QAV 505 Club 

Cameron  00:17

Welcome back to QAV. I think this is episode 505. We’re recording this Tuesday the 8th of February, 2022. It’s my wife’s 43rd birthday today, so I’d like to wish her a happy birthday even though she doesn’t listen to this or any of my podcasts, so she’ll never know I said that. But I said it, and I know I said it, and that’s the important thing. With me in my office today is my spawn from a previous wife, Taylor. Welcome to the podcast again, Taylor. It’s been a while.

Taylor  00:52

Howdy, thank you for having me on.

Cameron  00:55

Oh, well it’s always…

Taylor  00:56

It’s been a long time.

Cameron  00:57

It has been a long time.

Taylor  00:58

I think 2019 was the last time I was on one of these.

Cameron  00:59

I’m so sick of him asking me stupid questions. I said just come on and ask Tony. Welcome to the show, Tony, how’s Cape Schanck been treating you this week?

Tony  01:07

Yeah, lovely. It’s beautiful down here at the moment. It’s sunny, the winds died down. Lovely. Absolutely beautiful.

Cameron  01:15

How’s the golf going?

Tony  01:17

Really good, yeah. I had another good round yesterday. I went and played on the RACV course, which is the public course next door to the National and shot a great round, so I’m very happy.

Cameron  01:28

That’s good. Glad you’re having a good time. What else has been going on? You got any, got any big stories for us this week, Tony?

Tony  01:37

No big stories at all. Life goes on. The only thing, I’ll talk about in a minute, but Credit Corp’s first out of the blocks in terms of QAV stocks for its reports.

Cameron  01:46

Yes.

Tony  01:47

Its annual report. So, I thought I might do a pulled pork on Credit Corp today.

Cameron  01:51

Oh, okay. Rather than one of our stocks of the week? Fine.

Tony  01:54

Yeah.

Cameron  01:55

I’ve owned that stock for a while, it’s been very good to me, so happy for you to give it a plug and then all of our listeners can go ahead and buy more. I don’t know if you saw the article that I posted on our Facebook group this morning though by Kerr Nielson from Platinum. Did you have a chance to look at that?

Tony  02:09

I didn’t, no sorry.

Cameron  02:11

That’s fine. It was good. He was basically just talking about literally how all of the trendy tech stocks have crashed and burned and there were some good quotes from it that I thought I’d read out. He said “you will have come across lots of references to competitive moats, the virtues of platforms, two sided markets and economies of scale. Right now, many of these concepts are being exposed as flatulent labels rather than adequate descriptors of the wealth generating engine of great businesses. Free money and the convergence of external factors like the maturing of the internet, the widespread adoption of clever mobile devices and the emergence of cloud computing, combined with global lock downs have caused or allowed investors to intermingle their feelings with the facts. The incoming tide was so strong that those who protested against crazed optimism were cancelled for not getting it while the party goers celebrated their cleverness and transient gains. The new game in town was to address investment propositions in terms of TAM, total addressable market, rather than the drivers of profitability, which allowed investors unrestricted views of Nirvana while helpful ushers with an eye on the main chance of corporate advice kept the shimmering tray of magic mushrooms within easy reach of addled investors. Back to the more prosaic world of investing, it is not about the shiny new thing; in fact, investor focus on the shiny new thing gives rise to the tired old thing becoming unusually boring and neglected, and consequently underpriced in terms of the formula described earlier.” I thought some of that rang true for QAVers.

Tony  04:00

Absolutely. What a great prosaic statement to make. I’m going to use flatulent labels myself going forward, that’s a great line.

Cameron  04:07

I like that and “helpful ushers with an eye on the main chance of corporate advice kept the shimmering tray of magic mushrooms within easy reach of addled investors.” That’s great. That’s like Hunter S. Thompsonesque.

Tony  04:24

It is, isn’t it?

Cameron  04:24

Yes. It’s very evocative. I have to pay Kerr Nielson, we’ll have to get him – I know we were trying to get him or somebody from Platinum on the show a while ago.

Tony  04:33

We did have someone, we had one of their managers on if I recall.

Cameron  04:37

Oh, was it Perpetual or Platinum? I always get them confused.

Tony  04:41

Oh, might have been Perpetual, sorry. Yeah, you’re right.

Cameron  04:43

But we were talking to somebody from Platinum at some point.

Tony  04:46

And of course topical too, Kerr Nielsen, sort of wind the clock back about ten or so years and he was the Hamish Douglas of the investing community in Australia and went through a divorce and people wondered what was going to happen to the company when the shares we’re held by the wife and all that kind of stuff.

Cameron  05:02

Right. Is Hamish still the Hamish of Australia? Is he still at Magellan? I saw a headline this morning saying he was gone. He’s gone-gone.

Tony  05:11

I don’t know if he’s gone-gone. He’s taking sick leave, I think, understandably.

Cameron  05:15

Oh right. Personal leave. Yeah. So anyway, that was Kerr Nielson’s article this morning in Share Cafe. I like that. Our portfolio is looking particularly good at the moment, Tony, both for the financial year – I mean, not in real terms, I think when I was doing the newsletters yesterday, it’s up about 3%, or 3.5% in real terms for the financial year, but that’s about three times where the ASX 200 is at for the financial year, so, compared to that it’s looking good. And, you know, that’s what we’ve decided as the relevant benchmark. And since inception, our portfolio is also performing at about three times the ASX 200. So, that’s pretty good across the board right now. Looks good.

Tony  06:02

Yeah, no, it’s pleasing. I agree.

Cameron  06:04

Well, the only other news that I had before we get into Q’s and A’s and Taylor’s questions if he has the cahonies to ask them in real time – try not to kick the desk, there, young fella – was our stocks of the week this week. OEL, Otto Energy, was my small-cap stock of the week and ASX we ended up picking as the large-cap stock of the week. But I’d originally gone with Adairs because I thought they had ticked up out of their Josephine status, but you put the kibosh on Adairs, you said no, you wouldn’t touch it yet. You think it’s still a falling knife?

Tony  06:42

Yeah, I do. Yeah, it’s been a falling knife for a while. And I know that it has ticked up this month and its share price is higher than what the month end close share price was last month, but if you look at the graph, it’s still declining from its highs. So, I personally wouldn’t be buying Adairs at the moment. I know that we need to come up with some coding for that, and I don’t have it at the moment, but I think if people just eyeball the graph, they’ll see it’s a falling knife. And I’d want to see a bigger uptick before I had any confidence that it was going to kick on.

Cameron  07:11

So, by coding you’re referring to wording for when a Josephine is no longer a Josephine, and the wording in the Bible does say that if at, any uptick from where it closed from the end of the previous month is considered to be no longer a Josephine, an anti-Josephine. But you’d have talked in the past about looking for a new buy line, for it to cross a new buy line before it comes out of a Josephine. Is that what you’re thinking more on?

Tony  07:40

Yeah, exactly. That’s, that’s more, I mean, again I don’t think I apply that rule even rigorously, but that would be a clear-cut signal, I think. If you looked at the high price and then found a second peak below that, even though it still might be in buy territory as Adairs is from a much earlier buy price, I’d want to see the uptick crossover that new, I’d call it the second buy line I guess or the most recent buy line before I’d be convinced.

Cameron  08:04

Why is the old rule not good enough for Adairs? Like the uptick, is it just that it’s been falling for such a long time now – like it’s been falling for, I think, five or six months – that a small uptick is not enough from a confidence perspective?

Tony  08:21

Yeah, that’s right. If you have a look at this graph on the way down, there has been upticks before and they’ve been false dawns, so at the moment to me it’s meeting the criteria for a falling knife rather than a hockey stick type graph which has been through some hard times and is now making a firm upturn.

Cameron  08:37

Okay. Well, thank you for bringing that to my attention. Young fella.

Taylor  08:43

Can I get a question on that? Because I set up the new port-I did a checklist last week, and then you explained to me that Josephine rule with that, with the uptick. Would that, for example, if it was down on the 31st and it only just ticked up like on the second or the third, and it’s a very small uptick, is that enough to qualify it no longer as a Josephine?

