Transcript #522

QAV 522 Club

Cameron  00:00

Hi, wel­come to QAV 522. You’re back in Syd­ney, TK. How was your Queens­land golf­ing-horse trip?

Tony  00:18

Real­ly good. Yeah, had a great hol­i­day and catch­ing up with the won­der­ful QAV mem­bers in Bris­bane too. Lots of golf, although it was very, very mud­dy. So, yeah, lots of mud. Golf was good. Our friends sold their horse. I bought a cou­ple — or, shares in a cou­ple. So, yeah, all good.

Cameron  00:35

How’s the liv­er? Is it okay?

Tony  00:38

Rest­ing. It got a good work­out on the last night.

Cameron  00:44

And every oth­er night, too.

Tony  00:46

True, that’s a good point. But yeah, we worked up to the last night, went out with a bang. And I had to dri­ve six and a half hours from Coughs Har­bour the next day.

Cameron  00:54

I don’t know how you do it at your age.

Tony  00:57

That was hard.

Cameron  00:58

You drink like a twen­ty year old.

Tony  01:00

Like a cham­pi­on.

Cameron  01:06

I was talk­ing with Tony and our friend Mark one night at a pub when they were here, and before we went to the pub, I think — in-between trips to the pub, maybe. And I was talk­ing about how I gave up drink­ing when I was eigh­teen because I’d had a cou­ple of scary inci­dents where I’d near­ly died from drink­ing too much, and Tony said “nah, you’re just a quit­ter.”

Tony  01:33

That’s right, you got­ta push through.

Cameron  01:35

Got­ta push trough, yeah, you got­ta push through. Thank god I did­n’t know you when I was eigh­teen, I would not have sur­vived twen­ty-one.

Tony  01:49

Yeah, well must be the Irish stock in me. I love a good pub. We had a good night that night. We had rounds of Negro­nis at the Sto­ry Bridge Hotel, it was love­ly.

Cameron  01:58

I’ve got the same Irish blood in me, that’s why I need­ed to stop drink­ing when I was eigh­teen.

Tony  02:03

I thought you were Scot­tish. That’s even worse.

Cameron  02:05

I’m a Reil­ly man. They all come from Ire­land, orig­i­nal­ly. My dad was Scot­tish, but, you know, we’re all Irish. Hey, we’re record­ing this sev­enth of June 2022. RBA are due to come out with a rate hike, every­one’s pre­dict­ing today. The mar­kets down, but the mar­kets been down more often than not for the last month or two. I just want­ed — before we get into all of that though, Tony — I had the thought in the last week when we were sell­ing stuff and buy­ing stuff that to me it just seemed like a game of musi­cal chairs. The music stops play­ing on this one par­tic­u­lar stock because it breach­es some­thing, just get off the chair. Get on one when the music’s play­ing on anoth­er one, just get on that chair. And then, you know, wait till the music stops play­ing on that one. You get off that chair, and then… it’s just, I just feel like it’s off the chair on the chair. No emo­tion, just get­ting off the chair.

Tony  02:55

Feels like that at the moment because the mar­ket’s so up and down. It’s just going side­ways and then trend­ing up and com­ing back. So, yeah, I’ve done more trad­ing than I’ve done for a long time in the last few months, includ­ing today: I sold ASX. I got stopped out of ASX and bought Bendi­go Bank which is on top of the buy list.

Cameron  03:15

I own ASX I think, I bet­ter go check that. Was it rule one?

Tony  03:18

Yeah, rule one.

Cameron  03:19

Oh, okay. I tell you what’s not going side­ways, and that’s BNPL stocks today. We’re not sup­posed to talk about BNPL but…

Tony  03:30

That’s a record, it’s been five min­utes into the pod­cast.

Cameron  03:35

Well, today’s a spe­cial occa­sion. Apple had their WWDC (World­wide Devel­op­er Con­fer­ence) today and announced that they’re launch­ing Apple Pay Lat­er built into every Apple device and auto­mat­i­cal­ly acces­si­ble at every store that accepts Apple Pay, which is pret­ty much every store. “Apple is launch­ing a new fea­ture for Apple Pay to let you pay for pur­chas­es in four instal­ments over time with­out inter­est called Apple Pay Lat­er. It’s Apple’s take on a buy now pay lat­er ser­vice built right into Apple Pay and com­ing with iOS 16,” and Zips share price, I noticed, is down anoth­er 10% today. It’s down, like, 95% from where it was a year ago.

Tony  04:21

And Block has been tak­en out of the ASX I think this week.

Tony  04:25

Maybe next week. So, prob­a­bly a mer­cy killing for the Aus­tralian share­hold­ers.

