Transcript #519

QAV 519 Club

Cameron  00:06

Wel­come back to QAV, TK. Episode 519. Record­ing this Tues­day the 17th of May, 2:10 pm, on a slight­ly sun­ny day here in Bris­bane. What’s the weath­er like down in Syd­ney?

Tony  00:26

Well it’s not “shit­ney” today, it’s beau­ti­ful and “shun­ny”.

Cameron  00:29

“Shun­ny Shyd­ney.”

Tony  00:30

“Shun­ny Shyd­ney.”

Cameron  00:31

And how are you doing, TK?

Tony  00:33

Oh, not so well, Cam. Jen’s got COVID, I’m try­ing to dodge it but I think I may have had it because I’ve been fair­ly sick late­ly.

Cameron  00:41

Four months in Cape Schanck to avoid COVID. You come home, two days lat­er you’ve got COVID. 

Tony  00:47

Not two days lat­er. Well, we did go to Wag­ga last week­end, so it could be that. Lots of social­i­sa­tion and no masks. But, I was talk­ing to some­one in the build­ing, let­ting them know that we’ve got COVID, and they went “oh yeah, every sec­ond place in the build­ing’s got COVID.” So, it’s just out there and about.

Cameron  01:02

Well, suc­cess­ful­ly dodged it for two- and a‑bit years. Two years… two and a bit.

Tony  01:07

Tell you it’s tough. I mean, well, offi­cial­ly I’ve had a sinus infec­tion. So, if any­one out there has bad sinus­es, they’ll know what that’s like, but it shared all the symp­toms with COVID. I’d been test­ing neg­a­tive but then Jen came down with COVID and test­ed pos­i­tive, so I sus­pect I may have had it and giv­en her but I just don’t know. And yeah, it’s been tough. I strug­gle. Lots of cough­ing, dif­fi­cul­ty breath­ing. Been in bed, well not in bed, but rest­ing for a cou­ple of days. Yeah, tough. 

Cameron  01:34

You haven’t been bit­ten by the Hep­tothili­di, have you?

Tony  01:35

No. Well, pos­si­bly. I don’t know what’s going on.

Cameron  01:44

“And this friend­ly lit­tle dev­il is the Hep­tothili­di, unfor­tu­nate­ly harm­less. Next to him the nasty Lycosara­p­to­ria, his tiny fangs cause creep­ing ulcer­a­tions of the skin. And here, my prize, the pre­cious Black Wid­ow. Isn’t she love­ly and so dead­ly? Her tiny fangs cause,” no, “her kiss”… oh, god dammit.

Tony  02:09

Is that Vin­cent Price?

Cameron  02:10

Yeah, nice one. “Yes, Black Wid­ow. Isn’t she love­ly, and so dead­ly? Her kiss is fif­teen times as poi­so­nous as that of the rat­tlesnake. You see, her ven­om is high­ly neu­ro­tox­ic, which is to say that it caus­es intense pain, pro­fuse sweat­ing, dif­fi­cul­ty in breath­ing, loss of con­scious­ness, vio­lent con­vul­sions and final­ly, er, death. You know, I think what I love the most about her is her inborn need to dom­i­nate, pos­sess. In fact, imme­di­ate­ly after the con­sum­ma­tion of her mar­riage to the small­er and weak­er male of the species, she kills and eats him. Oh, she is deli­cious. And I hope he was.” There you go. That’s from the intro­duc­tion to “Black Wid­ow”, Alice Coop­er’s “Wel­come to My Night­mare” 1975, done by Vin­cent Price. Burned, not as well as I thought, but seared it into my mem­o­ry since 1983 when I dis­cov­ered Alice Coop­er.

Tony  03:11

Superduper Alice Coop­er. And, a big golf fan too.

Cameron  03:15

And he lives in Phoenix, Ari­zona, where I’m going to be in a month for a cou­ple of weeks. And, for twen­ty years he ran Coop­er town, his restau­rant slash theme park, but it shut down dur­ing COVID and it’s gone out of busi­ness. So, the one time I go to Phoenix Ari­zona to hang out with Alice Coop­er his place has shut down. I’m gonna have to go play golf now in order to meet Alice, is basi­cal­ly what it comes down to.

Tony  03:39

And look for Vin­cent Fur­nace on the book­ing sheet, not Alice Coop­er. 

Cameron  03:42

Yeah, Furnier. 

Tony  03:45

I thought you were gonna break out “The Raven” for us.

Cameron  03:49

I could do that, too. “Once upon a mid­night drea­ry while I pon­dered weak and weary over many a quaint and curi­ous vol­ume of for­got­ten law, while…” Any­way, don’t get me start­ed. We should talk about invest­ing, Tony. I want to start off by say­ing that one of our lis­ten­ers, Michael, has asked us to give Bit­coin and active fund man­agers a total miss for at least the next few episodes. He says it’s get­ting monot­o­nous, that we’re beat­ing up on them too much. He said, “you’re bet­ter than that.” And I replied, “well, obvi­ous­ly we’re not because we keep doing it. It’s too much fun and they’re an easy tar­get.” But you know, what are you gonna do?

Tony  04:25

Well, Michael, let’s talk about After­pay instead.

Cameron  04:29

No, he would­n’t like that either. Don’t beat up on the tech stocks. Well, I said we’ll do our best. I went out to lunch with Chair­man Mabb and Lee from the ASA for lunch yes­ter­day, thank you to them. And I do want to give a plug for the upcom­ing ASA Con­fer­ence and the spe­cial deal that they did for us. So, if you want to get a spe­cial ASA mem­ber­ship, I think it’s free for the first year for QAV club mem­bers. Take us up on that. If you did­n’t see the link that I post­ed a cou­ple of weeks ago, email me and I’ll shoot that out to you. But we were talk­ing about, you know, per­for­mance of all of these things yes­ter­day and funds, etc., etc. A lot of good stuff I got from them that I would love to have talked about today on the show, but not allowed to. Michael has put the kibosh on it, so we’ll have to save it. 

Tony  05:19

Michael? 

Cameron  05:20

Yeah, Michael was the guy that com­plains, the lis­ten­er who com­plained. So, we’ll have to wait a month.

Tony  05:26

Michael, curse you, Michael. I want to hear the gos­sip from lunch.

Cameron  05:30

I want to thank Mark, who shared his “check­list check­list” with us recent­ly for QAV club mem­bers. So, Mark like myself and I think many of us has found that when it comes time to buy and sell some­thing, some­times we get so excit­ed we for­get to check some things; like div­i­dends that I’ve talked about before, etc., etc. So, he came up with a check­list for the check­list. So, you get your buy list, but before you buy he’s got a check­list. We pub­lished that, I think that’s a great idea. I would like to say that I’ve been using it for the last week, but I’ve been so fran­ti­cal­ly sell­ing and buy­ing things that I haven’t had time to use the check­list for the check­list. But, I think it’s a real­ly good idea. So, well done, Mark, and thank you for shar­ing that with all of us. That was nice of you.

Tony  06:13

I thought that was a typo in the show notes, a “check­list check­list”. 

Cameron  06:17

It’s a check­list squared. I want­ed to tell you the sto­ry about Fox’s birth­day mon­ey. So, Fox had his birth­day par­ty on Sun­day, did­n’t have it on his actu­al birth­day because it was Moth­er’s Day and no one could turn up. So, we did his par­ty and he got a lot of cash — you know, peo­ple gave him cards with cash. And, lit­er­al­ly soon as we got home and he was open­ing all the cards, he came to me with a pile of cash and a gift card, and he said “this is worth $130.” I said, “oh, that’s great. What are you going to do with it?” He goes, “can you invest it in QAV for me?” I said “yes I can, bud­dy.” And so, you may recall two years ago for his birth­day he got $100, and I set up a QAV… he want­ed to invest it in QAV, and I set up what I call his QAV fund, but it’s real­ly just a spread­sheet where I put the mon­ey in. And I said I would pay him $1 a day for every day he left that $100 in there, think­ing he’d leave it in there for a week and then he’d want to spend it on Poké­mon cards or some­thing. He’s left it in there for two years. He’s tak­en bits out, he’s tak­en a lit­tle bit out to buy my sec­ond hand iPad when he broke his iPad and he want­ed to buy my old one, I made him pay for it out of that mon­ey. But, he’s also been putting mon­ey back in, like pock­et mon­ey and birth­day mon­ey and Christ­mas mon­ey and all that kind of stuff. 

Tony  07:29

Wow. 

Cameron  07:29

So, he’s got about 750 bucks in there. So, I was out at lunch with Steven and Lee yes­ter­day, and we were talk­ing about kids and invest­ing, and Steven said what he’s done with I think his youngest is he’s cre­at­ed an account for them and they’re buy­ing an ETF — or, a cou­ple of ETFs, I think — he does­n’t have a lot of mon­ey. But you know, buy­ing I think like an emerg­ing mar­kets ETF and a NASDAQ ETF and an Aus­tralian ETF. And I was like, “yeah, that’s real­ly good. Because, you know, he actu­al­ly has some­thing and he can keep that for the rest of his life, and it won’t cost me $1 a day.” So, last night I said to Fox, “oh, by the way, I was out with these guys and we were talk­ing about this, and what I’m going to do instead of the what we have been doing is I’m going to put it in an ETF.” He goes “okay, so if I leave it in there for one year, how much mon­ey will I get out of it?” And I said, “well, an ETF will prob­a­bly over the long-haul bring about 10% a year.” And he goes “what’s that?” And I said, “well, if you put $750 in, 10% is $75.” He goes, “hold on a sec­ond. How much will I get if I just leave it where it is?” And I said, “well, it’s $1 a day.” He goes, “so that’s $365 I’ll have at the end of the year.” I said “yeah,” he goes, “I’ll just leave it where it is, thanks.”