Tony  09:05

No, I don’t think it is really. And it depends on what the graph shape is. I mean, if it was going in a general uptrend and it had a down tick for a month and then ticked up, then I wouldn’t say it was, I would say it’s not a Josephine. But if it’s been in a downtrend for a number of months like Adairs, and maybe it’s gone sideways for a bit and then up, I would say it’s still in the downtrend.

Taylor  09:26

So, you draw a new buy line for it. Is that what the strategy is?

Tony  09:30

Well, there’s no, like I said there’s, I haven’t yet come up with hard and fast rules for this. We did put that rule that’s in the Bible in there, that if the current month is above the previous month’s close then that’s an uptick and it’s no longer a Josephine. But I don’t think that’s good enough in the case of Adairs where if you look at the graph, I mean it’s come back from a high of $4.78 in May of last year back to where it is today at $3.31. So, it’s come off quite a bit. And yeah, it has started to turn up again, I guess – do we have numbers? No, we’re still using the old numbers – but I know it came out recently with a sales update as part of its confession season coming into its announcement of results. So, that must have had some good news in it. But we’ve seen this before. If you look back at, say, November 2021, it went through a pretty solid run coming into Christmas and it got to a high there of around $4 and it’s come back 70 cents from there. So, it’s really just making new lows all the time, rather than making new highs.

Cameron  10:29

But everything crashed in January.

Tony  10:31

Yeah. It’s been a struggle to find something that’s not a Josephine, hasn’t it?

Cameron  10:35

Yeah, it’s, January was a tough month right across the market after that first peak. So, I mean, it looks to me like it’s trying to recover back to where it was at the beginning of January, that first recovery it tried. But the market is so volatile at the moment that who knows? Everything can crash again next week, right?

Tony  10:52

That’s right. If you say that it’s not a Josephine and apply the literal rules you can certainly buy it, but be prepared to sell it again as a rule 1 or even as a sell – what’s it’s sell line? It was quite a bit above its sell line the last time I had a look.

Cameron  11:04

Yeah, the sell line that I’ve got has it coming in at around just over a buck.

Tony  11:09

Yeah, right. So, it’s a long way off, isn’t it?

Taylor  11:11

Is that sell line too long off If you have it down at $1? Or just over $1?

Tony  11:16

Yeah, this is an age-old question. I don’t think so, particularly, because the thing is, in a couple of months the current L1s going to start rolling off and we’re going to start using March 2020. So, using a five-year graph will eventually reset that sell line even though it’s getting a bit long in the tooth now, but it’s not very far off resetting.

Taylor  11:37

Oh, so explain to me the resetting. How does that work?

Tony  11:40

Yeah. So, if you look at the graph at the moment, L1 is back in May 2017. And then L2 is…

Tony  11:49

COVID. Yeah, actually, it’s the, yeah, March 20, COVID. So, the one that’s the L1, May 17, is about three months, so it’s on the left-hand side of the graph, and in three months’ time it won’t be there anymore. And, I think that will make the COVID cough the low point and we’ll draw another line, and it’s going to be in sell territory in three months’ time. Unless it picks up.

Taylor  11:49

COVID.

Taylor  12:11

Ah, okay, that makes a lot more sense now.

Tony  12:14

So, look, I’m not, I’m not trying to forecast. I’m not saying that’s a reason to base decisions, but it’s the reason why I’m not changing the sell line at this stage, because it will change itself soon.

Taylor  12:23

That makes a lot of sense now, why it doesn’t…

Cameron  12:25

But it doesn’t… Yeah, but it doesn’t always work that way, and Taylor and I’ve had a number of these conversations over the last couple of weeks that yeah, look, sometimes stocks have a very low sell line and rather than take profits, as we’ve been talking about in recent weeks, on the way down you hold because you believe more often than not it’ll turn around and come back up.

Tony  12:48

Yeah. So, I mean, just again using this Adairs example, at some stage it will rebound, and it might be this reporting season, and we might see it tick on from where it is now. And you know, one of the reasons for that is because it’s on our list, it’s got good numbers, it’s an attractive investment to make. I’m not that familiar with the stock, but I wouldn’t mind betting that its sales decline has been because of COVID. So, “one day this war’s going to end” is the famous line, and eventually people will go back to shopping in stores and stocks like Adairs will rebound. So, if I did own Adairs I wouldn’t have a problem holding it because even though it’s dropped from maybe 25% from its highs, it’s still got a good chance of rebounding and getting back up to those highs as well.

Cameron  13:28

“You know, son, one day this war’s gonna end.” Sad. Colonel what’s his name?

Taylor  13:35

Is that from a movie that’s way too old?

Tony  13:37

Kilgore.

Cameron  13:37

Yes.

Taylor  13:37

Yeah.

Cameron  13:38

Kilgore. Apocalypse Now, man, you should watch. It’s a great film.

Tony  13:42

Oh, Taylor, you haven’t watched Apocalypse Now?

Cameron  13:44

You know, he won’t watch any films that were made before he was born. The list of movies he hasn’t watched would bring you to tears, Tony.

Tony  13:52

Oh, no.

Taylor  13:54

It’s funny, it’s like I had a father who didn’t show me any of them.

Cameron  13:56

Oh! Your father who showed you Terminator when you were seven years old?

Taylor  14:02

Left home when I was seven years old.

Cameron  14:04

Yeah, but I still tried to show you great movies.

Taylor  14:06

Went to get a carton of milk and I’ve only just seen him now. So Tony, I guess the, that makes a lot more sense now because dad and I’ve been arguing over that thing, he never mentioned there was a, there’s a five-year rule to it.

Cameron  14:21

I’ve mentioned it like twenty times.

Taylor  14:24

The biggest example, I think, I’ve been looking at over the last week is GWR. It went all the way up like, what was it, like 600% or something, and then it came all the way back down again. And it was up there for, what was that, the better part of a year? I just looked now, pulled the graph up, and it’s I think three months off also using a new sell line. And that would make sell. Anyway, that makes a lot of sense now.

Tony  14:49

Yeah. And look, Taylor, we’ve spoken a lot about this in the podcast and these questions have come out before too and people, I know some of our listeners do draw more recent sell lines to try and lock in some recent profits. My experience is that’s at best a 50/50 deal, because we tried out Fortescue Metals Group as the example that proves or disproves that rule. If you drew a much more recent sell line on FMG, it did dip down sort of halfway through the five-year upturn, but then it kicked on again, so you would’ve missed out on all that. So, I know it can be hard to watch something come down from its highs and then wait for it to retrace those highs, or even be forced to sell and you missed out on the profits, but statistically speaking, applying these rules are still the best way I’ve found to make money. We won’t always maximise your profits in these cases, but across a whole portfolio, it does maximise the returns.

Taylor  15:41

I don’t know if you know, me and one of my friends have been doing a checklist about once a week now for the last month,

Cameron  15:47

One of my friends and I.

Taylor  15:48

Yeah, I realised as soon as I said it.

Cameron  15:50

Sorry, that was a public school, Queensland public school education.

Taylor  15:55

Because you took all of the public school [tuition] and invested it for the last…? That’s a call back. But yeah, I think that was the biggest one we didn’t understand, because I understand not selling, not selling when it’s up and letting it hit a sell line. But I guess understanding why five years and not three years on that sell line and to make a new one.

Tony  16:21

Five years or three years? That’s a good question. I’ve never actually researched statistically which is better. That might be a question we can get Dylan to have a look at eventually. But five years is just what I’ve always used, and that produces the returns I get. Like I said, some people who listen to us, you know, try and draw more recent lines. They call them hug lines, so they try to hug the uptrend and take profits. And I think that’s legitimate, but you have to also bear in mind that the stock may, you know, have a kick upwards and could double from where you sold it at, so you have to be prepared to live with the fact you missed out on the upturn that’s eventuated. Because a lot of these times, the stocks are good, their good investments, and even though Mr Market marks them down from time to time, they’re still you know, recently good long term holds. So, even though they have come back off their highs, like everything has at the moment, they still represent a good longer-term investment.