Cameron  04:25

Right.

Cameron  04:30

Yeah, Block are the guys that bought After­pay, right?

Tony  04:34

Yeah.

Cameron  04:34

Took that out. I looked at the wax, you know, the old WAAAX stocks was Wisetech, After­pay, Appen…

Tony  04:43

Zero.

Cameron  04:43

Zero, and anoth­er “a”. Any­way, I looked at all of them today. After­pay is obvi­ous­ly gone, but the rest of them are rough­ly down about 50% from where they were at the end of last year — or maybe twelve months ago. So, they’re rough­ly down 50%, all of those high fliers on aver­age.

Tony  05:02

It’s been a tough ride.

Cameron  05:04

Yeah, it’s like, the cycle turns.

Tony  05:06

Well, yeah. And like, so, we’re com­plain­ing about musi­cal chairs, but at least we’re intact and we’re still beat­ing the index even though there’s a bit more work involved at the moment, and a bit more trans­ac­tion fric­tion than we’d like. But, hey, it could be worse, we could be in the high PE growth mar­ket and we’d be look­ing at wounds at the moment.

Cameron  05:28

Maybe. Or, maybe we would have bought in ear­ly enough that we would have done very well. But it’s that kind of, sort of, crazy up-crazy down roller coast­er ride that we want to avoid, right?

Tony  05:40

Cor­rect. Speak­ing of crazy, while we’re on the top­ic, what about Elon Musk over the week­end? “Any­body who does­n’t turn up to the office and work for forty hours a week is con­sid­ered to have resigned.”

Cameron  05:52

Did­n’t he say some­thing like, “pick anoth­er place where you pre­tend to work?”

Tony  06:00

What was the oth­er one? He’s pre­dict­ing a world­wide reces­sion? So, he’s gonna cut his staff by 10%.

Cameron  06:06

Right? Well, he could be right on that one. I don’t know what’s going on with his Twit­ter pur­chase at the moment. I think he reduced his price after he decid­ed they were most­ly bots.

Tony  06:16

Yeah. And he’s on the tweet today again about how Twit­ter’s full of bots.

Cameron  06:21

Dri­ving the price down.

Tony  06:23

Yeah, prob­a­bly. But, I mean, some peo­ple think he’s bril­liant. If you’re part­ner­ing in a ven­ture with him though, I’d pre­fer to part­ner with some­one who’s a bit more lev­el head­ed. There’s a price to pay if you’re part­ner­ing with a genius, I think.

Cameron  06:36

As you well know. You’ve part­nered with me many times over the years. Well, I guess we won’t be buy­ing an island, then. I see this island for sale, Tony. Keswick Island’s lots for sale. I thought we could just set up QAV Island, we’ll all go and live there and only val­ue investors are allowed on our island. It’s a bit like Atlas Shrugged, Ayn Rand’s book.

Tony  07:04

Yeah. Right. Where is Carl Galt?

Cameron  07:06

Yeah… Carl? Carl Galt?

Tony  07:11

No, Carl Galt was­n’t it?

Cameron  07:13

Some­thing, some­thing Galt. Andrew Galt? Don’t know. Some­thing Galt. John Galt!

Tony  07:18

John Galt.

Cameron  07:19

John Galt. What do you think? Are you inter­est­ed in buy­ing an island?

Tony  07:24

Not real­ly. I lived in Mack­ay for a year, and there will no islands near Mack­ay. Its got­ta be a long way out because the bar­ri­er reef was like 100ks off Mack­ay by the time it gets that far south, so I’m assum­ing the islands part of the reef. So, it’s a long trip.

Cameron  07:44

That’s alright, we’re gonna live there. We’re just gonna…

Tony  07:46

How do we get sup­plies in? I looked at the arti­cle…

Cameron  07:49

Oh, sup­plies.

Tony  07:49

There’s no jet­ty, the air­ports only avail­able to the Chi­nese who own it. How do you get in? How do you get your build­ing mate­r­i­al in to build your house?

Cameron  07:59

These are, you know, oth­er peo­ple prob­lems, Tony.

Tony  08:02

Jump off and dingy and wade in with a roof beam on your head, is that how you do it? No won­der the lands so cheap.

Cameron  08:11

Yeah. Oh well, there you go. So much for that idea.

Tony  08:16

No, it’s a good idea. I just can prob­a­bly find some­where bet­ter.

Cameron  08:20

Oh, okay. Well, we’re still gonna buy an island, just not that island.

Tony  08:23

Yeah. But it’s got to have a golf course — golf course and a pub.