Tony  08:47

Fan­tas­tic.

Cameron  08:48

He’s eight and he’s out­smart­ing me!

Tony  08:51

And he’s com­par­ing ROEs. That’s great.

Cameron  08:53

Yeah. I’m screwed, Tony. I’m total­ly screwed. He’s smarter than me, and he’s eight. 

Tony  09:02

Wait until I come up there in two weeks’ time and tell him about infla­tion and how the dol­lar grows to $1.50 a day next year.

Cameron  09:07

Oh yeah, thanks a lot. Let’s talk about com­modi­ties. What’s a sell, what’s not a sell and why not, Tony? So, I think as of yes­ter­day when we looked at the com­mod­i­ty charts, alu­mini­um, cop­per, plat­inum, all still sells. Gold we decid­ed not to sell. If you look at the US dol­lar, it’s a sell, if you look at the Aussie dol­lar, it’s not a sell. So, we’re hold­ing on to that for a while. Iron ore: you said last week you were think­ing about whether or not to fudge iron ore again, you’ve decid­ed no for the time being? 

Tony  09:43

No, I decid­ed to fudge.

Cameron  09:45

Oh, you are fudg­ing?

Tony  09:46

Yeah. So, it’s a three-year graph. So, if you’re using Stock Doc­tor you can graph that. And the rea­son for that is my orig­i­nal think­ing on the first batch last year was that the iron ore cycle seems to be a two-year cycle. So, I used two years orig­i­nal­ly, but I found an L1, could­n’t find an L2, there’s only one big trough in that peri­od. So, went back to three years and I can find an L1 and an L2, and gives a fudged sell price of $98.50 for iron ore. 

Cameron  10:13

And what is it at the moment?

Tony  10:15

135/130, some­thing like that.

Cameron  10:18

Ah, okay, so it’s not a sell. It’d be 127. So, it’s not a sell yet, even with the fudge. 

Tony  10:25

Cor­rect. 

Cameron  10:27

Okay, that’s good. So, fudge line on iron ore, good to know. Any­thing else on com­modi­ties that we should talk about?

Tony  10:34

No, not that I can think of. I mean, I think it’s cer­tain­ly a strange peri­od. Iron ore’s been dri­ven by Chi­na and they just dropped their inter­est rates again today, so that iron ore price may pick up again. But as long as Shang­hai remains in lock­down and parts of Bei­jing, and they’re try­ing to go for a zero tol­er­ance to COVID, the Chi­nese econ­o­my is going to suf­fer which means iron ore’s not going to be strong. That won’t last for­ev­er, I don’t think. I’m sure it won’t. So, iron ore will prob­a­bly turn around again. Oil and gas are going strong giv­en the prob­lems in Europe. We’ll talk about the gold ques­tion, I think there’s a ques­tion lat­er on about US dol­lar’s gold ver­sus Aus­tralian dol­lar gold. We can talk about it then, but one of the rea­sons for hunt­ing up the AUD price is that in an infla­tion­ary envi­ron­ment you would expect gold to do well as it tra­di­tion­al­ly does. It’s like an equiv­a­lent to cash, real­ly. So, peo­ple will often buy gold dur­ing peri­ods of infla­tion to main­tain their wealth as a store of wealth, and the gold price gen­er­al­ly goes up. So, sur­pris­ing US dol­lar price has gone down, but I think that’s prob­a­bly because of the US dol­lar — and we could do a whole episode on what’s hap­pen­ing with the US dol­lar. But, up until now for a cen­tu­ry or so the US dol­lar has been the default con­tract for world trade, and that’s start­ing to break down now with Chi­na in par­tic­u­lar — and Rus­sia, of course. So, there’s less demand out there to buy US dol­lars and the US dol­lar is sink­ing, which I think is the rea­son why the US dol­lar gold price is going down. And the Aus­tralian one’s going out because our dol­lar isn’t sink­ing as well. Yeah. So, all in all, I expect­ed com­modi­ties to hold. I don’t know about alu­mini­um and the oth­er ones we spoke about that are in sell posi­tions. The oth­er com­pli­cat­ing fac­tor is world growth and with infla­tion going up, with Ukraine and Chi­na where they are, that prob­a­bly won’t be strong and that may affect com­modi­ties going for­ward. But, it’s all spec­u­la­tion, and we just watch the graphs.

Cameron  12:25

Yeah. “Chi­na, Chi­na, Chi­na.” Well, I had a look at our dum­my port­fo­lio this morn­ing, as you would expect for the finan­cial year it’s dropped quite a lot recent­ly. But, com­pared to the SPDR200, not doing too bad. We’re about 4% for the finan­cial year ver­sus a lit­tle bit less than 3% for the 200. So, we’re 30% above the index, not our usu­al 100% but that’s okay. But, since incep­tion, still doing great. We’re up 23% rough­ly since incep­tion ver­sus the All Ords or the 200 up 7%. So, three times over that peri­od of time which is great. So, that’s what mat­ters.

Tony  13:17

Yeah. And it’s been, like the mar­kets clear­ly mov­ing side­ways. It’s up 3% for the finan­cial year and it’s try­ing to find its foot­ing. It’s try­ing to decide what to do, espe­cial­ly with what’s going on in the world, plus infla­tion, plus inter­est rates ris­ing. It’ll take a while. Gen­er­al­ly, these kinds of peri­ods will even­tu­al­ly shake out either up or down and then con­tin­ue on with that trend. My gut says it will go up, but who knows. And the rea­son why I say that is because I’m not sure infla­tion is going to be per­sis­tent. I think once the COVID effect wash­es through, and you’d have to think that things hap­pen­ing in Europe will even­tu­al­ly resolve them­selves, and same with COVID in Chi­na. But there’ll be a whole set of new cir­cum­stances to deal with when those things get resolved, so who knows? That’s what’s hap­pen­ing in the mar­ket, its find­ing its feet; par­tic­u­lar­ly with ris­ing inter­est rates, I think is prob­a­bly the biggest unknown for it at the moment. Is it short term, is it long term, and how high will they go?

Cameron  14:11

It’s been an inter­est­ing day today on the mar­ket. It’s up, and, like, some of the stocks have had a great day: Beach Ener­gy up 5% today. 

Tony  14:20

Yeah, you beau­ty. 

Cameron  14:22

ECX is up 3 today. It always amus­es me when, you know, there’s been all this doom and gloom and all of a sud­den every­thing is going up in leaps and bounds the next day. You’re like, “Well, why were you sell­ing two days ago but you’re buy­ing today? Like, what’s hap­pened in the last two days that’s changed your out­look that dra­mat­i­cal­ly.”

Tony  14:40

I mean, it’s an inter­est­ing study in mar­ket psy­chol­o­gy. Again, there’s a lot of peo­ple who are say­ing — even for things like cryp­to, sor­ry, Michael — that, you know, should we be buy­ing the drop, buy­ing the dip? And I think, you know, because the mar­kets been chop­py for the last six months or so, I think peo­ple are con­di­tioned to say let’s just see where it fin­ish­es up after a cou­ple of days and then start buy­ing again. They’re buy­ing in the dip all the time. But, one of the things you’ve always got to be wary of in the share mar­ket is the dead cat bounce, and that’s when the mar­kets drop and then they have a lit­tle ral­ly, and then they just drop fur­ther just like a suck­er’s ral­ly. And that’s why, you know, even though it’s been a bit of work and it’s been chop­py, and I’ve been sell­ing and re-buy­ing and sell­ing and buy­ing, and that might seem like a self-defeat­ing type exer­cise, but it’s real­ly there as insur­ance against things like dead cat bounces and fur­ther drops. I’m quite hap­py to pay that lit­tle bit of insur­ance for the sake of avoid­ing the big fall when it comes.

Cameron  15:37

And, of course as I’ve been remind­ing peo­ple late­ly, you know, one of your mantras is always be invest­ed because we don’t know when it’s going to turn around. And quite often, and I’ve seen this just in the last few years we’ve been doing this, quite often when it turns around, it turns around quick­ly and fero­cious­ly. And even if you miss out on the first week of that, you could quite eas­i­ly miss out on 5 or 10% of growth.