Taylor  17:09

Yeah, I guess the part I was struggling with was the whole gambling element of it, where it’s like, if you drew a slightly more aggressive sell line you would walk away at least with some profit off that. I understand the logic there, but I guess what I was thinking about it, it’s one of those things where I think I’m happier if a stock goes up 100% and I sell it when it comes back down to 50, I’m happy, even if it goes up to 200, knowing I secured at least 50% on it. But then that makes a lot of sense.

Tony  17:37

No, I understand your thinking, just yeah, I mean, if you want to operate that way, do it. Let us know how you go, because it’s, yeah. I tend to find that the stocks rebound more often and they keep going down to their sell lines.

Taylor  17:49

Yeah, I think you’re right on that. I think I probably will find that out with time. I think it’s one of those things where you have to figure it out yourself or see it to understand it or fully grasp it. It’s not like… you gotta go through it.

Cameron  18:02

Or you just stop trying to think you’re smarter than Tony, and you just do what Tony tells you to bloody do.

Taylor  18:09

If Tony told you to jump off a bridge, would you do it?

Cameron  18:11

Yes. If he told me that was the best thing for my portfolio, I would follow Tony. I know you don’t listen to your father, but listen to Tony.

Taylor  18:20

I think with everything, and my philosophy for everything I’ve learnt my entire life, or at least since I’ve left high school, is you can learn about 90% of it and then 10% of it, you’re just gonna have to figure out yourself through trial and error.

Tony  18:34

Absolutely. So, I’m not gonna tell anyone to follow what I do blindly, I’m just saying if you do follow it, this is what the returns can be. So, I’m not saying you can’t double your returns by fiddling with it, but do it scientifically, you know, have a plan, have a reason, run some tests, run some trials and all that, and then, and then try it. But look, getting back to GWR, it’s an interesting example. I don’t know if you’ve got the graph open for it there, but if you look at it, like, it went back in sort of 2018 – looks like it’s about March 2018 – it made new highs and then it came back down again. So, you could have sold it on the way down but if you had you would have missed out on the big jump when it, you know, sort of doubled from that 2018 high again. So, it’s a volatile stock and it does have a history of going up and down, but overall, it’s gone up.

Taylor  19:18

Well interesting, now I’m just looking at this, I don’t even know if it’s right. I would have, like, drawn a sell line maybe even from that 2017, ah, when is that, June 2017? And then another point on 1st of January, 31st of Jan 2018, which would have mean you sold it, I don’t know, somewhere around,

Taylor  19:38

Yeah.

Taylor  19:38

70 cents. And then if you’ve drawn another buy line then from the peak down, you would have bought it again as it’s just come back up for that big peak.

Tony  19:47

Yeah, exactly.

Taylor  19:49

Because if you draw a line from that to there, it would’ve…

Tony  19:51

Yeah, that’s exactly how you should have done it.

Taylor  19:53

But, then I think then you probably, it’s not day trading, but then you’re just not as long term, you’re sort of having to actively be paying attention.

Tony  20:02

Well, no. You’ve had two buys in five years so it’s not day trading but it is maximising your returns because, you know, whenever you bought it you sold out, as you say, in probably January 19 or there abouts, gone off and done something else and then come back into it in, when’s that? Towards the end of 2020. And you’re still well up on that investment even though it’s gone up, it went up sort of 400% from there, even though it’s come back, you still have something like 80% from that original buy price.

Cameron  20:30

And that’s assuming that you did buy back into it, because as we know, once your portfolio is full, you quite often, you’re not buying back into things because you don’t have spaces, you don’t have holes in your punch card left. So, you’re gonna miss out on some things. I just want to point out that, Tony, that its going into the Bible now that if you’re gonna fiddle, do it scientifically. I think that’s scientific, scientific fiddling. I think that’s going to be the title of this episode.

Taylor  20:55

It sounds illegal.

Cameron  20:56

Yeah. Well, it’s certainly not what my Catholic priest told me when I was young. But if you gotta fiddle, fiddle scientifically. I think that’s, that’s a bit of new wisdom from Tony.

Tony  21:06

Well, it’s true. You know, I encourage people to do their own thing if they have doubts, but yeah, doing scientifically. Definitely.

Cameron  21:12

Tony encourages people to have a fiddle. Let’s talk about your stock of the week, Tony. What did you say your drill down was gonna be?

Tony  21:19

I’m gonna do a pulled pork on Credit Corp.

Cameron  21:21

CCP?

Tony  21:22

Yeah, just to run through the numbers quickly. So – and the reason for doing it, not only is it the first cab off the rank in terms of QAV stocks, but when we mentioned that, I think it was last week, in last week’s show, that the results came out and the share price went up like 9% I think, it’s come back down again. So, I did want to drill down into the numbers and make sure there was, there was nothing too worrying there. And there’s not, but it is at the very bottom of our buy list now. So, there has been, I think probably there will be a lessening a bit in the quality score, and maybe a rising in the price. But just to run through it, and by background, Credit Corps been on our buy list for a long time, it’s been a good stock. I’ve owned it for decades, I think I sold it during the GFC-I had to sell it during the GFC, but otherwise I’ve held it for a very long time. It basically buys what they call debt lists off banks and credit card companies and the like, sometimes it gets them from gas and electricity utilities, but basically they’re, after banks or the sellers of these debt rolls have had a first go of trying to recover the money that’s outstanding, they give up and they say, “well, it’s gonna cost us a lot to process say the last 20% of collections. We’d rather sell the, cut our losses, sell that ledger to a company who does it professionally for a living and that’s all they do, and has the economies of scale to, to make it more viable for them to go after the last 20%.” And that’s what Credit Corp does. The reason that first attracted me to this company was I did go to a presentation at my stockbrokers many, many years ago, probably decades ago, or maybe a decade ago, and had a good chat with the CEO. And he impressed me and what impressed me about him was his, I guess, respect for the customer is probably the way to put it. So, you know, I had made some silly joke about what sized baseball bat did he take to the customers on his debt lists, and he was shocked and said they don’t work that way, they work to get a relationship going with the customer, they work to try and help them budget, they work to try and sort out their finances so they can make the repayments. And he said they were that successful in doing that, that the company was now opening up a new division of lending those people future credit because they had a good credit understanding on them, a good credit profile of those customers, and have worked with them to repay their credit card or whatever outstanding debt there was and they were now in much better financial shape and were therefore lendable again. And that business has grown over the years and it’s now going into the US as well, so that’s their, sort of, growth engine I guess. So, I’ve always liked it, I’ve always respected management, I think that it’s very good management. But to run through the numbers, which is what I was focusing on today. It’s a high ADT stock, there’s just over $4 million traded on average each day so it should suit all investors. I’m using numbers from the weekend when the share price was 3193. It’s a few cents higher than that today, but not much, and it’s less than its, then the consensus target for this stock which is about $35.10. It’s a borderline star stock and a star income stock, so it gets half a point each for that in our checklist. I was interested to see it’s a star income stock because the yield is down to 2.3%, so I’m not sure why it’s a star income stock. Usually Stock Doctor gives that status to companies that pay a high yield. So, it’s possible that in the coming weeks when Stock Doctor gets to the end of reporting season and relooks at its stock status for some of these stocks it may lose that star income stock status, but we’ll see. But anyway, financial health is strong and steady, so it scores for that. The price to operating cash flow is just over five times, so its starting to get up there towards our limit. And interestingly enough the PE is 23 times, so it’s a high PE stock. So, even though it’s throwing off lots of cash, it still has lots of costs in there as well. So, that’s possibly also why it’s getting towards the bottom of our QAV list as well, the buy list. In both cases, it’s above IV 1 and IV 2 so it doesn’t score for valuation there, and it doesn’t score in terms of its net equity per share, which is around $10. So, it’s three times that, so it’s not a buy in terms of book value. It’s not growing aggressively. So, it is growing and the growth projection is 7%, but it doesn’t meet our hurdle of, of 1.5 times, or a score of 1.5 for growth over PE. Directors aren’t holding enough to qualify for a founder-operator, which is a bit surprising, I thought, given that, as I said before, Thomas Beregi is a very good CEO. It isn’t the lowest of its most recent six halves in terms of PE score, but it does have consistently increasing equity; that’s probably one of the standouts for this company, it has been growing shareholder equity for a long time. So, overall, it gets a quality score of 54% which is quite low in terms of what we normally want to see, and a QAV score right in our borderline of 0.10. So, I suspect that one of the reasons why it’s been hanging around this, sort of, low $30 share price for a while is that it’s not scoring well enough to be that attractive to people. So, we’ll see what happens in the future. If people want to get in, I mean, I still own it. I think you do, Cam. But, I think it’s quite possible with an increase in share price from here, which is always likely with this stock – it does tend to creep up in terms of price – I think it might drop off our buy list fairly soon.

