QAV 521 Club

Cameron  00:07

Welcome to QAV. This is sort of a weird episode.

Tony  00:13

Special Edition.

Cameron  00:14

Yeah. Tony and I are in his apartment in Brisbane. He’s up here for a few days for the QAV dinner and other things. We’re recording this bit of it — I don’t know if there will be different bits. Anyway, for the record, this bit we’re recording on the afternoon of Friday the 27th of May. So, how are you, TK?

Tony  00:43


Cameron  00:45

Tell us, tell everyone where you’ve been, what you’ve been doing.

Tony  00:47

Drove up from Sydney on Sunday, stayed at a friend’s place at Oxley Island — they’ve got a a converted boatshed we could use, which was good. Very nice on the Manning river, but very, very wet. We got bogged, my car got bogged.

Cameron  01:03


Tony  01:04

Yeah, ’cause it’s like a farm, so we drove in.

Cameron  01:06

Oh, right.

Tony  01:07

… And just off the wheel ruts going in, and then we turned off onto the grass and started to slide, and I just thought, okay, we’ll leave the car there, its on a bit of a slope. Worst case is we’ll come out tomorrow and we’ll roll it down the slope. Came out the next day, it had just sunk in the mud.

Tony  01:11

What did you do?

Tony  01:26

Well, we tried to get it out ourselves. Couldn’t do it. The people we’re staying with had a ute, four wheel drive ute, couldn’t pull it out. Couldn’t tow it out.

Cameron  01:34

What car were you driving?

Tony  01:35

A Merc. The four wheel drive Merc. It just spun its wheels and dug deeper.

Cameron  01:40

What’s the point of a four wheel drive if it won’t get you out of some mud?

Tony  01:44

Anyway, so luckily it was a farm. They had a tractor, they went and got a tractor, and towed us out. So, that was fun. Then, drove up to the Gold Coast, and man, there was so much rain around on the weekend and monday tuesday. Got to the Gold Coast, went to a horsesale, a Magic Millions broodmare sale was on. A friend of ours, the guy I was travelling with, had a horse that sold on Monday, which was a good outcome for them. A horse called She’s Ideal. It was actually quite interesting going to the broodmare sales, it’s a very toppy market which is interesting.

Cameron  02:22


Tony  02:22

Yeah, lots of high prices, record prices being set.

Cameron  02:25

Thought that meant everyone was wearing top hats.

Tony  02:27


Cameron  02:28

That’s how I imagine a wholesale is, is people wearing top hats and tails.

Tony  02:32

Its quite the reverse, actually, yeah. They’re all farmers and horse people. A few wankers in RM Williams.

Cameron  02:40

Hey, I’m wearing RM Williams.

Tony  02:40

Are you? Okay, sorry.

Cameron  02:44


Tony  02:45

What do they call them? More hat then cows or something, isn’t that the saying? Yeah, so a few of those, but mainly pretty down to earth people. And some very rich people there as well: Jerry Harvey was there. Anyway, so yeah, a horse sold for $4 million and set the record — $4.2 million. It’s usually a sign that the economy’s doing so well it’s gonna come off, so, bit of fog around about how interest rates would affect the horse market — and I guess everything else, the share market and the economy. Some people were holding back, waiting for a crash to come in the broodmare market in the next couple of years. Anyway, we’ll see. So, that was really interesting, spending a day there. And then we played golf a couple of days, even though it was really, really muddy. The rain had stoppped so we could go and play, so that was good.

Tony  02:45

Do you have special shoes with cleats or something on them?

Tony  02:45


Cameron  02:45


Tony  02:51

Yeah, definitely. But my golf shoes are trashed after the mud. But it was good. And then lots of negronis and dinner at night.

Cameron  03:59

Drunk Facebook posting at 1:00am.

Tony  04:00

Drunk Facebook posting, yeah. We’re staying in a nice place, the sub penthouse at the Wave on the Gold Coast, which we’ve stayed at before and loved.

Cameron  04:07


Tony  04:08

Looking over Broad Beach, and it was just so nice at one o’clock last night, didn’t want to leave.

Cameron  04:12

That’s nice.

Tony  04:13

I pulled open a nice bottle of scotch and I was sitting out there with Ruddy and Jeff who I was travelling with, they went to bed and I kicked on.

Cameron  04:21

Oh, that’s nice. Well, let’s talk about some investing stuff. Nothing’s going on in investing. It’s all been quiet out there the last couple of weeks.

Tony  04:31

I thought that’s why we should get together today and answer a few questions.

Cameron  04:36

You know, I’ve been thinking about, you know, Buffett’s old thing about circle of competence. I’ve been thinking about this for the last couple of weeks, and, you know, there’s a lot of people in investing — and even in our community — people that know a lot about this business or that sector of this industry, and they go deep on what businesses are doing, and I was thinking really what I think I want my circle of competence to be is just QAV. That’s it.

Tony  05:09

No, I agree.

Cameron  05:09

There’s a limited amount… I started reading the paperwork for the AFSL test during the week. I thought, “finally, I’m going to sit down, I’m going to start reading this.” Oh, my god, like, it’s so boring. I know I need to do it, but I was like, “urgh.” But you know, just, like, that’s, it. Like, I just want to know how to do the process well, and I think if I focus on that as just my circle of competence, that should be enough for a while.

Tony  05:44

I agree. It’s my circle of competence too.

Cameron  05:46

Well, it’s not, though. You know a lot of stuff. Because this is where I was at, I was thinking, “I’m never going to know all the stuff that Tony knows about this business, and that industry,” and all that, and then all of our members do too.

Tony  05:58

But that’s just experience.

Cameron  06:00

Yeah, I know.

Tony  06:00

I’ve been investing for thirty years, and there’s two thousand stocks on the ASX, and some of them have been there the whole thirty years.

Cameron  06:06


Tony  06:07

You brush up against them enough times, you get to know a little bit about them. Yeah. But you’re right, I mean, the analogy is like, you know, why breed horses but not outsource it and all that? But spending time with the people who run the studs and all that, there’s a lot going on which you only learn through that kind of solo experience.

Cameron  06:26


Tony  06:27

But I can still breed and trade horses.

Cameron  06:30


Tony  06:31

It’s the same sort of thing, right?

Cameron  06:32

Yeah, okay.

Tony  06:33

You know, I know how to invest in the share market using the QAV method, but I don’t have to know the ins and outs of iron ore mining or each particular silo.

Cameron  06:45

Right, well that’s good. Because, it’s been three years now and I think I understand the basics of QAV relatively well, but I’ve got a lot more to learn. But, its like, that’s it. I just want to be really good at running the process. And I think that’s all I need to be able to do. I don’t think I need to know anything else.

Tony  07:05

You will, though, you’ll pick it up.

Cameron  07:06

Oh, I’m sure I will learn stuff, but I don’t feel the pressure to be able to speak eloquently about interest rates and how they work or the RBA or blah, blah, blah.

Tony  07:20

Yeah. And also, the circle of competence, I think, is not just around QAV but it’s around the sections of the market that QAV focuses on. So, you know, do I know much about Bitcoin? Do I know much about growth stocks? A little bit, but it’s not my circle of competence.

Cameron  07:35

Yeah. Don’t talk about Bitcoin. Been banned. Election, we had an election, Tony, I don’t know if you noticed. I don’t know if you heard this while you’ve been vacationing, but there was an election.