Tony  16:08

As you said, stocks are ris­ing 5% today. So, yeah, you can miss out on that. Inter­est­ing, sort of, thought game I was play­ing last week; some­one asked when peo­ple sell their shares, where does the mon­ey go? I guess what they were mean­ing was do they put it under the mat­tress? Does it go to the bank? Does it sit in cash until some­thing hap­pens? What, when they re-enter the mar­ket, what do they do with it? And what hap­pens is, the peo­ple who are — it real­ly goes, even though the per­son who sold may be hold­ing on to the cash, the asset still stays with the peo­ple who stayed in. That’s where the mon­ey goes. Because when that asset goes up, which it has long-term for the last hun­dred and fifty years or longer, our wealth goes up. The per­son who sold, unless they rein­vest­ed in the share mar­ket, their wealth may go up but at a much slow­er rate. It goes under the mat­tress, it does­n’t go up at all. So, I always stay invest­ed for that rea­son. I guess the caveat is, I know last week I sold a num­ber of shares and then rein­vest­ed all but one of the pro­ceeds from that sale, which I’m redo­ing again now. So, the process is designed to go to cash when every­thing looks real­ly bad, and things are slid­ing even fur­ther like it did dur­ing the COVID cough. So, there are peri­ods when we do go to cash. I think even at the height of the COVID cough we were still only about 50 or 60% in cash, so not com­plete­ly, and we were buy­ing back in soon after. But yeah, gen­er­al­ly I want to be 100% invest­ed.

Cameron  17:30

Let me ask you a ques­tion, though. So, I was doing a bit of analy­sis on our port­fo­lio, the dum­my port­fo­lio, this morn­ing for the club newslet­ter. In the last week we sold BOL and TGA and bought EVO, REG and NHC because we had a lit­tle bit of cash left over from anoth­er sale. But in the last thir­ty days, we’ve only had to sell four stocks out of the dum­my port­fo­lio. With all the tur­moil and doom and gloom, it’s been estab­lished low enough that we’ve only had to sell four, and that does­n’t seem to be par­tic­u­lar­ly unusu­al. Look­ing back over the last year through the dum­my port­fo­lio, I’ve had to sell about two to four stocks a month, usu­al­ly. And, I know that you’ve said that you usu­al­ly only turnover about 60% of your port­fo­lio every year. 

Tony  18:17

That sounds about right, yeah. 

Cameron  18:18

But, if I’m sell­ing two to four stocks a month on aver­age, out of a port­fo­lio of twen­ty stocks, that’s more than 100%. I know there have been peri­ods last year — like, I went back and looked at May last year and I don’t think I sold any­thing in May last year. So, there have been peri­ods of a cou­ple of months where we did­n’t sell any­thing for a few months. So, maybe it does aver­age out. I don’t know. I just won­dered if that sound­ed a lit­tle bit high, the amount that I’ve been sell­ing?

Tony  18:48

It’s def­i­nite­ly high, Cam. This is one of the chop­pi­est peri­ods of the mar­ket I’ve ever seen. It’s going up, it’s com­ing back, it’s going up. Look at how many times the ASX has gone above 7000 and then back below 7000. It’s almost like it’s teth­ered to that num­ber.

Cameron  19:00

I’m not just talk­ing about this month, I’m talk­ing about, like, in the last six months. 

Tony  19:04

So am I.

Cameron  19:05

Okay, right. So, it has been par­tic­u­lar­ly chop­py in the last six months, all right. 

Cameron  19:10

Here’s a ques­tion: Tay­lor, my son, Tay­lor, who’s cur­rent­ly sleep­ing his way through LA and drink­ing his way through LA by the sounds of it. He texted me the oth­er day and he goes, “I thought QAV was sup­posed to be counter cycli­cal.” And I was like “what? Who told you that?” He goes, “you did. You’ve been telling me for three years that it’s counter cycli­cal. When stuff is falling we find the stuff that goes up.” I said, “no, I don’t think you’ve ever said that. Like, if the mar­kets down the stocks that we own are gonna go down. Hope­ful­ly by not that much and we get out, we have stop loss­es and all that kind of stuff. And then he said, “you said that when the mar­kets down we try and find the stuff that’s going up,” and I said, “well, yeah, that is true.” We will only buy stuff that’s going up. We can’t oth­er­wise it’s a Josephine, right? If stuffs going down, we don’t buy it. So, we do look for stuff that is counter cycli­cal; stuff that’s going up when the mar­kets going down. We don’t try and buy stuff that’s going down when the mar­kets going up, though, so it’s not counter cycli­cal in that respect. 

Tony  19:10

Yes. 

Tony  20:10

I think, is he con­fus­ing counter cycli­cal with con­trar­i­an­ism, per­haps?

Cameron  20:14

Prob­a­bly. And I may have con­fused those in my ter­mi­nol­o­gy with him before, too. But we’re def­i­nite­ly con­trar­i­an investors, but I don’t think we’re counter cycli­cal, real­ly. I mean, we go up when the mar­ket goes up, we go down when the mar­ket goes down. We just try and go up more than the mar­ket does when it’s going up and down less when it’s going down.

Tony  20:33

Yeah, I mean, I think of the mar­ket as, like, a crate of apples, and if we take out all the bad stocks the good ones are left, and the val­ue of the good apples that are left must be high­er than the val­ue of the crate before we took all the bad ones out. 

Cameron  20:45

That’s my the­o­ry of mar­riage, too, Tony. Like, if I mar­ry all of the bad women, get them out of the way, then I find the good one.

Tony  20:53

I hope Chris­sy’s the good one.

Cameron  20:55

She’s def­i­nite­ly the good one.

Tony  20:58

I always think of our­selves… we’re still invest­ing in the share mar­ket, so we’re going to be teth­ered to what the share mar­ket does, but we’re just going to do a lit­tle bit bet­ter than the share mar­ket. If you think of a range above and below the share mar­ket index over time, we’ll be in the top half of that range above the share mar­ket index. But, we’re still going to be tied to the index.

Cameron  21:17

I feel guilty now, there was noth­ing bad about my ex-wives. It’s not their fault at all. I don’t want any bad kar­ma because I pre­tend­ed that I had bad ex-wives. It was­n’t them, it was all me. 

Tony  21:27

Neg­a­tive waves. 

Cameron  21:28

Not them. Yeah, no neg­a­tive waves. Sor­ry, I just had to get that out there. I felt guilty. That was harsh.

Tony  21:36

It was all your fault, any­way, I’m sure.

Cameron  21:38

Every­thing is always all my fault, Tony. 

Tony  21:42

That’s rule one to being a dad, isn’t it? 

Cameron  21:44

That’s just rule one for life. Every­thing is my fault. Rule num­ber two is there’s no such thing as free will and its all just atoms, so that negates the first one, so… Any­way, none of that. What else have you got on your list of news to talk about this week, TK?

Tony  21:59

A few things. So, there’s been a cou­ple of com­pa­nies report­ing recent­ly. So, these would be the stocks which had a March dead­line or there­abouts, they’re com­ing through Stock Doc­tor at the moment. So, ECX, Eclipse, has new results in. It still remains on the buy list, though, with a QAV score of 0.28 last time I had a look. And the same for NAB, Nation­al Aus­tralia Bank, they’ve just report­ed as have three of the four big banks and Mac­quar­ie. NAB have a QAV of 0.12, so low­er down but still on the list. We’ll get to PDL, or Pen­dal, in a minute, but I did a pulled pork on it last week. They’ve just got new num­bers into the buy list this week. So, just ignore the pulled pork from last week.

Cameron  22:42

And it was­n’t the one that some­body, I think it was Mark, asked you to do. No, Dave, it was Dave from Newy. I told you last week, was­n’t it PTL and you were like “no, PDL”? 

Tony  22:54

I’ll do PTL today, Dave. Sor­ry about that. “Sor­ry about that, Chief.”

Cameron  23:01

“Missed it by that much!” Yeah, okay. PDL has got new num­bers.

Tony  23:07

Yes. So, and […] on the buy list. 

Cameron  23:09

Good num­bers?

Tony  23:10

Nope. 

Cameron  23:10

Bad num­bers?

Tony  23:11

Oh, well, they’re okay, but it’s not on the buylist any­more. What else? Oh, yes. So, with all this buy­ing and sell­ing that I’ve been doing — and I guess oth­er peo­ple have been doing it too — it’s a good time to look at the CGT posi­tion. So, it’s kind of mid­dle of May that we’re talk­ing now. If you have incurred as I have, because of all the buy­ing and sell­ing cap­i­tal gain, net cap­i­tal gain, you might want to do some weed pulling to reduce that before tax time: before end of June. So, this is not tax advice, seek your own finan­cial advice, but I know with Share­sight where I track my port­fo­lio I can run a report giv­ing me a cap­i­tal gains tax view of where I am at the moment and an unre­alised gains tax report as well, and I can sort of man­age things to try and opti­mise how I want things to look at the end of the year. And bear in mind all of the oth­er rules around any sort of tax, you can’t sort of sell it on in June and buy it back in July. That will be seen as wash­ing by the Tax Office and the sale and buy which was done just for tax pur­pos­es, so put that into the mix. If I was sell­ing a weed now I’d be want­i­ng to be fair­ly cer­tain I would­n’t buy it back again in the next six months and, sort of, look like I was sell­ing it just for tax rea­sons.

Cameron  24:24

Tony, if you’re sell­ing weed right now, just bring some up with you when you come across the bor­der.

