QAV 515 Club

Cameron  00:02

Welcome back to QAV, episode 515, TK. We’re recording this on Tuesday the 19th of April at half past three in the afternoon. How are you, TK?

Tony  00:14

Yeah, really well thank you. Very good.

Cameron  00:17

That’s good. What’s news in Sydney? Have a good Easter long weekend?

Tony  00:22

Easter was brilliant, yep. We’ve had people staying with us and lots of events and social occasions. It’s been great. Alex came up, fantastic time. My sister had her kids up. And it hasn’t been raining! It’s been beautiful weather in Sydney.

Cameron  00:37

Oh, that’s good. Did the Easter Bunny bring you something nice?

Tony  00:41

I think I might have got one egg, but doesn’t matter. We had an Easter egg hunt on Saturday. That was, Alex loves Easter egg hunts so we’re still doing it.

Cameron  00:50

She’s 23 now?

Tony  00:51

Yeah. 22. But that was fun. And I forgot about putting the eggs out on Easter Sunday, so she didn’t get hers until lunchtime but that’s all right.

Cameron  01:00

Well, we spent Easter day in the emergency room because Fox spent the night throwing up all over himself, all over his bed linens, about three or four times, and was still throwing up into the morning. So, he ended up spending seven hours in the ER, poor guy. They just think it was gastro, but they did a couple of… we did a RAT test and then they did a PCR test and both came back negative. But yeah, that was fun. And my big boys are in LA. They’ve been FaceTiming me a couple of times from LA. Finally got there. Hunter’s been trying to get there for like, well, since 2020 I think. He had a flight booked for, he was supposed to go in April 2020 the first time, but obviously that didn’t happen. So, that’s good. They’re off having their adventures.

Tony  01:46

Yeah, fantastic. How long is Hunter staying for?

Cameron  01:49

They’re both staying for a month.

Tony  01:51

Oh, okay.

Cameron  01:52

So, let’s get into the show. Big news… well, not big news, but that’s sort of been all over the news this week, is what’s going on with Afterpay and the BNPL stocks. There’s been a lot of fun some of the tech journalists are having, sorry, the finance journalists, saying that Block is definitely in the Buy Now, Pay Later space — they’re paying later for their Buy Now. This was, I think, in the Financial Review the other day, “the biggest acquisition in Australian history isn’t looking so crash hot after Block paid $39 billion for it. Losses at Afterpay continue to blow out as missed repayments accumulate. In the last six months of 2021 Afterpay lost $345 million, up 65% on the previous half. At the current rate, owning Afterpay will end up costing Block $1.5 billion in 2022 alone. Gives a whole new meaning to the term Buy Now, Pay Later, but Afterpay’s not alone. As BNPL platforms expand into new markets like the US they’re all spending big. Throw in struggling customers who aren’t paying for their purchases, Afterpay’s bad debts are growing at 70% and there’s a reason the shine has come off the sector.” There was also an article in Morningstar I read this morning, said “losses increased by 336% owing particularly to a jump in marketing expenses,” the move to the US I suspect “up 99% from 2020 to 2021.” Later on in the Morningstar article they say they’re quoting some guy called Mr Ler from, I don’t know where he’s from, Mr Ler. Maybe Hyperion? They seem to be quoting Hyperion who own a bit. Yes… oh no, Morningstar equity analyst Sean Ler: “he remains optimistic about the future for BNPL stocks but he highlighted that marketing costs are pivotal, with numerous players vying for the attention of customers investors.” Talks about how Zip has played out. “Rate hikes could spell bad news for the BNPL sector. As interest rates rise, it’s essential that BNPL companies generate their own income from activities such as merchant fees and customer late fees to offset the growing cost of borrowing. Ler flagged that rising rates may tempt investors away from growth stocks like Block and Zip and toward value stocks so they may be able to reap cyclical benefits. It could also lead to a reduction in investor funding. He says a reduction in investor funding means these companies may no longer have the capital to simultaneously give discounts, spend on marketing campaigns, pay staff, or use their expensive shares to go on acquisition sprees. Instead, he expects companies to begin cutting costs. According to a report in the Australian, ‘Zip has slashed staff numbers by approximately 20% this quarter in a bid to cut operating cost by roughly 8 million.’ Sezzle has also slashed its North American workforce this year by 20%. Ler believes the losses reported by Afterpay are only the tip of the iceberg. He expects other companies in the sector will follow suit unless they’re able to effectively cut costs in order to service debt. Even if Afterpay, the market leader, is making losses, this just tells you that other players will also be making losses he says.” You know, the thing that this made me think of is, you know, for three years we’ve been talking about growth stocks and you kept saying, you know, “this looks like the dotcom cycle all over to me again,” and pre-GFC. It just pointed out to me, reinforced for me that these businesses that blow up and are running on free money, as we’ve always said, there’s a lot of unknowns in their future; what happens when interest rates rise, what happens when Visa or MasterCard or Apple or somebody like that get into the BNPL sector and they have some real competition with people with big market penetration and deep pockets. You know, what happens, what happens, what happens. Versus more boring businesses that are old fashioned and just generate cash, then you kind of… it’s relatively easy to forecast what their future holds for at least the next six-twelve months. Because, you know, okay, things do change in the iron ore space or in whatever space we invest in, but they don’t tend to change dramatically. Like, the iron ore price goes up and the iron ore price goes down, but it’s fairly consistent over time. People keep building stuff, you know, there’s no sort of dramatic interventions in these spaces. So, anyway, what are your thoughts without any Schadenfreude? What are your thoughts on the whole BNPL space at the moment?

Tony  06:44

Yeah, well a couple of things. I mean, the other thing that I found interesting in the Fin Review during the week, too, was an analysis which said that — I can’t remember which BNPL company it was — but they weren’t doing any credit checking. And in fact, perhaps it was all the BNPL companies, I don’t think they run credit checks before they give people access to funds.

Cameron  07:02

That’s old fashion and boring, credit checks, Tony, come on.

Tony  07:05

Right. So, you go out, you get your $2,000, you buy an iPhone, you walk away. You sign up with the next lot, get your 2000… it’s all moral hazard, right? There’s nothing punitive about not repaying your debt. They won’t let you borrow from them again or get access to more BNPL funds, but they don’t send the debt collectors after you or have a link to the credit scoring bureau. anything like that. So, it’s becoming a bit of a scam.

Cameron  07:34

And if I was a mob boss, if I was Tony Soprano — or, it’s a Christopher Moltisanti play really — I’d be getting some of my underlings to get a couple of hundred people to sign up, by some iPhones, whatever, collapse it, give it to me. Afterpay can chase them off… I don’t know.

Tony  07:58

Well, that’s right. I guess the general point I want to make is that there’s only ever three sources of funding for a company, right; it’s either debt, so the banks are loaning the money; its profits, so they’re making money, as you spoke about before with the iron ore companies; or its shareholders. And for these BNPL plays, it’s always been shareholders. I don’t think the bank’s lending them money anymore. The banks are quite savvy about risk management and getting their money back when they loan a accompany some funds. So, I mean, Roger Montgomery taught me this ten-twenty years ago; if they asked for funding and they’re not making money, they’re gonna keep asking for funding. And all you’re gonna do is pay them and never get paid back yourself.