Cameron  08:26

Okay. I read this good arti­cle in the Fin yes­ter­day, I think. Cliff Asness, who is a hedge fund man­ag­er, AQR Cap­i­tal Man­age­ment, there was this great quote and he said that at some point in 1999 the mar­ket was boom­ing because of the dot­com Boom. His port­fo­lio was­n’t doing as well and he was unhap­py, and his wife said to him, “I thought you make your mon­ey because peo­ple make mis­takes.” The arti­cle says this com­ment was some­what of an epiphany for Asness. The inef­fi­cien­cies and irra­tional­i­ties of mar­kets he relied on for his strate­gies to work exist­ed pre­cise­ly because they were emo­tion­al­ly excru­ci­at­ing. And he says, his wife was effec­tive­ly say­ing, “so you want peo­ple to make mis­takes. You just don’t want them to con­tin­ue to make them after AQR puts the posi­tion on.” He says he tells him­self the sto­ry dur­ing the tough­est days in the mar­ket to calm his nerves. Some days it works bet­ter from oth­ers. It made me think two things; one was we’re the same, right? We want peo­ple to make mis­takes. The mar­ket only works by us dis­agree­ing with the mar­ket. So, by our def­i­n­i­tion they’re mak­ing mis­takes. By their def­i­n­i­tion, we’re mak­ing mis­takes. So, in peri­ods of great exu­ber­ance like we saw when we start­ed the show a cou­ple of years ago, dot coms boom­ing, all that kind of stuff. Or at the moment when every­thing’s doom and gloom and the mar­kets going down and drop­ping a lot more than it nor­mal­ly would. We need these things to hap­pen. These are these are not things that we should as prob­lems or things that make our lives dif­fi­cult. We need this sort of stuff. And you know, I went through the oth­er day — I’m doing this com­pi­la­tion episode, some­thing you sug­gest­ed to me a while ago from the COVID crash — of going back to start­ing at like January/February 2020 and just see­ing it play out and what you said and how you were think­ing and how you were feel­ing. And one of the things I got out of that relis­ten­ing to it is you said, “I kind of get,” some­thing like this, I’m para­phras­ing, but “I kind of get excit­ed when the mar­ket goes into a crash.” I mean, not — you don’t like see­ing the effects on peo­ple’s liveli­hoods and peo­ple who don’t have QAV’s invest­ments go in the toi­let and lose their life sav­ings and all this kind of stuff. That’s not good. But from an investor’s per­spec­tive it’s a good thing, because you can buy real­ly good com­pa­nies real­ly cheap­ly when they go down. So, we need these things to hap­pen and we should­n’t look at look at them as tri­als and tribu­la­tions of being an investor, this is what cre­ates the oppor­tu­ni­ty. Yeah, we want peo­ple to make mis­takes, because that’s what makes us suc­cess­ful. But the sec­ond part of this was, he says he finds his work “emo­tion­al­ly excru­ci­at­ing”.

Tony  11:08

He’s not play­ing enough golf.

Cameron  11:10

I’ve done this show with you for three years. I’ve nev­er seen you break a sweat let alone “most­ly excru­ci­at­ing.” Like, what?

Tony  11:23

Only when I sign the checks.

Cameron  11:27

Yeah, okay.

Tony  11:30

No, that’s right. If it’s emo­tion­al­ly excru­ci­at­ing, go off and do some­thing else. We do this to live, we don’t live to do it. But, he raised a good point. I mean, Buf­fett always said the best time to invest is when there’s blood in the streets. And that’s exact­ly right. And we do rely on mis­pric­ing of assets. So, go back and lis­ten to the inter­views that we had with a lot of peo­ple who were, you know, rid­ing the growth sto­ry. And they were say­ing “oh, you just don’t get it” and “val­ue invest­ing is dead”, and “you’re per­form­ing poor­ly. Look at the US mar­ket, it’s up 25% this year,” blah, blah, blah. And it just remind­ed me exact­ly of the late 1990s when peo­ple like War­ren Buf­fett were say­ing, “yeah, well, I can’t find any­thing to buy, but I’m not wor­ried. I’m not gonna try and under­stand dot­com stocks, I’m not going to buy dot­com stocks, I’ll wait until they’re prop­er­ly val­ued.” And it hap­pened again, it’s hap­pened again in the last, sort of, six months. Same things hap­pened with what we want to hap­pen and has hap­pened. Look at when we were buy­ing oil stocks, when we first start­ed buy­ing oil stocks, you know, we bought San­tos at the bot­tom of the COVID crash. All the com­men­tary was “oh, the oil mar­kets about is gonna break, it’s gonna break down. No one’s buy­ing oil, why do you want to buy oil for?” It’s exact­ly the time to buy an asset, right? It’s when no one else wants it, it’s when it’s so cheap every­one’s got their hands in their pock­ets, and that’s when we buy it. So, it’s the same in every cycle. *“It is dif­fer­ent, every time. It’s always dif­fer­ent, Tony. It’s nev­er the same.” (Alann Kohler clip played)* *“Don’t hit me with them neg­a­tive waves so ear­ly in the morn­ing. Think the bridge will be there and it will be there. It’s a moth­er, beau­ti­ful bridge, and it’s gonna be there.” (Kel­ly’s Heroes clip played)

Cameron  13:13

Play­ing all the great­est hits now.

