el”. It’s just a tow­el, every­one when the mar­kets crash­ing, you just wrap your­self in your QAV tow­el. Maybe it’s one of those ones that’s absorbent, you know, that absorbs all the sweat, like what do you call it?

Tony  25:10

A gym tow­el?

Cameron  25:23

No the ones you…

Tony  25:32

Oh, a Sham­my?

Cameron  25:36

A Sham­my, a QAV Sham­my for when you’re sweat­ing from the cor­rec­tion.

Tony  25:42

Well you’re sup­posed to, in The Hitch­hik­er’s Guide, you’re sup­posed to put the tow­el beside you so you can see how far you’re moved in, in the shift, when you get beamed up. But you’re also sup­posed to take two pints of beer as well so that you have mus­cle relax­ant before the beam­ing up.

Cameron  25:58

Well, for us, it’d be a QAV sin­gle malt and a tow­el, a QAV tow­el. We’ll have to get onto that, get one of my interns to get onto that. Alright, thank you for the WLD — The Paul Weller pulled pork from the Clash. Paul Weller’s from the Clash, right?

Tony  26:14

No, the Jam.

Cameron  26:15

Aren’t they the same band?

Tony  26:16

No.

Cameron  26:17

Did­n’t one come from the oth­er? Did­n’t the Clash turn into the Jam, the Jam turn into the Clash? No?

Tony  26:22

No, no.

Cameron  26:22

You sure? It was­n’t some Clash Jam. Jam Clash? No? Okay.

Tony  26:26

No, they used to com­pete against each oth­er to see who had the most cred.

Cameron  26:29

Oh right. The Shout to the Top, was that Paul Weller?

Tony  26:32

It was, yeah. Style Coun­cil.

Cameron  26:34

Style Coun­cil, that’s right. That’s what it was, the Jam and Style Coun­cil. Yeah. Alrighty, I’ll talk more about ’80s rock lat­er on in after hours. Let’s get into the ques­tions. First one I’ve got is, I’ve got a cou­ple of old ones that we’ve missed along the way, I apol­o­gise. Paul asks, “I don’t think we’ve touched upon hos­tile takeovers before. IMA, Image Resources, is now in the midst of one with a com­pa­ny own­ing more than 20% of stock on issue and pre­sum­ably more through asso­ci­at­ed enti­ties,” he’s got Mur­ray Zir­con in brack­ets, “serv­ing a notice to unseat the chair and two direc­tors not already aligned. The notice does not con­tain any rea­son for the pro­posed removal of direc­tors nor the future direc­tion of the busi­ness. The stock is down 13%,” as of when he posted/sent me this on the 21st of Jan­u­ary ’21 — that can’t be right — must be ’22, “after a sol­id 30% run upwards. Is this a red flag or sell event?” Paul asks.

Tony  27:35

No, I think it’s the reverse. I love when our stocks are takeover tar­gets because it means some­one’s going to pay a pre­mi­um to take con­trol. This is a bit like, this par­tic­u­lar case, not that I know a whole lot about Image Resources or all the argy-bar­gy that’s going on, this is a bit like the Myer case where Simon Lewis has been launch­ing EGM requests to hold meet­ings to turf the board of Myer and give him con­trol. And he does that, and I guess the Mur­ray Zir­con peo­ple are doing that because they don’t want to pay a pre­mi­um and get con­trol of the com­pa­ny. So gen­er­al­ly, what should hap­pen is that if Mur­ray Zir­con or who­ev­er is involved in this req­ui­si­tion of an EGM to get rid of three direc­tors, if they want to buy the com­pa­ny, they should lob a bid and pay a pre­mi­um. And then that should be, you know, sort­ed out by the mar­ket. Peo­ple accept the offer or they don’t, or they wait for anoth­er high­er bid. This is what hap­pens when peo­ple have large stakes in com­pa­nies and don’t want to pay a takeover pre­mi­um. So to that extent, it’s not a great thing but it often does flush out bids. I had a look at this yes­ter­day when you sent the ques­tion through, and I’m scratch­ing my head as to how ASIC can let this sit­u­a­tion get to where it is and I’m not sure what’s going on here. My sort of basic under­stand­ing of the Cor­po­ra­tions Act says there’s two main claus­es or points that are involved at play here. One is that if a share­hold­er owns more than 19.5% in a com­pa­ny, by law, if it wants to increase that share­hold­ing it has to launch a bid, has to make an offer to all the share­hold­ers which is equal to its offer it’s mak­ing to buy the next tranche of shares. That’s the first thing. The sec­ond thing is the only time it does­n’t have to do that is every six months under the Creek Pro­vi­sion, it can take an extra 3% and add it to its share­hold­ing. Now, when I look at the IMA reg­is­ter, there’s two big share­hold­ers: there’s, Mur­ray Zir­con has, what, 15–15.3%. Anoth­er com­pa­ny called Vest­pro Inter­na­tion­al, they have a fur­ther 13.3%. And then from mem­o­ry there was also an indi­vid­ual share­hold­er with a large chunk, Mr. Huang Li, who has some­thing like 18 or actu­al­ly 21%. So, by my read­ing of this, Mr. Lee if he is over 19.5%, he should be launch­ing a takeover of the com­pa­ny. I don’t know why ASIC aren’t inves­ti­gat­ing this. And then there’s anoth­er sec­tion of the Cor­po­ra­tions Act which says that if Mr. Lee is act­ing in cahoots with Mur­ray Zir­con and the oth­er com­pa­ny I men­tioned, that also has to be, Vest­pro, that also has to be tak­en as a uni­fied share­hold­ing and treat­ed under the Cor­po­ra­tions Act as one. Now look, you know, I’m not a, not a cor­po­rate lawyer, and it prob­a­bly does require some­one with expe­ri­ence of the Cor­po­ra­tions Act to advise us on this one, but I can’t see why, at least Mr. Li who looks like he has more than 19.5%, why he has­n’t been asked to, to launch a takeover bid. And if I look at the his­to­ry of share­hold­er trans­ac­tions, it looks like some of these share­hold­ers held, you know, Mur­ray Zir­con at one stage held 42% of the com­pa­ny going back to 2017. So yeah, there’s a lot here going on behind the scenes, maybe because it’s a small com­pa­ny it’s lost below the radar, but I’m sur­prised why ASIC haven’t inves­ti­gat­ed and why they haven’t asked for a for­mal takeover bid to be launched, or for some of these com­pa­nies to sell down to below 19.5%. So that’s, that’s, I guess, my first brush with this com­pa­ny. If there is an EGM it’s up to share­hold­ers to decide which set of direc­tors they like bet­ter, which is often hard to do giv­en that we don’t know much about it. But I know when peo­ple like Solomon Lew are launch­ing these kinds of EGMs to oust share­hold­ers he’ll put out in the mar­ket­place a let­ter to all share­hold­ers, an open let­ter some­times, or some­times a direct mail­ing, which says “I think the Myer board should be removed because of x, y, and z.” And I’d expect the same from, I think Mur­ray Zir­con launched the EGM notice this time, but who­ev­er did should also noti­fy the share­hold­ers as to why they think the direc­tors should be removed and replaced with their own direc­tors. But all those things, they’ll be a dis­trac­tion to man­age­ment, and if the com­pa­ny’s got good gov­er­nance then typ­i­cal­ly what hap­pens is the chair­man or the chair­per­son will focus on deal­ing with the share­hold­ers who are ask­ing for an EGM, and the CEO will con­cen­trate on the com­pa­ny. And hope­ful­ly that will work and the com­pa­ny will still keep oper­at­ing nor­mal­ly. One sus­pects if there are share­hold­ers who are try­ing to exert con­trol on the com­pa­ny, the com­pa­ny, that they’ve got­ta sense the com­pa­ny’s in for a good run. So, they’re mov­ing now. So, I would think, in bal­anced prob­a­bil­i­ties, I would think this is a good thing for the com­pa­ny although it’ll be a dis­trac­tion. The share price is up near­ly 5% today, so per­haps I’m not alone in think­ing that.