Tony  24:31

Yeah, but any­way, I just want to high­light that. The clock­’s tick­ing towards the end of June, we’ve been buy­ing and sell­ing a lot. I had a big CGT posi­tion because I sold Fortes­cue Met­als Group in par­tic­u­lar, and I think Cham­pi­on Iron as well, in the sec­ond half of last year, which is the first half of the finan­cial year. So, I’m just try­ing to come to grips with that. What else? We’ve spo­ken before about how often­times com­pa­nies on our buylist get takeover offers, and I read in the front page of today’s Fin Review that Bram­bles is sub­ject to a takeover by a pri­vate equi­ty firm, CVC. And Bram­bles I think may have just been on our buylist for a short while, it’s about a QAV score of 0.08 at the moment because its share price has been ris­ing with spec­u­la­tion about takeovers. But yeah, anoth­er exam­ple of the big guns at the mon­ey end of the street also see­ing val­ue in some of the stuff that we see as well, which I always find val­i­dat­ing for our process. Some­one asked a ques­tion on Face­book a lit­tle while ago about where to find List­ed Invest­ment Com­pa­ny infor­ma­tion, because I had said that Jen­ny’s default posi­tion if I don’t make it or don’t out­live her is to take the funds that we have in our shares and put them in the top three List­ed Invest­ment Com­pa­nies.

Cameron  25:45

We should­n’t be talk­ing about that when she’s got COVID and you might have COVID.

Tony  25:49

Yeah, I know. It’s a mor­bid top­ic, isn’t it? But any­way, where I get infor­ma­tion about the List­ed Invest­ment Com­pa­nies and their size is through a Morn­ingstar report which comes out month­ly. So, you can get that from the Morn­ingstar web­site. If you Google Morn­ingstar LIC report, you’ll find it. And it has, I think, all of the List­ed Invest­ment Com­pa­nies by mar­ket cap in that so you can eas­i­ly find the top three. I think it also gives their rat­ing on those List­ed Invest­ment Com­pa­nies, and a bit of oth­er infor­ma­tion. It gives, impor­tant­ly, it gives their NTA back­ing and whether they’re trad­ing at a pre­mi­um or dis­count to that NTA. So, it’s not a bad report to have a look at. Some­one else asked the ques­tion a week or two ago about South 32 and whether that was a sell because of the alu­mini­um graph, but they also asked about the alu­mi­na graph. I found it hard to track down and alu­mi­na graph, but I did do some fur­ther research and South 32 not only sells alu­mini­um, but also alu­mi­na. So, it is ger­mane to the ques­tion that was asked. How­ev­er, I think the alu­mini­um was mak­ing up a large enough part of South 32’s rev­enue that it was a sell just based on alu­mini­um by itself. We spoke about MML chang­ing its name to X64 last week, and I did pick up its pro­nounced “Ten 64”, which is what they call them­selves now even though the code is X64, so I just want­ed to clar­i­fy that for peo­ple. And I think that was because they bought a com­pa­ny in Queens­land with a large prospec­tive gold field called 1064, which is why they changed their name. A cou­ple of mus­ings which I’ve been doing, which I’ll talk about here: I haven’t real­ly changed any­thing because of this yet, but I’ll throw it out there for peo­ple to have a think about them­selves. Brett from the Bret­te­la­tor put me onto a thing called Renko charts. We were debat­ing back and for­wards last week about what the iron ore sell price should be if we fudged it, and Brett said, “hey, have a look at this: Renko charts.” If you’re using Stock Doc­tor, if you go into the Advanced Chart­ing where you nor­mal­ly select on the line graph and you have oth­er options there like can­dle­stick and bar graph, you’ll see an icon which is a series of box­es, and that’s a Renko graph. And it’s pret­ty cool, I’ve been play­ing around with it and it’s not a bad chart to have a look at. What it does is it does­n’t graph things across an even time­line or an even dol­lar gra­da­tion, it basi­cal­ly graphs them in quan­tum jumps. So, every time the share price goes up by a cer­tain amount it gets a green box, and every time it goes down by a cer­tain amount it gets a red box. So, you do quite eas­i­ly and visu­al­ly spot the long-term trends, and you can auto select that. So, just on a five-year graph it’ll pick out what the most appro­pri­ate quan­tum is for those box­es and draw it auto­mat­i­cal­ly in Stock Doc­tor, or you can put your own amount in man­u­al­ly if you want to, say, look at a 10% Renko graph for rais­es or drops. It’ll graph that for you as well. So, actu­al­ly play­ing around with it to see how it cor­re­lates to our three-point trend lines, but cer­tain­ly a very easy way to see some of the charts that we’re deal­ing with if peo­ple want to have a look at that. And the oth­er one that I went back to, a long time ago when I was work­ing full time and, I guess, look­ing for short­cuts to invest in the mar­ket with, one of the ones I land­ed on was a report which gave us the fore­cast div­i­dend yields for shares in the share mar­ket. And Bail­lieu’s used to put it out and it was a good pre­dic­tor of stocks that were turn­ing around. And so, I ran it… Bail­lieu’s no longer put it out as far as I know, but I ran it using a Stock Doc­tor fil­ter — a very sim­ple one just on fore­cast div­i­dend yield — and it cor­re­lat­ed pret­ty high­ly with the buy list. So, I’m gonna do some more work on that to see whether we incor­po­rate it in the buy list as a check­point. Some­times it’s not worth doing that, because if they cor­re­late high­ly then it’s not going to change the result in the buy list. But I want to have a look at it, I think it might be a can­di­date for admis­sion. I guess it’s a bit of a dog to the Dow-type indi­ca­tor; if some­thing is pre­dict­ed to yield well, so it’s fore­cast div­i­dend pay­ment based on its cur­rent share price, if that’s a high num­ber, it’s like­ly the share price is low at the moment and so we expect it to rebound. There are oth­er rea­sons too for that, of course; com­pa­nies that are doing real­ly well and mak­ing lots of mon­ey also pay off div­i­dends which are high, like Fortes­cue Met­als Group for exam­ple at the moment, and fore­cast to do again next year. So, one for peo­ple to inves­ti­gate as well, and I’ll do some more work and see if we put it in the check­list. So, a cou­ple of mus­ings there. I’ve been set­ting alerts for Josephine’s. So, I haven’t done this in the past, but because a lot of the stocks — well, most of the stocks on the buy list are Josephine’s at the moment, some of them are just com­ing around — but I’ve actu­al­ly gone into Stock Doc­tor and set alerts for stocks which are on the buy list and are just slight­ly a Josephi­na left. I put the price back in above which they would go back to being a buy. So, for exam­ple, with AMP, it’s around $1.14 now. I think the clos­ing price for the end of April was around $1.18, so I put an alert in at $1.18. So, if AMP goes above that, I’ll know it’s back on my radar for prospec­tive pur­chas­es. So, just in the last twen­ty-four hours, Nufarm and Chal­lenger have both giv­en me pos­i­tive alerts to put them back on the buy list — and just a dec­la­ra­tion, I own both of those. But, I haven’t done this before, it was a neat way of try­ing to keep track of what was a buy giv­en every­thing was drop­ping. I’ll be very quick with ref­er­ence to Michael and his request about Bit­coin and the rest: I’ve been pick­ing up on a cou­ple of terms for the cur­rent malaise and in Bit­coin, and peo­ple have been throw­ing around terms like “bit­con” and “hopi­um”, which I found amus­ing. And they’re throw­ing it around in a gen­er­al sense about whether peo­ple should be buy­ing the dip for Bit­coin, and again, the age-old ques­tion is how do you know when to buy if you don’t have a sys­tem for it? For peo­ple who I guess haven’t fol­lowed the news, Bit­coin when at its high was $69,000 and it’s back to $25,000 at the moment. So, it’s a big fall. Is that the bot­tom, who knows?

Cameron  32:06

There was a great arti­cle I read a few days ago from a guy whose stuff I sub­scribe to, where he did an in-depth break­down of where cryp­to is at the moment and all of the the­o­ries for and against the future of var­i­ous cryp­to assets, both as an invest­ment asset and also as a tech­nol­o­gy plat­form. He broke down all of those argu­ments and I found it real­ly inter­est­ing to, sort of, get back up to speed with at least his view of how he thinks things are gonna play out or how they could play out. You know, the var­i­ous ways that they could play out mov­ing for­wards.

Tony  32:47

There’s a lot of fun­ny things going on with Bit­coin at the moment. You know, it’s fair­ly well accept­ed that blockchain tech­nol­o­gy is going to have a part to play some­where in the finan­cial sys­tem. Dis­trib­uted ledgers are sort of a proven way of crack­ing things reli­ably. Although, I do note the ASX com­pa­ny and the ASX itself has been try­ing to build a replace­ment for the Chess sys­tem — which peo­ple will be famil­iar with because they’re share­hold­ers — and it’s now on its forth delay because they’re try­ing to build it on blockchain tech­nol­o­gy. So, when I see that I’ll have more con­fi­dence in blockchain hav­ing a way for­ward as a tech­nol­o­gy. But, when I read arti­cles, there was one in today’s Fin Review about some­one say­ing, “well, they should reg­u­late sta­ble coins now,” I’m think­ing to myself, hang on, we have fiat cur­ren­cy, we have Aus­tralian Dol­lars and we have US cur­ren­cies. You want us to link a Bit­coin to it and then reg­u­late it? It’s like, aren’t we just going around the clock here? Around the cir­cle back to where we are? You want to cre­ate a Bit­coin to mim­ic the dol­lar. Well, fuck it, just by $1 you idiot. What do you want to have a Bit­coin doing it for, any­way? There’s so much froth out there in the mar­ket.

Cameron  33:52

You’re just not cool enough to get it, Tony. You just don’t get it.