Cameron  26:46

And we wouldn’t buy it now because it’s a Josephine.

Tony  26:48

Is it? Okay, I haven’t had a look.

Cameron  26:50

Yeah. Closed last month up around, let’s see, 3387. Currently 3197.

Tony  26:58

Okay, yep.

Cameron  26:59

To compare this chart to the… what was the one we were looking at earlier? Oh, ADH. If this turned around now would you anti-Josephine it because it only just turned down.

Tony  27:14

Yeah, I would. It’s not a falling knife. It’s been going up from the COVID cough and I guess, you know, starting to slow down that rate of growth. But if it turned up now I’d certainly take it off the Josephine list.

Cameron  27:26

So, that’s the difference between a falling knife and a recent Josephine that might turn around.

Tony  27:33

Correct. Yeah. It’s got, mind you, it’s got, as you say, last it closed at 30, just under $34. So, it’s just under 32 at the moment, it’s gotta go up a reasonable amount to get back into positive territory and not be a Josephine at the moment.

Cameron  27:47

Oh, well, no, I thought like the rule in the Bible is any uptick after the close of last month.

Tony  27:54

Yeah, so last months close was 3389. It’s currently 3199. So, it’s gotta go up two bucks.

Cameron  28:01

Oh, okay. So, to be above that it would need to go up. I see what you’re saying, yeah, right. Okay. Thank you for that. CCP, Tony and I both hold it, so be aware of that if you rush out to buy it that you can’t because it’s a Josephine. So, good luck. Anything else before we get into the Qs Tony? We’ve got lots of Qs again this week.

Tony  28:26

No, I’m good. Thanks.

Cameron  28:27

All righty. First one from Leigh, getting in nice and early. Leigh says “great episode last week, thank you for answering my questions. My question re LEAPs,” this was his LEAPs question from last week asking if you ever considered using LEAPs, which stood for Low Earth Orbiting Satellites, or something, “came from reading John Greenblatt’s fantastic book You Can Be a Stock Market Genius. I am now getting started on his class notes, Special Situations Investing. These two resources teach how he did it and make for awesome reading. Many of the case studies remind me of the businesses we invest in using QAV. You may or may not know that Greenblatt’s fund, Gotham Capital, averaged 50% CAGR for a decade before he turned to charities and teaching.” Wow, that’s crazy.

Tony  29:19

That is crazy.

Cameron  29:20

50%

Tony  29:21

Why did he stop?

Cameron  29:23

Turned to charities and teaching apparently, probably made so much money he couldn’t be bothered. Warren Buffett, too easy. “Warren Buffett keeps a copy of the book in his office according to two podcasts I listened to, so it must be true.” Yep, the Oracle approves. “The Oracle is also known to have used options but admits it’s definitely not for the everyday investor. I’m hoping we are open minded to looking at a possible level five in TK’s investment ladder here. Hope this at least provides some interesting reading. Cheers, Lee.” So, Joel Greenblatt and LEAPs, Tony, does that… you ever read this book, You Can Be a Stock Market Genius?

Tony  29:58

No.

Cameron  29:59

I’ve read a couple of Greenblatt’s books, but not that one.

Tony  30:02

Yeah, I’ve read the other one, too. I think The Little Book that Beats the Market was one of his which is very good, too.

Cameron  30:07

Yeah, something like that.

Tony  30:08

And it’s, you know, people might want to have a look at it. It’s kind of a slimmed down checklist on how to beat the market. So, it’s a good one. I haven’t read this, I’ve ordered it now and it’s been delivered to Sydney so when I get back there I’ll have a read. But yeah, gosh, Lee, thanks for the lead. 50% per annum would be fantastic. We wouldn’t have to do any more podcasts, Cam.

Cameron  30:29

Well, we’d have to teach people how to get 50%, Tony, that’s, we’re here to teach.

Tony  30:34

They can read the book.

Cameron  30:36

They can read the book. People don’t read any more, Tony. That’s, readings old school. Taylor, when was the last time you read a book?

Taylor  30:46

Ah, shit. That’s embarrassing. Couldn’t tell you.

Cameron  30:49

Taylor always tells me…

Taylor  30:50

I need to, It’s actually a big focus of mine for this year.

Cameron  30:53

No, it’s not.

Taylor  30:54

It is.

Cameron  30:54

Yeah, really?

Taylor  30:55

Seriously.

Cameron  30:56

Taylor always tells me “anything I need to learn, I can get off YouTube. I don’t need to read books.”

Taylor  31:00

No, that’s not true. I can get most of my information from YouTube.

Cameron  31:03

Right.

Taylor  31:04

Or from other internet sources where I can probably consume it fifty times faster than reading a book.

Cameron  31:08

Right.

Taylor  31:09

But, not knocking reading books.

Cameron  31:11

It’s because you’re a slow reader?

Taylor  31:12

No, I’m a fast water.

Cameron  31:15

Nice one. All right. Thank you for the tip on the book, Leigh, I’m going to get a copy of it as well. Next question is from Mark: “hi Cam, can Tony please restate his views on 3PTL sells? Sell immediately or wait a few days, or wait until month end? I recall it as immediately, but what the hell would I know? Thing is, stocks that breach the sell line during the month but recover by month end appear in the Brettamajig as though the breach never happened.” Oh, I wish I’d thought of Brettamajig, that’s probably easy to say than Brettalator, but anyway. We’re stuck with Brettalator now. “Example is MYR, Myer. Brettamajig has it as a sell from the 17th to the 27th of January but a buy on the 31st of January. So, the Brettamajig buy line has not been redrawn, but shouldn’t the buy line be redrawn with H2 in September 21? This would make the new buy price 50 cents and remove it from the buy list.” And then he has some other examples. What are your thoughts on when/how quickly to sell, Tony, once there’s a breach?

Tony  32:19

Yeah. Well, so, I think the question is do we sell during the month or wait until month end, and I’d sell during the month. In terms of doing it immediately, it depends on the circumstances. Yes, I do it immediately if there was a clear breach. There have been cases where a stock has just, sort of, been on the sell line and hasn’t quite dropped below it in which case I’d wait. Or if it’s just below it, I might wait and see if it rebounds. But generally, I’ll sell it straight away and definitely during the month rather than the month end. In terms of what the Brettelator is doing, the Brettelator is working fine. It’s showing sells-the Brettelator works on a monthly graph, but it does give us data during the month as well for the very last, the most current month. So, I think in the cases that Mark has mentioned like Myer it did cross its sell line but then went back up above it by month end, so that’s why you don’t see a redrawn buy line in the Brettelator. I mean, I didn’t look at Myer during the month, but I imagine the Brettelator did redraw the sell and the buy line, or the buy line sorry, after a sell and that was probably taken out when the closing price came for the month and it went back above the sell line. So, it’s the kind of market we’re in. It’s very volatile, and we are seeing stocks, sort of, breach their sell lines and retrace above them again. So, yeah, it’s just a period we’re in. I’m not overly worried about it, but I am, I am seeing more volatility in my portfolio as well. I think it’ll settle down once people get their head around interest rates and Omicron and all that kind of stuff, from Russia and Ukraine and whatever else is going on in the world. Particularly interest rates, I think the market will settle down once they’ve factored in the right calculations there.