Tony  30:35

I see what Paul’s talk­ing about, though. So, the price was up around 25 cents around the 20th of Jan­u­ary, 18th/19th of Jan­u­ary. Then it crashed down to 19.5 cents over the course of the next week back up to 22.5 cents today. But if it’s under a hos­tile takeover, why would the share price crash so much? Would­n’t it, would­n’t you think it would go up under a takeover sce­nario like that?

Tony  33:03

Absolute­ly. So, it’s pret­ty clear to me that the peo­ple who are, the dis­si­dent share­hold­ers here are try­ing to take over the com­pa­ny with­out pay­ing a pre­mi­um. And this is part of the cor­po­rate play­book; you ask for a spill of the direc­tors and try and gain con­trol of the com­pa­ny that way, by exert­ing influ­ence on the board and set­ting the agen­da to what you want to do. And poten­tial­ly, I mean, I don’t know this com­pa­ny that well, but resource com­pa­nies, you know, they may have like, what’s Image Resources? Min­er­al sands. They may have a con­tract com­ing up for renew­al where they sup­ply one par­tic­u­lar per­son and now the peo­ple who are dis­si­dent share­hold­ers might have con­tacts with anoth­er par­tic­u­lar per­son, and they’re try­ing to influ­ence where the sup­ply goes to. I don’t know if that’s the case with this one, but that can be the case in min­ing com­pa­nies, small min­ing com­pa­nies, that the direc­tors can con­trol who gets sup­plied by this com­pa­ny which could be impor­tant to their oth­er busi­ness­es. I don’t know if that’s the case here, so I’ll be care­ful of what I say. But yeah, this is like Myer. This is some­one who’s not pre­pared to launch a hos­tile takeover but try­ing to take con­trol of the board. So, it’ll be a dis­trac­tion, but even­tu­al­ly, most­ly, these kinds of sit­u­a­tions at least alert the mar­ket that some­one thinks that this com­pa­ny is worth tak­ing over, which may shake out a hos­tile bid from some­one else.

Cameron  34:16

All right. Well, thanks for your analy­sis on that. Daniel asks, “being so close to report­ing sea­son I have 32% cash on the side­lines, some sur­plus cash I’ve added, and some from recent sales of MXI, MYR and CGF. If this was your per­son­al sit­u­a­tion in your own port­fo­lio, Tony, how would you han­dle this? My method­ol­o­gy was going to be invest in a cou­ple of com­pa­nies which report­ed in Sep­tem­ber, i.e. ANZ and CIA, and leave the remain­ing posi­tions open for the new fig­ures to come out of report­ing sea­son and by any­thing which scores, say, 0.15 and greater. As I’m more nim­ble, I’m gen­er­al­ly able to take posi­tions in small­er com­pa­nies which tend to score bet­ter. Would love to know your thoughts.”

Tony  35:00

Yeah, I would do some­thing slight­ly dif­fer­ent. I think we’ve talked about this before com­ing up to com­pa­ny report­ing sea­sons. I would still buy if there’s a com­pelling rea­son to buy some­thing. You know, I guess you have to be a bit nim­ble, which it sounds like Daniel’s pre­pared to be, in that if it does, if you buy some­thing now and it does have a bad report, you need to sell out and buy some­thing else. But often­times, before com­pa­ny reports are announced for­mal­ly, either because they’ve been out in the mar­ket dur­ing con­fes­sion sea­son or with quar­ter­ly cash flow state­ments if they’re a min­er or some­thing like that, the share price could be going up — could be bull­ish going into report­ing sea­son. Which is often a good sign for a stock, that the com­pa­ny is going to post a good num­ber. So, I don’t hes­i­tate to buy. I do like Daniel’s idea of buy­ing stocks that report March and Sep­tem­ber, rather than Decem­ber and June. So, that’s cer­tain­ly a good idea, which has mer­it Daniel. I haven’t done that myself. I will just buy the next thing on the buy list when I’m ready to buy. And I have been sell­ing, you know, late­ly, so I’ve just been doing that even though we’re com­ing into report­ing sea­son.

Cameron  36:03

And you gen­er­al­ly don’t like just sit­ting on cash, you try and get it deployed as quick­ly as pos­si­ble?

Tony  36:08

Yeah, that’s right. And like I said, occa­sion­al­ly, you’ll be sur­prised on the down­side. If you think about it, we’ve got a stock which is scor­ing well for us, it’s not a Josephine which means that the share price is ris­ing, it’s above its sell price, da, da, da, da, da. It’s more like­ly that when it does report, it has good num­bers — a bit like CCP did yes­ter­day. You can get sur­prised, but I think it’s more like­ly that the num­bers will be either well known in the mar­ket for what­ev­er rea­son, because of pre­vi­ous dis­clo­sures usu­al­ly, or, you know, the mar­kets worked out based on the analy­sis of the indus­try or what­ev­er or the scut­tle bug that its going to be a good result.

Cameron  36:45

All right, hope that helps Daniel. Here’s one from Lee: “Tony, would love opin­ions on this arti­cle and Christo­pher Joy’s views in the next show, please. Not fore­cast­ing, rather assign­ing prob­a­bil­i­ties to dif­fer­ent pos­si­ble out­comes.” Yeah, that’s com­plete­ly dif­fer­ent from fore­cast­ing, Lee, nice one. You should be in pol­i­tics, “not fore­cast­ing.” So, the arti­cle that he’s refer­ring is in Chan­ti­cleer in the Finan­cial Review, dat­ed the 26th of Jan­u­ary “Pros and cons of anoth­er fed put: if the US Fed­er­al Reserve ends its long stand­ing pol­i­cy of under­writ­ing asset prices, there could be a stim­u­lus with­draw­al equiv­a­lent to the Japan­ese econ­o­my.”