Cameron  07:47

The Labor Party is going to form government of one sort or another, majority of minority. It’s funny on the Zoom call that we had last night, Kane, I was asking Kane how his jewellery business was going in Sydney. He said for some reason retail drops off for a few weeks before an election, he said, “I don’t really know why.” He said somebody in real estate told him the same thing happens, like people will stop buying property before an election. How do you think this election result is going to impact on QAV and investing?

Cameron  07:47


Tony  08:26

Oh, not at all. Not at all.

Cameron  08:29

I knew that.

Tony  08:31

I mean, go back and have a look at all the elections and what the share markets done. It’s just powered on as normal. It’s not all the stockbrokers have their hands on the button after the election to swap all of their portfolios now. I mean, there are some people out there who will say things like, “well, there’s a Labor government, that will favour things like health care stocks.” You know, there might be an increase in Medicare, which will favour medical stocks. There might be more tightening on coal miners or something like that. But that’s all speculation. Until you know what’s going to happen, what’s been legislated, you can’t really act on it.

Cameron  09:11

And Albo really went into this election very boldly, promising next to nothing. I read an article sometime since the election, some guy was saying, you know, the the major parties in Australia have learned over the last few years that the worst thing that you can do is have any policies going into an election. And he said it’s actually not a bad thing really, because what we know — and I talked about this in the psychopath book — is that politicians very rarely live up to their campaign promises anyway, so what does it matter if they don’t make any? They’re not gonna do it, doesn’t matter. But, like, I know with the last federal election, Labor were pushing this franking credit changes.

Cameron  10:00

But this time they didn’t put that forward. There’s no carbon tax, there was maybe a little bit stricter, sort of, hitting our imaginary 2050 reduction goals. But you know, okay.

Tony  10:00

Franking credit changes, negative gearing changes. And they’ve learned their lesson from then.

Tony  10:16

Yes. Small policy election, policy light. And the main policy is “I’m not the other guy.”

Cameron  10:23

Yeah. It was the same as Biden, right. It was like, “Yeah, I’m not that guy.”

Tony  10:28

Yeah, exactly. And look, the other side of that coin is for the last, I don’t know, ten years, fifteen years, the government’s have gone into elections with policies and then the game has just changed. GFC comes along, COVID comes along. They react.

Cameron  10:45


Tony  10:46

So like, the policies get thrown out of the window. Doesn’t matter.

Cameron  10:50

Yeah. SEQ, Tony, this is one of these “it was a Josephine and now it’s not, or is it? And is it a falling knife?” Questions somebody asked. So, SEQ was a Josephine, then it went back up above the end of month price. But somebody on Facebook asked the question, is it a falling knife? And I said, “look, you know what, when I think falling knife I think of a chart that goes from high left down to low, right. And this goes from low left to high right.” But then it did start coming off. And then I pulled up the transcript from last week, or the last episode that we did, and you were talking again about the second buy line. Now, the second buy line for SEQ would be up here.

Tony  11:38

So, it would be a buy on that basis, yep.

Cameron  11:40

Right. So, even though the price ticked up, back above the end of month, you would wait for it to cross the second buy line.

Tony  11:49

I would, yeah. But it’s good question. If it’s above the closing price at the end of the month, it’s way above its sell price at this stage. Yeah, I think you could probably buy it, but I would probably wait until it has crossed the line created by H1 and H2.

Cameron  12:08

It’s way above its buy line, it’s way above its sell line.

Tony  12:16

The graph is going sideways, slightly down, yeah.

Cameron  12:20

Since its peak.

Tony  12:20

Yeah, I probably would wait.

Cameron  12:22


Tony  12:22

Let’s get a big, let’s get an upswing going and a trend established, right.

Cameron  12:26

Right, so reaffirming the second buy line. Steven Mabb, chairman Mabb, who I hear was saying nice things about you at the ASA conference down in Melbourne this week, little birdie told me. I don’t believe he said it on stage, unfortunately, but just to QAV members he said nice things. He sent us an article. There’s a study by Bain and Co that found that “a disproportionate number of companies which maintained profitable growth were, one, founder-led, two, had a founder on the board of directors, or three, still adhered to the founder’s principles and operating methods. Founder alignment with shareholders, deep knowledge of the business and industry, and a long-term mindset can contribute to outperformance by founder-led companies.” And he said, he just said, “yeah, that’s sort of reflects the scoring in QAV. Good to see Bain, sort of, reaffirming that as an important metric.

Tony  13:26

Yeah, I think there’s been other research prior to that on it, which I would have read years ago. Yeah, so I think Steve was also saying that in Stock Doctor you weren’t necessarily seeing if there was a large ownership of directors in the company’s stock, because they could have it through trusts or companies, or super funds or whatever, and he was picking it up in Yahoo Finance and other areas.

Cameron  13:58

Yeah, that was with PTL. I sent his comments to Victor Di Pasquale at Stock Doctor, who did send me a reply basically saying, “yeah, Yahoo Finance’s data is out of date.” And that their data is the right data, and all the other data you shouldn’t trust. Be careful what you trust, or something. I haven’t had a chance to forward that on to you or Steven yet, but I will do that.

Tony  14:27

Yeah. But it’s a good point. It’s, I mean, and you think about why that’s the case. I mean, talking about circle of competence, if you’ve built a business up from scratch to the stage where it can be listed, you know a lot about that industry, a lot about what makes that business tick. And then you would have a long-term mentality about investing and running the business.

Tony  14:47

As opposed to someone you’ve hired who doesn’t have skin in the game who’s going to probably try and run the company for short term KPIs that they’ve been told to manage the business by. Yeah.

Cameron  14:47


Cameron  14:59

And that they’re usually on a three-year stint as a CEO, three or five years.

Tony  15:03

I think the average lifespan of a CEO in Australia is like four years.

Cameron  15:07

Yeah, so they’re in for short term gain. Yeah.

Tony  15:11

And they’re often employed to, or they’ve been given the mandate to turn around the company or expand the company, whatever. So, they’ve got a specific job and a short time to do it. Whereas a founder is more likely to say, “okay, well, we need to move here, but we can take five years to get there.” Yeah.

Cameron  15:29

NHC had a massive drop yesterday. Did you notice that?

Tony  15:33

Only because you raised it with me, I haven’t been watching the market.

Cameron  15:36

Oh my god. And then it bounced back. So, it’s still down, I think, but not as far down as it was. I didn’t understand why, but somebody on Facebook said something about forecasts.

Tony  15:51

I looked it up. There was a, well, they came out with a quarterly report and send that they’d been affected by two things — or, the business had been affected by two things — flooding, which I can testify to driving through New South Wales, and not being able to find enough workers because of COVID. However, they also said that they increased their profit forecast by, I think, 4%.

Cameron  16:14


Tony  16:14

Yeah. So, the negative was picked up on quickly, but I think people are just realising it’s a bit of a blip.

Cameron  16:24

Right. Well, my question was going to be, is it a bad news sell? Because, and I know you’ve been, you know, tightening the belt on what we classify as bad news sells recently, because we tend to go, “oh, it’s raining. That’s a bad news sell.”

Tony  16:46

Yeah right, yeah.

Cameron  16:47

But when these sorts of forecasts come out and they say, “well, we’re not going to hit this, and this happened.” Does that play into a bad news sell still?

