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


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


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


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


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


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


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

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