Tony  37:25

Well, this is the $64,000 ques­tion in the mar­ket at the moment, what’s Pow­ell going to do and what are the long-term con­se­quences of it? He’s been fair­ly forth­right in com­ing for­ward and say­ing he’s going to with­draw QE and start to raise inter­est rates. So, that’s why the mar­kets been going down dur­ing Jan­u­ary. I guess there’s a whole lot of ques­tions about this, and they are per­ti­nent to the stock mar­ket. But I think the answers are all fair­ly unknown. So, again, it’s a bit of noise to cer­tain extent, but they are impor­tant ques­tions, and they’re around, you know, is infla­tion tran­si­to­ry or per­ma­nent? A lot of peo­ple say­ing it’ll last at a high num­ber for twelve months and then go away, but again, who real­ly knows? The ques­tion posed in this arti­cle is about the Fed put is, will the will the Fed­er­al Reserve allow the mar­kets to tank. So, typ­i­cal­ly, what’s hap­pened in the past is that the stock mar­ket starts to go off from its highs because they’re wor­ried about this, that, or the oth­er, and the oth­er thing usu­al­ly is around things like infla­tion or bond buy­ing by the Fed Reserve, how much liq­uid­i­ty is in the mar­ket and all that kind of stuff. And typ­i­cal­ly, what’s hap­pened is that the Fed Reserve will start to try and take away the punch­bowl, as Alan Greenspan used to say, and the mar­ket will tank and then they’ll put a bit more punch back in the punch­bowl and the mar­ket will read­just and etc., etc. It’s a bit of a feed­back loop there. And fore­cast­ing, it’s very hard. I mean, if you can fore­cast what’s going to hap­pen you should be buy­ing bonds, because that’s what bond traders do they, they look through the tea leaves in the Fed Reserve min­utes and try and fore­cast what’s going to hap­pen with both infla­tion and inter­est rates and the Feds response to those things. I think what I guess gives me a lit­tle bit of com­fort is that this game has been play­ing out for cer­tain­ly my life­time, so say the last forty years, and some­one like Alan Pow­ell has the ben­e­fit of his­to­ry of know­ing what to do when a GFC comes along or what to do when there’s a peri­od of high infla­tion. And you can look back on peo­ple like Paul Vol­ck­er who had to deal with inter­est rates, you know, 15% and above, what had to hap­pen dur­ing the oil shocks, what had to hap­pen dur­ing, you know, the World Trade Cen­tre cat­a­stro­phe, what had to hap­pen dur­ing the GFC. So, there’s been a, I guess, a long his­to­ry to look back at, and it’s it seems to me that the feds becom­ing more and more nuanced and finessed as time goes on. Now, I guess in the con­text of the Fed does­n’t con­trol all the levers that will con­trol the econ­o­my, so they con­trol fis­cal pol­i­cy. In oth­er words, how much dosh is slosh­ing around in the tank which of course does affect asset prices, but they don’t con­trol mon­e­tary pol­i­cy, which is the gov­ern­ment. So, anoth­er play­er in all this will be, for exam­ple, how much impact on infla­tion will the Biden infra­struc­ture spend have? You know, tril­lions of dol­lars being pumped into the econ­o­my will prob­a­bly push wages up, pos­si­bly push up the price of iron ore and things like that. So that’s, that’s part of this feed­back loop as well. It’s kind of a chair with three, three legs; a milk stool, if you like. So yeah, that’s why it’s dif­fi­cult to pre­dict. And the oth­er thing, the oth­er thing is what’s hap­pen­ing with mod­ern mon­e­tary the­o­ry and, and you know, all the gov­ern­ments and the reserve bank in Aus­tralia just keep print­ing mon­ey as they need to do to keep things in their infla­tion tar­get range of between 2 and 3% and to keep unem­ploy­ment high. So, all those things are in play, I can’t real­ly com­ment on what I think is going to hap­pen, but I am com­fort­ed by the fact that — unfore­seen shocks aside — it’s been going on for a long time now and these peo­ple have the ben­e­fit of the his­to­ry of “if I do this, this will hap­pen” and are get­ting quite finessed at what they do.

Cameron  41:05

And what does it all mean from a QAV per­spec­tive? Let’s say they raise inter­est rates, the share mar­ket takes a mas­sive hit, how does it affect us and what we do? How do we change our behav­iour? Do we change our behav­iour through any of that?

Tony  41:23

Not at all. I mean, this mar­ket reminds me most of the, of the late years lead­ing into the dot com bub­ble and it’s burst in that it’s the tech stocks which are, which are dri­ving mar­kets up high­er and high­er and dri­ving up the val­u­a­tion of the mar­ket to high, sort of record highs, which is being sup­port­ed by inter­est rates. And as Buf­fett said when­ev­er it was five years ago, the mar­kets fair­ly valu­able when you take inter­est rates into account. So, and as we’ve seen, I mean NAS­DAQ’s down 40 odd per­cent or maybe even high­er, in the last month or so. So, it’s always the tech stocks, which, all the stocks which are on a high PE which are sup­port­ed by dis­count­ed cash flow mod­els using a low inter­est rate will start to hurt when the inter­est rates rise. I remem­ber dur­ing the dot com bub­ble burst the non-tech stocks went down, but not by any­thing like tech stocks went down by. NASDAQ was down 80%, but I don’t know what the rest of the mar­ket was down by, but my sort of feel­ing would be 20–25% if that. So, it was a dip and it was a great buy­ing oppor­tu­ni­ty, and I think that’ll be the same for us as inter­est rates rise. We’ll, we might cycle through some stocks as we’ve been doing late­ly as they’ve hit our rule 1s or 3PTLs, but there’ll be some buy­ing oppor­tu­ni­ties com­ing up. Espe­cial­ly now we’re head­ing into report­ing sea­son too, I would think.

Cameron  42:40

So, it may not be great for the econ­o­my in gen­er­al and for peo­ple’s jobs and busi­ness­es and stuff like that, there’s going to be hurt and pain out there. But from a pure­ly invest­ing per­spec­tive, we just would keep doing what we’d nor­mal­ly do.

Tony  42:55

Yeah, I mean, inter­est rate move­ments are a part of the stock mar­ket cycle, which just so hap­pens that since the Clin­ton years the inter­est rate mar­ket has been declin­ing from its highs down to its record lows, and so it’s been a, I guess, an easy ride for peo­ple who want to buy into the high PE stocks because it’s become cheap­er to do it. That’s now turn­ing around. Now, whether inter­est rates will stay away for a long time they might, in which case those stocks will get sec­ond winds. But if inter­est rates do start to rise con­sis­tent­ly, then those stocks are pret­ty much fin­ished.

Cameron  43:28

We know how much Bill Clin­ton liked an easy ride. All right, thank you, Lee. Luke: “okay, I have the per­fect ques­tion for dis­cus­sion.” Wow, Gibon­a­tor, like give your­self a prize, the per­fect ques­tion. “I bought into GRR at 83.5 cents on the 12th of Jan­u­ary when Mr. Mar­ket was hap­py. I had to sell on the 25th of Jan­u­ary when he ran out of toi­let paper at 74 cents. I invoked rule num­ber one walk­ing away with 11.75% loss. The next day GRR start­ed to recov­er and is now sit­ting at 79 cents. Now, with all this being said, GRR is on the top of my buy list. I’ve already tak­en the loss, should I re-enter this stock with the only two days of sen­ti­ment being con­firmed. The pre­vi­ous months close was 76 cents. To be or not to be, what would TK do, that is the ques­tion.” Good one Luke, putting a bit of Shake­speare in there, bit­ta Mr. Mar­ket, it real­ly is the per­fect ques­tion. There are some prob­lems if you sell and take a loss and buy back in, aren’t there Tony, or is that just towards the end of the finan­cial year that that’s a prob­lem?

Tony  44:43

Yeah, that’s a prob­lem at the end of the finan­cial year. Yes, that’s right. I had­n’t even thought about that one. But no, I would re-buy it Luke. I’m sur­prised that that’s the only stock you can buy though. I mean, yeah, at the moment, I haven’t looked at GRR is it? I think it’s down today. So, it might be get­ting close to com­ing off the list. But yeah, no def­i­nite­ly. If that was the only stock or if it was top of the buy list still even though it had come down 10% or more, then yes, I would buy it back.

Cameron  45:08

So, you would sell and then buy back a week lat­er, two weeks lat­er, no qualms?

Tony  45:15

Yeah but look, let me just expand on that because I think that’s an unlike­ly sit­u­a­tion for me and it might not be for Luke, but all of my trades with the excep­tion of maybe when we’re in the bot­tom of the COVID cough and I was going to cash a lit­tle bit, all of my trades are always “please sell this stock and use the pro­ceeds to buy that stock.” So, if I had to sell out of GRR I would have bought some­thing else, which would­n’t have been the top of the buy list, well, the next top of the buy list for me that I did­n’t already own, you know, it would have been, for exam­ple, sell FMG, buy CBA. Now if FMG did­n’t then come back onto the buy list for me at the top, I would­n’t have any cash to buy it straight­away but maybe in a few months time after I sold some­thing else, yeah maybe I would buy back into GRR.