Cameron  33:58

Well, as that chart you shared with us on Facebook last week demonstrates there’s always crises and we’ve always recovered from the crises. And then there’s another crisis and then we recover from that.

Tony  34:11

Yeah, and the flip side of volatility is that we’ll come out the other end, and if we keep the system intact we will make money and more than recover any, sort of, losses we we’ve incurred along the way.

Cameron  34:23

Speaking of Myer, just looking at the chart I think it is ooh, very close to a sell. I know Taylor and I had to dump it. I think we rule 1’d it, did we rule 1 it? No, no, we did sell it recently.

Taylor  34:37

We sold it.

Cameron  34:39

Yeah, its back above the sell line then but it’s really close still there, sadly.

Taylor  34:44

But it’s been going down for the last five years. Like…

Cameron  34:48

Yeah, but it had some good growth though back then, I don’t know, post-COVID, but yeah. Thank you, Mark. Alice asked a question on the Facebook group and Phillip said he wanted to know as well. “Should MAM be on the list?”

Tony  35:02

No, I took it off because it’s a listed fund manager. It’s like an LIC. I took the rule to take the ETFs and LICs out of the buy list a little while ago, mainly around the fact that their operating cash flow wasn’t always, I’ll use the term business like. So, it’s not like a, not like a coffee shop where you’re operating cash flow is normally the receipts less the cost of collecting those receipts. For, less so for an LIC than an ETF. ETF operating cash flow can just reflect often, you know, money in money out by the people who are buying the ETF as they sell and buy that particular stock. There can also be some hedging in there, like currency fluctuations and some gearing, so. But it’s not like the operating cash flow generated by the underlying portfolio. And a little bit the same with Listed Investment Companies, they can have more of a operating cash flow that’s reflected by the underlying portfolio. I’m not familiar with in your MAM, but if it’s the manager then it’s going to be, the operating cash flow is going to be affected by the fees that they can generate, so it’s more about the size of the fund and the performance of the fund. So, they can be attractive investments. But in both cases, I decided to take them out. People can leave them in, and certainly there have been cases where they’ve been good investments for us before I put them out, but I also thought too if you find a fund manager that’s getting a better return than QAV then go and invest in it. Put your money in that stock. So, that was the reason for taking these kinds of things out of the buy list. It was, you know, not an easy decision – it was easy for ETFs but less so for the fund managers – but once I did I don’t think it’s caused much problem with the portfolio. And MAM is a listed fund manager, so it’s out.

Cameron  36:47

Well, according to Stock Doctor, MAM, Microequities Asset Management Group Limited, is a boutique value-driven fund manager specialised in exchange listed industrial micro caps and small-cap. MAM expanded into funds management in early 2009 by launching its flagship fund, the Deep Value fund. Today Microequities manages five investment funds and has over 300 million of funds under management. So, yeah, they’re, well they’re kind of like a Berkshire I guess really, you know, they’re investing in these businesses.

Tony  37:25

I mean, again, I don’t know them in detail. What you’ve just read out suggests to me that they’re the fund manager and they’ve got, they’re getting their fees from operating the underlying funds, which, which people can invest in. It’s often the case that if you can invest in the fund manager it’s a better deal than investing in the fund, because the fund manager can get outsized returns because of the fees that they take from those funds. I guess an example would be, if you look at, say, the Wilson Asset Management LIC’s, and there’s a whole stable of those like WAM and, and the various other ones, Wilson leaders and future generation funds, the funds themselves do well. I think WAM for example gets, sort of, 15/16% CAGR since inception. Although that’s, there are some twists and turns in that because they often issue lots of options and take over other Listed Investment Companies, so it’s not a straight line by any stretch of the imagination. But, the company that runs those funds, the Wilson, Jeff Wilson company that runs those funds is unlisted, and I would suspect that he’s made more money than if he had invested all his money in the funds. I don’t know for sure, but typically it’s the case that the fund manager does better than the funds because when the funds do well, they do really well, because their fees are a percentage of the performance of the fund. So, that could be the case with MAM. And that, you know, is a better argument for having it on the QAV list, because it is more like an operating business because it’s generating-its operating cash flow is from its performance. So, you know, maybe it can go in, but generally speaking listed funds and ETFs don’t have the sort of business metrics that we want to include in the operating cash flow part of our checklist.

Cameron  39:04

And we know that’s the key metric, right, in our checklist is the Pr/OpCaf. So, if we can’t get a good reading on that it throws everything out.

Tony  39:14

Correct. Yeah. And getting back to this idea of putting listed, the manager of the funds in, it’s a better argument than putting the funds themselves in but they can be also very volatile and if you look at Magellan, that’s the classic example of what can happen with a fund manager.

Cameron  39:28

So, just an update on the MAM discussion. This is a note from the editing room the following day. Tony sent me an email this morning saying “hi Cam, I did some more research into Micro Asset Management, MAM, after the question on yesterday’s show, and they can be added back to the buy list as they are a listed fund manager rather than an LIC. Their operating cash flow is derived from the fees they charge clients of their funds. Thanks, Tony.” So, I left all the conversation in that you just listened to about LICs and the challenges because I thought that’s a good revision anyway, but in this particular instance, Tony had another look at it and decided MAM does not fit that bill, so good to go. So, well done for asking that question Alice and Phillip. Okay, hope that helps, Alice and Philip. Eric asks, “about a week or so ago, a stock showed up in my portfolio. Took me by surprise because I didn’t purchase it. OXT, or Orexplore Technologies Ltd. After doing some digging, I found out that I was issued these shares as a result of the demerger of Swick Mining Services, SWK. Only I had sold my SWK shares a month earlier on account of rule number one. In any case, I now have these shares newly listed on the ASX. There’s no chart history, so I cannot do any 3PTL assessment. Also, did not purchase them. Essentially got these shares for free, so there’s no rule 1 to apply.” So, I think Eric’s asking, what do I do? How do I know when to sell them If there’s no chart history?

Tony  41:11

Yeah, so this has happened to me a number of times in the past, and I still use the rules  to sell. I’ll hold on to them. They oftentimes don’t represent businesses which I go out and invest in, because they won’t be on the buy list because something like an Orexplore Technology sounds a bit like a tech stock, so may not even have a bottom line at this stage or positive bottom line at this stage. But, I just take issue with the comment that was made that he got them for free. He didn’t get them for free, they were spun out of SWK. So, and I think, you know, I don’t know the timing of when SWK was rule 1 as a sell, but just be careful and pay attention before you sell something because if SWK became a rule 1 because they spun off OXT you should have added that back in, because you would have still had the share price from SWK added to the share price, not necessarily the share price, but the value of OXT to see if you would still hold it from a rule 1 perspective. It’s a bit like a dividend, I guess. We add it back until we get an amount in our bank account. So, that’s the first thing to note, and I’m assuming that Eric may have taken that into account.

Cameron  42:18

No, I don’t think Eric knew that OXT existed when he rule 1’d SWK. I think he just learned about it afterwards.

Tony  42:26

Okay, so I did a little bit of research into this this morning. Not a great deal. But SWK issued one OXT share for every three SWK shares that was held. And that happened back in January, 21st of January was the listing day, I think it was the register shut. They ruled their books on the 31st of December to see who was entitled to these shares, which is probably why Eric sold the shares and still got the OXT because it was, he must have sold them after the end of December last year. Anyway, that one for three, the share price back in December was 31 cents and when the OXT listed in January was 32 cents. So, it does have a buy price which is one third of 31 or 32, take your pick, but it’s around 10.5 cents. So, if this had happened to me, I’d be using 10.5 cents as my rule one and then waiting until we had probably about three months’ worth of data. Hopefully in that sort of time period you’d be able to start drawing some, a couple of peaks and looking at buys or sells based on the graph. But yeah, certainly I would say rule 1 at about 10.5 cents and then wait over time If you haven’t had to sell it for rule 1 reasons to see when you get some L1s and L2s or H1s and H2s in the graph.