Cameron  08:39

And we know that it paid off, or played out, for the Amazons and eBays and a handful of startup businesses that took twenty years, but they eventually got there and started showing some profit. But again, how do you know which one is going to be standing twenty years from now out of all these? It’s just a really hard game to play.

Tony  09:00

Yeah, and like, you’ve just listed two companies out of the two thousand that were on the NASDAQ in the dotcom boom, right? So, those odds aren’t great. And with hindsight we can say, “oh, yeah, but Amazon was always great,” but it got down to ten bucks a share after the dotcom bust, so it wasn’t seen as great back then.

Cameron  09:21

Yeah, and I remember when Barnes and Noble launched their website in competition with Amazon — and there were other competitors — and no one really knew how it was going to play out, who was going to win in the end, who wasn’t. But anyway, good luck to people that did well out of the BNPL stocks and the other growth stocks, but…

Tony  09:39

Yeah, if they played the greater fool and sold their stocks to somebody else, good on them. That’s a legitimate strategy if you’re good at it and know the industry and know the plays and all that. But, I think what we should do is ring up Jack Dorsey and say, “hey, we’ve got a bridge for you to buy, Jack.” If he’s gonna shell money out for something like Afterpay, we’ll sell him the Opera House.

Cameron  10:00

Well, maybe Elon Musk can come and buy that as well after he buys Twitter, he can come and buy Block. He’s got a spare $40 billion lying around or whatever it’s worth is.

Tony  10:11

What’s he doing? What — is he trying to give Trump a platform again? Is that his endgame?

Cameron  10:18

Hmm, could be. I mean, who knows what Elon is ever up to. But yeah, you can’t take your eyes off me. He’s entertaining and he likes shaking stuff up, that’s for sure.

Tony  10:29

Yeah, a great promoter.

Cameron  10:31

And I saw Warren Buffett in this new interview that I watched over the weekend… he says, you know, Elon is a great businessman. I know Elon’s had some less than nice words about Warren over the years, but Warren said, “oh, yeah, he’s great. He’s the best businessman in America,” I think he said Elon is, so…

Tony  10:52

I haven’t heard that one, okay.

Cameron  10:54

You didn’t watch the new Charlie Rose interview?

Tony  10:56

No. Is Tesla actually making money? I haven’t noticed it… I mean, it seems like once one part of the business makes money, it pumps it back into space, or batteries, or solar, or drilling companies or whatever, it never seems to make a profit.

Cameron  11:11

I don’t know if they’re… they’re separate businesses. I think they’re all separate companies, SpaceX, etc., etc. So, I don’t think Tesla’s moving money around between them, I think they’re sister companies that Elon owns.

Tony  11:26

Okay. I think there are some cross holdings, like Tesla battery might be owned at least half by Tesla.

Cameron  11:31

Oh, well, the battery… I don’t think SpaceX or the flame throwers or the tunnel diggers are all the same business. I don’t know, I don’t follow that kind of stuff.

Tony  11:42

What’s Warren been smoking? I mean, Elon Musk is a fantastic engineer and a fantastic entrepreneur. I’m not sure about being the great businessman, though.

Cameron  11:51

Okay, maybe he didn’t say that.

Tony  11:53

No, I believe you. Speaking of Warren, he’s been on the acquisition trail again. He’s opened his wallet. I saw that, during the week, he spent $22 billion in the last quarter buying US companies and stocks again which he hasn’t been doing for a long time. So, that’s a bit of a vote of confidence that the US markets becoming fairly priced again. He already had a stake in Occidental Petroleum, and he bought more of that. So, that’s always great when Warren buys an oil company after we’ve been buying them for the last six-months. That’s fantastic. Good to get approval there. He bought Alleghany Insurance, which is kind of complimentary to the insurance businesses in Berkshire Hathaway. And he bought, I think, 10 or 11% of Hewlett Packard as well. So, he’s spending again.

Cameron  12:37

Yeah, well, I think he’s always been wanting to spend, hasn’t he? He’s just hasn’t been able to find anything to buy. That was a great interview with Charlie Rose. By the way, Charlie Rose is still working. Who knew that? I thought he got Me-Too’d out of existence a year or two ago, but I guess his statute of limitations is up on that. It was a good interview, but Warren; 91 or whatever he is, like, just, funny, erudite as always. Says he still tap dances to work every day. He tap dances to work every day at 91. And he said its the people; he said he’s, you know, he couldn’t imagine anyone better to work with than Charlie, or his staff that have been with him for like, fifty-sixty years. I think he said his assistant started at Berkshire when she was 17 and she’s still there. She’s like, 67 or something. Yeah. It’s lovely to just hear Warren talk about how much he loves doing what he does.

Tony  13:44

Exactly. I mean, yeah, it’s very rewarding. I mean, I can speak to the same experience. Like, when you’re investing over the long term it changes your life and a lot of the troubles in life go away. And you do get up looking forward to things, for sure. But it’s also, it’s very telling of how good a boss Warren is that his core staff has spent their whole lives working for him and no one’s left, or not many people have left. They love working for him, they come in every day, they do whatever they can for him. I think that’s a great tip for Warren.

Cameron  14:16

It’s the company culture, is you die with your boots on at Berkshire. Isn’t that right? They’re all lifers. It’s great. In the news today, Tony, in the Hindustan Times — now one of my favourite reads — I read an article: “US natural gas prices at thirteen year high as Ukraine war creates global supply crunch.” Thirteen year high, that’s a pretty big high.

Tony  14:40

Yeah, well, we spoke about this before. About, you know, it’s kind of sad that we’re profiting off the Ukraine war, but it is boosting our energy stocks. It’s the same with the oil price, its back up well over $100 a barrel now as well. So, that’s going to hold for a while. You know, I’ll put my hand up and say I was wrong. I thought when Russia defaulted on its bonds about five days ago that that would be a real milestone in trying to resolve things, or it would try to be resolved before they defaulted. But, they’ve sailed through that and the war goes on. So, that’s a shame.

Cameron  15:10

They defaulted?

Tony  15:11

I think so. I didn’t read the article, I skimmed through the paper and saw a headline saying they were defaulting.

Cameron  15:17

So, I mean, who does that hurt, really? That hurts their investors, right?

Tony  15:20

Yeah, it hurts Wall Street, whoever was buying their bonds. Because their bonds have been marked, will be marked right down. Last I saw they were down to 20 cents on the dollar before the default, so they’re probably even lower now.

Cameron  15:30

But I think it was the foreign minister — somebody high up in Russia quoted in the media — and it was, like, about a month ago, saying, “we don’t care about your sanctions.” You know, “we’re ready for it. We put measures into place a long time ago, sanctions mean nothing. We’re just gonna blast through your sanctions, it won’t matter.”

Tony  15:51

Well, there’s one school of thought which says sanctions don’t work, but they do tend to take some time when they do work. And the classic case against saying sanctions don’t work was South Africa and the sanctions against them which ended Apartheid — or helped to end Apartheid — but they took a long time to do it. I never thought sanctions would end the war in Ukraine, but it obviously is having a negative impact on the Russian economy.