Cameron  45:59

Yeah, but in a mar­ket like the one at the moment where we’re sell­ing things every day, or a cou­ple of times a week any­way, it’s pos­si­ble that he sold GRR, rein­vest­ed it, and then had to sell some­thing else a few days lat­er.

Tony  46:08

Yeah, and then you could buy back into GRR, def­i­nite­ly.

Cameron  46:11

GRR by the way, look­ing at the chart is, it’s not a Josephine. It’s up. It’s at its all-time high right now trad­ing at 79.5 cents.

Tony  46:21

So, when did Luke sell it?

Cameron  46:23

25th of Jan­u­ary. It must have come back a lit­tle bit there some­where. But if you look at the five-year month­ly chart, it’s been going gang­busters.

Tony  46:33

Yeah, that’s why I ques­tioned it. So maybe it got rule 1’d with a bit of a down­turn in Jan­u­ary.

Cameron  46:38

It did crash back in Sep­tem­ber, I guess, when the iron ore price was crash­ing, but has sky­rock­et­ed since then. Right, there you go, Luke. Hope that helps. Tony’s like “yep, good to go”. Like Bill Clin­ton. Nick says, “hey Cameron, one for the sen­sei. You may have dealt with this in the COVID cough. With the recent activ­i­ty, we’ve been review­ing our 3PTL method­ol­o­gy. We’ve been inclined to fudge our trend lines to be more con­ser­v­a­tive. We were find­ing that if we wait­ed for the three-point trend­line sell we would give away much or all of our gains and poten­tial­ly end up sell­ing on rule 1 before hit­ting the 3PTLs. As such, we’re often sig­nif­i­cant­ly short­en­ing our 3PTL for stocks that have had strong short-term growth. I know there are only three rules for sells, but TK pre­vi­ous­ly need­ed to look at tak­ing prof­it off the table in anoth­er fash­ion dur­ing down turn­ing mar­kets. I’ve been think­ing about this and pon­der­ing why, giv­en it served TK so well? My hypoth­e­sis is due to the posi­tion sizes required by TK’s immense Buf­fett lev­el wealth that com­pa­nies he’s invest­ing in tend to abide by the five-year rules bet­ter than some of the much small­er small-caps many of us are work­ing with. Love to hear your thoughts, Nick.”

Tony  47:52

Yeah, so much in that one. I won­der who the we are? Is he say­ing he has been fudg­ing his 3PTLs or the roy­al we or a group? Any­way, does­n’t real­ly mat­ter.

Cameron  48:01

The roy­al we. Yeah. No, I think Nick has some friends that he’s talked into join­ing QAV. So yes, there’s a lit­tle cohort they’re going on.

Tony  48:11

Right. No, I don’t fudge 3PTLs, usu­al­ly. The only fudge I can think of recent­ly was the iron ore fudge, and as we’ve said before it’s recov­er­ing now. So, we’re back into it. So, no, even Nick­’s wor­ried about los­ing prof­its that he’s already, I guess, men­tal­ly banked because his port­fo­lio is doing well and now it’s com­ing off, I still don’t sell in that sit­u­a­tion. I wait for the rule 1 or the 3PTL sell. I did find his com­ment inter­est­ing, though, about whether using a five-year month­ly graph suits bet­ter a large ADT com­pa­ny than a small ADT com­pa­ny, but I don’t have any research to sug­gest that we should use any­thing but the five-year month­ly. But I might do some research onto that and just have a look at whether a small­er com­pa­ny might be more volatile and there­fore might need a dif­fer­ent graph. But up until now, I’ve always used five-year month­ly regard­less of the size of the com­pa­ny.

Cameron  49:03

So, I’ve been hav­ing this exact con­ver­sa­tion with my son Tay­lor over the last few days again, it’s like a recur­ring theme with him because he’s so pissed off that all of the stocks that he bought went up and then have all come back. And he’s like, “if we just sold! Tony’s got to adjust his sys­tem, it’s not work­ing. We’ve got to sell, if it goes up by 60% we should sell.” So, I’ve been try­ing to say “a, will you just stop ask­ing me these stu­pid ques­tions and lis­ten to the pod­casts so I don’t need to bloody re-para­phrase every­thing that I’ve learned from Tony in three years for you? Sec­ond­ly, like, why don’t you just ask Tony, you’ve got his num­ber. Call him up and ask him, why you’re ask­ing me? C,” my under­stand­ing is, you know, I said “well, Tony does­n’t do that because my take on it is, you don’t know these things might… let’s say a stock, you buy a stock, it goes up 50% then it starts to go down. Like, if you’re not going buy a 3PTL or a rule 1, what sci­ence are you using to deter­mine when to sell? Is it when it comes back by 5%, 10%, 20%?” Because my under­stand­ing from when we’ve talked about this before is that your feel on it after thir­ty years is that more often than not, though, if the if you’ve invest­ed in the busi­ness because it’s a good busi­ness and it’s doing well, and all of those things, all the dots are good, then it can turn around and go back up like Grange Resources did or FMG, or one of those. So, if you’re just gut feel­ing when you should sell because it’s going back a bit, you could put your­self in a sit­u­a­tion where, yeah, you might win out some­times, it may keep going down and you get out and you buy some­thing else and it does well, but you’re sort of gut feel­ing your way through it. And more often than not, you’re going to end up pay­ing for bro­ker­age and cap­i­tal gains tax, when if you just held it would have turned back around and gone back up high­er than it was before. Is that a sum­ma­ry of your views?

Tony  51:03

It’s a good sum­ma­ry, yeah. And I would point Tay­lor towards the FMG graph, for exam­ple, where, well I bought it any­way, when it was around $7 it went up, it came back, and it went up to as high as 25 and then came back again, set­tling around sort of $19-$20 at the moment. Went back all the way to 15. So, if I’d bought it at 7 and then sold it at, I don’t know what it was, $9-$10 on that first retrace­ment because it went up and came back, yeah, I missed out on dou­bling my mon­ey from there. So, you just nev­er know. I have some sym­pa­thy with peo­ple who are ask­ing these ques­tions because they’re look­ing back and say­ing, “geez, I had, I had a good gain, now I’m los­ing it.” But that’s just the way that the share mar­ket works. It’s not going to go to zero, you’re not going to go broke. Stick with the process. And look, the process might be if Tay­lor wants the process to be once I make 60% on sell­ing out, fine, but I pret­ty much guar­an­tee there’s gonna be times when he gets to 59% and that goes back­wards and he’s gonna say “oh, I wish I had’ve held.”

Cameron  52:02

Well, I said like Tay­lor would point to Myer and say, you know, Myer was up 60% and then we had to sell it. He keeps say­ing we sold it, we lost mon­ey on it, and I’m going no, we did­n’t. We sold it at 20%.

Tony  52:12

Yeah.

Cameron  52:13

It did­n’t lose, and he goes, “yeah, but, I could have banked that oth­er 40%.” Like, well, I say, “look, this is sur­vivor bias, right? You’re cher­ry pick­ing a cou­ple of exam­ples in your six months of invest­ing expe­ri­ence of buy­ing five stocks, ver­sus Tony’s thir­ty years.” He goes “ah, yeah.” But I’m like do it, that’s fine. Do what­ev­er you want, but don’t expect to get QAV lev­el returns if you’re just mak­ing up your own sys­tem. And then maybe it turns out, you’re the great­est genius who ever walk the Earth and you’ll do great. But, if you’re not fol­low­ing the sys­tem, you can’t expect to get the sort of returns that the sys­tem gen­er­ates. It’s not to say that, and you’ve said this many times, the sys­tem’s not per­fect. You’re always try­ing to improve it and mod­i­fy it. But there’s got to be some real­ly good sci­ence or regres­sion test­ing behind mak­ing mod­i­fi­ca­tions to it, not just gut feel­ing or sur­vivor’s remorse.