Tony  16:55

I think it does if it’s really bad news. Like, if NHC had of come out and said there was a mine collapse and ten people died, we’re gonna have to shut the mine for six months and investigate what went wrong, etc. Yeah, I mean, it’s a material change to the business.

Cameron  17:09


Tony  17:10

But just coming out and saying it’s been raining, and we can’t find some employees because of COVID…

Cameron  17:17

Well, the share price dropped by 12%, so somebody thought that was bad news.

Tony  17:21

Yeah. It is bad news, but is it enough to sell the share? No, I don’t think so.

Cameron  17:28

Right. So, how do we tell, though, when they come out with something that’s bad news by some measure, the share price drops massively…

Tony  17:42

Well, 12% isn’t that mass1ive, really. You think it is? I don’t think it is.

Cameron  17:50

In two hours, yeah, I think it is.

Tony  17:53

It’s rapid, but its not massive.

Cameron  17:55

No? Okay.

Tony  17:58

Okay, so, first of all, don’t panic. If you see a share price dropping 10% in two hours…

Tony  18:06

Yeah, and maybe a muscle relaxant. But, find out what the reasoning is, and then ask yourself the question “is that really the end of the world for this company?”

Cameron  18:06

Just grab your towel?

Cameron  18:21


Tony  18:21

Because oftentimes, like when we’ve had — I think I can think of one case of a bad news sell based on results and that was Kathmandu, and it was so bad the CEO resigned on the same day, which was our normal bad news. If the CEO’s fallen on his sword, it’s pretty bad.

Cameron  18:40


Tony  18:41

And that was because of a material miss of the profit forecast.

Cameron  18:46

Right. Well, NHC has recovered a bit but it’s still quite a way away from where it was. So, the market hasn’t reacted positively to that.

Tony  19:00

Well, I don’t expect it to react positively to it, though. They’ve come out and said they’ve got some problems. And, like, is it going to flood for the rest of the year? Well, I hope not. It shouldn’t, maybe it will, but it shouldn’t. And they’ll solve their employee problems, the borders are opening up, so…

Cameron  19:14

Okay. So, it is bad news, but not bad enough news?

Tony  19:18

Well, I mean, I think every business — and you know, people out there who work in businesses or who run businesses will know — you’ll have speed bumps.

Cameron  19:29

So, that’s a speed bump, not bad news?

Tony  19:31


Cameron  19:32


Tony  19:33

And I can’t put any more science on it than that.

Cameron  19:35

Right. What about the YAL trading halt? Did you read up on that at all?

Tony  19:41

I did. I own both NHC and YAL, and I’ve been buying into YAL — I sold RIO shares a week ago, and I’ve been slowly buying back. I went to cash with those proceeds, didn’t go straight back to back into buying something because everything was a Josephine. Started buying YAL at the end of last week and been doing it a little bit this week. So, yeah, I’m familiar with it. Let me just, I’m trying to just get my facts straight in my head. So, the story that I wanted to tell today was I actually hesitated in buying Yancoal last week before I bought it, but it was the top thing on the buy list and I bought it because of that. But, I’ve had experience with YAL many years ago when it was good enough ADT on the way in, but then everything just dried up on the way out.

Cameron  20:33

How does that work?

Tony  20:34

Because it’s got two or three big companies who I think between them have about 65% of the shares, and if there’s no one else trading, they’re not trading, the ADT can be a little bit misleading.

Cameron  20:47

It can evaporate.

Tony  20:48

How does that work?

Tony  20:48

Yeah, it can evaporate. So, I was tossing up whether or not to do it, so I decided to buy in slowly. Now it’s in a trading halt. What it looks like that’s happening, and we don’t know — this is just rumour and speculation at the moment — is that the big, I think there’s three shareholdings, the bigger of those three is thinking of lobbing a bid for the company. The rumour is it’s going to be less than the current share price.

Tony  20:51

Well, exactly. I will be a very short takeover.

Tony  20:55

Why would anyone sell their shares at 20% less than the current price?

Tony  21:20

Because one of the minor companies who still owns a fair bit of stocks, say 10-20% of the stock, may have to offer that discount to move that block. So, if there’s a block trade — it’s called block trades, and you might read about them occasionally in the AFR — but if someone has 10% shareholding in the company they’ll generally approach a number of different banks or stockbrokers to sell it for them in one trade overnight when the markets shut.

Cameron  21:48


Tony  21:49

And to get that much stock away, they normally have to offer a discount.

Cameron  21:52

20% sounds like a big discount. And if you have a series of block trades in a row, is that a blockchain? Does it become crypto then? Can we NFT it?

Tony  22:02

Kryptonite. So, yeah, so, but this is all rumour. No one knows what’s going on.

Cameron  22:09


Tony  22:10

But I am paying attention to it, and particularly to the ADT, and see what the changes are. If the big company does take out the smaller companies that may have an impact on ADT.

Cameron  22:21

Because you’ve got one less shareholder?

Tony  22:25

But also, too, if it gets to the stage where a shareholder has 90%, they can compulsorily acquire your shares.

Cameron  22:35

And force you to pay the 20% discount, buy them at the price?

Tony  22:40

Yeah, and I think they — I don’t know what the law is, but they can often take months and months and months to pay you. So, I’d rather sell out in advance of that. And I think other people will know that and so you might see, if this is what they think’s going to happen, if they think that someone’s creeping up to takeover by taking out the other two small shareholders and then launching a lowball bid, they may just get out.

Cameron  23:02

Well, the share price does seem to have come back a little bit this week. From $6.18 on the 25th, it’s now at $6.06.

Tony  23:12

Yeah, but the market hasn’t been that strong this week.

Cameron  23:16

I mean, on the 23rd it was $5.92, so it’s higher than it started the week. So, it looks like the market hasn’t reacted negatively to it yet.

Tony  23:25

Well, it can’t, it’s in a trading halt.

Cameron  23:29

Apart from that.

Tony  23:31

It’s gonna come out of a trading halt on the earliest, if there’s news of this offer, on May 30th. So, we could be waiting for a few more days.

Cameron  23:40

Is that Monday?

Tony  23:42

What’s today? The 27th? Monday.

Cameron  23:46

All right. Murph died.

Tony  23:48

Yeah. What is it with these super investors who live until they’re 96?

Cameron  23:56

It’s the Berkshire — See’s Candy, living on a dock on See’s Candy. So, for people who don’t know, we’ve talked about him several times over the years, but who was Thomas S. Murphy?

Tony  24:08

Yeah. So, they want to read a book called The Outsiders, which is really good, and it talks about people who’ve been great investors but don’t have a high profile. And so, Murphy started off in a small television station and eventually kept buying them and reinvesting the cash flow into new ones, and had a rule of doing it on a price to operating cash flow of 6 or less. And, you know, Murph morphed the whole thing into the ABC network in America.

Cameron  24:42

Buffett was a big fan.

Tony  24:43

Buffett was a big fan and bought in, and then often says things like, “I learned everything I knew in business from two people, one of which is Murph.”

Cameron  24:51

So, his company Capital Cities Communications became ABC and then sold it to Disney for a gajillion dollars: $19 billion, he sold it to Disney.

Tony  25:06

Yeah, so all that from one TV station.

Cameron  25:09

He acquired ABC in 1985 for 3.5 billion and then sold it to Disney for 19 billion. Capital City stock increased in value 2000 times between 1957 when the company first sold stock to the public and 1995 when Disney bought it. Not bad.