Cameron  16:13

Anyway, stocks of the week: DUR and PRU. DUR is an interesting one. I had to ask you about the chart for this, because it only floated a little while ago and it’s been coming down ever since. But, I’m still not exactly sure when to call something a falling knife versus something that’s, you know, it’s turned up a lot since we declared it stock of the week yesterday. Oh, it went ex-div on the 12th of April, too, paid 10th of May. But yeah, like, when you look at this chart, DUR chart — Duratec by the way, for people playing at home — floated November 2020. Looks like it listed at about 57 cents, shot up to 59, and it’s currently trading at 40. Came all the way down to 31 late last year, but it’s back up to 40. What’s your definition of a falling knife these days, TK?

Tony  17:09

Oh look, it still hasn’t changed. I don’t know if I have a scientific definition, but when I look at Duratec I can clearly see a buy line that’s been crossed and now that the stocks turned upwards again we can put a sell line in. So, I’ve got a buy and a sell line, and it’s above the buy line so I think it’s a turnaround story rather than being a falling knife.

Cameron  17:26

So, if it’s above the buy line, that’s what you’re looking for?

Tony  17:29

Well, it depends, Cam, that’s why it’s a bit difficult. So, remembering back to stocks like Adairs, ADH, they had a very old buy line; they were still above but they were dropping. So, yeah, I haven’t written into the Bible yet, but I still like the idea of if it’s the most recent buy line rather than the one that was set following the most recent sell line — so, in other words, if H1 and H2 are at the right hand side of the graph and it’s crossed those, then I think the falling knife has got a very good chance of ending and we’re into a turnaround story. Which is what the shape of this graph looks like, it’s the classic hockey stick shape where it’s been going down and now it’s turned up.

Cameron  18:11

It’s had a couple of attempts of turning up, though. Like, from May ’21 it went up and then it came back down, and then in November ’21 it went up and then it came back down. So, you know, my worry is that, okay, it’s going back up but it might come back down. But, you think if it’s crossing a buy line then it’s probably safe.

Tony  18:32

A recent buy line, yeah. Well, I don’t know how safe, I’m not giving any guarantees, but I think its time to buy with a reasonable chance of it going up further, yeah.

Cameron  18:41

So, I think that was our micro-cap stock, and PRU — good old PRU — is our large-cap stock of the week. This is a crazy chart.

Tony  18:53

It’s a great one, isn’t it.

Cameron  18:54

It’s just been going from strength to strength for a good four years, really.

Tony  19:01

Well, I bought PRU probably about four years ago, maybe three years ago, at 50 cents. So, it’s been a homerun for me, a full dagger.

Cameron  19:09

You haven’t had to sell it in that time?

Tony  19:12

I might have, like, I actually honestly can’t remember. I may have sold it and bought it back, but I’ve certainly been — except for maybe a small period — a long term holder of it.

Cameron  19:20

Yeah, it looks like it’s had a couple of significant drops: like, in July ’20 it had a bit of a drop there down to March of ’21. But, I don’t think it would have ever crossed a sell line, because the sell line is really low.

Tony  19:34

Yeah, that’s why I think I’ve had it the whole time.

Cameron  19:37

I think the sell price is probably about 48 cents looking at my chart here, and the price is currently over two bucks. So, that’s a corker. Well done on that one. So, I think I hold it too, but you’ve had a lot longer than me.

Tony  19:50

Yeah, it’s been a beauty. I’ll do a pulled pork on that, too, whenever you’re ready for it.

Cameron  19:54

Okay, well before we do that, just a portfolio update. We’ve been talking for the last week about whether or not to sell SFC, Schaffer, which we bought in the portfolio back in August 2019 at $14.50. So, that’s, what’s that? One and a half years… two and a half years, two and a half years ago we bought it and its probably the longest stock we’ve held in our portfolio.

Tony  20:22

Yeah, could be.

Cameron  20:23

It’s now trading at $20.80 and we sold it today because it has crossed a sell line, which is kind of insane. Again, you look at the chart for this and it’s had a corker run for the last five years. Five years ago, it was $5.29, it’s now over $20. You know, rules is rules.

Tony  20:44

Yeah, and if you look at the last six months on that chart, it’s been going sideways. So, that’s why the sell line has come about, I think.

Cameron  20:52

Yeah. Right. Now, I did send you an email about what to replace it with, you haven’t answered yet. We’ve got ZGL and ASG, I think are the options. ZGL has got a very low average daily trade, but I don’t think that really matters for our dummy portfolio, does it?

Tony  21:09

Yeah, it does. So, the dummy portfolio is about $32,000 now, I think, so we want to buy something with an ADT of one-twentieth of that times five, so 20% of the ADT. And what’s the math on that? I can work it out quickly.

Cameron  21:25

Do we though? ‘Cause we’re not selling it, because we’re not buying it? Are we really beholden to those restrictions?

Tony  21:34

It’s not going to be a dummy portfolio if we fudge the rules. So far to date, we’ve always applied our own ADT rules, but we’ve been able to buy small stocks because the portfolio’s got a small total value.

Cameron  21:45

Well, the amount of money that we got from selling SFC, I think, was about $1,500. So, we need an ADT of five times 1,500?

Tony  22:00

Well, no. So, the portfolio is 32,000 at the moment. If I divide that by twenty, 1600. So, that’s pretty much what we sold SFC for, and times that by five: 8,000 ADT.

Cameron  22:13

Well, ZGL. Now, hold on, I’m just having a look at its ADT. It’s $566. So, yeah, that’s probably too small. ASG, Auto Sports.

Tony  22:26

No, that’ll be fine.

Cameron  22:29

Okay. So, we’re going to replace SFC with ASG, and we bid SFC a fond farewell for now because it’s done very well for us over the last two and a half years.

Tony  22:44

And paid some good dividends from memory, as well.

Cameron  22:46

Yeah, I think so. Very good. But there you go. You know, people often ask about taking profits from stocks that do really well, and I guess this is a good example of how we do that. We are taking profits here, but only because it’s crossed the sell line.

Tony  23:08

Yeah, I guess a quick word about the sell line for SFC, because we went back and forwards on it at the end of last week. And, the Brettelator I think is doing the right thing. It’s using the L1 low point as 30th of April, 2020, and then drawing a sell line from there. When you first raised it with me I went back and had a look and thought the L1 might be back in July 17. But, the way that the Brettelator is coded, and it was coded by Brett and myself after a lot of discussions and a bit of research into different types of examples, we decided that the troughs and the peaks should actually be troughs and peaks and not just a low point on the graph. And so, back in July 17 for SFC there’s no trough there even though the graph is lower. The first sort of trough that we’re going to use for our sell line is April 2020.

Cameron  24:02

And the definition of a trough or a peak for new people is that the price either side of the trough is higher than the trough price. The reverse is true with a peak, the prices either side of it have to be lower for it to be a peak.

Tony  24:17

I reflected on that when you raised it, and I asked Brett what the code was saying and he pointed it out. And I think it’s probably one of the benefits of the Brettelator is these things are coded and written down in probably, and by the very nature of having to code it, probably in more detail than, say, the Bible mentions these things as well. So, that’s a benefit, I think, to have. Like, once you work out what it’s going to be, you can just code it and walk away and not have to reinvent the wheel every time a new example comes up, necessarily.