Tony  13:14

Yeah, it is. Yeah. All right. Well, I’ve gone on enough about being a con­trar­i­an. The point I took out of that arti­cle, which was in the AFR… So, this guy, Cliff Asness, he does a lot of sta­tis­ti­cal analy­sis on the share mar­ket. And he, one of the ques­tions he was asked is “what hap­pens when inter­est rates start to rise” And this guy has made a career out of sta­tis­ti­cal­ly analysing the share mar­ket, and he said that as a val­ue investor ris­ing inter­est rates only affect his per­for­mance by about 30%. The oth­er 70% of his per­for­mance is unaf­fect­ed by inter­est rates. And that’s been my expe­ri­ence. I’m not gonna put a num­ber on it, but I’ve always been able to make mon­ey if inter­est rates are going up or down or side­ways. It has­n’t real­ly affect­ed my invest­ing style at all.

Cameron  14:01

I had the feel­ing we talked about him before and we did, back in June 2020. Episode 328, the one we had Tobias Carlisle on. You men­tioned Cliff and AQR, there was some arti­cle, or one of us men­tioned any­way, some­thing about “is val­ue dead?” There was an arti­cle that he must have been men­tioned in back then.

Tony  14:24

That was what, a year ago?

Cameron  14:26

Two years ago.

Tony  14:27

Two years ago, val­ue was dead.

Cameron  14:29

Yeah.

Tony  14:30

Good time to be a val­ue investor when val­ues dead. That’s con­trar­i­an.

Cameron  14:34

Well, it’s dead every five years, isn’t it? That’s been my take on it.

Tony  14:39

Yeah.

Cameron  14:39

Halfway through the cycle it’s always declared to be dead.

Tony  14:42

Cor­rect.

Cameron  14:43

And then it’s back. You want to talk about the 0.35 change on the TK mas­ter check­list?

Tony  14:51

Yeah, so thanks to Sim — I hope I’m pro­nounc­ing the name right. So, I changed the mas­ter check­lists to have a cell so we could enter in the RBA cash rate and then have it flow through the rest of the spread­sheet to cal­cu­late what our risk pre­mi­um is, which is 6% plus the RBA cash rate, but I should have put in a per­cent­age sign. So, I put the num­ber in, 0.35, which was treat­ing it as a high­er num­ber than it should have. It should be 0.0035 or 0.35 with a per­cent sign after it. So, apolo­gies for that. It’s been cor­rect­ed now, and if peo­ple want to update their spread­sheets they can, or they can down­load a new one from the web­site.

Tony  15:02

And so, that affects our IV 2 cal­cu­la­tion. So, they would have all been out for the last cou­ple of weeks if you’re using the that sheet. Do you think that will have changed scores dra­mat­i­cal­ly?

Tony  15:44

Not dra­mat­i­cal­ly, it will have changed scores, but not dra­mat­i­cal­ly, no.

Cameron  15:48

Okay, yeah, go on sim. Thanks for pick­ing that up.

Tony  15:51

And just on that, too, sor­ry, we’re record­ing this while we’re wait­ing for the RBA to come out with its news on inter­est rates. If we get that before we stop record­ing we’ll announce it. But cer­tain­ly, I’m expect­ing inter­est rates to rise and we’ll need to go in and change our spread­sheets again because of that.

Cameron  16:06

Yeah, right. Port­fo­lio updates, Tony. Oh, well. I’m look­ing at the Navexa port­fo­lio.

Tony  16:14

Yeah, I’ve got it open.

Cameron  16:16

How’s it going today?

Tony  16:18

Today? Well, so the last time I looked, this is the finan­cial year to date, the QAV port­fo­lio is up 5.71% and the ASX is up 3.72%. So, we’re click­ing along basi­cal­ly side­ways, but still beat­ing the ASX.

Cameron  16:37

Yeah, quite nice­ly. I mean, that’s what, 60%, some­thing like that, over and above the index, which is pret­ty good for the finan­cial year. And, I think since incep­tion when I last looked, which was late last week I guess, we were still doing about three times the ASX 200 over the three years since incep­tion, two and a half/three years. So, it’s on track.