Cameron  43:37

Cool. Thanks Eric. Petra: “can TK go through the movements of the share price for MXI? There was a special dividend paid in December of 62.5 cents as a result of sale of a part of their business, the share price dropped since more than this amount. Now they’re looking to raise capital to buy another business and the share price looks to be dropping more, closer to the offer price. How do we decide the 3PTL? Would TK just trust management and wait to see what the wash up will be? It seems that trend lines will be difficult to establish with so much change going on.” I think Taylor and I got our offer from MXI yesterday, we are both-were shareholders. I still am, I don’t think Taylor is, but yeah, we got an offer yesterday. I think it was $2.50 and the share price is currently $2.60.

Tony  44:28

Yeah and the Brettelator has a sell price of $2.40, so it’s heading down towards that sell price. Interestingly enough, that’s kind of around the value of I think the shares will get to based on dilution, because of the raise and potentially also because of the decrease in share price because of the return of capital of 65 cents that happened at the end of the last year. I gotta say, this is a really strange way to do things. I kind of question MXI’s board as to why they’ve returned so much capital and then put their hands out the next month and try to get it all back again. So, well unless that it was just coincidence that this opportunity to buy the truck company that they’re raising capital to buy wasn’t known about as a deal when they sent capital back to shareholders, which I guess is possible, but unlikely, or there was some kind of franking credit benefit to the dividend. So, maybe they were trying to get rid of franking credits on their, their balance sheet, which is to the benefit of the recipients; especially those who have self-managed super funds, for example. So, that’s my first comment, very strange things going on with the board of Maxi Trans. However, the kind of calculations I did when I had a look at it was when the special dividend was paid the share price was around three bucks and it was a 62.5 cent dividend, so the ex-dividend price should be around $2.45, which is above what the price is now. But, it may well settle down back towards that price. And likewise, when I did the calculation for the retail offer, which is one new share, or you can buy one new share for every 9.7 you hold at $2.50, that dilutes the shareholding base by, well, you know, roughly 10%. One for ten would be 10%. And again, when that was announced, if you take 10% off that share price you’re getting around $2.35 as the share price might get to after it’s diluted. So, given all those things are in plan as Petra, you know, quite rightly said, there’s a lot of moving parts here. I’m still going to use the Brettelator at $2.40 as the sell, and you’ve still got a bit to go before the fundraise closes which I think it is in the start of March. So, I’d be watching the share price just to see if it’s a decent buy towards the end of February before I made my decision about whether to buy some more shares. But, I suspect it’s going to be line ball here. It’s going, if the dilution is factored in the way I think it will be, and the ex-dividend is the big dip special dividend, I guess dilution or effect on the share price works out the way I think it’s gonna be, it’s all going to settle around that kind of, well just below the offer price. And the Brettelator sells at $2.40, so it’s I think it’s going to be a line ball, but I’d certainly wait until closing date for the offer price for the retail entitlement before I made a decision about whether to tack it up or not.

Cameron  47:12

Yeah, it’s certainly, it’s not a confidence building looking chart, is it?

Tony  47:17

No, but bear in mind, you did get 65 cents back as a capital return.

Cameron  47:21

Yeah, that’s true. So, wait and see for MXI.

Tony  47:26

Wait and see, and I’m still gonna apply the Brettelator to those four years of sell price. Well, I don’t own it, if I did own it, that’s what I’d be doing.

Cameron  47:32

Good. Thanks for asking that, Petra. James, “two questions for the podcast,” James, really? Oh, aren’t you special? “For Episode 429, in which TK shows how one can use the equity in one’s property to invest in shares. Should we show the cost of mortgage repayments per year? Investing in shares doesn’t have this cost. Is it still worthwhile to own and not rent the property if the property doesn’t appreciate at a rate higher than the interest you’re repaying the bank. Relevant now as interest rates are set to rise, and if the property is a unit, not a house, which increases around 5-6% per annum,” in a particular suburb of Sydney that he was looking at, I think, based on some follow up information he sent us in an email.

Tony  48:21

Yeah, so if people recall what James is talking about is I laid out what I did over my investing career, which was to buy houses, pay down the mortgage, wait for capital appreciation, and then use the equity to up my borrowings and to invest in the share market and let the dividends repay the additional mortgage costs. And then kind of rinse and repeat on that. So, as the share portfolio grew to be a large share portfolio, I would sell the share portfolio, sell the house, buy bigger house and start the process again. So, that has, you know, really done well for us over the years, and I think these questions pertain to the spreadsheet that Cameron put together to outline that. So, specifically, yes, you should be including mortgage, increase mortgage costs into the calculation. I think what James is alluding to there is if you-he’s laying out three options for communicating this to his children. And option one, I think, was to buy a property and just live in it and see what that does at the end of the mortgage over thirty years, and option two was to rent for that period of time and put the money in the share market, which was a better option because the share market returns are bigger than the property market returns, at least using QAV. And then option three was the one I outlined about increasing your mortgage when the equity in the house allowed. And so, yes, I would put the mortgage cost into the other two options, as I guess it’s an opportunity cost, to answer that. I guess, before I get to my general comments, there was another specific question about whether it’s better to rent or to own if the capital appreciation of the property you are owning doesn’t reach the interest rate on the mortgage. So, for example, if interest rates are at 5% but he’s only getting a 4% appreciation out of the property that they bought, is it worthwhile? I still think it is because that still beats rent, even though it’s only 4% per annum at least it’s not the negative drag of rent. So, you are building some equity favour over time, it’s just a slow way to do it. So, I guess my general comments. At some stage, and I think James’ example – and it was fairly detailed, so I won’t go through it – but he’s talking about teaching this to his, one of his children who have moved into a unit in an area of Sydney which is quite heavy with units and therefore only getting a, sort of, 5% return from property investment. My first comment is that at some stage in their planning, they should plan to move away from, well in this case it’s Alexandria, but it might be Southbank in Melbourne, or Teneriffe in Brisbane, I’m not sure of the other capital cities, but every capital city tends to have this cluster of recently built high rise residential units. And my reasoning for that is because my general rule of property is you want to buy something which can’t be easily replaced, and so there’s some scarcity value to it. Generally, that means, you know, in the capital cities it’s sort of five to seven K’s out from the, from the CBD. And it’s, you know, a Queenslander in Queensland in Brisbane, it’s a terrace house in Sydney and Melbourne, but just the various Council regulations means you can’t build any more of those. It’s impossible to go and build a Federation style terrace house now in Melbourne because the council rules have whole heaps of regulations around different drain pipes and clearances from the neighbours boundary and all that kind of stuff. So, yeah, it makes it very difficult if not impossible, notwithstanding the fact that the cost of doing that would be much higher than building a modern home because you know, the cost of putting on terracotta roofs and lacework and all that kind of stuff, and special tiles and Hawthorn brickwork and all that kind of thing, adds to the build. So, if you went and bought a terrace house in Melbourne it’s gonna appreciate more because of that scarcity component to it, you can’t build more. So, I just wanted to make that general comment. If you are buying a unit in Alexandria or Teneriffe or Docklands in Melbourne, be aware that two things can happen. Number one: if you have a good view, someone could come along and build another tower next to you and you could lose that view, which is going to be a cap on your appreciation from then on. But more importantly, number two is developers in these areas know when the prices are appreciating on the apartments, and guess what they do? They put up more apartments and they soak up that appreciation, so they get the benefit of it, not the owners of the units that are already existing. That’s kind of been in general the reason why, as James said, places like Alexandria have had about a 5% historical increase in property, whereas the overall market is sort of more like 9/10% long-term. So, yeah, I think at some stage that if his kids have already bought a unit in those places, then their salaries will get better, they’ll get property that will appreciate, and it might be time for them to look at something like a terrace house or a standalone house which will get better appreciation. So, that’s the first thing. I think the other comments I’d make is that don’t forget to take into account that extra mortgage drawdowns can be funded by dividends that are available in the market. And oftentimes, company dividends kind of go lockstep with mortgages. So, we’re actually in a situation at the moment where dividends in the market, I think the market average is about 3.5/4%, and that’s about if not a bit more than what you can get if you’re savvy at getting a mortgage from the banks at the moment. And I know from historical involvement that dividend yields rose to sort of, you know, 6% when mortgage rates went higher as well. So, you know, they do tend to have the same sort of pressures on them in terms of interest rates and dividend yields that the property market does as well. And the last comment I’d make is that James or his children do need to put into their planning a forecast for higher interest rates, because they will go up from here. And I think if you went to a bank now and asked to borrow something they’d probably want to stress test your ability to pay interest rates of around 6 or $7, or 6/7%, rather than the current sort of rates to make sure that you could be a long term customer and not get into financial difficulty. So, I guess they’re my comments, nothing against people using places like Alexandria as a starter and buying a unit rather than a house, but because, you know, it’s difficult to get into the property market and that’s one option as a way to do it. But, I would encourage them to, as soon as they can, to try and upgrade their property and get a better return from the property market than 5%.