Tony  33:55

I’m def­i­nite­ly cool enough. I don’t get it — well, I think I do get it, but any­way.

Cameron  34:01

If you don’t think it’s cool, then you don’t get it. That’s just how it is. Are you ready to get into ques­tions, Tony?

Tony  34:07

Oh, pulled pork, sor­ry, pulled pork. 

Cameron  34:08

Oh, pulled pork. Which of the P’s are you gonna do this week, Tony?

Tony  34:15

Yes, today’s brought to you by the let­ter P: PTL. Pen­tal, so sor­ry about that Dave. Pen­tal, a sum­ma­ry of what Pen­tal do: they’re a sup­pli­er of dry goods to super­mar­kets in essence, so they’re a man­u­fac­tur­er and dis­trib­u­tor. They man­u­fac­ture and dis­trib­ute brands like White King, Sun­light Soap, Dura­cell bat­ter­ies, and the like. So, what super­mar­kets would call dry goods. This com­pa­ny reminds me a lit­tle bit of one called Macpher­son­’s, MCP, which I made a lot of mon­ey out of in the past. MCP has­n’t done well late­ly, but again, sim­i­lar sort of thing: a com­pa­ny which was import­ing things like, I think from mem­o­ry, alfoil and sell­ing it to super­mar­kets. Did real­ly well, then came a crop­per. I know they had a few trans­ac­tions which went bad. Any­way, I’m famil­iar with this kind of com­pa­ny in this kind of indus­try, and I want to high­light off the bat that they can be reward­ing busi­ness­es — like Macpher­son­’s was for quite a while there — but there are risks. And the biggest one is that they’re sup­ply­ing, basi­cal­ly, a duop­oly. So, they have two big cus­tomers: Coles and Wool­worths, prob­a­bly some oth­er small­er ones like Aldi and Franklin — what’s Franklin’s called now, Action? But yeah, the big super­mar­kets will know that they can dic­tate terms, so it’s not unusu­al for a com­pa­ny to see a big gap left in the rev­enue fore­casts if Coles and Wool­worths decide to play hard­ball on price, or even dump one of their prod­ucts in total from their line. And the biggest threat for what is called “brand­ed sup­plies”, which is what this com­pa­ny is, is what the super­mar­ket’s have been doing more and more of which is called “house brands”. So, you would have seen in Aldi, of course, lots of house brands, but in Coles and Wool­worths as well they’re putting their label on more of the brand­ed prod­ucts that are out there — espe­cial­ly the com­mod­i­ty type ones like deter­gent and bleach — and then sell­ing it under their own label at a cheap­er price point to the Pen­tal brand. So, that’s anoth­er risk for them. The sup­pli­ers have got­ten around that in the past by white labelling their own goods, so it’s not a death knell for the indus­try but it’s cer­tain­ly a risk. And then last­ly the risk a com­pa­ny like this faces, of course, the risk that all man­u­fac­tur­ers and importers are faced with at the moment, which is the high cost of ship­ping and delays bring­ing things in. And if they’re man­u­fac­tur­ing, then the loss of work­ers to COVID and the ris­ing wages to try and replace them and keep them there with that. So, this kind of com­pa­ny is not with­out its risks, how­ev­er as con­trar­i­an and val­ue investors that means we get a cheap­er price. So, it can be attrac­tive, but I just want­ed to high­light the risks. This com­pa­ny is cur­rent­ly a Josephine and when I did this analy­sis this morn­ing it was trad­ing at 40 cents, which is right on its sell price. So, may tip over to a sell by the time peo­ple hear this. Or, it may be a buy because the buy price is also 40 cents. So, it’s kind of a strange buy/sell posi­tion. If peo­ple want to visu­alise the graph if they can’t see it, it’s one of those ones that goes high at the top left and then drops down to the bot­tom right about three quar­ters of the way along, and then slow­ly makes its way back up from there. So, it’s a bit of a rebound sto­ry and it’s hav­ing its buy and sell on on the way up. So, who knows where it will be by time you hear this, so do your own research. I would think some­thing like 42 is the mag­ic num­ber — which it always is thanks to the Hitch­hik­er’s Guide — but if it cer­tain­ly gets to 41 cents it’s a buy again, 42 would be an even firmer indi­ca­tion. My analy­sis is done at 41 cents, which is the price of my most recent down­load. At 41 cents the com­pa­ny is still below its con­sen­sus tar­get, and it’s a recent con­sen­sus tar­gets so it gets a tick. The com­pa­ny is very small, so this won’t suit all investors. It has an ADT of only $27,000 and a mar­ket cap of $69 mil­lion, so it’s not a big com­pa­ny. But you know, it’s room to grow, I guess. The good thing about this com­pa­ny is the div­i­dend yield is cur­rent­ly 7%, so it scores well for us on that basis. Finan­cial health is strong and steady and the price to cash flow ratio is only three times, so it’s cer­tain­ly a val­ue stock for us. And prob­a­bly because of the risks I’ve high­light­ed above the PE is under eight times, so all of that cash flow is flow­ing through to the bot­tom line, which is, I think, a good sign. Net equi­ty per share I’m get­ting at 42 cents, and that’s dif­fer­ent to net tan­gi­ble assets that Stock Doc­tor reports of only 18 cents. And I’m guess­ing the dif­fer­ence is, prob­a­bly giv­en that brands are involved, prob­a­bly going to be good­will. So, at some stage they would have acquired the rights to dis­trib­ute some of these com­pa­nies or built the brands up from scratch and incurred costs or acqui­si­tion costs. And that’s going to be on the bal­ance sheet, which I guess is the dif­fer­ence between NTA and what we’re see­ing is net equi­ty per share, which is not a bad thing. As we’ve said before, good­will can be valu­able and can often be record­ed in an under­val­ued sense on the bal­ance sheets, so it can cut both ways. Any­way, I’m scor­ing it for being at a share price less than book and also less than book plus 30, which I’m say­ing book is 42 cents a share. On the neg­a­tive side fore­cast EPS is declin­ing by 15%, and so we get a minus one for EPS over growth. And inter­est­ing­ly enough the direc­tors only hold 1% of this com­pa­ny, so it’s a bit sur­pris­ing giv­en it’s a small mar­ket cap and you would expect it to be fair­ly entre­pre­neur­ial, and there­fore for man­age­ment to have a rea­son­able stake. So, I was a bit sur­prised by that but that’s how it is. So, it does­n’t score for that. It does score for record low PE over the last three years, so it gets a two, and it’s also a recent three-point upturn hav­ing turned upwards dur­ing April, so it gets a score for that. It does­n’t have con­sis­tent­ly increas­ing equi­ty so it does­n’t score for that. So, all in all, it gets a qual­i­ty score of 71% which I was a bit sur­prised by giv­en that we don’t have scores for the direc­tor’s hold­ing a large share and fore­cast EPS is going down, but that’s what it scores. Has a QAV score of 0.24, but I think the focus is real­ly on the val­ue side of this equa­tion; on a Pr/OpCaf of three times. That’s where the val­ue is. So, that’s PTL, Dave. Sor­ry I’m a week late. Hope it helps.

Cameron  40:35

Look­ing at its chart reminds me of my all-time favourite joke.

Tony  40:38

Two nuts walk­ing down the street, one was assault­ed?

Cameron  40:41

No, but that’s now my sec­ond favourite joke.

Tony  40:44

Well, that’s the joke that won the war. I was watch­ing Mon­ty Python the oth­er night on TV. 

Cameron  40:49

Who won the war?

Tony  40:51

Oh yeah, its a great skit. They keep hav­ing peo­ple… the Nazis kid­nap the joke writer from the British army, but they all die because they trans­late the joke. 

Cameron  41:05

Gee, I don’t know that sketch. I’ll have to dig that one out. No, my all-time favourite joke is, “what’s the def­i­n­i­tion of dis­gust­ing? When you take your under­pants off, throw them at the wall and they stick. What’s the def­i­n­i­tion of very dis­gust­ing? When you take your under­pants off, throw them at the wall, they stick and slide down. What’s the def­i­n­i­tion of com­plete­ly dis­gust­ing? When you take your under­pants off, throw them at a wall, they stick, slide down, and then slow­ly start to crawl back up again.” Like PTL’s chart, slow­ly crawl­ing back up again.

Tony  41:39

Did Fox write that joke?

Cameron  41:41

No. My friend John Sonkows­ki told me that joke in 1976 when we were in grade one, and it’s still my favourite. He’s still a friend of mine, he still lives in Bund­aberg, and it’s still my favourite joke of all time. It’s per­fect. It’s the per­fect joke. All right. Paul asks, “fol­low up ques­tion to the one about invest­ing in a high inter­est rate envi­ron­ment. TK, if the mort­gage rate on your first apart­ment was 15%, what types of stocks would pass that type of rate in the check­list? Cur­rent­ly, our mort­gage rate in the check­list is about 3.5%, a 15% rate would knock out a huge amount of stocks. Am I cor­rect in that, or are there stocks that thrive in high inter­est rate envi­ron­ments?”