Tony  17:05

And then the best per­form­ers for the week: Beach Petro­le­um was up 10.98%, this is as of yes­ter­day, and Grange Resources is back up. It’s up 9% for the week. But the worst per­form­ing stock was Sun­corp, which was down 9.54% for the week. And I think you sold it from the port­fo­lio in the last few days?

Cameron  17:24

I did, yeah. It breached both actu­al­ly, it breached a rule one and a three point, I think, but I think the three-point kicked in first.

Tony  17:35

Yeah. Sun­corp is a bank but it’s also an insur­ance com­pa­ny, and I know there was a lot of analy­sis last week to say that the Queens­land floods are gonna cost insur­ers a heck of a lot of mon­ey and that’s one of the rea­sons why it’s down. And I think one of the big bro­kers fac­tored that cal­cu­la­tion into their fore­casts and low­ered their fore­casts for Sun­corp as well.

Cameron  17:55

Well, sor­ry Sun­corp. We bare­ly knew you, too. It was only in there for a while. You want to talk about YAL? I don’t know if you’ve seen this today, but some news came out about YAL and the takeover today.

Tony  18:09

No, I haven’t seen it. What did they say?

Cameron  18:11

A few peo­ple post­ed it on our social chan­nels. There was an inde­pen­dent review board, I think, that did an analy­sis of the Yankaung Ener­gy takeover. The inde­pen­dent board have decid­ed that it can­not sup­port or rec­om­mend­ed the poten­tial trans­ac­tion in its cur­rent form.

Tony  18:34

So, I’m guess­ing that’s the, I think, there was a cou­ple of inde­pen­dent direc­tors… I think there was a three-per­son inde­pen­dent direc­tor com­mit­tee of the Yan­coal board, is the inde­pen­dent review board you’re refer­ring to there. It’s a no brain­er. I mean, the Chi­nese par­ent was putting in a low­ball bid. There were some rumours that Glen­core want­ed to get out, and so, real­ly, the bid was direct­ed at them. But, I think Glen­core have also come out and called the bid too low. So, it could just be a bit of nego­ti­a­tions at the moment, but we’ll see. Yeah, I just want­ed to say I was buy­ing Yan­coal when the trad­ing halt hap­pened and the takeover was offered, so I’ve stopped buy­ing it because I don’t like buy­ing into a sit­u­a­tion when there’s so much uncer­tain­ty. It’s not, kind of, busi­ness as usu­al. But, if we get some clar­i­ty one way or the oth­er then I’ll keep buy­ing into it. I do own Yan­coal, it’s only about a half a posi­tion for me. I think, you know, there’s so many issues with this takeover apart from the fact that there’s a large share­hold­er mak­ing a low­ball bid. That large share­hold­er also will have to get through the For­eign Invest­ment Review Board before it can creep up the reg­is­ter at Yan­coal because they already own 60 odd per­cent. They made a, last time they got that high, they made an under­tak­ing with the FIRB that they would­n’t go above 70 or 72%, some­thing like that. So, if they’re going to buy Glen­core out then they’re prob­a­bly going to have to go back to the FIRB and nego­ti­ate to do that. So, there’s lots of mov­ing parts in this one. So that’s a risk. It’s just like any oth­er takeover process, they’ll prob­a­bly come back with a high­er offer and we’ll see what hap­pens. Com­ing in so low prob­a­bly means they’re not going to over­pay for the asset. So, I don’t think we’re going to see a huge pre­mi­um paid for Yan­coal, but who knows, could be. I don’t think we’ll get anoth­er bid­der com­ing up out of the wings on this one either, because Yan­coal owns so much, but again, who knows? The thing that is also of con­cern, but not yet, is if a large sec­ondary share­hold­er like Glen­core do take up the offer. When it’s attrac­tive enough to them and if Yan­coal gets FIRB approval, I don’t want to be caught as a retail share­hold­er if the Chi­nese com­pa­ny that is the major share­hold­er can get up around 90%. Because, once they reach 90% then they can com­pul­so­ri­ly acquire the rest of the shares at the last bid and that can take a long time. So, I’d rather be out of the com­pa­ny before that hap­pens.

Cameron  20:54

So, you’ve only got an Eric on Yan­coal right now?

Tony  20:57

Cor­rect, yep, half a bee. Which ipso-fac­to was bet­ter than not half a bee.

Cameron  21:04

Knew you’d get that.

Tony  21:09

Eric the half a bee.

Cameron  21:15

All right, well that’s Yan­coal, what else you want to talk about? Iron ore.