Cameron  24:47

Yeah. It’s like having a good business plan. It’s the thing that you go back to. It’s written down, its set in concrete. It can be changed, but…

Tony  24:57

Yeah. We can decide to change it but, you know, it’s good to see what we decided on after we did some research last time.

Cameron  25:02

Yeah, and you only want to change it if, you know, there’s sufficient reason to change it. It has to be done carefully and systematically, you have rules that you’re going to apply. Just on our portfolio over and above that change with getting rid of SFC, for the financial year to date we’re a couple of points above the SPDR 200 according to Navexa. It’s running at about 9%, we’re at about 10.5% for the financial year. And again, you know, my theory on this is that we had a Corker financial year, previous financial year. I think we did about… the ASX 200 had a good year, it was up at like 23% for the financial year, but we did about 45 or 46, according to Navexa. So, we were way ahead but then we started — and a lot of those were in iron ore stocks — and then we started this financial year and in August, late July, and through August, we sold our iron ore stocks as the iron ore price came down. So, we started from a high base, everything dropped, and we’ve been rebuilding since we had to dump all of our iron ore stocks. But still, we’re above. And of course, since inception, which is about two and a half years, I think we’re about three times the ASX 200. So, all in all, it’s going well. In the last seven days, looking at the chart performance, FEX is up 17.5% in the last seven days. GRR is up about 10% and CCV is up about 9% in the last seven days. So, they’ve been the big winners in the last seven days. One other thing I wanted to talk about, the weekly Zoom calls that I’ve been doing; first week, we had about twenty people turn up which was great. Second week, we had about five. Third week — last week — we had one and that was your brother in law Wal, and he said “I didn’t have any questions. I was just coming to see what’s going on.” So, I’m not going to do the Zoom call at seven o’clock every Wednesday night if people don’t want it. So, I’m gonna take a break and pause those for a while and let’s figure out… I do want to make myself available, particularly for new people, to do Q&A’s, and for anyone else, too. But we need to find time that works for people and there has to be, obviously, interest. I don’t want to be sitting here on a Wednesday night with my gun in my hand… just trying to paraphrase Sonny Corleone there, but keep it clean. That’s it for me. What have you got for news this week, TK?

Tony  27:43

Not much more than what we’ve spoken about. A couple of things; I’ve noticed the yield curve has righted itself. So, two weeks ago I spoke about the yield curve inverting in the States — I don’t think it ever did in Australia. And that was important, of course, because analysts were saying “oh, well, it always precursors a recession.” But now the long-dated bonds are back higher than the short-dated bonds, so the inversions reversed itself again. All that, sort of, doom and glooms gone away from the financial press as soon as that started to happen. So, that was of interest, but a fleeting inversion of the yield curve. I just wanted to highlight a mistake I heard when I listened to our podcast recording last week. I said something like that rising interest rates will be a headwind for banks, and I should have said tailwind. So, I misspoke. I think my point was clear from the rest of the context of discussing the banks we talked about last week, but their profits should get a tailwind from rising interest rates. If I said headwind, I apologise — I did say headwind, I think, but it meant to be tailwind.

Cameron  28:45

So, break that down for me. Rising interest rates, basically, just good for banks is what you’re trying to say?

Tony  28:52

Yeah, pretty much. They give the bank’s profit a tailwind, a boost. I think I went through those points last week, but if I can recall them the banks will be quick to pass on interest rate rises when they can be slow the past on interest rate decreases. And also, too, just like with the mining companies, when the underlying commodity goes up, the percentage margin might stay the same. In fact, it usually improves with the banks because they don’t have to put any more money into costs, the same number of branches are open, the same IT systems are there, but they get a bigger spread on both their dollars and their margins.

Cameron  29:30

All right. Well, thanks for clarifying that. You want to talk about PRU in more detail, do a pulled pork?

Tony  29:36

Yeah, I’m quite surprised I haven’t talked about it yet already, but it’s certainly been a part of my portfolio for a number of years now. A little while ago I did a pulled pork on West African Resources and PRU, Perseus Mining, is another West African gold miner. So, again we start to see themes in the portfolio and on the buy list, but we don’t set out to buy West African gold mines. They just come onto the portfolio on a case by case basis, and after a while we see that there are a couple of stocks in our portfolio that fit that profile. The first question that always gets asked when we talk about overseas gold miners or any sort of overseas based company is sovereign risk, and is this a risky asset? And my classic answer to that is if every stock I owned was a West African gold miner I might, you know, be a little bit concerned about sovereign risk. But, if I only own one or two and there is a problem, well, the portfolio can withstand it. The flipside to sovereign risk in this case, of course, is that these stocks are value stocks because a lot of fund managers don’t want to take on the sovereign risk of West African gold miners. And for new listeners, sovereign risk is basically the risk that you are operating in a country that may not have the rule of law that Australia does, it may not have the same parliamentary system, the same democracy, the same law/legal process, and they probably won’t have all those things. And so there’s a risk, and it has happened from time to time, that — I think there was a case recently where there was a junta in one of these African countries and West African resources dropped by 20% even though it was in the neighbouring country, it wasn’t the one that was having the coup. But there has been cases where a new government takes over and they decide that all this profit shouldn’t be going from the country and they should be getting a bigger take of it, and so they put up taxes. There’s been cases where the miner has sold the mine but the government hasn’t let the money out of the country, things like that. So, that’s what sovereign risk is, and that’s always a risk when we’re investing overseas. But on the flip side, we get compensated for it because the price of these companies are a bit down because of that. And like I said, if I had a whole, if I only had one stock and it was a West African miner I might be a little bit concerned about sovereign risk, but one or two in the portfolio I think is an acceptable level. So, Perseus Mining owns three gold mines, one in Ghana and two in Cote d’Ivoire. They’re both in Africa, obviously. And just recently, and one of the reasons that there’s been a bit of a rocket under its share price, they announced that they had acquired another mine in Sudan. And on top of that, they’ve also announced that one of the mines they already own has discovered more gold reserves. So, there’s been a writing up of the reserves projected, both the quality of the minerals and the life of the mine gets a boost. And that, of course, means the assets and profit projections get a boost. So, that’s one of the reasons why its on the increase. This company has been very, very cash positive, and it trades at a Pr/OpCaf of 5.5. So, it’s getting up close to our limit but it’s always thrown off a lot of cash and in the last twelve months the cash has increased dramatically. And, the earnings per share is forecast to grow by a further 24% next year, so it’s one of those miners who are in, you know, a good space. They own minds where people believe that the reserves will keep getting upgraded and extended, and it becomes a bit of a flywheel effect that the cash that gets thrown back at the company from sales from these mines can also be used for acquisitions, and the whole cycle starts again. So, that’s what’s happening with Perseus mining at the moment. It’s a large-cap stock, I mean, it hasn’t always been; its ADT now is 10.69 million per day, but it’s four times bigger than what it was when I first bought it. So, has grown, but it’s certainly a large-cap company now which I think everyone can fit into their portfolios. Share price that I did for the analysis is $1.99, I think it may even be superseded now, I think it’s gone up again today. So, do your own research when you hear this, the numbers could have changed for some of these scores. Particularly the price to consensus target because it was sitting at about 99% when I checked that this morning. It’s a Star Growth Stock, so it scores for that. The financial health is strong and steady which you’d expect from a star growth stock. As I said, Pr/OpCaf, its price to operating cash flow is five and a half times which is good. It’s price is above the IV1 calculation but less than our Intrinsic Value 2 calculation, so it scores a point for that. The price to book though is about double, so it’s not going to score for that — or price to book plus 30%, it’s not gonna score for that either. Because the forecast EPS growth is 24% growth over PE, though, is above 1.5. It’s currently 1.86, so it scores for that. I guess the flip side to all these mining companies that are in their growth stages is it has a very small yield, of only point 4%. So, it’s not going to pass our test for yield. On the manually entered data it has a record low of six-over the last six halves it has a record low PE for the six halves, so that’s good. It gets score for that. The equity has been consistently increasing and that’s always a good one to see, so it scores for that. And overall, it’s scores fourteen out of fifteen items, or 93%, for its quality score. So, pretty good, pretty high for that. And a QAV score of 0.17 which probably puts it about halfway down the buy list, but still worth looking at. A company which just seems to be always in that growth space.