Tony  42:27

Well, Paul, first of all, it was my first house. I bought a house as my first pur­chase, not an apart­ment. Any­way, I had a look at the buy list now, I just ran my fin­ger down the buy list and there’s a heap of stocks with high yields at the moment. So, I mean, just to name a few: FEX — Fenix Iron — 18.5% yield, MAM — I think it’s Micro Asset Man­age­ment — 15% yield, GRR 9.6%, FMG 15.3%. So, it’s not hard to find high yield­ing stocks on our buy list. I grant you that we would knock quite a few off as well, but they’re there and they’ve always been there in my expe­ri­ence. The oth­er thing that I’ll say about a real­ly high inter­est rate envi­ron­ment, and per­haps even a medi­um one too, is that there is always a tus­sle in the wider invest­ing mar­ket between bank deposits, and I guess there­fore bonds, and the yield in the share mar­ket because they’re all try­ing to attract investors’ mon­ey. So, you always start from the premise of, “if I can put my mon­ey in the bank and get 5%, why would I put it in the share mar­ket and take the risk?” So, the share mar­kets got to com­pen­sate for that risk which it does part­ly through growth, but also too, par­tic­u­lar­ly in Aus­tralia with its frank­ing cred­it laws, part­ly through yield. So, I expect that we’ll see the div­i­dend yield rise as inter­est rates rise, which means that com­pa­nies will be forced to pay more of their prof­its out in div­i­dends. So, that may have a slow­ing effect on growth, which is one of the rea­sons why high inter­est rates affect the share mar­ket returns. If you looked at total returns of div­i­dend and growth, we’ll do okay. So, yes, I can’t recall what div­i­dend yields were back when inter­est rates or mort­gage rates were 15%, but they would have been high. I remem­ber not too long after that my father retired from work and he was get­ting about 9%, from I don’t know if it was bank deposits, but cer­tain­ly the sort of fixed rates you could earn from a bank term deposit at that stage. So, to com­pete with that kind of guar­an­teed return the share mar­ket yields has got to go up, so I would have thought div­i­dend yields would be around that 8 to 10% if the bank deposit rate was 9%. So, yeah, the mar­ket will adjust and keep pace with the ris­ing inter­est rate.

Cameron  44:41

Yeah, that makes sense. Paul as a sec­ond ques­tion. “What does Tony define as an inde­pen­dent direc­tor? TK has com­ment­ed pre­vi­ous­ly that a poten­tial red flag is the res­ig­na­tion of inde­pen­dent direc­tors. Where a com­pa­ny announces the sud­den res­ig­na­tion of a direc­tor and no real rea­son is giv­en, should that be a par­tial red flag?”

Tony  44:59

Yeah, I think, Paul, you’re right. I count inde­pen­dent direc­tors as some­one who is not man­age­ment and isn’t there because of a share­hold­ing in the com­pa­ny. So, they’re meant to be appoint­ed because of their strengths in cer­tain areas; like, they might be a lawyer or they might be the past CFO of a com­pa­ny, or some­thing like that. So, a spe­cial­ist. They’re either doing that to bring those skills to the board, but they’re also meant to be the impar­tial direc­tor and doing what’s best for share­hold­ers rather than hav­ing skin in the game like man­age­ment does with their incen­tives to get their options and like some stake­hold­ers will have. Some­times stake­hold­ers can be con­flict­ed as we’ve seen with some of the min­ing com­pa­nies, where their cus­tomers have big stakes in the com­pa­ny so they might be max­imis­ing the returns of the oth­er com­pa­ny that’s the buy­er of the out­put of the com­pa­ny rather than the share­hold­ers to the min­er. So, that’s where the inde­pen­dent direc­tor is. Hav­ing said that, if a large stake­hold­er direc­tor also resigned unex­pect­ed­ly, I think that would also be a red flag. So, Paul’s right to ask. We’ve seen that before, too, when, I think, Chris Cor­ri­g­an resigned from Hawthorne resources; he had a stake and it was a red flag when he resigned.

Cameron  46:04

Hope that helps, Paul. Mark asks, “one les­son that was rein­forced for me last week was the cost of delay­ing a deci­sion to buy a stock imme­di­ate­ly after a sell. I delayed buy­ing a stock after a sell on Thurs­day and the mar­ket rose 1.5% first thing Fri­day morn­ing. Does TK buy imme­di­ate­ly upon a sell?”

Tony  46:27

Yeah, I do. I’m assum­ing that Mark is talk­ing about a dif­fer­ent stock. So, yes, I would say 99% of my trades, or my orders, to Alex Hay and his team are to sell stock X and buy stock Y with the pro­ceeds so I’m nev­er out of the mar­ket. 

Cameron  46:43

If you can find some­thing to buy.

Tony  46:45

Yeah. If I can’t then I’ll get the cash and I’ll wait for some­thing to buy, but that’s very, very, very rare. I’m always just sell­ing and buy­ing. So, I’m not quite sure if Mark is say­ing he sold stock X and then should have bought it back the next day? If that was the case…

Cameron  47:00

No, I think he’s talk­ing about a dif­fer­ent stock.

Tony  47:02

A dif­fer­ent stock? Then yeah, def­i­nite­ly, I’m always sell­ing and buy­ing at the same time.

Cameron  47:06

Okay, Dave from Newy said, “it’s PTL, not PDL,” and some­thing about some­body else want­ed PGL. So, maybe that’ll be the next one. Yeah.

Tony  47:20

Prospa, next week? 

Cameron  47:21

Yeah. We can do any pulled pork you want, as long as there’s a P and an L and some­thing in the mid­dle. Sor­ry, Dave. 

Tony  47:27

Wel­come to today’s Wor­dle, where we have a P and an L and we have to find what the word is.

Cameron  47:32

Just make sure the words not foe­tus. No? You did­n’t see that sto­ry.

Tony  47:36

No… oh, I did! Yes, they took it out of the… yeah, God.

Cameron  47:39

There was a big uproar. Peo­ple were offend­ed that foe­tus was the word on the back of the Roe vs. Wade Supreme Court stuff that’s going on over there, because they are a strange coun­try. Ally: “Hi Cam, can we please go over the dif­fer­ence between a Josephine ver­sus a falling knife, and which charts to check for each? I just want to be crys­tal clear on the dif­fer­ences.” Look, I got­ta say, like, there’s been a few times late­ly when I’ve had email you on a Mon­day when I’m look­ing at charts and going, “is this a falling knife or a Josephine, or what?” We did talk about it last week or the week before?

Tony  48:19

Yeah, and we talked about it last year, as well. And apolo­gies to Ally, it’s not but­toned down per­haps as much as we’d like, or as I’d like. But, what we do know is that, well, we’re always look­ing at a five year month­ly graph for a start. So, Ally asked what kind of graph we’re look­ing at, that’s what we’re look­ing at. The first test is, is the cur­rent share price above the clos­ing share price from the month before? If Ally looks at the Bret­te­la­tor she’ll see that’s high­light­ed. If the share price cur­rent­ly is below last mon­th’s clos­ing share price the share price will be shown in red in the Bret­te­la­tor, and that’s straight away a Josephine for us. So, we want to see an upward trend based on the clos­ing price of last month. There are inher­ent flaws with that; if we’re on the first day of the month, it’s not going to make much sense. But it cer­tain­ly does by the end of the first week, and cer­tain­ly into the sec­ond week it makes sense. So, that’s the first rule, I guess. I’ve used the prin­ci­ple which I call “the sec­ond buy prin­ci­ple”, and at the moment when the mar­kets been trend­ing side­ways or down it’s real­ly the first buy prin­ci­ple, because in a lot of cas­es H1 and H2 are both our sig­nals for a buy — a three-point trend line buy — but also the end of a Josephine. So, what I mean by that is when the mar­ket was trend­ing up we would have stocks like Fortes­cue Met­als Group which was going low left to top right, and it would have, you know, zigza­gs along the way, and it was a buy a year or so before we were look­ing at it. Then, it would turn down as it often does, it would go up and then come down, and I would use the prin­ci­ple of the sec­ond buy. So, I’d look for the high­est point on the graph and then look for if it turned down from there, which it had to because it was the high­est point. I would look for a sec­ond peak to form so I could get a new H2 and then draw a mini buy line, and when that crossed, that was out of Josephine ter­ri­to­ry for me. And now, I guess, tak­ing that a lit­tle bit fur­ther, if we could­n’t do that, like, if it had made a high recent­ly and was on a down­ward slope and that slope went for more than the cur­rent month, then yeah, that’s where it becomes a falling knife. So, I’m wait­ing for that tick up to give us anoth­er H2 to be able to draw the line. So, that’s as best as I can say, Ally. I think, you know, rule one — or use the first rule — use the clos­ing price from the last month and see if the cur­rent price is above that. Rule two, if it’s in buy ter­ri­to­ry and you go back to the most recent peak and then it’s been trend­ing down from there, see if there’s anoth­er peak you can draw up a sec­ondary buy line through. When it goes above that and cross­es that, it’s out of the Josephine ter­ri­to­ry. If you can’t find that sec­ond peak, it’s still a Josephine and that’s a falling knife. That’s as best as I can describe it. I mean, there’s a bit of art in this one as well.

Cameron  50:59

Okay, Ally, hope that helps. Next one is from James: “ques­tion, please. How do we treat gold as a com­mod­i­ty chart buy or sell when the US chart has a sell and the Aus­tralia chart is a buy? Many thanks.” Well, we just go with the Aus­tralian chart.