Tony  21:19

Iron ore is no longer a Josephine. So, I mean, the rea­son for it is because the Chi­nese lock­downs because of COVID are start­ing to be, have start­ed to be lift­ed in Shang­hai in par­tic­u­lar. And so, there is a bit more build­ing activ­i­ty going on again in Chi­na so the iron ore price is ris­ing. But from our point of view, if you look at the iron ore chart there was a sec­ond buy line crossed with iron ore. So, it stopped going down and start­ed going up again is the short­hand way of say­ing it. So, that brings a lot of shares back onto our buy list that we can buy again. Because iron ore’s been a Josephine we haven’t touched Fortes­cue and Rio for a while, but we can buy them again now.

Cameron  21:58

Actu­al­ly, we did buy FMG a lit­tle while ago, then we sold it and then we bought it again. Well, I think that’s every­thing apart from, are you doing a pulled pork today?

Tony  22:09

I am, yeah, so I’m doing a pulled pork on Pros­per Group, which is one I promised to do a cou­ple of weeks ago, after I had to do two or three odd PTL/PDLs.

Cameron  22:19

The final P. The P tril­o­gy.

Tony  22:23

This is PGL. That’s right, yeah, the third book in the series.

Cameron  22:28

Usu­al­ly not the best, the third one. Should we just skip this one?

Tony  22:33

We had the sec­ond record syn­drome with PTL.

Cameron  22:34

Yeah.

Tony  22:35

No, this is, well, this is an inter­est­ing one. The rea­son why I want­ed to swing back and do it again is this is a growth stock, a fin­tech growth stock, which is has been on the buy list. It actu­al­ly dropped off a lit­tle while ago. But it’s only, well when I did the analy­sis this morn­ing, a cent and a half away from his buy line, so it could well cross soon. The stock price I’m using for this is 75.5 cents, by the way, and I think the sell price was 77 I think, or 78. So, it’s not too far off going above its sell price and it’s already above its buy price. But the rea­son why I want­ed to go through it is because it’s an inter­est­ing one. So, we don’t often get growth stocks, you know, out and out growth stocks. This is a bombed out one. So, it list­ed, rose quite high, now it’s dropped dra­mat­i­cal­ly, and now it’s on its way up again. And that often hap­pens with these kinds of com­pa­nies. So, they get to a stage where the mar­ket either turns or gets tired of the fact that they’re not mak­ing mon­ey and the share price drops dra­mat­i­cal­ly. And then they go through a peri­od where they can’t raise cap­i­tal because they’re not mak­ing mon­ey, but they slow­ly inched their way back towards prof­itabil­i­ty. So, PGL, Pros­per Group is in that sort of sit­u­a­tion at the moment. It lost half a cent per share on the prof­it line in its most recent results, which are going back to Decem­ber, but the fore­cast is the next set of results which will be out in three weeks — June, well, they won’t be out, but the June books will be rolled off at the end of June — the fore­cast is for a 4.4 cents per share prof­it. So, it’s becom­ing prof­itable, and the rea­son for that is because its oper­at­ing cash flow is so good. The sales are still grow­ing, which is always the the­sis with a stock like this, that it would even­tu­al­ly become prof­itable. So, we’re actu­al­ly at a turn­ing point in the life of this com­pa­ny, and if we think back to peo­ple like Matt Joss that we had on the show ear­ly on, he always thought these growth stocks will go through a num­ber of check­points, one of which was when they first became prof­itable. So, Pros­per Group is approach­ing that. For peo­ple who don’t know the com­pa­ny, it’s a fin­tech start-up. It only oper­ates online, and it offers loans to small busi­ness­es. Accord­ing to the web­site, you can bor­row up to 300,000 and you can receive the fund­ing quick­ly in twen­ty-four hours. So, it offers small busi­ness loans and also it offers line of cred­it facil­i­ties as well as b2b pay­ments plat­form. So, it’s try­ing to dis­in­ter­me­di­ate the banks. And as an aside, my last trip to Wag­ga, Rud­dy and I were talk­ing about Char­i­ty Exchange, our raf­fle busi­ness to raise mon­ey for char­i­ty, and he was say­ing that the Com­mon­wealth Bank was offer­ing him loans for small busi­ness­es with­out hav­ing to have secu­ri­ty on a house. So, that was a first. Some­thing I had­n’t heard of for a while. But obvi­ous­ly they’re being spurred on to do that because com­pa­nies like pros­per group are out there offer­ing these kinds of busi­ness loans. So, they’re hav­ing an effect and they’re being tak­en notice of by the big banks. This one is only a small com­pa­ny, mar­ket cap of 124 mil­lion and ADT of only 14,000, so it’s only going to suit small investors. If this plays out the way I think it might, then that might only be short lived. But, with a com­pa­ny like this there’s some neg­a­tives and pos­i­tives. So, if I go through the num­bers and focus on the pos­i­tives first, the rea­son why it was on our buy list is it had a low price to oper­at­ing cash flow which was around 2.5x. It has high own­er­ship by direc­tors, sit­ting at about 28%, and it’s trad­ing at less than price to book; an equi­ty per share for this com­pa­ny is 81 cents. The fore­cast earn­ings per share growth is 998%, so very high EPS fore­cast growth. But, it’s not mak­ing a prof­it, so no PE at the moment. So, growth over PE does­n’t score yet, but I expect it will next half when the results come out. Stock Doc­tor isn’t giv­ing it a good finan­cial health score but it is giv­ing it a finan­cial health score which they call “recov­er­ing”, which is a trend score for them. Which means we score it two points because it’s often the case that even though the cur­rent health is ear­ly warn­ing, if Stock Doc­tor scores it as a recov­er­ing finan­cial health trend the finan­cial health is improv­ing, which is also a good sign for an invest­ment. So, they’re all the good things on the score­card. The neg­a­tive side of things, of course, is there’s no prof­it and there’s high debt to equi­ty. It has tak­en on lots of debt and high­er than what I would nor­mal­ly find investable, how­ev­er, with the cash that’s com­ing in, it won’t take them long to pay that debt down if they so choose to. They’re not pay­ing a div­i­dend, of course, so they won’t be devot­ing prof­its to that, but I would­n’t mind bet­ting that they devote it to pay­ing down some debt so it gets back to com­fort­able lev­els, but we’ll see. Does­n’t have a record low PE, can’t score that because it does­n’t have a PE, so it’s zero. Does­n’t have con­sis­tent­ly increas­ing equi­ty, equi­ty’s been up and down as you’d expect because they’ve been bor­row­ing mon­ey. So, it gets a zero there and there’s no yield. So, all in all on bal­ance, the QAV score for this one is sit­ting at 0.21. When it cross­es its sell line again which it may do, it’s only a cou­ple of cents away from that, may do soon, then the QAV score will rise a point or two. And a qual­i­ty score for this one is 53%, which is down because of that debt. But that may improve, again, when the results come out in the next round of report­ing. So, just want­ed to high­light this one, it’s a kind of in a unique posi­tion in the busi­ness cycle. If the results come out and they’re good we may well see that it comes back onto the buy list and does strong­ly.