Tony  25:31

And, a disciplined focus on what to buy.

Cameron  25:35

That’s a circle of competence.

Tony  25:36

He knew TV stations, he knew lots of cash can be thrown off by them, but he wasn’t going to overpay for them.

Cameron  25:44

And of course the price to operating cash flow metric is now at the core of QAV.

Tony  25:53

Yeah. Yeah, that’s right. Its a heavy lifter, yeah, exactly.

Cameron  25:57

Which you learned from Buffett, Buffett learned from Murph, and Murph just died. 96.

Tony  26:04

  1. Incredible. I think actually, I think Berkshire Hathaway may actually have been a Disney shareholder, so I wonder if he actually put together the deal. There’s that great scene in the last, I think it’s the last series of Entourage.

Cameron  26:15


Tony  26:16

Where Ari Gold’s running the studio — and he’s always running around like a headless chook — and Warren Buffett drives past in the golf cart and goes, “fix it, Ari.”

Cameron  26:28

Oh, I didn’t stick with the show that long, that’s good. Did Ari say, “let’s hug it out, bitch.”

Tony  26:33


Cameron  26:35

Buffett cameo’d in Entourage. I love that. I like this, in the New York Times obit. for Murph it says, “he met Mr. Buffett in the early 1970s, and Mr. Buffett bought 3% of Capital Cities. After the price went up, Mr. Buffett sold the stock, that way missing the huge increases in share prices to come. Temporary insanity, Mr. Buffett later said of his decision to sell.” So, you know, somebody on the Zoom call last night — I think it was Liz — was asking about GRR, and she’s like, “it’s gone up so much. When has it gone up too much? When do we sell? When is it gone up too high to buy in?” I’ll just say it’s, you know, I’ll quote Buffett from now on.

Tony  27:23

Why do you want to bench Michael Jordan?

Cameron  27:25

Yeah, I mean, GRR is on a crazy run.

Tony  27:30

What’s happened, though? I bought it and then had to rule 1 it and last about 12%.

Cameron  27:35

Somebody emailed me and said “I feel sorry for Tony.”

Tony  27:39

Temporary insanity!

Cameron  27:40

Its up 30% this month, its up 120% since we added it to one of the portfolios a couple of months ago.

Tony  27:48

So, we should add it to the checklist: if Tony rule 1s it, its gets 10 points and we buy it.

Cameron  27:54

Well, you know, there’s a lot of people who don’t like rule 1, because they go, “well, you know, might go back up.”

Tony  27:59

They were right in this case. But let me talk about Nufarm, which I also sold out on a rule 1.

Cameron  28:05

Yes, for every GRR there’s an NUF. Well, we’ll get to a NUF in a minute. I just wanted to mention Howard Marks’ latest memo which I started to read this morning before I came over. I got to this bit, he says, he’s talking about investor psychology. “When investors turn highly bullish, they tend to conclude that a) everything’s gonna go up forever, and b) regardless of what they pay for an asset, someone else will come along to buy it from them for more (the greater fool theory). Because of the high level of optimism, stock prices rise faster than company profits, soaring well above fair value excess to the upside. Eventually, conditions in the investment environment disappoint, and all the folly of the elevated prices becomes clear, and they fall back toward fair value (correction), and then through it. The price declines generate further pessimism and this process eventually causes prices to far understate the value of the stocks excess to the downside. Resultant buying on the part of bargain hunters causes the depressed prices to recover toward fair value (correction). The excess to the upside makes for a period of above average returns and the swing towards excess on the downside makes for a period of below average returns. There can be many other factors at work, of course, but in my view, excesses and corrections covers most of the ground. We saw a number of excesses to the upside in 2020 and 2021, and now we’re seeing corrections thereof. ” I thought that was nicely put.

Cameron  28:23

Particularly in the US, I mean, that’s had big swings in the share market. We haven’t been as volatile here.

Cameron  29:26

But we saw the Afterpays and the BNPLs, the Bitcoins and all of that kind of stuff. All of the tech stocks went through that, sort of, excessive optimism and you were, you know, calling bullshit on the whole thing throughout the whole thing.

Tony  30:01

Well, he makes a good point. There’s two, there’s two fundamentals at work in the market. There’s the underlying company, and that’s why Buffett’s always said “you’re not not buying chips in the casino, you’re buying shares in the company.” And then there’s what people’s reaction to positive news is, and they just keep beating the price up. It’s that two stage effect that’s important in the market, the voting machine and the weighing machine, as Ben Graham said.

Cameron  30:24

Yeah, and the longer I’m doing this with you, the more I’m convinced that, you know, one of the great advantages of QAV — apart from the methodology of telling us what to buy and when to buy and when to sell it — is the fact that I can just ignore all of the hype. The psychology part of it which I think — according to Howard and the beginning of his memo, he talks about this, you know — the hardest thing I think, to be a successful investor seems to be the psychology.

Tony  30:55


Cameron  30:56

Yeah, discipline. Not getting caught up in the hype, not getting caught up in the hype both ways: on the upswing, and on the downswing.

Tony  31:03

That’s right. Wait until we have a few interest rates rises and everyone’s running around saying doom and gloom.

Cameron  31:08

Jumping out of windows.

Tony  31:09

Blood on the streets. But it’s very profound, because what you’re saying is what we need to do as investors is not be human beings. We need to take our human brain and just put it aside and go, no, we’re gonna do what we need to do without thinking about it.

Cameron  31:24

The Vulcan mind.

Tony  31:25

If we think about it, yeah. If we think about it, we wouldn’t do it.

Cameron  31:28

Yeah, and the great thing — and I’ve said this a number of times recently, but I’ll repeat it — like, I’m at a point now with QAV when I have to sell something or buy something, I don’t even think about it. Like, it’s like brushing my teeth. I’m just like, it says sell, I sell. It says buy, I buy. This is why I say the circle of competence is QAV. It’s like, I just obey, you know? Just obey QAV. I don’t think. Like, because there’s no point. I mean, there’s no point. In fact, not only is there no point in trying to think outside of QAV with this stuff, I think, but that’s dangerous, because that’s when you get involved in the psychology of it. You’re trying to speculate, you’re trying to outsmart the system. And not just the system, but the market, right? And everyone is doing that. They’re getting caught up in the psychology of the market.

Tony  32:28

Isn’t that interesting? There’re so many layers to this. You’re right. All right, so you’ve got a coffee shop. It’s been making coffee for twenty-five years, or whatever. Nice little business. And then some guy comes up with the idea of breaking it up into shares and selling it and putting the price up live, twenty-minute delay outside of the coffee shop. So, people walking past go, “wow, the shares are going up. I should race inside and buy some coffee shop shares.” Meanwhile, the guys still doing the barista stuff, grinding it out. Whereas people are jumping out of windows because the price on the coffee shop went up or down or down in particular. Yeah, there’s just two elements to it, isn’t there?

Cameron  33:07

Yeah. And it’s the thing I’m so grateful for, is just the fact that all of the psychological and emotional side of it is, you know, it just gets negated by QAV. You don’t need to worry about it. It’ll tell us what to do.

Tony  33:24

Yeah. And I should flag that at some stage in our investing futures there’ll be times when we underperform.