Tony  53:09

Yeah, and that’s exact­ly what it is, it’s sur­vivor’s remorse. Because on the way up last year, did Tay­lor know that the answer was 60%, or we should have sold at 10%, or 20%, or 30%?

Cameron  53:19

Yeah, if you’d sold at 20 and it went up to 60, you’d be like “urgh, I’m an idiot.” So how do you know, how do you know? That’s right. Yeah.

Tony  53:28

And if he sells Myer at 20, and the oth­er ones all go down and he rule 1s them, he’s actu­al­ly lost mon­ey.

Cameron  53:32

Yeah. Any­way, hope that helps, Nick. I mean, yeah, I guess in all seri­ous­ness, do what­ev­er you think feels good, but…

Tony  53:40

Yeah, what­ev­er makes you com­fort­able and makes you sleep at night. If you want to take prof­its, take prof­its. If you want to fudge the 3PTL, fudge it. I’ll be inter­est­ed in your results. It’s just dif­fer­ent to my sys­tem, that’s all.

Cameron  53:51

Thank you, Nick. Ali: “When look­ing for Josephine’s, which chart do we use? I’ve been using month/day. It can look a lot dif­fer­ent to the five year month­ly in terms of a Josephine.”

Tony  54:05

Thanks, Ali. I still use five-year month­ly and I have had expe­ri­ence before using short­er dura­tion charts. I haven’t used dai­ly, but I did for a while there run some pret­ty detailed tri­als of using five-year charts but then the last six months was using a week­ly chart, just because I was try­ing to see if I could improve the sys­tem when the mar­kets were pret­ty volatile like it is now, and the answer is no. I went back to using five-year month­ly, and the exam­ple that’s, that still sticks in my mind is a com­pa­ny called, the code is NWH, the com­pa­ny’s NRW Hold­ings, and I bought it using the method­ol­o­gy and then was look­ing at its week­ly charts and then sold it because it breached its week­ly charts. So, like a short term, six-month week­ly, three-point trend­line sell, and of course as you’d expect, it then announced good news and the share price just took off like a sky­rock­et. And if I had­n’t been using that week­ly chart, and using the five-year chart, I would have stayed in and gained those ben­e­fits. So, I also found that using a short­er-term dura­tion made the port­fo­lio a lot more volatile, and that’s some­thing I’m try­ing to avoid as well. So, I still use five-year month­ly.

Cameron  55:19

NWH, not to be con­fused with NWA, the Dr Dre, Ice Cube, I always get them con­fused. Thanks, Ali, hope that helps. Andrew: “giv­en the cur­rent cor­rec­tion, or any future cor­rec­tion for that mat­ter, would TK ever con­sid­er buy­ing A grade stocks that have recent­ly dropped, such as CSL or XRO and the like, that are not on our buy list?”

Tony  55:42

No, and I think Andrew, you know, I’ll go back to a con­ver­sa­tion we had with the Val­ue Investors Club a lit­tle while ago, Andrew, might we lis­ten to that. But, I think a grade A stock in my book is some­thing like FMG, which is on our buy list, and is a good sol­id com­pa­ny with a good sol­id track record. There’s a big dif­fer­ence between an A grade com­pa­ny and an A grade invest­ment, and I think peo­ple often get that con­fused. So, there’s noth­ing wrong with CSL or XRO in my books, they’re both sol­id com­pa­nies, but they’re just to me not great invest­ments because you have to pay such a high price for them and every­thing has to run to per­fec­tion for them to con­tin­ue to go up in share price. So yeah, I mean, you look around at a lot of com­pa­nies which I’d love to own, but they’re just too expen­sive because it’s a crowd­ed mar­ket and every­one wants to own them. So, there’s a dif­fer­ence between an A grade com­pa­ny and an A grade invest­ment and I don’t think, at least at the moment, CSL and XRO meet my cri­te­ria. They’re not on the buy list. They’re very, XRO in par­tic­u­lar is a very high PE stock, I think CSL is too from mem­o­ry — I’m not sure what PE it’s trad­ing at the moment, I’ll have a quick look. PE for CSL is cur­rent­ly 38 times, and it’s always trad­ed with a very high num­ber. Up in the 40s in Decem­ber ’19, it was 52 times. So, because it’s so well liked and because it has a good track record, peo­ple are pre­pared to pay that high num­ber. But if you look at the share price graph, there was growth at the start of the, say the last five-year trend, but since the start of 2020 It’s been going side­ways.

Cameron  57:18

Remem­ber when we had Rudy on?

Tony  57:20

Yeah.

Cameron  57:20

Rudy was plug­ging the hell out of CSL a cou­ple of years ago and I know that it was at $311 in Jan­u­ary of 2020, which I think is around about the time we had Rudy on. It’s cur­rent­ly at 263. So, it’s been a bit of a dud for the last cou­ple of years, CSL.

Tony  57:37

Yeah, and they’ve had their prob­lems dur­ing COVID. I mean, a large part of their busi­ness is blood, they process all the blood dona­tions and the blood trans­fu­sions and make sure it’s all stored prop­er­ly and then cared for and test­ed and all the rest of it. And in the States, that’s a for prof­it busi­ness, so if you want you can go to the blood bank and sell your blood. One of the prob­lems with COVID has been peo­ple haven’t been able to leave their home dur­ing lock­down and go and do that, so they’ve had some prob­lems in the States. But any­way, longer term it should be okay. It’s the price that does­n’t attract me to these stocks. So yeah, just be aware of a good com­pa­ny ver­sus a good invest­ment.

Cameron  58:14

It was actu­al­ly the 31st of Jan­u­ary we had Rudy on when CSL was at its, pret­ty much its all time high.

Tony  58:23

But we also had on the, I think it’s called the Syd­ney Val­ue Investors Club. We did an inter­view with them one Fri­day night, and they were push­ing, I think, Cochlea was their pick. And I had the same dis­cus­sion with them; good busi­ness but not a good invest­ment because of the high PE. And they said “well, what do you like?” And I said Shaver Shop and they went “uh, Shaver Shop. That’s crap.” Shaver Shop dou­bled and Cochlea went side­ways I think, after that.

Cameron  58:47

Because we’re try­ing to buy busi­ness­es that are under­val­ued, right, and so some of these busi­ness­es are def­i­nite­ly not under­val­ued, at least by the way that we val­ue them.

Tony  58:57

Cor­rect.

Cameron  58:58

All right. Thank you for that ques­tion, Andrew. Jere­my: “my buy list is basi­cal­ly 98% Josephine’s after fil­ter­ing for my ADT require­ments, and the stocks which aren’t I already hold, so I’m con­sid­er­ing top­ping up my cur­rent hold­ings. My hes­i­ta­tion is I only hold eleven stocks after the recent sell­ing so I feel like this will keep me too con­cen­trat­ed. Does TK have any advice around top­ping up in this sit­u­a­tion?” Good ques­tion. I’ve won­dered the same thing recent­ly, Jere­my.