Cameron  35:27

And I know a lot of people get sort of skeeved out, Tony, by stocks that have a graph that looks like PRUs. Like, you know, it’s easy to look at that chart and go, “oh, it’s gone up so much. It’s stupid to buy this, all the growths gone. It’s done, its grown — look at it, it’s gone from,” what’d I say? $5 to $20 in five years?

Tony  35:49

50 cents to $2.

Cameron  35:52

Same thing, same same.

Tony  35:56

Same graph, different values.

Cameron  35:57

People look at it and go, “I’m not buying that!” How do you think when you see a graph that goes up to the right like that?

Tony  36:05

Yeah, so it doesn’t bother me at all that the price is going up and that the graph is bottom left to top right. That’s kind of like what we want to see, and it’s a long way above its sell line. And the reason it doesn’t bother me, particularly in this case, is if you just do a bit of digging you can see that the company’s swimming in cash, and it’s just gonna keep compounding. So, they’re either gonna spend it on acquisitions or exploration at their current mine sites. There’d have to be something pretty dreadful to happen before all that cash would slow down the growth of the share. And its compound growth, so that’s just going to keep increasing as far as we can see. I’m not going to predict things and there’s sovereign risk and all those things that could happen, but at the moment it’s in a very good sweet spot.

Cameron  36:48

Maybe people might wake up this week and decide they don’t like gold anymore.

Tony  36:52

Yeah, well, that’s one of the risks; the gold price drops. I mean, there’s always those kinds of things when you’re investing overseas. We’re investing in a locally listed company, but the business is overseas so there’s always currency risk. You know, I think they’re probably selling in US dollars but there probably would be local currency risk because they’re probably paying workers in whatever the local currency is in Cote d’Ivoire. If there’s hyperinflation all of a sudden in Cote d’Ivoire, their costs go up. If the US dollar, or the Australian dollar drops, or the US dollar rises, there’s currency risk there. As you say, if peace suddenly breaks out in Europe then the gold price might come down. So, all of those risks are there and that’s one of the reasons why the company looks cheap. If you turned it around and say, “my coffee shops gonna make 24% more profit next year. It’s been doing that every year for the last four years.” I doubt if I’d offer you-I doubt if you’d accept five times operating cash flow as the price for the coffee shop, right? It’s the goose thats laid the golden egg; you’d want a much higher multiple for it.

Cameron  37:54

Although, I hear a lot of stories saying that the price of coffee is gonna go through the roof over the next couple of years. We’re running out a coffee, we’re at peak coffee, Tony.

Tony  38:05

I think it already has.

Cameron  38:06

Yeah, I know it’s been going up.

Tony  38:08

Yeah, I did look at the graph a little while ago — six months ago — and it was definitely a buy, but I couldn’t find any stocks on the ASX anyway that would benefit from that.

Cameron  38:17

Yeah, no, the guy I buy my green beans from — because I roast my own beans — he’s like, “yeah, man,” he says “the Chinese are buying it all.” That’s his thing. He’s like, “ah, the Chinese are buying all the beans. It’s all going to China, China’s discovered coffee. It’s crazy.”

Tony  38:33

Why are you roasting your own beans?

Cameron  38:36

The very fact that you need to ask that question, Tony, means that you probably aren’t sophisticated enough to deserve an answer.

Tony  38:45

Correct. I’m in the Warren Buffett School of sophistication.

Cameron  38:50

All us cool people. Look, I got a ponytail, Tony. Look! Oh, I did. I took it out. I have a ponytail.

Tony  38:57

Yeah that’s cool. In 1990.

Cameron  38:59

I had one in 1990, and I’m going back to 1990-1988. You gotta roast your own coffee beans, I don’t know why. They reckon it’s better.

Tony  39:10

Do you get them cheaper if you roast your own beans?

Cameron  39:11

Yeah, it is a bit cheaper, yeah.

Tony  39:13

Okay, that’s worthwhile then. I understand that.

Cameron  39:15

But if you factor in my time that I spent doing it, it’s half an hour depending on, you know, what my hourly rate is. You know, it’s $15 an hour, and half an hour spent roasting, that’s $7.50 you’ve got to add on to the cost.

Tony  39:28

What. you have to stand there while they roast? You don’t just put them in the oven and go away?

Cameron  39:31

If you have a fancy high-end coffee roasting machine as some of my friends do, yeah, you just turn it on and it goes and does it all for you. But I don’t do that because to me, that feels like cheating. I like to… it’s a bit, I tell you what it is, it’s a bit like cleaning your own car, you know? It’s probably been a long time since you’ve cleaned your own car, Tony.

Tony  39:54

There’s a car wash up the street that will do it for me.

Cameron  39:56

I know, but there’s a thing when I clean my own car, which I do most of the time, I kind of feel like I’m in touch with my car. I’m taking care of it. I’m not a mechanic, my mechanic comes tomorrow to do my service. I’m, to the best of my ability, I’m in touch with my… I’m in touch with my coffee beans and my food. I’m participating. I’m not growing and I’m not picking it, that’s the hard stuff, I acknowledge that. But I don’t know, there’s something about roasting it that just puts me… I don’t know…

Tony  40:26

This is like Zin and the Art of coffee bean roasting.

Cameron  40:29

I wish you hadn’t asked that question because, like, my entire life choices are now just dissolving in front of me. Why am I roasting my own coffee beans?

Tony  40:39

I’ve never heard… you’ve got this interesting underground group of friends in Brisbane going around and roasting their own… do you get together and have coffee bean parties? “Hey, I just roasted some coffee beans…”

Cameron  40:49

We do. No, the way I do it is I have a big old cast iron pan and I throw them in there and I just stand there and stir them for twenty to thirty minutes. Gotta keep stirring it, keep stirring it, keep stirring.

Tony  41:00

Your time really isn’t worth much, is it?