Cameron  33:31


Tony  33:32

Because we’re working with averages and statistics, and they’re the particularly trying times where you really do have to switch off and just say “it’s going to get better.”

Cameron  33:40

Well, the O’Shaughnessy book, What Works on Wall Street or whatever it’s called, he highlights that when people do follow his method — which is very similar to QAV — you know, when he’s convinced fund managers or brokers or whatever, to professional investors to follow it, they’ll follow it for six months or a year and then it will underperform for a period and they’ll go “oh, screw this.” They’ll change horse mid-race. It’s like, no, that’s not how this works.

Tony  34:17

And they’re under pressure, right? Because they’re in the fund manager business. They’re competing with other people, and they’re suddenly underperforming them. So, their funds are going out, they’ve got to do something. Whereas the really good fund managers are like Buffett’s: “yeah, sell your shares if you want. I’m not changing what I’m doing. I’m going to keep doing this.”

Cameron  34:32

Yeah. All right, well, that’s all from my notes for this week. What have you got to talk about?

Tony  34:38

I have a couple. I noticed in the news that Sri Lanka defaulted on $18 billion of government bonds, and that’s following on the Russian default on government bonds. And I’m just, I’m just highlighting it because I’ve seen this movie before: when countries start defaulting on their bonds that can have a big flow on into the market.

Cameron  34:59


Tony  35:01

It can become the sort of canary in the coal mine for a problem. So, don’t know when the problem is going to happen, if the problem will happen and how long it will last for, but when countries default on bonds it can have this big chain that flows through the financial markets.

Cameron  35:14

Because other people are expecting that money and they don’t get their money?

Tony  35:19

Well, yeah. So, $18 billion has been wiped off of Wall Street for the second time. Russia had, I think, a bigger default a month or so ago. Yeah. So, I mean, the market needs money. It’s a weight of money argument; if you’re taking money out of the market, there’s less people who are gonna go and invest, and that means there’s less froth in the market so share price’s will come down. But, it also has the flow on effect, too, that it makes it harder for other countries to borrow debt, so their economies get hurt. You can have this whole chain reaction of countries… I’m thinking about in particular, like, the Southeast Asian default crisis that happened where all these so called “tiger economies” were borrowing lots of money, and then one defaulted and then they couldn’t borrow any more money, which started up a whole chain reaction through all the other countries. Suddenly you have a quarter of the world market affected. So, yeah, anyway, just something I’ve noticed. It’s only a two-point trend at the moment, but if it continues it could spell trouble.

Tony  35:24

British inflation is at 9%, which is pretty high. So, you know, there are some problems out there. America, I think is still at about 6, so it’s still pretty high.

Cameron  35:24


Cameron  36:34

But Britain’s got Boris Johnson running the country, Tony, that can’t be right. The man is a genius.

Tony  36:42

A genius at marketing. How he’s not in jail from holding parties during COVID lockdowns and then denying it and then getting shown the photographs. Anyway. So, yeah, so Britain’s inflation is at 9%. We’re not there yet. The interesting thing is with us, remember we had the interview with Alan Koehler at the start of our podcasting life?

Cameron  37:07


Tony  37:08

And he was saying, “watch the underemployment number in Australia.” And at that stage I think it was 13 or 14%. And he argued, “forget about the unemployment number. It’s the underemployment number,” which is very high. It’s now down to 6%.

Cameron  37:20

I think it was about 7 or 8% at the time.

Tony  37:23

No, I think it was 13.

Cameron  37:25

I think if you added it to the official unemployment rate, which was running at 5 or 6%, that was the 13.

Cameron  37:32

I can look it up, but from memory — because 12 or 13 would be high for underemployment.

Tony  37:32


Tony  37:39

Underemployment is defined as someone who has a job but wants to work more hours.

Cameron  37:42

People doing the gig economy and that kind of stuff, yeah.

Tony  37:45

Or, working casual shifts at Coles or whatever, and Woollies. But anyway, so it’s quite low, and so I think the interesting thing going forward will be to see how the RBA handles that and how the government handles that in terms of there’s pressure on them to open up the borders to skilled migration, but the downside of that is the unemployment rate goes up because all these people who are now pretty close to fully employed are going to start losing out on their jobs. And if everyone’s reasonably fully employed, that does mean that wages should start to rise.

Cameron  38:19

I just googled it. According to the ABS, September 2019, “the trend monthly underemployment rate remained steady at 8.4% in September 2019, an increase of 0.1 percentage points over the past year. The trend monthly underutilisation rate remained steady at 13.7%.” I don’t really understand what that is, do you?

Tony  38:41

Underemployment and underutilisation?

Cameron  38:43


Tony  38:44

I thought that was the same thing.

Cameron  38:45

You would think so, right? Well, maybe that is the combined of the two.

Tony  38:50


Cameron  38:51

So, it’s down a little bit — well, it’s down 25% since then, so it is down.

Tony  38:57

And so, there should be wage increases and that will be inflationary.

Cameron  39:03

Well, that would only happen if we had functioning unions.

Tony  39:08

I think it will happen because of the market. I mean, like, just on the Coast in the last week we’ve had a couple of — well, one waiter in particular, who was Manuel out of Fawlty Towers. In a really nice restaurant, he comes over and says, “hi, I’m your waiter. I’ve only been in Australia for sixty days.”

Cameron  39:24

“I speak a very good English.”

Tony  39:26

“I’m from Italy.”

Cameron  39:27

Oh, yeah. Did you whip out your Italian?

Tony  39:30

We talked a little bit, but I’m a schoolboy Italian speaker. I asked him where he’s from, Puglia, and told me about Puglia and all of that. He just made mistake after mistake, it was like comical in the end. He must have bought five bottles of wine before we got the one we ordered.

Cameron  39:47

Did you just keep them all and drink them?

Tony  39:49

No, we sent them back. But he made the mistake of opening it and then showing us.

Cameron  39:54

Oh no!

Tony  39:55

He brought out the wrong main, “sorry mate, take it back.”

Cameron  39:59

Poor fella.

Tony  40:00

But anyway, I’m making that point because people are hiring whoever they can, because there’s so many casual vacancies.

Cameron  40:04

Obviously no experience, just grabbing people. Yeah.

Cameron  40:09

Maybe I can get a job.

Tony  40:09

That might change if there are more overseas workers coming in, like the Italian guy. You wouldn’t get a job if there were lots of other candidates. So, this is going to be an interesting economy, I think, for probably the next six months in terms of wages, inflation, employment.

Tony  40:09

That might change…

Cameron  40:28

But, doesn’t change anything we do.

Tony  40:30

Doesn’t change what we do, no. QAV doesn’t change.

Cameron  40:34

What else you got? NUf? Enough of nuf.

Tony  40:40

Oh, Nufarm. Yeah. I was just going to mention the fact that I rule 1d it and I was really glad I rule 1d it. We can talk about later, someone asked the question about Sumitomo and selling out.

Cameron  40:51

Isn’t that the bank that Bruce Willis was in in Die Hard 1.

Tony  40:58

I dunno.

Cameron  40:59

Nacatone, no it was Nakatomi, yeah. What’s Sumitomo?

Tony  41:02

I think they’re a chemical company, from memory, a Japanese company. I think they took a shareholding in Nufarm back when they paid $14 something a share, and they selling out now at six –or in the sixes. Took a bath, but I think they may have made up that difference because they were either a customer of Nufarm or a reseller of the chemical product.