Cameron  54:48

Thank you, Tony. Thank you, James. Hope that helps. Dave. Dave from Newy: “hi Cam, question for the pod. Assuming Tony bought Westpac when it was a buy and didn’t sell on a 3PTL. How would he approach the buyback which closes this week? Would he sell into the off-market buyback, or wait and hope it converts to an on-market one? Obviously, depends on how the shares are owned, tax rate implications, etc., and the final discount to market price applied. The offer seems line ball at best, though. Thanks, Dave from Newy.”

Tony  55:22

Yeah, so I guess the first comment is I wouldn’t be owning Westpac, I would have sold it before. It’s come down from a sort of high of around $24.50 back to about $21.82. So, it’s looking a bit like a falling knife. It actually had to extend the buyback because it was meant to close in December but the share price dropped significantly since then, so they’ve extended the buyback until the end of this week. So, I think, again, taking into account dilution, etc. – and this is a buyback where you can specify how much you’re willing to sell your shares for, so Dave can play around with that, he might jag a good price to sell his shares with – however, you really sort of being exposed to a falling knife here again. And, you know, if you can finesse the buyback, great, he might be able to sell his shares for a better price that way. But yeah, I think he should just sell and move on. They’ve come down a lot, and I can’t see them getting much better at the moment.

Cameron  56:19

What’s going on with Westpac, man?

Tony  56:21

Well, it’s kind of counterintuitive. This is an interesting point too, because it’s counterintuitive that you, sort of, think you’re getting a discount, but really, it’s still a falling knife so you don’t want to be exposed to it even if you think you’re getting a good deal to be exposed to it. I think you should get out.

Cameron  56:35

Yeah, well done, Dave. Again, it sounds quite strange though, doesn’t it? 0.0000 cent per share?

Cameron  56:35

All right. Dave also had a follow up, he said “reporting back. I did some more digging on MAD, M-A-D, the Mader Group.” This harkens back to a question he had in an episode in November, where he said he noticed that Stock Doctor reported 200 million fully paid ordinary shares, yet the equity share capital was only $2,000. He said “in short, yes, the share capital is correct to $2,000. The IPO was not about raising capital, rather existing shareholders realising their initial investment. There were originally 40 million shares at 0.00001 dollars and three at $1 for $43 in total share capital. Then in 2019, there’s been some sort of split and capital reorganisation to get it up to 200 million shares and ready for IPO. The share capital didn’t change throughout.” So, there you go, a bit of Sherlock Holmesing there from Dave, that makes sense.

Cameron  57:44

Yeah, who does that? Who issues 40 million shares at $0.00001 a share? Alright, last question from Ed: “do we still need to check for a qualified audit if it’s an ASX 200 or 300 Company? Is there a cut off point?”

Tony  58:01

Yeah, good question. I mean, I must admit, I do generally accept that the big companies won’t have a qualified audit because you know, we generally read about it in the Fin Review if they did. You can imagine if BHP had a qualified audit, for example. I don’t know what the cutoff is, though, because I’ve certainly had some companies with qualified audits that would have been I guess in the ASX 300, possibly in the ASX 200 in the past. So, yeah, look you, I don’t have a hard and fast rule for it. I won’t generally always check the big companies, I just accept that we’d hear about them if they had a qualified audit, but anything out of the, say, the top 20 or so I will check because I have been surprised in the past.

Cameron  58:39

Alright, thank you, Ed. Thank you, Tony. That’s all the questions for this week. Unless young fella, you have any more questions for the great man while you’re here?

Taylor  58:48

How did he become so wise?

Cameron  58:50

I meant, I meant me by the way. You can also ask Tony questions. How did he become so wise?

Taylor  58:58

Yeah.

Cameron  58:58

He was born that way, like baby Yoda,

Taylor  59:00

Really?

Cameron  59:01

Grew up to be Tony. Yeah. Tony was sitting around at kindergarten, just dispensing wisdom to the other kindergarteners. Alright, let’s talk about after hours. I watched Don’t Look Up. Chrissy and I watched don’t look up finally last night.

Tony  59:18

What did you think?

Cameron  59:19

Oh, depressing as all hell. I mean, funny. Well done I thought, very well done. But yeah, depressing. And it was the wrong idea to watch it late at night; I ended up just thinking about the end of the world all night dreaming about disaster scenarios, sitting around and having dinner with my family just waiting for the comet to hit.

Taylor  59:37

Did you watch the post credit scene? Make sure you stay for that.

Cameron  59:40

I did see the post credit scene, yeah, I’m glad I watched that. That was, that was funny.

Taylor  59:44

Really shouldn’t have been a post credit scene, it needed to be the final scene of the movie. I’m sure people missed it.

Cameron  59:49

It was good. Yeah. Yeah, well, I remember you saw it a while back. What did you think, Tony? Remind me?

Tony  59:54

Yeah, I loved it. I thought it was a great black satire and an indictment of modern politics. To me it was all about climate change, it was a, you know, it was a proxy.

Cameron  1:00:03

Of course, yeah.

Tony  1:00:04

So yeah, but very, very funny. Some great acting in there.

Cameron  1:00:08

Yeah, yeah. Great cast, great to see DiCaprio when he does these roles where he’s not Mr Smooth-talking confidence guy. Really great from all the cast. Adam McKay is really doing a great job between The Big Short and this and something else that he did recently, I can’t remember what it was now, but he’s come a long way from Funny or Die.

Tony  1:00:30

Yeah, right. And speaking of great casts, have you seen the French Dispatch yet?

Cameron  1:00:34

No. Is it out? Where did you see that?

Tony  1:00:37

Yes, I saw it on Foxtel, I think it also might be on Disney+ at the moment.

Cameron  1:00:42

Wes Anderson, love Wes, can never get enough.

Tony  1:00:44

Yeah.

Cameron  1:00:45

It’s always a highlight when there’s a new Wes Anderson film.

Tony  1:00:48

Yeah, not for everyone, but if people like the Grand Budapest Hotel they’ll love this. It’s fantastic. And the cast I mean, there must be fifty top name actors in it, it’s just brilliant. Benicio Del Toro, Lea Seydoux, Francis McDormand, of course all the regulars are there; Bill Murray. It’s just brilliant.

Cameron  1:01:06

I did, I saw a behind the scene thing about the making of that a while back, and some big actor, I can’t remember who it was saying, you know, “I had to travel across the country during COVID to, you know, sit around for a couple of days just for one scene that I’m in,” which is like ten seconds of film. They go “but you do that for a Wes Anderson film. That’s what you do. You just drop everything and you just, if you’re a serious actor, character actor, you rock up for a Wes Anderson film.” That’s great.

