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


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 .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


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


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


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


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


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


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


Cameron  1:07:06


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


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

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