Cameron  41:23

What happened to Nufarm? Why did they crash?

Tony  41:26

They came out again with a profit downgrade. No, sorry, I’m telling a lie. Their profit was really strong, so they’ve just reported in the last week or so, but the analysts have said, “well, okay, you’ve had a strong half but we don’t think you’re going to have a strong half going forward.” Yeah, so people have been downgrading their profit forecast. And then Sumitomo was selling out, which may put some pressure on the price as well.

Cameron  41:55

So, we had it as one of our stocks on the buy list just before the results came out.

Tony  42:00

Correct, I bought it.

Cameron  42:01

We bought it, and then the results came out and the analyst trashed the results and it crashed.

Tony  42:07

I rule 1’d it and I was very glad I rule 1d it because it dropped even further down.

Cameron  42:10

So, getting back to the rule, the GRR example of rule 1ing.

Tony  42:19

Well, you can always but back into GRR, right? Nufarm is still a Josephine, so even though it’s on the buy list, you can’t buy it yet. So, even though I rule 1d out of GRR — and I wouldn’t buy back in now because last time I looked at iron ore it was a Josephine, so I’m kind of surprised that GRR’s going up again — but if iron ore wasn’t a Josephine then I could have bought back into GRR as soon as it, sort of, had the uptick again.

Cameron  42:44

Yeah, you can buy back in.

Tony  42:44

You can buy back in, yeah. So, there’s that. I’m gonna mention…

Cameron  42:49

Oh, don’t do it.

Tony  42:50

Crypto. Again, talking about the weight of money argument, I’ll just read this quote from Christopher Joy from Coolabah Capital: “according to banks, Australian shifted $20 billion out of risk-free deposits into cryptocurrency last year which have since more than halved in value.” So, there’s $10 billion being taken out of people’s pockets in Australia, which is not going to go into the share market or anywhere else.

Cameron  43:21

Yeah. But its gonna come back, Tony, cryptos…

Tony  43:28

Maybe. You just wonder…

Cameron  43:31

They have diamond hands, these people.

Tony  43:34

Sexy hands. Whatever they touch they screw.

Cameron  43:40

That’s good. Yeah.

Tony  43:41

Anyway, but probably the best thing they can do is not sell, but I think a lot would have sold and just taken the loss.

Cameron  43:48

Yeah. All right.

Tony  43:51

That’s me, that’s my news.

Cameron  43:52

That’s the news.

Tony  43:53


Cameron  43:54

You want to do any Q&A&V?

Tony  43:56

Yeah, let’s just knock some off.

Cameron  43:57

That’s what I’m calling it from now on, Q&A&V.

Tony  44:00

Is that what that meant? I saw it in the notes.

Cameron  44:02

Yeah, its Q&A&V. Question and answer and I don’t know what the V stands for yet, but it’s branding. It doesn’t matter what it stands for. It’s Q&A&V. Alright, Kazi, can we start with Kazi? “For small stocks like EVO how does rule 1 work? Should we alter or should we wait ’til end of day, etc.?” Now, I think you and I have talked about this a little while ago. So, EVO is Evolved Education Group. They’re trading at 70 cents, and so if you bought it at 70 cents and it dropped down to 63 cents, you would rule 1.

Tony  44:52


Cameron  44:52

That simple. This question about — people have asked me this a few times lately, should you wait ’til the end of the day? I said, look, I don’t know about Tony, but I don’t get alerts until the end of the day, anyway.

Tony  45:04

Yeah, correct. I’m the same.

Cameron  45:05

So, I look at them first thing in the morning or at night. I see them at night and I just set a reminder to myself to do something about it in the morning. Market opens at 10:00, I wait to see what happens ’til 11:00 and then I make a decision.

Tony  45:24

Yeah, that’s my process. I didn’t quite understand Kazi’s question, was he talking about the fact that, like we did last week, that… is it 70 cents or 0.7 cents? I think one of the problems was that Stock Doctor, for example, will give you three decimal places, whereas I don’t know if Yahoo Finance does that or whatever. So, people were finding it hard to get 10% without seeing that third decimal place.

Cameron  45:42

Yeah, but if you’re trading a stock that’s two cents, it gets tricky.

Tony  45:47

So, I would still work out the rule one based on 10% to three decimal places. That’s the first question. The second question is, I’m guessing if this stock — I’m not familiar with EVO — is with a small ADT, it might be volatile.

Cameron  45:59


Tony  46:00

And so, they’re asking if it crosses during the day, will I sell? If you’re paying attention, yes, but like you I’ll get alerts at night after its closed.

Cameron  46:08

Yeah, I’ve set up all my Stock Doctor alerts now just to alert me at the end of the day. You’re getting alerts in the middle of the day, it’s just too disruptive.

Tony  46:17

You want to live your life, too.

Cameron  46:20

And, you know, two years ago I did have them going in the middle of the day.

Tony  46:25

And you’d send them to me.

Cameron  46:28

Yeah, what should I do, Tony? What should I do?

Tony  46:33

Did you get my email?

Cameron  46:35

If you didn’t reply within five minutes. And now I’m like, it can wait until tomorrow. It doesn’t matter. Like, if it goes down to 12% or 13% in the interim, like it doesn’t really matter. As you always say, 10% of one out of twenty stocks is nothing, right?

Tony  46:56

Correct, 0.2%

Cameron  46:57

So, don’t stress over it. I’m not exactly out playing golf, but I’m busy. I don’t have time to stop doing what I’m doing.

Tony  47:05

I think all the listeners here, investing’s their hobby or their second…

Cameron  47:09

Not chairman Mabb, he’s just sitting around, you know, going out to lunch from what I can tell. But everyone else, yeah. All right. Hope that helps, Kazi. No, we don’t change it, we stick to the rules. Alex asks, “if you already have seventeen to twenty holdings and the rule is to always be invested, what do you do in a market like this where your current holdings are Josephine’s and are no longer on the buy list but you have capital to redeploy?

Tony  47:38

Okay, so they’ve got a full portfolio? So, in that situation if new capital came in, I would normally just allocate it across the current stocks in the portfolio. They’re saying they can’t do that, because it’s off the buy list?

Cameron  47:51

If they’re Josephine’s or off the buy list and there’s nothing else to buy.

Tony  47:55

Yeah, look, it’s hard, because I don’t know how much new capital there is. If there was a, like, you know, 5% new capital, it’s only one stock so I’d probably by the top of the buy list and have twenty one stocks in the portfolio. And then…

Cameron  48:07

What if there’s nothing on the buy list?

Tony  48:09

Well you can’t buy anything. Just sit on cash.

Cameron  48:12


Tony  48:12

I think what they’re saying is they’ve got a portfolio, it’s fully invested, they can’t add to it because it doesn’t meet the rules, but they’ve got new capital, right? If they had, like, if they doubled their capital, I’d probably stay in cash until they sold something and buy in. Because otherwise, if you buy another twenty stock portfolio, you’ve got forty stocks.

Cameron  48:33

Yes. If you’ve got $100 grand invested and you get another $100 grand, you don’t want to put $100 grand into one stock when you’ve got five grand in each of the other stocks.

Tony  48:42

Correct, you’d be too out of whack.

Cameron  48:43

So… is that right? Twenty times five… So, you don’t want to buy twenty stocks.