Cameron  41:04

But I feel… and the house smells like, you know, roasting coffee, so it gets really hot. Anyway, I think it’s probably the last time I’m ever gonna do that now, you just took me out of that. Are you ready for Q&A?

Tony  41:16

Yeah, sure. Send your coffee bean questions in for Cameron next week people.

Cameron  41:23

Why do you cook your own food-occasionally?

Tony  41:26

I hardly ever. Oh, at Cape Schanck I do because I can’t get out. But yeah.

Cameron  41:31

Yeah, you have to. Yeah, okay. You don’t make your own breakfast, you go down to the cafe for that. You don’t make your own dinner.

Tony  41:37

Beautiful, yep. Buy the paper, read the Fin Review, bacon and eggs. Lovely. Bellissimo. Great way to start the day.

Cameron  41:44

Yeah, well, you’re spreading the money around in the economy, that’s good.

Tony  41:48

That’s right.

Cameron  41:49

Yeah, you’re putting it back. Question from Aiden. This is from our first Zoom call a few weeks ago. He asked if you don’t have Stock Doctor, where do you find board ownership levels? Is it just the annual report?

Tony  42:03

It is, yeah, that’s where I’d look. So, it’ll be in the directors’ report in the annual report. Sometimes it gets also duplicated in the rem. report, the remuneration report section, because they’ll tell you the CEOs stock holdings there too. But, the directors report in the Annual Report will have it. I did look at it, I was going through a half-yearly report for Perseus Mining when I was pulling together the pulled pork today and they didn’t have the directors holdings, but they were there in the annual report.

Cameron  42:33

I think I found it on that Zoom call, too, in like Yahoo Finance. So, I think that might be another place, you can go there. But if anyone has any other suggestions for Aiden, please let us know. Post it in one of the many comms channels that we now have that I have to monitor constantly.

Tony  42:56

You can set up like three or four screens in front of your cast iron skillet while you’re roasting coffee beans.

Cameron  43:00

That’s what I need, yeah. Thank you for that. Duncan says “I saw this article on the AFR recently and I wondered if the foreign connections to a non-democratic country should be a source of concern for the likes of YAL and GRR to investors. I wonder if it is something that TK has an opinion on?” This article from the Fin Review dated March 4, Christopher Joy column. “Investors blindsided by global conflict risks. Markets have underestimated the probability of conflicts exacerbated by investors blindly providing equity and debt funding to despots and dictatorships.” What do you think about the risks? It gets back a little bit to the stuff you were talking about sovereign risks with PRU.

Tony  43:48

It does, yeah, sovereign risk. Although, the specific companies Duncan’s raised here — Yancoal and GRR — although they have a version of sovereign risk, it’s in reverse. So, Yancoal and GRR are two companies with overseas owners. And I think in both cases, it’s a big Chinese company which owns a majority of at least 40%, maybe even 50% or more of those companies. But the mines, so Yancoal’s coal mines are in Australia, in the Hunter I think, and in Western Australia, perhaps. And GRR has an iron ore pellet business in Tasmania. So, a lot of the risk goes away from a sovereign risk point of view, because we know what the legal procedures and the rule of law is life in Australia and the tax rates and what democracy is like and all that kind of stuff. So, it’s unlikely that the assets will be seized. I guess there could still be a coup and it would seize the assets, but it’s less likely here than in some overseas companies. There would be still maybe some risk if one of these overseas owners was a Russian company right now and there were sanctions against them. I don’t know what the legal repercussions would be in Australia, perhaps some of the assets would be frozen and these companies. I know there was a case recently where Rusal, I think that’s the right name, which is a Russian aluminium company had a JV with Rio Tinto for an aluminium mine, or bauxite mine, Aluminium smelter, I think. And basically, the Rusal side was sanctioned and couldn’t receive any income from the company that they had the JV with, or the company that the JV owned. And Rio just did some kind of side deal and they took over temporarily total ownership, and I guess they’ll pay Rusal back when and if the sanctions get removed. So, yeah, I think the sovereign risk of an overseas company owning Australian assets and us investing alongside them is a lot lower than the sovereign risk of an ASX listed company owning the mines overseas. But it’s still not without risk. But again, I mean, that’s one of the reasons why these companies are… why we’re being contrarian and why US companies appeal to a value investor, because we’re happy-we’re aware of those risks and we’ll take them on given that the price being offered to us is compelling.

Tony  44:43

But do you even look into these companies enough to know that they have significant foreign ownership?

Tony  46:13

Yeah, I do. And not for the sovereign risk angle, because I think the sovereign risk is low, more from the ownership structure point of view. So, I had owned Yancoal years ago and I remember when I wanted to sell my shares it took a long time because the ADT went right down to a very low number because the market was being supported along the way by these large companies that were, for whatever reason, buying and selling shares, and it can be a problem when there’s big names on the register, the liquidity can dry up. And if anyone wants to have a look at it — Duncan might want to have a look at it — have a look at Yancoal in Stock Doctor anyway, and look at the twelve-month volume movements in the share price and you can see that even though the ADT is something like just under a million dollars for Yancoal, you know, some days it doesn’t even trade. So, it’s kind of volatile. So, that’s the reason I paid attention to the ownership structure. Whenever I see a company that has large shareholdings on the register I will be really careful about applying my ADT rules, because I know you can get caught getting out.

Cameron  47:26

So, at what point do you check these things? It doesn’t show up in the checklist.

Tony  47:33

No, it doesn’t. It’s a normal ADT rule, so I’m not doing anything different. But like I said, I have been caught out before. So, if I was going to buy into Yancoal now, and I wouldn’t be because the ADT isn’t high enough, I’d want it to be a much higher number than where it is now for me to buy into it just because I know that with large companies dominating the share register, the liquidity can dry up quite quickly. I don’t have a rule for it. I don’t know if we should modify the ADT rule for it, but that’s the reason why I would look at a company like Yancoal, just from experience. And because I’ve had that experience with Yancoal I look at other ones. I think from memory AGG, AngloGold Ashanti might have a couple of large shareholdings. GRR has one, so that probably won’t have the same sort of ADT risks that Yancoal has. I had looked at it today and there’s still something like 45% minority shareholding, so it’s going to be liquid. But yeah, Yancoal has a couple of big companies owning a lot of the shares. But yeah, so Duncan, not too worried about sovereign risk there. What’s the other thing I can probably say about the large overseas ownerships? Again, I’ve had experience where if they dominate the board they might — if, like, the company that owns, say, a large part of GRR influences the board because they own a customer that’s buying the pellets from GRR, you get these related party deals which can be suboptimal for the company. So, that can happen. I’m not saying it’s happening with GRR but it’s possible. I think we were talking about Murray Zircon, which was a sand mining company we spoke about a little while ago where there was an overseas company trying to tip the board out and put their own directors in place so they can do that kind of deal with themselves, because they also owned the the end customer that was buying product from the company. So, that’s a risk, but that’s probably the end of it. To me, those are risks and the stock market’s pretty good at price discovery. So, if something starts to smell a bit on the nose with what the board’s doing for these companies, or if there are sanctions applied to a country that these companies are domiciled in, that might affect the operation of the company or liquidity of the stock. The price will reflect that pretty quickly and the normal set of rules apply.