Tony  59:27

Yeah, so Jere­my, I would top up. When I was con­sid­er­ing sell­ing those three gold stocks, I was faced with the same prob­lem and I would have gone dou­ble weight into my high­est rat­ed stock. I’m prob­a­bly not going to sell my gold stocks now after our dis­cus­sion ear­li­er, but if I do then I’ll be faced with the same prob­lem in the cur­rent mar­ket. So, I would buy from the top even if I already owned it. But one thing I haven’t done in the past, and maybe that’s because things haven’t been too extreme, is that I would­n’t go more than two times in the one stock. So, I would buy anoth­er posi­tion in the top-rat­ed stock and then anoth­er posi­tion in the sec­ond top rat­ed stock, etc., and do that eleven times before I poten­tial­ly go back and buy three times of the first stock. Which I don’t think you’ll have to do, because this down­turn will have to go on for a long time before we’re faced with sit­u­a­tions like that. In which case, I’d go to cash.

Cameron  1:00:15

Let’s say you did have to do it, and so you end­ed up with dou­ble posi­tion in eleven stocks and you did­n’t have any more cash com­ing in, what do you do then? Just wait for attri­tion to take care of the sit­u­a­tion?

Tony  1:00:27

Yeah, so if I had to sell some­thing I’d split it and buy two stocks with the, with the cash from the pro­ceeds.

Cameron  1:00:34

Right, and grad­u­al­ly build your way up to fif­teen to twen­ty again?

Tony  1:00:37

Cor­rect. Look, I mean, eleven stocks I think is still rea­son­ably diver­si­fied. As we know, the small­er the port­fo­lio the more volatile it will be, but it does­n’t mean that it’s gonna per­form bad­ly. It may actu­al­ly per­form bet­ter in a con­cen­trat­ed sense because a larg­er port­fo­lio becomes diver­si­fied and brings you back towards the index. So, it’s find­ing that hap­py medi­um, which is around fif­teen to twen­ty stocks, I think, but I would­n’t be too wor­ried about being too con­cen­trat­ed at eleven. At least for the short term. You should be able to find some stocks to buy in the future, and you should be able to, if you do go dou­ble weight, to sell out even­tu­al­ly and increase the num­ber of stocks in your port­fo­lio.

Cameron  1:01:15

All right, thank you, Jere­my. Lee, again: “has TK ever con­sid­ered or mod­elled using LEAPS?” Remind me what a LEAP is, Tony. We’ve talked about these before, I think?

Tony  1:01:27

No, I don’t think we have. I did­n’t know what it was until I looked it up. So, the answer is no, I haven’t.

Cameron  1:01:32

Long-Term Equi­ty Antic­i­pa­tion Secu­ri­ties.

Tony  1:01:35

Yeah, I think it’s some kind of option, but I don’t know any­thing about it, so.

Cameron  1:01:39

Pub­licly trad­ed option con­tracts with expi­ra­tion dates that are longer than one year, and typ­i­cal­ly up to three years from issue.

Tony  1:01:47

I don’t know any­thing about them. My expe­ri­ence with when­ev­er I’ve looked at the options mar­ket is that it’s hard enough to know what the price is going to do and real­ly hard to know what’s going to hap­pen at a par­tic­u­lar date in time, or between now and then. And that extra com­plex­i­ty makes, in my book, makes it real­ly hard to use options. I’ve had a good look at it in the past and did­n’t see any ben­e­fit for me, but I haven’t looked at LEAPS so I’ll have to have a look at that and come back to you, Lee. Thanks for draw­ing it to my atten­tion.

Cameron  1:02:17

All right, Car­o­line: “why does a com­pa­ny decide to announce a trad­ing halt? Is this usu­al­ly a pre­cur­sor of bad news, or is it gen­er­al­ly not some­thing to be con­cerned about? GWR did this recent­ly, but when trad­ing resumed the share price was fine.” There’s a whole bunch of rea­sons, aren’t there?

Tony  1:02:35

Yeah, so it’s usu­al­ly when some­thing sig­nif­i­cant hap­pens and they go into a trad­ing halt before mak­ing an announce­ment. Some­times they’ll make an announce­ment and then go into a trad­ing halt, that can be, it can be good or bad news, but it is news. In this par­tic­u­lar case, it looks like GWR, which is an iron ore min­ing com­pa­ny, went into a trad­ing halt and announced the pur­chase of 70% inter­est in a mag­ne­sium project, and they raised a cou­ple of mil­lion dol­lars to do that via an insti­tu­tion­al share place­ment. And the mar­ket when the com­pa­ny came back on to trad­ing again on the ASX boards looked the price went down about 5.5% on the day. So, part of that will be dilu­tion, which is prob­a­bly only about 1% of its mar­ket cap being the $2 mil­lion it raised, and the oth­er 4.5%, my guess, is diver­si­fi­ca­tion. The mar­ket did­n’t like the fact that an iron ore min­er was buy­ing a mag­ne­sium com­pa­ny, or buy­ing a big stake in a mag­ne­sium com­pa­ny. So, I don’t know what the exact rules are under the Cor­po­ra­tions Act or the ASX rules, but cer­tain­ly if it’s a major announce­ment, you need to go, the com­pa­ny goes into a trad­ing halt, gets all its act togeth­er and then makes the announce­ment and then starts trad­ing again. It’s a way of mak­ing sure that dis­clo­sure goes out to the mar­ket in a fair way, not just to some peo­ple first.

Cameron  1:03:53

Alright, Thank you Car­olyn. Nick had one on IMA argy-bar­gy but I think we’ve answered that well and tru­ly. Nick also asked about cop­per: “cop­per is a sell based on the three-point trend­line due to the slope, but in real terms its range trad­ing at five-year highs. C6C and SFR are still doing okay. If the price of cop­per stays high, isn’t this good news for the pro­duc­ers and we can stay in? The thought pat­tern is that cop­per is a major require­ment in elec­tri­fi­ca­tion and decar­bon­i­sa­tion, so these com­pa­nies should be churn­ing out cash.”

Tony  1:04:26

Yeah, no, it’s good point. And I think cop­pers just become a sell for us. And up until recent­ly it was just on its sell line, so yeah, it’s should be a sell. One thing that I had­n’t noticed was… so that’s using XCU_ which is the phys­i­cal cop­per price.

Cameron  1:04:44

Is that in USD dol­lars or AUD dol­lars?

Tony  1:04:47

I think it would be in USD dol­lars but I’m not real­ly sure, sor­ry. I had noticed with the cop­per futures though that it’s still above its sell line with that, but it is com­ing down to touch it. So, I, until I looked at it just then had been hang­ing on to Sand­fire, but giv­en that both the futures prices’ com­ing down and the cop­per phys­i­cal is, is a sell, I’m prob­a­bly gonna have to sell it. So, again this is a bit like gold, I kind of think that cop­per will have an upturn com­ing but I don’t want to crys­tal ball this, so I’m going to use the three-point trend­line to sell.

Cameron  1:05:19

What are the oth­er cop­per com­pa­nies that we should be sell­ing, then, do you know off the top of your head?

Tony  1:05:26

Yes, I think Aure­lia Met­als might be anoth­er one. I’ll just check that because it does have cop­per, it’s a gold com­pa­ny but it does have cop­per as well, AMI. BHP we’ve tak­en off the list because of that. Maybe not, I’ll have to research that fur­ther. Peo­ple can look it up them­selves. It’s main­ly gold. BHP was 30 or 35% cop­per from mem­o­ry and the rest was iron ore and then a few oth­er things, so that was off the list. C6C obvi­ous­ly. Yeah, it’s bounced around a lot, the cop­per price, but it is in a sell posi­tion at the moment.

Cameron  1:05:57

So, Nick might be right about the future for cop­per but that would come under fore­cast­ing.

Tony  1:06:04

Yeah, it would, and also too the cop­per futures are com­ing down so Nick might be right but the mar­kets dis­agree­ing with him at the moment too. So, yeah, that’s anoth­er strike against the cop­per price, I think. Might be short term, though, we might be buy­ing back into Sand­fire again and oth­er stocks in the future. But yeah, at the moment, it’s a sell.