Tony  48:54

Mm-hmm, twenty new stocks so you’ve got forty.

Cameron  48:56

So, you’d wait. You’d redeploy it.

Tony  48:57

Its probably more likely that they’ve got $100 grand in the portfolio, and they just got $10 grand. I’d buy another stock.

Cameron  49:05

Right. You’re allowed to go over twenty if you can’t do anything else.

Tony  49:10

Yeah. And then, as you naturally sell off the twenty first, if you can allocate that into the portfolio using the buy list without Josephine’s, then do that.

Cameron  49:21

So, you buy one or two more, you might get up to twenty-two, and then when you need to rule 1 or three point sell a couple of things, you would try and spread that capital evenly across the portfolio.

Tony  49:35

Yep. And by even, like, you’ll probably find that you may only have four or five things you can buy, so you do it across those.

Cameron  49:42

Yeah. So, the idea is to try as best as you can to maintain an equal amount of capital invested across your fifteen to twenty. Sometimes it’ll vary because of circumstance, but you’ll try and balance it up when you can.

Tony  49:58


Cameron  50:00

Hope that helps, Alex. Dave asks, “hi Cam. Re: the latest podcast and Tony’s noting of a strong correlation between dividend yield and the QAV buy list, I’ve experimented with a couple of filters that also correlate with the buy list. The screenshot example below,” which obviously you can’t see, listeners at home, close your eyes and concentrate really hard — I’m beaming it to you now Uri Geller style — “the screenshot example below you can sort by price change,” this is, the screenshot is Stock Doctor filters here. “You can sort by price change, low to high five years and then three years, or price to NTA low to high, lots of QAV stocks sentiment not included. Others I’ve experimented with are ROIC high to low,” Return on Invested Capital, “and EV, enterprise value, over EBITDA low to high, both with an initial cull of price to cash flow less than seven. EV over EBITDA is Tobias Carlisle’s starting point, I think. Not sure if that’s of any interest, but it’s a quiet arvo in Newy,” is there any other kind of arvo in Newy, Dave? I’ve only been to Newy once, seemed pretty bloody quiet I gotta tell you. “It’s a quiet avo in Newy so I thought I’d send it through.” What do you think about Dave’s… Oh, and he says, “thanks for finally covering PTL as your pulled pork.” What do you think about Dave’s filters, Tony?

Tony  51:34

Yeah, they’re good. I mean it’s similar to the Little Book that that Beats the Market, the Tobias Carlisle book.

Cameron  51:43

Thats not his book.

Tony  51:44


Cameron  51:45

Yeah, Little Book that Beats the Market is by some other guy.

Tony  51:50

Anyway, similar to that in terms of a simple filter you can apply. They’re all really good filters, and that’s, you know, the basis of of this style of investing.

Cameron  52:06

Yeah, no, Little Book of Behavioural Investing, that’s James Montier. Christopher Brown…

Tony  52:11

So, we’re just googling “who wrote Little Book…”

Cameron  52:13

Not googling. I’m looking through my list of books.

Tony  52:17

Anyway, so, Dave, really good analysis. Generally, what I find is doing a sort like that on one metric — and the one I started off with was price to operating cash flow — will get you above average returns. And then, all the other things on the checklist will add the cream or the bubble to that and take it from maybe 15% to 19%.

Cameron  52:39

It’s not that book that you’re thinking of? No? Okay.

Tony  52:41

Cameron’s just opened a Not Safe for Work book…

Cameron  52:45

Safe for my work. My boss saw this book and went, “yeah, alright!” It’s an art book. It’s by Taschen, it’s classy.

Tony  52:55

Okay. Yeah, so, sorry, Dave…

Cameron  52:59

This is why we do it over Zoom.

Tony  53:07

I can’t normally see Cameron’s laptop. Anyway.

Cameron  53:12

And I’m wearing pants this time, too.

Tony  53:13

Yeah. So, Dave, they’re all good examples. What would be really good as if you can tell me whether those stocks — because we’re doing statistical analysis here, so if any of those metrics are performing better than the checklist, then let’s wrap those into the checklist.

Cameron  53:28

Job for the intern? Dave, you’re the new intern.

Tony  53:33

Only in the afternoons. Great analysis, Dave, I like the way you’re thinking, and we’ll need to do some more analysis about whether we can add those to the checklist.

Cameron  53:43

Good stuff. Okay, you want to do Brian’s?

Tony  53:48


Cameron  53:48

Brian says, “I’ve been looking into the price to consensus target figures from Stock Doctor that are used to award — or not — a point in the QAV spreadsheet. Based on a download from the 23rd of May, the price to consensus target average is 70%, median is 73.7%. A few months ago was 84%. There are 578 stocks less than or equal to 100% and only 37 stocks greater than 100%. With our hurdle of 100%, almost every punter gets a prize. 94% of stocks get a point, so the test is not doing much. Further, looking at the number of analysts there seems to be a strong correlation and makes me doubt the value of a consensus target when there are only a few analysts.” And he’s got a graph here which sort of maps both of these things out, a number of analysts and Stock Doctor price to consensus targets, and they seem to match fairly closely. “Based on the above, I favour altering my spreadsheet to give one point only if there are more than, say, five analysts, and the consensus target is less than, say, 80%, which would give about 50% of stocks passing the test rather than 94%. Is this fuzzy thinking? If so, please enlighten me, Brian.”

Tony  55:10

I think you’ve enlightened us, Brian. So, a bit of background. The consensus target got into the spreadsheet because I had found doing my own analysis that my IV calculations, IV1 and IV2, weren’t as good at forecasting where share prices were going to go to compared to the consensus forecast. At the time, Stock Doctor was doing their own IV forecast — or calculation — and so was Scaffold, which isn’t around anymore, that was another analytical service that I use. They also had their IVs. And so, I took all of those particular things and put them in the checklist as a radar map of value, of valuation, because no one gets it right and it was good to have different ways of doing it. Stock Doctor don’t do it anymore and Scaffolds gone, so we’re really just down to consensus target plus IV 1 and IV 2 that I calculate. So, I mean, Brian’s analysis shows that if you have lots of stockbrokers working out what they think the consensus target is, they usually get it close to the current price or slightly above.

Cameron  56:22

Is that because they’re setting the market for the price, they’re telling the market what it should be worth?

Tony  56:27

Yeah, well, I think there’s two things at play. One is you’re getting the average of a larger number. So, you know, if you have two stockbrokers and one says it’s worth $10 and one says it’s worth $1, the consensus is $5, and that that could be wrong statistically. Whereas, if you have fifty stockbrokers and they have a range, you’re gonna get an average which is probably more usable. So, it’s partly that, but partly what you’re saying, like, if there’s ten stockbrokers analysing a stock it’s going to be a large stock and they’re going to have a to and fro of conversation — it’s going to be like Commonwealth Bank or BHP — but with whole divisions of shareholder departments who are talking to the analysts all the time about what’s happening in the bank. And so, the stockbrokers, they do have a better idea of what is going on with the company and can provide a better consensus forecast, and then look at the other stockbrokers and say, “what’s he thinking, or she thinking? I’ll change my mind.” So, that’s going on. So, I agree with Brian’s analysis. I think also at play with stockbrokers’ consensus targets is the need to get business from the company. So, I mean, they’re inherently conflicted. Even if I thought BHP was worth half what the current share price is, I’m not going to publish that if I’m a fund manager or banker because I might want to get investment banking business out of BHP. So, there’s definitely that. Or, I might just want to get access to the BHP CEO. If I keep crashing, the company’s not gonna let me talk to him. So, there’s that going on, too. So, don’t know where that leaves us, because Brian’s right; his analysis is saying that most stocks get a point, so I need to go away and think about that. Whether we invert it and say that we give it a negative one, you know, if it’s above the consensus target because that’s a small number of stocks then that might be more meaningful, but I’ll have to go through and think about it.