Cameron  49:57

Thank you for the question, Duncan. Phil asks, “how does TK determine the number of stocks he owns? I know he says fifteen-twenty, but there’s a big difference between those numbers. How many does he have now and why that number?

Tony  50:11

Well, I own fifteen. I will go to twenty if I get additional cash from, not sure from where, but if I do, and the opportunity permits.

Cameron  50:21

When the film gets picked up by Netflix, Tony.

Tony  50:26

Yeah, good, okay. So, if I get more cash and there’s enough things on the buy list to buy, because I’m running up against ADT issues on the buy list with my portfolio, then I’ll go up to twenty. But at the moment it sits at fifteen. Fifteen-twenty stocks I’ve just read about this in investing books over the years, that seems to be the sweet spot for a portfolio. A lot more than that and you start to get returns closer to the index, and a lot less than that you do get better returns but it’s very volatile. So, I mean, given I’ve been doing this for a long period of time I would probably, I would be happy to have a smaller, more concentrated portfolio and take on the volatility risk, but at the moment I can find fifteen big stocks to put in my portfolio. So, that’s what I do. And Charlie Munger says the optimal number is four, and I think the research will probably bear that out but it’s incredibly volatile to hold four stocks. And I don’t think most people listening to this would stomach the portfolio being worth 50% less next quarter and then, you know, double a quarter after, and then half the quarter after that. You think about if he had one stock and you look at the graph, no share graph goes up at a 45-degree smooth angle; they go up, they come back, they go up, they come back. So, volatility is an issue. But I’m also reminded of what one of our guests said from Collins Street Funds, Collin’s Street Value Managers, Michael Goldstein I think his name was, Goldberg. Apologies if I have that wrong, if that wasn’t his name. He said, you know, if you have a good idea why buy your fourth best idea? Buy your first best idea. So, I have some sympathy with that but it does come with a whole heap of volatility. So, I’ve just found over the years fifteen was good. I had a period where I owned like fifty stocks and that was just ridiculous, so I’ve been… in fact, Schafer, you know, people who were paying close attention I sold my Schafer stock today as well, like you did, and I’d had it for about five years and it was a good company. But, I had a very small holding and it came from a time prior to the QAV podcast where, you know, I did some research and formed the view that it didn’t matter what size ADT, if the stock was at the top of the buy list I should buy it. It took me fifty stocks to fill out my portfolio or there abouts. But I had a portfolio of big holdings and small holdings, and at the end of the day, if something small like Schafer even doubled in value, all it took was Fortescue Metals Group to move 5% either way and that drowned it out. So, I think what I’m doing now makes more sense, where I’m starting off with at least fifteen evenly weighted stocks and they’re all high ADT so I can buy them with some kind of confidence.

Cameron  53:06

When Charlie said four stocks was the ultimate setup, do you think he was talking about buying them on the market like we do, or going and buying stuff Charlie and Warren style? Like, buying big chunks and sitting on the board?

Tony  53:23

Yeah, its a good question. So, Charlie has said he has four stocks in his own private portfolio I think from memory, obviously his shareholding in Berkshire is one of those, Berkshire Hathaway. I think he has a chunk of Walmart, a chunk of Amazon, and he’s buying into Alibaba now I think as well. So…

Cameron  53:42

What about the newspaper that he owns that he does the AGM?

Tony  53:45

Oh, yeah, of course. He’s also Wells Fargo and Western Courier?

Cameron  53:51

The Daily Courier I think, or something-its got “daily” in the name.

Tony  53:55

Okay, yeah. So, you’re right, he might have four or six. But I did read recently he said four was the ultimate number. And of course, he doesn’t apply that sort of thinking to Berkshire Hathaway. They have, I don’t know, maybe a hundred different holdings in individual companies or listed companies. So, he hasn’t applied that there. And it probably is harder to do it with Berkshire Hathaway, because if you’re buying a company you don’t want to toss it next month if you don’t like it. They’re trying to buy things and hold them for life. And then that company throws off cash and they have… and the insurance companies give them float, so they’re always getting access to free or cheap money to invest more with. But yeah, it’s possible that they may have done better if they had gone back and just kept building and buying the first four companies that they ever bought. Maybe that would have been a better outcome for them. I’m not sure.

Cameron  54:44

All right. But bottom line to answer Phil’s question is you just think it’s, you’ve found that it’s a nice even point between not too much volatility and not watering down your returns as you approach the size of the All Ords.

Tony  55:03

Correct. That’s a good way to put it, and it’s not just made that’s found out that. It’s certainly been things I’ve read in investment books in the past as well. The research supports it.

Cameron  55:12

Thanks for the question, Phil. Annette asks: “Hi, Cam and TK. Genworth Mortgage Insurance has been on the buy list for a couple of weeks but I’m wondering what the impact the federal and state government schemes — especially the federal government campaign scheme — will have on the company. Mortgage insurance is needed for people who don’t have the full 20% deposit for a house, first time buyers with only 5% have the remainder guaranteed by the government, single parents and First Nations only 2%. Will this be reflected in the share price of Genworth? The state governments also have independent schemes. Wondering if this is a sell on bad news?”

Tony  55:50

Well, to answer that last question first we sell on bad news, as I’m trying to get people to limit to, just if an independent director resigns or the CFO leaves unexpectedly. The share price for Genworth I had a look at today and it’s it’s going up nicely. They provide, as Anette said, they provide mortgage insurance for people who don’t have an 80% LDR — Loan Devaluation Ratio — when they’re buying a house. In other words, you can have a lower deposit amount than 20%. Take out this insurance and the bank will be happy enough to lend you the money to buy the house. The sell on bad news question, I think I kind of really want to emphasise for people that that is something for cases where, like, an independent director has resigned from the board. Or, the last point I wanted to make was that anecdotally, so certainly what people are telling me who are trying to access these first home buyers’ schemes, they’re saying that they’re difficult to get a hold of. So, I don’t know if they’re going to be a big competitor for Genworth’s normal business. And if you think about it, there’s a lot less first home buyers in the market than people who are going for repurchases or refinancing and all those kinds of things and might be taking out mortgage insurance for their second or third home. Yeah, so my gut feel is it’s not going to have a big impact. And certainly, I think from memory the first home buyers’ scheme was limited by state by number. So, it was a fairly small number of people, I think, who were actually taking them out.

Cameron  57:24

But from a QAV perspective, we’re just gonna watch the numbers and, you know, let the numbers tell us about GMA rather than trying to predict.

Tony  57:36

Correct. Especially, like, I’m not a mortgage broker, I’m not an insurance specialist; in the stock market I’m going up against people who are, and my prediction is going to be probably swamped by theirs, so I’m not going to try and take them on.

Cameron  57:48

That’s the old QAV saying, Tony, “when you predict, you make a dict out of you and me.”

Tony  57:57

Something like that. You hold your gun, is that what you said before?