Tony  51:15

Well, yeah, and I think the rea­son for that is — I mean, it’s a dif­fi­cult one. It’s a good ques­tion, James. Like I said before, I’m almost look­ing for rea­sons to hold on to gold because I’m doing a bit of pre­dic­tion here, which may go against me, but I expect gold will do well if infla­tion takes hold. So, there’s that. But, we are invest­ing in Aus­tralian gold min­ers which is the oth­er rea­son, and there­fore the Aus­tralian dol­lar gold price is impor­tant to them. Now, hav­ing said that, I know some­one will come back and say, “yes, but Com­pa­ny XYZ sells in US dol­lars, but they do get con­vert­ed to Aus­tralian dol­lars at some stage before the com­pa­ny reports. So, I think the Aus­tralian dol­lar price is the more rel­e­vant one for Aus­tralian gold min­ers.

Cameron  51:54

But, we don’t do that with our oth­er com­modi­ties. Why is it only gold that we look at in Aus­tralian dol­lars?

Tony  52:02

Yeah, we prob­a­bly should. I think I would strug­gle to find plat­inum in Aus­tralian dol­lars and cop­per in Aus­tralian dol­lars, and some of these oth­er ones. I could be wrong, I haven’t tried. Like I said, I start­ed off when the US dol­lar price in gold got close to cross­ing. I start­ed to think about that, why were the share prices of Aus­tralian gold min­ers still going up and the com­mod­i­ty was trend­ing down? And, did a bit of research and thought, “okay, it’s because the Aus­tralian dol­lar price is more rel­e­vant.” So, yeah, poten­tial­ly we should be look­ing at all the oth­er charts as well in Aus­tralian dol­lars. And some of them are, just nat­u­ral­ly default­ing to Aus­tralian dol­lars. But in gold, we are lucky enough to be able to get our hands around the Aus­tralian dol­lar five-year month­ly gold chart as well as a US dol­lar one.

Cameron  52:46

So real­ly, you saw a dis­con­nect between the gold USD price trend and the gold min­ers — the gold stocks in this coun­try — and you were try­ing to fig­ure out why the dis­con­nect? And that was your con­clu­sion, right.

Tony  53:00

Cor­rect. Now, it’s kind of reversed at the moment because the gold shares, like every­thing else, are drop­ping as well. So, whether that’s because of the gen­er­al mar­ket malaise or whether it’s because the US dol­lar is the right gold chart, I’m not sure. But yeah, at this stage I’m stick­ing with the Aus­tralian dol­lar chart.

Cameron  53:17

Okay, thank you. Glen asks a ques­tion about the ACL chart. We talked about this over lunch yes­ter­day, too. He says, “I’m think­ing it’s a buy. If so, a QAV score of about 0.18. Keen to see any oth­er com­ments.” I think these guys only float­ed, like, in the last year and they’ve got one of these weird ones where it’s going up, but it’s a lit­tle bit hard to draw a buy line for this. I know the Bret­te­la­tor can’t draw a buy line. What do you think about the buy line for ACL?

Tony  53:44

Well, the Bret­te­la­tor can’t draw a buy line because H2 is not quite a peak. So, when I eye­balled the chart this morn­ing prepar­ing for the show I thought, oh, yeah, there’s a buy line there. It’s H1, h2 are pret­ty obvi­ous. But, when I had a close look at H2, it’s not quite a peak. In oth­er words, using the month­ly graph the month before the sec­ond peak was low­er, but the month after was like a cent high­er. So, it’s not quite a peak which is why the Bret­te­la­tor can’t draw it as a peak. So, you can fudge it and you get a buy price as it looks like Glen has done, or you can wait until there is a prop­er H2 peak, as such.

Cameron  54:21

Which way would you go with this if it was you?

Tony  54:25

I’d prob­a­bly fudge it. It’s so close to being a peak. It’s only, like, a cent out. Again, this com­pa­ny comes with risk because, I think, I don’t know much about ACL but I think it’s made its name through COVID test­ing. So, not sure how long that’s going to be a thing in demand. And just as a gen­er­al rule, and no asper­sions on ACL which of course could do all sorts of things from here and piv­ot into all sorts of oth­er test­ing prod­ucts, but gen­er­al­ly if you see some­thing which is rid­ing a wave and then it lists dur­ing that wave, it might be a sign that some­one’s try­ing to get out at the high, so just be care­ful. But that’s a pre­dic­tion and all things being equal, it’s a buy.

Cameron  55:08

They want to get high and you’re sell­ing weed. It’s all com­ing togeth­er.

Tony  55:14

High School eco­nom­ics.

Cameron  55:18

All right. Last ques­tion is from Dan, “when using the oper­at­ing cash flows it does­n’t include the prin­ci­pal por­tion of lease pay­ments and to myself, and maybe most, I feel like this is part of an oper­at­ing busi­ness. It can have pret­ty big impacts on scores, see­ing as the oper­at­ing cash flow car­ries the most weight when scor­ing com­pa­nies on the check­list. I know it’s a lot of work, but would it not be worth check­ing the prin­ci­pal pay­ments first before buy­ing from the list to make sure it does­n’t have a sig­nif­i­cant impact on the scores?”

Tony  55:53

Dan, good ques­tion. We did get a ques­tion sim­i­lar to this a lit­tle while ago — over a year ago. I guess I need to inter­pret this ques­tion. So, the prin­ci­pal por­tion of lease pay­ments I’m tak­ing to mean the main por­tion, but it could also be read as the prin­ci­pal ver­sus the inter­est com­po­nent. But, there’s no real prin­ci­pal repay­ment for a lease, it’s all inter­est, right? You’re rent­ing, you’re leas­ing some­one, it’s all rent. It’s not like it’s a rent to buy and you’re mak­ing prin­ci­pal pay­ments as repay­ments as well. So, I’ve took this to mean the major­i­ty of lease pay­ments are now on the bal­ance sheet. So, I think this ties into the ques­tion that we were asked eigh­teen months ago or so — and Dan, please feel free to come back if I’m off track here — but I think it was around 2019 the account­ing stan­dards changed so that lease pay­ments went onto the bal­ance sheet rather than were shown in the P&L. So, I think that’s when they were tak­en out of cash flow, and that was cer­tain­ly the ques­tion that was asked at the time, did that make a dif­fer­ence? And yeah, it makes a dif­fer­ence, but makes a dif­fer­ence to cash flow. I don’t think it’s had a big effect on our buy list. I mean, some retail­ers have come on to the buy list since then, like JBH, JB Hi Fi, Adairs, Myer have come on. But we had retail­ers on before that as well. If I think back, we had the Reject Shop, we’ve had Kath­man­du, that’s just the ones I can think of. I think Myer’s been around for a long time as well, before the account­ing change and after. So, look, it may pro­mote some of these com­pa­nies a lit­tle bit high­er on the buy list, but I don’t think it’s hav­ing a dra­mat­ic effect. I did a bit of a drill down at that time around these leas­es, and it looks like — I’m not even sure if the change in account­ing stan­dards is affect­ing the retail­ers as much as it might at first appear­ance, because I think the change had to do with oper­at­ing leas­es and it removed those from the account­ing stan­dards. So, in the past, there were two types of leas­es oper­at­ing in cap­i­tal, and, in a nut­shell, a cap­i­tal lease was for a large asset over a long peri­od of time. So, I think store leas­es would have been cap­i­talised. But, if you were, say, hir­ing or leas­ing a car for the busi­ness that would’ve been an oper­at­ing lease. So, small­er val­ue, short­er time peri­od. It’s the oper­at­ing leas­es, I think, which are now being put on the bal­ance sheet — although the cap­i­tal ones would have been on the bal­ance sheet already. So, not sure if it’s hav­ing a big effect on the retail­ers. I could have that wrong because I’m not an expert in account­ing stan­dards. My obser­va­tion is it has­n’t made a big dif­fer­ence to the buy list, but if any­one wants to take me up on that, please do, and I’m hap­py to be edu­cat­ed about it. I think if leas­es are on the bal­ance sheet they’re still going to have to be charged to the P&L some­where for them. So, there’s a whole, if you Google this, there’s a whole lot of exam­ples about amor­tis­ing the full val­ue of the lease and putting it on the bal­ance sheet and then doing a DCF on the lease pay­ments and match­ing that as an oblig­a­tion or a lia­bil­i­ty on the bal­ance sheet. That’s fine, but you can’t just take out a lease and then pay for it with pix­ie dust, so it’s got to come off the P&L some­where —  which will be some kind of amor­ti­sa­tion charge or depre­ci­a­tion charge on the asset. So, even though it may not be com­ing out of oper­at­ing cash flow any­more, these kinds of lease charges are going to be in the P&L some­where. So, they are going to affect oth­er items on the check­list like increas­ing equi­ty, for exam­ple, and it will prob­a­bly have an effect on the gear­ing so it’ll be in the health rat­ings as well. So, it will have some effect on the check­list score. Like I said, my obser­va­tion is it’s not hav­ing a big skew­ing of retail­ers. It may even be that we’re bark­ing up the wrong tree here. If it’s a change to oper­at­ing lease stan­dards only, it may affect com­pa­nies with big fleets. So, it might be com­pa­nies like McMil­lan Shake­speare which does fleet leas­ing; I’m not sure if it affects them but that might be a place to look. I don’t know, because it has­n’t real­ly come up as an issue for me to dig any fur­ther into it, but hap­py to have some­one like an accoun­tant come in and tell me where I’m wrong. It pos­si­bly is push­ing some com­pa­nies slight­ly high­er up the list because of it. You know, maybe not. Talk­ing about account­ing stan­dards like this and the account­ing stan­dards Bureau or coun­sel, who­ev­er changes them, does some­times, I think, obscure things when they try and clar­i­fy them. And, I’m sure there’s good rea­sons why they did this, like, it does make sense if you have… In some cas­es, like Myer has a great asset, you know, in the Bourke Street store, even though they’re leas­ing it, right? So, it’s worth some­thing, pos­si­bly more than what the lease is actu­al­ly cost­ing them because, you know, they’re stop­ping David Jones from hav­ing that spot or anoth­er com­peti­tor from hav­ing that spot. So, yeah, a good lease is actu­al­ly an asset in some respects. I get it why it’s put on the bal­ance sheet. And also, too, I’ve spo­ken before about how, you know, man­age­ment start­ed to gain return on equi­ty by doing sale and lease­backs. So, they were, per­haps by about the 90s, most retail­ers would have owned their land, which was an asset. But, it would get much low­er return then oper­at­ing the store, and so they were sell­ing off that land. But then as part of the sale they were doing a long-term lease, and so that was sort of skew­ing the account­ing process there for a while as well. So, I can see why there’s some sense in chang­ing the account­ing stan­dards, but real­ly, some­times these account­ing stan­dards are a bit of a cir­cle jerk, you know; they can be arcane and they go over­board. And the fact is, if we can’t pick up a bal­ance sheet and work it out they haven’t done their job. So, I’m not a big fan of some of these account­ing stan­dard changes. And apolo­gies to the accoun­tants out there because I’m sure they’ll tell me I’m wrong, but I’m a sim­ple guy who likes sim­ple things and I think try­ing to work out the effect on oper­at­ing cash flows of amor­tis­ing leas­es is not one of them. So, I’m hap­py to be schooled on that one, but the long sto­ry short, I’m not see­ing a big impact on the buy list because of it. 