Tony  57:03

Okay. Smart people. I was saying this on the Zoom call last night, we have smart people.

Tony  58:32

A couple of good insights there. Yeah, it’s good.

Cameron  58:36

James has a question. “Sumitomo…”

Tony  58:39

We spoke about it.

Cameron  58:40

Yeah, we’ve done that, sorry, James. Another James. That was James O. James L: “I have some questions for the show. For IV 2 the formula is the future EPS over the market hurdle rate. In the Bible, the market hurdle rate is given by adding the RBA cash to risk premium of 6%. Should we be updating this to be 6.3% given the recent rate rise? If that’s the case, could it be set up like the mortgage rate, i.e. a variable and not a fixed value in the formula?”

Tony  59:08

We did that two or three weeks ago.

Cameron  59:10

That’s what I thought you did, yeah.

Tony  59:14

Oh yeah, we can do that. No. Check your inbox.

Cameron  59:19

Yeah. I wasn’t sure because I don’t use your sheets, I wasn’t quite sure. “Two: Tony might have covered this before, but is there any reason why we use ME close,” month-end close, “for determining the Josephine. I don’t think it would be too different from price change one month.”

Tony  59:40

Yeah, I’d have to see how easy it is to get a hold of a rolling month price change. It’s just ease of data, really. Stock Doctor on a chart gives us the month end price and then the current price, so you can compare them.

Cameron  59:55

I think they give us, there’s a price change one month filter.

Tony  59:58

You can do a filter, yes. So we could do it on the filter, you wouldn’t see it on the graph though.

Cameron  1:00:02

Yeah. Right.

Tony  1:00:04

Or on the Brettelator. But yeah, it’s a good, good question again.

Cameron  1:00:07

There’s no particular reason why we use month end.

Tony  1:00:10

Ease of just being able to see it on the graph. Yeah. But rolling month might be better.

Cameron  1:00:17

Well, now we have David Plants’ code in the scorecard every week that tells us if it’s a Josephine. Don’t need to worry about it anymore, it’s all taken care of.

Tony  1:00:26

Well — was it David, was it?

Cameron  1:00:28


Tony  1:00:29

Can he also put a column in, then, which tells us the rolling month — percent rolling month?

Cameron  1:00:37

David can do anything.

Tony  1:00:38

And then can he analyse it and see which is the best one to use?

Tony  1:00:40

Well, David, that’s great! I’ll buy him a beer.

Cameron  1:00:40

Yes. You’re the other new intern, David. He’s also, he offered on the Zoom call last night to port his work to Google Sheets for people who don’t have Office 365, so they don’t have access to Office. He’s gonna have a crack at that.

Cameron  1:01:01

Tony  1:01:02

Oh, okay.

Cameron  1:01:03

Yeah. Are we allowed to go to WA yet?

Tony  1:01:04

We are, right.

Cameron  1:01:06

I told him we will be over at some point to do an event in WA. Lastly, from James L, a formula question: “if I’m using an old version of the checklist, please let me know, this might have been fixed.” I don’t know, just download the latest version James, like, it’s pretty easy. But anyway, he says, “for column S, is the PE less than the dividend yield cell type formula,” and then he’s got a long formula, “which way should we go if the PE is equal to the dividend yield?” So, it seems to say…

Tony  1:01:40

I have to go and look at that formula in detail, Sorry, James. I’ll get back to that one.

Cameron  1:01:44

Is the PE less… Okay, I don’t know.

Tony  1:01:51

What cell is it?

Cameron  1:01:53

Oh, column S. Excel formulas are above my paygrade, James. Okay, thats that. Dave, last question: “Tony has mentioned in the past that he usually uses the exact proceeds of a sale when buying into a new stock. Are there exceptions to this? For instance, when a stock has done exceptionally well, say doubled, would he instead use the proceeds to purchase two stocks? Does he add the proceeds from recent dividends into the next purchase, more broadly acknowledging his approach to rebalancing. Does he aim to keep the size of the new purchases within certain bounds?”

Tony  1:02:32

So, a couple of questions there. So, I generally sell something and buy something with the proceeds, even if it’s a big sale. So, if it’s double the size of the other stocks, I just buy one.

Cameron  1:02:43

You just buy one stock with it, you don’t spread it evenly?

Tony  1:02:46

I don’t spread it evenly and I don’t split it, because then I’ll start getting more than twenty stocks in the portfolio.

Cameron  1:02:52

No, but you could spread it evenly across ten stocks.

Tony  1:02:56

I could, I just don’t. I just buy one. I find that over time there’ll always be one outperformer like that, and if you wait enough time the portfolio adjusts.

Cameron  1:03:03

Oh, okay, so you just let it, sort of, breathe and it’ll get there in its own time.

Tony  1:03:07

Yep. So, I do that. In terms of what I do with dividends, they’ll sit in the bank account until they get used to buy stocks in the future or there’s enough cash for a position.

Cameron  1:03:21

I thought you said before you use dividends to pay your CGT bill.

Tony  1:03:24

Yeah, so there’s money coming in and going out. There’s interest payments which I can use dividends for, but there’s also sometimes new cash coming in — like tax refunds. So, there’s generally always 1 or 2% of cash in the accounts. So, for example, as I’ve said before, I have shares invested in a Superannuation fund, some in a family trust, some in our own names. The Superannuation fund, the money can’t leave. So, again, you can’t — well, you can gear it, but I don’t gear it. So, when that builds up to 5%, buy a share. But it’s more likely that I will have rule 1d something, and then I’ve got, like, nine tenths of a position, and so I’ll just add the cash that was sitting in the fund to that and then get a full position out of it.

Tony  1:04:09


Cameron  1:04:10

Yep. Okay. Was there any more to this? Do you aim to keep the size of new purchases within certain bounds? No.

Tony  1:04:19

No. Well, my rule is one fifteenth of the total portfolio value if I have a new purchase.

Cameron  1:04:26

One fifteenth. Right.

Tony  1:04:30

You could say one twentieth, but I use one fifteenth. I prefer to err on the small side. You’ve got room to move if you need to add one and make it sixteen shares, not fifteen shares.

Cameron  1:04:41

Right, but this is different to what you said before. If you sell something, you just buy one share with all of the cash, but you’re saying if you have new cash…

Tony  1:04:50


Cameron  1:04:51


Tony  1:04:51

Yeah, which I think was a question there.

Cameron  1:04:53

Yeah, probably. Well, that’s it.

Tony  1:04:56

Good. Well, a special recording today.

Cameron  1:04:59


Tony  1:05:00

Get to do it in person which is nice.

Cameron  1:05:02

Yeah. We haven’t done after hours yet.

Cameron  1:05:04

Oh, sorry.

Cameron  1:05:05

Oh man, I’ve had a great week of after our stuff…

Cameron  1:19:07

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