Cameron  28:09

Thanks for that. PGL, inter­est­ing.

Tony  28:13

Hang on, I’m just gonna look up… we’ve got a new report on the inter­est rates.

Cameron  28:18

Oh, how much did they crank it up by?

Tony  28:21

0.5 per­cent­age point increase.

Cameron  28:24

Wow.

Tony  28:25

So, the cash rate is now 0.85%.

Cameron  28:29

That’s a pret­ty big jump, right?

Tony  28:30

It is, yeah, I think the mar­ket was expect­ing less than that. So, could be anoth­er chop­py time in the mar­ket.

Cameron  28:36

Well, back to what I said ear­ly on: it’s all good for us, chop­pi­ness.

Tony  28:41

Yeah. So, inter­est rates in our spread­sheet should now be 0.85%.

Cameron  28:46

Take note, folks. If you need help in know­ing where to put that… I’ll post some­thing actu­al­ly, I’ll do it today. You’ll see it, just check the social forums and the newslet­ters and what­ev­er. Okay. Now what, Q&A?

Tony  29:00

Yep.

Cameron  29:01

Q&A&V? Jeff… look, I know we’re not sup­posed to talk about fund man­agers on the show. Oh, we’re past the half an hour mark now, I think it was a free lis­ten­er that was com­plain­ing, he won’t hear this. Jeff sent me this and asked TK to talk about it. Jeff says, “read this in the AFR while enjoy­ing a frosty Mel­bourne morn­ing. I’d be inter­est­ed in TK’s take on this arti­cle.” Now, inter­est­ing­ly, it was an arti­cle enti­tled “No clear win­ners in val­ue v. growth debate” was the title of the arti­cle that Jeff sent me. When I looked up the arti­cle, they’d changed the title of it in the Fin to “Two thirds of active funds are out­per­form­ing.” I was like oh, that’s inter­est­ing.

Tony  29:53

Good sub edit­ing.

Cameron  29:54

Yeah, but why did the sub­by decide to change the title? I think they got some com­plaints, because it’s very crit­i­cal of funds, this arti­cle, I think they got com­plaints and she or he had to change the thing.