Cameron  1:01:30

You’re a sim­ple guy who likes sim­ple things, like breed­ing race­hors­es.

Tony  1:01:37

It’s like peo­ple say to me, “I can’t buy you a birth­day present.” I’m like, “mate. I like golf, I like scotch and I like hors­es. What could be hard­er?”

Cameron  1:01:47

Just buy me a race­horse. How hard is it? That’s it for the Q&A. After hours, Tony, what’s going on? Your wife was on the front page of the Aus­tralian.

Tony  1:02:00

She was. So, this has been a very up and down week for Jen. She’s now in bed asleep try­ing to fight COVID. She’s pret­ty sick. She was meant to be doing a tele­vi­sion inter­view for Chan­nel Sev­en today and she asked me, “do you think I should?” And I’m like, “I think you should go to bed, you’re not look­ing that great. Give it to some­body else in your organ­i­sa­tion.” So, she’s done that. So yeah, she’s on the front page of the Aus­tralian: Jen­ny Fagg, does­n’t have the same sur­name as me. Jen­ny Fagg and… 

Cameron  1:02:24

Dr Jen­ny Fagg. 

Tony  1:02:25

Dr Jen­ny Fagg, thank you. Amaz­ing woman, just start­ed a new com­pa­ny called 2Be finance, and we’ve inter­viewed Jen­ny last week as part of the launch. So, we’ll be putting that one to air over the com­ing weeks. Her com­pa­ny is a reverse mort­gage com­pa­ny which can be used for many things, but the prime gap in the mar­ket they’re aim­ing to fill is the “bank of Mum and Dad”, where peo­ple have equi­ty in their house and they’re try­ing to help their kids into the prop­er­ty mar­ket. So, they can bor­row through Jen­ny’s com­pa­ny and then help their kids with a deposit in the hous­ing mar­ket. So, that was fan­tas­tic to see all her hard work, and there has been a lot of hard work, come to fruition. And she made it to the front page of the Aus­tralian news­pa­per with a big inter­view in the busi­ness sec­tion. So, well done, Jen. 

Cameron  1:03:08

What I should have asked her when we did the inter­view is if her next busi­ness, “or not 2Be” could be for par­ents that want to bor­row mon­ey from their kids. Because, the way that my kids are going, there’s more of a change I’m going to be bor­row­ing mon­ey from them rather than the oth­er way around.

Tony  1:03:27

Long term invest­ment strat­e­gy. 

Cameron  1:03:29

Shifty kids. 

Tony  1:03:30

Yeah, well that’s the obvi­ous car­toon, isn’t it? The share mar­ket vote even­tu­al­ly for 2Be: 2Be or not 2Be?

Cameron  1:03:37

Yeah, no, that’s great. Well, con­grat­u­la­tions to Dr Jen­ny Fagg.

Tony  1:03:41

Yeah, and fas­ci­nat­ing to just be on the oth­er side of watch­ing her go through the machi­na­tions of rais­ing cap­i­tal through fam­i­ly offices and oth­er pri­vate share­hold­ers, deal­ing with try­ing to get whole­sale fund­ing — all the things we would nev­er see. It’s been absolute­ly fas­ci­nat­ing. And bru­tal, to be hon­est, the nego­ti­a­tions that have gone on. But she got there, so full cred­it to her and her team, its fan­tas­tic.

Cameron  1:04:05

And there’s not just her who’s a heavy hit­ter, obvi­ous­ly, but for­mer West­pac Man­ag­ing Direc­tor — is that right? Or, chair­man, CEO? With her on the team. 

Tony  1:04:14

Yeah. Bri­an Hartzer, who’s the chair­man. Jen­ny’s the CEO. There’s some oth­er bank­ing peo­ple involved as well from her bank­ing days. 

Cameron  1:04:21

Heavy hit­ters. 

Tony  1:04:22

Yeah. And it was part of the rea­son that they had entre into the pri­vate fam­i­ly offices and com­pa­nies that we would­n’t nor­mal­ly know were out there look­ing to invest, is because of Bri­an’s con­nec­tions.

Cameron  1:04:34

Very good. 

Tony  1:04:41

Yep. Thank you, thank you, thank you. They have been. So, Bel­la Sorel­li­na won yes­ter­day, which was fan­tas­tic. She’s got a bright future and she’s the sis­ter of Bel­la Nipoti­na who’s still win­ning races, so that’s great. Miss Dunsford had a sol­id third last Sat­ur­day in Ade­laide in a black type race, a group three race, which is very impor­tant as a future breed­ing prospect for us. And that’s our busi­ness mod­el, my busi­ness mod­el, is to invest in fil­lies and then hope­ful­ly take them to the breed­ing barn as a good fam­i­ly type to breed from in the future, and just keep com­pound­ing their rac­ing acu­men.

Cameron  1:05:16

It’s how I treat my chil­dren as well. Hop­ing they breed well.

Tony  1:05:19

Yeah, and the impor­tance of… she ran third, but that’s called “get­ting black type”. So, if we did ever sell her, or if we sell from her when she breeds, the front page of the book will say that she has black type, so it’ll be in bold so it stands out, which is a good thing if you’re a breed­er. So, that was great. It’s increased her val­ue more than what she won on the week­end. Nev­er Say Nay, who won two weeks ago, may race this Sat­ur­day but more like­ly Wednes­day next week at sale. And so, he was a $16 win­ner and is proven to be a handy sprint­er. Even though he’s a boy, not a female, we did buy into him with the aim — he’s well bred — with the aim of tak­ing him to the Mag­ic Mil­lions. So, he’s in my wife’s name and my daugh­ter’s name because you get a bonus if there’s female own­er­ship, so hope­ful­ly he’ll make it up to the Gold Coast next year. But, we’ll see.

Cameron  1:06:14

Is that how Alex intro­duces her­self to peo­ple now? “Hi, Alex Kynas­ton. Horse Breed­er.”

Tony  1:06:21

Alex could be the most dis­in­ter­est­ed per­son I know with hors­es. Even when she was grow­ing up, it was like, “you want to come to the races?” Or, “I’ll take you to the pad­dock, you can pat the hors­es.” “No, Dad. No.” Or, “do you want to come play golf?” “No, Dad.” She’s had a lot of poten­tial expe­ri­ences which most peo­ple won’t ever get, but she’s just turned them down. Any­way, she’s a con­trar­i­an as well.

Cameron  1:06:50

Yeah, well, that’s kids. My kids are nev­er inter­est­ed in any­thing. “Let’s watch this movie.” “No, no. Don’t don’t watch that, nup.” “Hey, lis­ten to this album.” “Nup, nup.” Just, straight away if I rec­om­mend some­thing: “Nup, not gonna hap­pen.”

Tony  1:06:51

Oh no, Alex is not like that. Like, she sent me her Spo­ti­fy list over Christ­mas and about 25% was stuff that we’d lis­tened to togeth­er when she was a kid. So, she does lis­ten to music that I rec­om­mend and watch movies I rec­om­mend, so we to-and-fro on that, which is great. But, when it comes to oth­er things, no, not so much.

Cameron  1:07:22

Ah, well. I’ve got noth­ing to report…

Cameron  1:13:39

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.