Cameron  1:06:23

Looks like C6C’s price is com­ing back any­way. It’s still pret­ty high, but it’s down from its all-time high, and it’s a Josephine at the moment. SFR’s look­ing okay, still low. But yeah, well.

Tony  1:06:37

it’s come off a lit­tle bit, but yeah, they’re both in uptrends so I think there’s a lot of Nick­’s out there say­ing that cop­per should do well after Omi­cron fin­ish­es. So yeah, Sand­fire itself is cer­tain­ly not a sell at the moment, just the stock itself, but the cop­per prices a bit wor­ry­ing.

Cameron  1:06:52

Also, I remem­ber read­ing at the begin­ning of COVID that cop­per is a real­ly good antivi­ral thing, prop­er­ties. You rub your hands-on cop­per and it kills all the ger­mies, so…

Tony  1:07:06

Real­ly?

Cameron  1:07:06

Yeah.

Tony  1:07:07

Was that on the Joe Rogan pod­cast?

Cameron  1:07:12

I got my pen­nies out, my US pen­nies, rub­bing them in my hands to kill all the bac­te­ria. It’s, and I’m eat­ing them too. Appar­ent­ly, I heard Don­ald Trump on Joe Rogan say if you eat pen­nies, it’ll kill COVID. Don’t wor­ry about it.”

Tony  1:07:28

You prob­a­bly don’t remem­ber it, but I remem­ber going back to the 90s I think it was the last time cop­per had a real­ly big surge in its price. Peo­ple were going and steal­ing tele­com cables out of the ground to sell the cop­per.

Cameron  1:07:41

That was a plot­line in the wire. Bub’s one of the addicts was going around and steal­ing cop­per and then sell­ing it to build sites. Cop­per pip­ing. Quite often he’d steal it and then sell it back to the same guys he’d stole it from. It was cheap­er for them to buy it off of him than to buy it on the mar­ket. Mark: “hi Cam. Last week WAF dropped a fark­ing lot, or 20% as Tony would say, on bad news mil­i­tary coup and is an obvi­ous sell.” We talked about this last week.

Tony  1:08:14

We did, yeah

Cameron  1:08:15

“How would Tony draw the new buy/sell 3PTLs for WAF?”

Tony  1:08:20

I remem­ber last week say­ing it was news, I don’t know, was­n’t clear to me whether the mil­i­tary coup was going to affect WAF or not. I think the mar­ket just took mon­ey off the table because they did­n’t know what the sit­u­a­tion was hap­pen­ing, was more uncer­tain­ty. So, I did­n’t sell because it did­n’t rule 1 or reach the three-point trend line sell, and if I look at the share price today it’s up a cou­ple of per­cent. So, it’s sort of slow­ly com­ing back again.

Cameron  1:08:45

So the lines are just the lines, where they were before.

Tony  1:08:48

Yes, that’s right. I’m not going to redraw the 3PTLs, and I think from mem­o­ry for WAF the sell price is way low­er than where the share price is now. I think it’s about 60 or 70% from mem­o­ry — sor­ry, cents from mem­o­ry.

Cameron  1:09:00

Yeah, I think it would come in around about 74 cents look­ing at it, and it’s cur­rent­ly trad­ing at $1.13.

Tony  1:09:07

Yeah, but it did drop off a lot. It was up around $1.30 and it dropped back to $1 and now it’s start­ing to climb back again. The Bret­te­la­tor has a sell price of 60 cents.

Cameron  1:09:16

60? I get 67, don’t know how he gets 60, I just drew it out. Any­way, I trust the Bret­te­la­tor. All right, hope that helps. Oh, Mark had anoth­er ques­tion. “BHP has been in the news a bit with the demerg­er, a move from 6.5% of the ASX 200 index to almost 11%, and con­se­quent an immi­nent need for index investors to buy around 20 to 30 bil­lion in shares just to keep pace not to men­tion the 22 bil­lion of frank­ing cred­its idling on the books at best unlike­ly to be dis­trib­uted to share­hold­ers. BHP is a clear buy on my list although you guys had it down as a com­mod­i­ty sell last week, pre­sum­ably for cop­per not iron ore. Com­modi­ties aside, what are Tony’s views on BHP?

Tony  1:09:56

Yeah, so it is off our buy list because of cop­per, like I just said, but yeah, it’s been a straight up trade recent­ly for that rea­son that Mark is allud­ing to, that it used to be dual list­ed in Lon­don and in Aus­tralia, and the share­hold­er vote came through recent­ly to reuni­fy all the shares back in Aus­tralia. And there was an arbi­trage, the Lon­don shares always trad­ed low­er than the Aus­tralian shares for what­ev­er rea­son, I’m not sure — oh, I do know why, because there’s no frank­ing cred­its in Eng­land. And so the Lon­don-the Aus­tralian shares had a high­er price because they also paid div­i­dends with frank­ing cred­its. So, that’s always been an arbi­trage that stock­bro­kers and fund man­agers have used, and it got height­ened because peo­ple could pick up the shares in Lon­don at what­ev­er, like, I think the share price cur­rent­ly for BHP is $45, they could have prob­a­bly bought them in Lon­don for $47 bucks say, or what­ev­er the price was, hold on to them when they relist them in Aus­tralia, they make a prof­it. So, that kind of arbi­trage has been going on. Now that the shares are all here, it increas­es the mar­ket cap for BHP, which means index funds have to buy more as Mark allud­ed to. So, there’s been plen­ty of short term prag­mat­ic rea­sons to buy BHP, and it is on the buy list if you exclude cop­per, so yeah, there’s rea­sons to do it. The oth­er thing that peo­ple are say­ing is, or ana­lysts are say­ing, is that with all that cap­i­tal com­ing back from the UK into the ASX, that maybe, and there’s lots of frank­ing cred­its on the BHP reg­is­ter, maybe there’ll be a buy­back to release frank­ing cred­its, maybe there’ll be an acqui­si­tion. So, there’s a lot of rea­sons I guess prag­mat­i­cal­ly to look at BHP, but I’m a lit­tle bit still wor­ried about the cop­per price with respect to it. So, I’m just being cau­tious and I haven’t put it in the buy list, but cer­tain­ly if Mark’s inter­est­ed in the short term trade game he can cer­tain­ly buy it. And if any­one dis­counts my views on cop­per, they can buy it as well.

Cameron  1:11:53

All right, thank you, Mark. I had a late ques­tion from Gary: “with rule num­ber 1, should it be applied to a hold­ing as a whole, aver­age price, or to indi­vid­ual buys as added over time if you have mul­ti­ple parcels as I do for some stocks? How do you think of rule 1 in that sit­u­a­tion?”

Tony  1:12:13

I think of it as an over­all price, which is prob­a­bly just lazi­ness on my part. But gen­er­al­ly, like I said before, when I sell some­thing I just buy straight into some­thing else. So gen­er­al­ly I have one price, even though when I get a con­tract note from Baillieu’s that might say they made ten trades to get me my par­cel and there’s a whole range of prices in there, I don’t break it down to those.

Cameron  1:12:33

What if you bought two parcels, like, six months apart because you had to top up and it was the top of your buy list like we talked before?

Tony  1:12:40

I still use the one price, the aver­age buy price. And that’s just I guess, prob­a­bly lazi­ness on my part. When I go into the Bail­lieu port­fo­lio page it does­n’t break it down, it just says I own — so, for exam­ple, live exam­ple, Aure­lia Met­als. I bought one tranche at a low­er price and then bought back in last year at a high­er price. I just take the aver­age, which is on the Bail­lieu home­page and just go from there.