Tony  1:01:37

Yeah. And it’s clear that’s what people were doing. I mean, there’s just small cameos from, even people like Henry Winkler has a drop-in cameo for it. Yeah, it’s just great.

Cameron  1:01:46

Yeah.

Tony  1:01:47

Probably, I would say probably the most artistic of his films. So, there’s just great artwork, great sets, great optical illusions. The story is broken up into three mini stories. So, it’s meant to be the French Dispatch is a newspaper supplement, so it’s like three of their stories, and one of them is set inside a prison and they keep stopping and making these live action tableaus. So the, the whole scene of like a prison fight, for example, stops, everyone’s frozen in space. It looks like it’s a painting of it but they’re actually the live actors who have all just stopped. They’ve all been positioned. There’re things like glasses flying and they’ll all be glued to each other in a big arc. So, it’s just incredible the way it’s done. It’s very artistic. It’s great.

Cameron  1:02:33

Yeah, he is very artistic.

Tony  1:02:35

I saw the Sparks documentary. That was good, watched that last night.

Cameron  1:02:38

Oh, what did you think?

Tony  1:02:39

Yeah, loved it. Not, not really a fan of their music, but great story about people just spending a lifetime with their art getting right into it.

Cameron  1:02:49

We became totally obsessed with their music after watching it. Like, when you drill down into the lyrics their songs are all, like, the lyrics are just quirky and weird and funny, and they write songs on any topic. Just, what he had for lunch today, he’ll write a song about it and it’ll be hilarious. But yeah, it’s kind of weird music, right? It’s like really hard to groove to. Taylor, have you got anything, any great books you’ve read? Oh, we know that’s not true. Anything you’ve watched or listened to you want to give a plug for that you think’s good?

Taylor  1:03:22

Not really, I’ve just gone back recently and watched a bunch of the old Pixar movies as an adult. And that’s deep, man. Like it’s a really different perspective.

Cameron  1:03:32

They hold up.

Taylor  1:03:32

They really do. Completely different movie when you watch it as an adult versus eight years old.

Cameron  1:03:37

Yeah

Taylor  1:03:37

But, apart from that,

Cameron  1:03:39

It’s like watching Futurama. Fox is watching Futurama at the moment, he doesn’t get 98% of the jokes.

Taylor  1:03:44

Tony, I also hear you being hustling Wordle?

Tony  1:03:47

Yes. I love Wordle, do it every day.

Taylor  1:03:50

Yeah, I think we all have been as well.

Tony  1:03:52

It’s great. Although, it’s just been bought by the New York Times, so I don’t know how long it will be available to us free. Anyway.

Cameron  1:03:58

Yeah. Taylor and I’ve also been watching Peacemaker. Have you watched Peacemaker? I don’t think it’d be your thing. It’s, it’s um, did you ever watch Deadpool?

Tony  1:04:08

Yeah, yeah, I loved Deadpool.

Cameron  1:04:09

Okay, very much in the vein of Deadpool. Its a DC thing that comes out of Suicide Squad. James Gunn has directed it, it stars John Cena, the wrestler, plays this superhero called Peacemaker whose mission is to bring about world peace even if he has to kill every man, woman and child on the planet to do it. And it’s about, it’s a ragtag bunch of, it’s basically a bunch of undercover operatives with him as the superhero and a couple of other superheroes but he’s, it’s just really violent, really funny. Done in a sort of Tarantinoesque/Deadpoolesque, not taking itself too seriously kind of style and I think it’s really well done. Like every episode I think is very well crafted, very funny. And it’s also, it’s also got a good human side to it, too. It’s about this guy who did build himself this idea that he was going to be this violent superhero and he starts to question himself as he goes along when everyone just thinks he’s a complete tool. He starts to have to question his motivations and look inwards, and he’s very lonely as this doofus superhero. But yeah, if you like those sorts of violent funny things, check out Deadpool. And the hair metal song that I gave a plug to in our, when I published the buy list this week, Do You Really Wanna by Wig Wam is the opening theme for this and you got to, if nothing else, if you do nothing else, just watch the opening credits to Peacemaker because I think it’s probably the greatest opening credits sequence ever done of any TV show, ever.

Taylor  1:05:50

It’s the only TV show I can name with a dance number.

Cameron  1:05:53

A dance number with, yeah, it’s just, check it out. If you watch the opening credits and you don’t like it then don’t watch anymore, because the show is pretty much defined by that opening credits sequence. But yeah, I can recommend Peacemaker.

Tony  1:06:10

Okay, good. I guess before we go, the one thing I did want to mention about the Sparks documentary which might be relevant to listeners is they’ve been going for forty years, fifty. In one stage during the documentary someone made the point that, you know, most rock bands from the 60s have like a one hit wonder and then they lost all their money through blowing it all or being ripped off or whatever. But these guys didn’t and they’ve just lived a very frugal lifestyle, very disciplined, did the same thing every day, went to the same cafe, the farmers market, bought modest houses. And the point was made they just spent their money wisely and they’re still going fifty years later.

Cameron  1:06:48

And they’ve been able to afford to just put out an album every two years because they don’t need to make-it’s like the Woody Allen school of filmmaking, right?

Tony  1:06:55

Right, yeah.

Cameron  1:06:56

Keeps his budget low, just has a cult audience that he puts a film out for every two years and doesn’t, you know, doesn’t need to shift a hundred million units to survive.

Tony  1:07:07

Yeah, that was one of the takeout’s I had. Another movie that Jenny and I liked we watched a little while ago was called The Tender Bar. Have you seen that one?

Cameron  1:07:15

No. The tinder or tender?

Tony  1:07:18

Tender, tender, The Tender Bar. So, very small indie I guess type movie, but great performance from Ben Affleck who plays the uncle of a writer as he grows up. And I think it was directed by George Clooney, which is neither here nor there, but yeah, it was worth a… Very, very quiet sort of little movie, but I quite enjoyed it. Great performance from Ben Affleck.

Cameron  1:07:39

Thanks, Tender Bar. I’ll check it out. I also wanted to give a plug to artist of the week, Alex Kynaston. One of Chrissy’s birthday present is I commissioned a painting from Alex for Chrissy, which is still being completed but she showed Chrissy where it’s at today and Chrissy was blown away. And as she said, she’s very excited about having an Alex Kynaston hanging on her wall. So, if you’re looking to commission an artwork by an up and coming artist, you know, guaranteed to be a good investment in the future, let us know and we’ll put you in touch with Alex and she can paint you something. Nothing like a painting, an original painting hanging on the walls.

Tony  1:08:29

Yeah, I agree. I think she has an Instagram account if anyone wants to check out her work too.

Cameron  1:08:33

Great. I’ll give it a plug on our Facebook group. Alex remind me to do that when you listen back to this. Put it in the transcript. *Alex here, my account is @alexkynaston_art* All right, any timeline on going back home, Tony?

Tony  1:08:49

Looking like it’s probably the first week of March at this stage, but I’ve got a body corporate meeting tonight to Zoom into to try and get our renovations past and started, and hopefully they will be finished by then.

Cameron  1:09:01

Well, Taylor’s heading down to Melbourne this week.

Tony  1:09:03

Oh, right.

Cameron  1:09:04

He should come down to Cape Schanck and pay you a visit.

Tony  1:09:07

Mm-hm, sure.

Taylor  1:09:07

Catch the train, which probably takes like five hours to get there.

Cameron  1:09:10

Yeah.

Tony  1:09:12

It stops half way.

Cameron  1:09:12

I’m sure Tony would come and pick you up.

Taylor  1:09:14

Tony as the shuttle?

Cameron  1:09:15

Yeah. You should have a shuttle going down there, yeah.

Tony  1:09:19

Yeah, true.

Cameron  1:09:20

Alright. Thank you mate. Have a good week.

Tony  1:09:22

Thanks, bye. Bye Taylor.

Cameron  1:09:23

Cheers.

Taylor  1:09:27

Bye.

Cameron  1:09:27

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