Cameron  58:02

“Hey, I don’t want my brother coming out of the stall with just his prediction in his hand.” Fifty years, The Godfather. Fifty-year anniversary this year. I saw a thing recently a couple of… oh, it was at the academy awards. Coppola, Pacino and De Niro came out to say something about it. But yeah, fifty years. Holds up good. Great film. This one’s from Michael: “I’ve been looking to add another stock to my portfolio and going through the buy list this week few have a small spread between the buy and sell 3PTL.” For example, he lists ASG, TGA, ANZ. “The current price is very close to their sell line is another thing, like AVA. Does TK take this into account or just buys based on sentiment upward trend. I assume he just buys and lets the process take care of the rest. Part of me looks at these buys as potentially more risky than ones like FEX which is going way up above the 3PTL.” See, we can’t win.

Tony  59:10

Yeah, I was just gonna say that.

Cameron  59:15

Half the people listening to this are going to look at PRU and go “uh, I’m not buying that, it’s gone way too high — way too high above its sell line.” And then people, the other half will be like Michael going “oh, these are way too close to their sell line, I’m not buying those.”

Tony  59:27

Look, I understand both points of view but I just ignore them. I just buy it if it’s the next thing on the buy list and it’s in the buy territory. As for the ones which are close to their sell line, look, I have some sympathy with the person a couple of weeks ago who said that he wanted 10% above the sell line so that you wouldn’t be three points selling it before he was rule 1’d. So, look, I have some sympathy with that but I would still be buying it myself. And you know if you look at stocks which have just crossed their buy line they could be close to their sell line, but if they’re going up they’re not always going to be close to their sell lines. So yeah, I don’t pay much attention, if any attention, to where the sell line is when I’m buying.

Cameron  1:00:08

Right. There you go, Michael. I had a late question from Caroline. I don’t think you’ll be able to help much, but I thought someone in our community might have an answer. She says, “hi, Cameron, not strictly a value investing question but I would like to know Tony’s thoughts regarding digital security measures for protecting our portfolios in a self-wealth scenario, outside of antivirus and password protection. Thanks.” You’re asking the wrong guy, like…

Tony  1:00:39

You buy a big padlock. When you close your laptop you lock it up.

Cameron  1:00:45

You put it in the safe.

Tony  1:00:48


Cameron  1:00:48

Tony just has, like, people who do these things for him, Caroline. Baillieu’s.

Tony  1:00:54

So, I use Nord VPN because I’m conscious that when I’m doing online banking, etc., that I want to stop someone from gaining access to the Wi Fi or whatever and screen scraping my passwords. So, I use Nord VPN, I always keep my software updated, you know, the latest version of the Mac OS, etc., which should — they claim — improve the virus protection on your PC. But, that’s about it.

Cameron  1:01:22

I know that self-wealth do offer 2FA, two factor authentication. So, I use self-wealth and I have it set up with two factor authentications with Google’s authenticator app. So, every time I try and log into self-wealth, if it’s on a computer, I have to put in the 2FA code that I get out of the Google app. If I do it if I’m on my phone or my iPad it just uses facial recognition. But yeah, if you haven’t already looked into the 2FA stuff with self-wealth, Caroline, you might want to take a look at that. I assume that’s what you’re worried about, is people being able to log in and do that kind of stuff.

Tony  1:02:03

That’s a good question. I would appreciate any advice that can help me as well, because that’s what I do and there might be something better out there.

Cameron  1:02:09

Well, Chrissy and I both got hacked really badly a few years ago while we were away. Happened twice, actually, over the course of six months. We go away camping for the weekend with no mobile phone reception and then we come back on the Monday or Sunday night and find that our bank accounts have been cleared out. They’ve managed to change our, get into our emails. I think it started with them being able to convince our phone company that they needed to change their password for the phone number or the email address, and then they were able to use that to hack our email addresses and change the passwords. They got into our bank accounts and hacked those and took all the money just by changing passwords. I got hacked out of a bunch of things. That’s when I learned to use not a text message as 2FA, because a text message which you often get is no good to you if they’ve hacked your mobile phone, because then they can get your text messages as well. Hack your mobile phone number, I mean. But, if you have a 2FA app like the Google Authenticator, or Microsoft has an authenticator app, and you can get USB sticks as well, but the thing about the apps is they’re locked to your actual phone, to the hardware on your phone. So, for someone to be able to get your 2FA code they have to have your phone and they need to be able to unlock your phone, get into your phone, and hopefully by the time they’ve done that you can shut things down.

Tony  1:03:42

Yeah. So, I have that with my banking and portfolio tracking system I use, service I use. But just take me through it, how do you think it happened? Did you, like, did they find your Facebook phone number or something? How would they get a hold of it?

Cameron  1:03:58

Yeah, we don’t know. We have no idea.

Tony  1:04:00

You don’t know? Okay.

Cameron  1:04:01

They’re just searching stuff, there are these bots and Russian mafia — I don’t know.

Tony  1:04:08

Maybe we should get a security expert on and grill him.

Cameron  1:04:13


Tony  1:04:13

Do an interview on how we can protect ourselves, because it’s a valid concern.

Cameron  1:04:16

Well, I’ll tell you what: I took it a lot more seriously after we came home from camping and literally our bank accounts were wiped out. I mean, okay, they only got 15 bucks, but it was the principle that matters.

Tony  1:04:29

And now you have to roast your own beans.

Cameron  1:04:31

Yeah, that’s how that started. So, it’s like I was talking… Ray and I on our show the other day, we had an expert on Stoicism. Got a guy who has a PhD in philosophy and he’s an expert at Stoicism. We got him to come on to talk about Seneca. Anyway, I was talking about when we were in Athens and I got pickpocketed by the guys on the tram in Athens. And I said, you know, initially I was angry that I got pickpocketed and angry at myself more than anything that I didn’t, you know, take more action when I thought I could feel fingers in my jeans pocket on the tram.

Tony  1:05:10

You turned towards them. You’re supposed to back away.

Cameron  1:05:12

I couldn’t back away, I was surrounded. These three large heavyset gentleman got on, surrounded me on the tram, and when the train was bumping they were like putting their body weight into me knocking me. So, I had to because I had my hands in my pockets where my cash was, I had to grab hold of the stability handles and that’s when they would get into my pockets. And then as soon as I brought my hand down, they’d pull their hands out and they’d bump me around again. Anyway, at the end we got off the tram. I said to Chrissy, “oh, I thought for a second there I was getting pickpocketed,” and I reached in and all my cash was gone. But, I felt angry initially, but then I thought it was hilarious because I realised they’d spent a good like twenty minutes, half an hour to get like sixty euro and there was three of them. They had to divide it by three. I figured they must have thought I was rich because they looked at Chrissy and they looked at me, and they went, “well, he must be rich because why else? Why else would she be with him, right?”

Tony  1:06:15

With a guy with a ponytail? Yeah, I get it.

Cameron  1:06:17

I did not have the ponytail then but they would have, you know, they wouldn’t have dared pickpocket me if they saw the ponytail. They would be terrified.

Tony  1:06:27

You just have to wear your Kung Fu robe on trams.

Cameron  1:06:31

Oh yeah. By the way, Fox has his first Kung Fu class tomorrow.

Tony  1:06:37

Oh, excellent.

Cameron  1:06:38

Starting tomorrow, he’s super excited. Oh, well. That’s it, Caroline. That’s it for the show, the questions. After hours, Tony…

Cameron  1:15:12

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