Cameron  1:13:03

Well, there you go. I’ve been doing that wrong, too, so thank you, Gary.

Tony  1:13:06

Well, no, no, you’ve been doing it with more detail than I do, it’s not wrong.

Cameron  1:13:11

Oh, okay.

Tony  1:13:11

I guess the risk is that you could end up with a big port­fo­lio of small stocks if you sold some and kept oth­ers. If you did that for all your share­hold­ing, your port­fo­lio gets dou­bled in size?

Cameron  1:13:22

Yeah, that’s a good point. All right, thank you, Gary. That’s it for the ques­tions, Tony.

Tony  1:13:27

Wow. And good, good tim­ing.

Cameron  1:13:30

After hours. I’ve been play­ing Wor­dle com­pet­ing against Tay­lor and Hunter to see who can solve them in the short­est amount of time.

Tony  1:13:38

It’s addic­tive, isn’t it? It’s great.

Cameron  1:13:39

It is, it’s a good game. So, thanks for suck­ing that ten min­utes of my day out. I watched a great doc­u­men­tary, Chris­sy and I watched a great doc­u­men­tary this week on Sparks. You know of Sparks, the band?

Tony  1:13:55

Oh, yeah. Yes, I do. Is it two broth­ers?

Cameron  1:13:59

Yes. The Mael broth­ers. Edgar Wright has just done a doc­u­men­tary about them. I think it’s on prime. Fan­tas­tic. Real­ly, just a lot of fun, and what a great sto­ry. For peo­ple who don’t know, they’ve been around since the late 60s. Just, they’ve put at twen­ty-five albums and nev­er real­ly made it big time. But they’re real­ly weird, their stuffs real­ly weird, like they play these weird — one of the broth­ers Ron plays this real­ly weird… He had a Hitler mous­tache for thir­ty years that he would always wear.

Tony  1:14:32

Yes. I remem­ber that.

Cameron  1:14:34

And the film clips, I post­ed a film clip for one of their songs from the ear­ly 70s in Face­book this week, but yeah, just, it’s a real­ly fun doc­u­men­tary. But the great thing about it is these two guys, they’re real­ly weird, their songs are like every genre known to man. They’ve done — their lyrics are real­ly fun­ny and they play these weird char­ac­ters, but they just keep doing it. Like, they’ve nev­er real­ly cared about com­mer­cial suc­cess, they just fol­lowed their artis­tic vision and done what they do. And they’re very influ­en­tial appar­ent­ly, like it in the doc­u­men­tary, in the intro, it’s got a whole bunch of famous musi­cians and actors and come­di­ans talk­ing about their love of Sparks. But, some­body says, I think it’s Beck, he says every tour bus he’s ever been on after a cer­tain amount of time the con­ver­sa­tion always turns to Sparks in musi­cian cir­cles. It’s always about what inno­va­tors these guys were. So, if you’re look­ing for a good music doc­u­men­tary, check that out.

Tony  1:15:34

Yeah, good. I will, thanks. I’m being stuck in on House of Cards the last week, still try­ing to get through all the sea­sons. It con­tin­ues to jump the shark every week but it’s pret­ty addic­tive and com­pelling as a soap opera, very good.

Cameron  1:15:48

Stop watch­ing when Kevin Spacey leaves, that last sea­son was not worth your time. Unless you’re just like look­ing at, what’s her face? I mean, there’s good enough rea­son to watch it. Robin Wright-Penn?

Tony  1:15:59

Robin Wright.

Cameron  1:16:00

Or just Wright now, I think, yes. And how’s your golf going, Tony?

Tony  1:16:04

Yeah, been play­ing a lot. Had a good round yes­ter­day, actu­al­ly, thanks for ask­ing. I broke 90 for the first time in a long time down here, and I should say that, you know, some­one asked about my hand­i­cap before Christ­mas, and it’s not great. But these cours­es are some of the hard­est in the world down here at the Nation­al, and they rank cer­tain­ly in terms of their slope rat­ings, which is the dif­fi­cul­ty rat­ing. Right up there. Prob­a­bly the hard­est in Aus­tralia, I would think. So, yeah, typ­i­cal­ly a hand­i­cap down here is worth about an extra six shots com­pared to some­where else. But any­way, I man­aged to break nine­ty yes­ter­day. Had a great front nine, shot forty, and then limped home with a wet sail on the wind in the back nine. But yeah, I was real­ly pleased with how it all went.

Cameron  1:16:45

Good stuff.

Tony  1:16:47

Hope­ful­ly it proves that that was­n’t an out­lier, and that my game is actu­al­ly get­ting bet­ter with the years.

Cameron  1:16:52

With age.

Tony  1:16:53

With age, yeah. Tell you what, it’s get­ting hard to walk around the hilly course in the sun. It’s real­ly tak­ing its toll on me at the moment.

Cameron  1:17:02

And when you’re head­ing back, do you know yet?

Tony  1:17:03

I don’t, no. It’s open-end­ed. Seems like the case num­bers are going down slow­ly but still no end in sight. And now schools back this week I would­n’t be sur­prised if we get a bit of a surge in the case num­bers again soon.

Cameron  1:17:16

Yeah. Schools back here next week and we’re assum­ing that we’re all going to get it. Par­tic­u­lar­ly with the hip­pie school that he goes to where there’s half of them are anti vaxxers at this hip­pie school, so yeah.

Tony  1:17:28

Why do those two things go togeth­er, do you think?

Cameron  1:17:30

Ah, I don’t know. Because you know, hip­pies are just a bit sort of non-sci­en­tif­ic. They got lots of nice qual­i­ties, hip­pies, but their under­stand­ing of sci­ence is not one of them.

Tony  1:17:44

I think Isaac Asi­mov was right in the Foun­da­tion series when he, he turned sci­ence into a reli­gion so it would take root across the uni­verse.

Cameron  1:17:55

Well that’s the crit­i­cism that all my reli­gious and hip­pie friends levy against those of us that are pro-sci­ence any­way, that we treat it like a reli­gion, and I’m sick of try­ing to explain why that’s non­sense, but yeah.

Tony  1:18:10

Oh well, to each their own.

Cameron  1:18:11

Yeah. All right. Well don’t for­get to car­ry a tow­el out there Tony and I’ll get you a QAV tow­el to go with your QAV golf balls any day now.

Tony  1:18:20

Yeah, thank you. And look, thanks for all the ques­tions. They’re real­ly thought­ful, great ques­tions this week. I know the mar­kets in tur­moil but we’ll come through this, will come through it well.

Cameron  1:18:29

This too will pass.

Tony  1:18:31

Cor­rect.

Cameron  1:18:32

Maybe, hope­ful­ly, we think, prob­a­bly.

Tony  1:18:34

Good George Har­ri­son song.

Cameron  1:18:36

Yes, great album, All Things Must Pass. Thanks, mate. Have a good one.

Tony  1:18:44

Alright, you too.

Cameron  1:18:44

QAV Pod­cast is a pro­duc­tion of space craft pub­lish­ing Pro­pri­etary Lim­it­ed autho­rised rep­re­sen­ta­tive of AFSL 520442 AFS rep­re­sent rep­re­sen­ta­tive num­ber 001292718. Please don’t make any invest­ment deci­sions based sole­ly on lis­ten­ing to this pod­cast. This present is gen­uine­ly advice only not per­son­al finan­cial advice. We don’t know your per­son­al finan­cial cir­cum­stances. Please see a finan­cial plan­ning before mak­ing any invest­ment deci­sions.