Tony  30:09

Think from mem­o­ry that two thirds of active fund man­agers are out­per­form­ing, I think, this year or this finan­cial year maybe. But the longer peri­od, there was like, it was reversed, was­n’t it? One third out­per­formed the index.

Cameron  30:20

Look, it’s been a while since I’ve read it, but I’ve just pulled it up now. Quot­ing some­body called Mr Steed, Jason Steed, JP Mor­gan equi­ty strate­gist. He tracks the per­for­mance of the mar­kets fifty largest active funds. He says, “rel­a­tive to the bench­mark, about a third of man­agers are out­per­form­ing the bench­mark so far this cal­en­dar year. In the finan­cial year to date that shifts to two thirds of funds out­per­form­ing the bench­mark index,” they don’t actu­al­ly say what the bench­mark index is though.

Tony  30:54

Yeah, can be dif­fer­ent for dif­fer­ent funds for sure, but it’s gen­er­al­ly the All Ordi­nar­ies.

Cameron  30:59

Right, okay. “Indi­vid­ual fund per­for­mance tells the sto­ry on a three-year basis. Net of fees T Rowe Price — which has a growth bias — is down 96 basis points, and over one year, it is down 501 basis points net of fees.” What does that mean, basis points? What’s 501 basis points gonna mean?

Tony  31:22

One basis point is 0.01%. And the finan­cial ser­vices indus­try uses basis points, or bips as they call it, to just clar­i­fy that they’re talk­ing about less than 1% when they men­tion num­bers.

Cameron  31:34

Bips is bil­lions of instruc­tions per sec­ond.

Tony  31:36

Yeah, it is, but they also use that as a short­hand for basis points.

Cameron  31:40

Okay. “Val­ue man­agers,” oh no, he goes “that com­pares with anoth­er growth fund Hype­r­i­on, which is up 290 basis points over three years, and down more than 20% over one year. Val­ue man­agers show a dif­fer­ent trend: over one year, Per­pet­u­al is up 102 basis points, and on a three-year basis is up 138 basis points net of fees. Over one-year Maple-Brown Abbott is up 10%, but over three years is up just 30 basis points.” So, they’re all over the place.

Tony  32:14

Bear in mind Navexa is telling us the All Ord accu­mu­la­tion index up 3.5% this finan­cial year.

Cameron  32:19

So that’s what you got­ta beat.

Tony  32:20

Which was almost twelve months, yeah. And these guys are using basis points to mea­sure their results, they’re less than 1%.

Cameron  32:26

So, what are we up basis points? What’s 5.8?

Tony  32:32

580.

Cameron  32:33

Basis points, that’s what it is?

Tony  32:34

Yeah.

Cameron  32:36

“Stock Spot’s Chris Bricky, who advo­cates invest­ing via exchange trad­ed funds or dras­ti­cal­ly reduc­ing active man­ag­er fees,” we should get him on the show, “says his analy­sis shows that most funds under­per­formed over a five-year peri­od regard­less of style. The aver­age of three hun­dred and eleven Aus­tralian large-cap active man­agers almost equal index ITF returns before fees, but fell short after fees, under­per­form­ing by 1.48% over five years. Some eighty large-cap man­agers out­per­formed the index ETF over five years, while two hun­dred and thir­ty-one funds under­per­formed.” So, just the old sto­ry: funds under­per­form­ing,

Tony  33:23

We can’t real­ly add much to this sto­ry, can we? It goes all the way back to the 1930s. If any­one wants to read a good book, it’s called Where Are All the Cus­tomers’ Yachts by a guy called Fred Schwed, which Buf­fett always says is the first book any­one should read on invest­ing.

Cameron  33:37

Right.

Tony  33:38

I mean, don’t read it, it’s pret­ty old. I have read it. It’s very old fash­ioned, but you can get the idea from the title, right?

Cameron  33:47

I just liked his name Fred Schwed. That’s good. Well, look, Jeff asked you to com­ment on it, Tony. You have to make Jeff hap­py here, what have you got to say?

Tony  33:58

I real­ly can’t. I mean, we’ve been say­ing this for a long time, that most active fund man­agers don’t beat the index. And Buf­fett says that’s because they’re not dis­ci­plined enough. When things get tough they change style and they for­get what they were meant to be doing. It’s because of their fees. It’s because of all sorts of rea­sons.

Cameron  34:15

Sor­ry, Jeff. That’s all we got to say. Yeah, we know.

Tony  34:20

We know. We sym­pa­thise with you, Jeff.

Cameron  34:22

I don’t think Jeff cares. Jef­f’s res­cue QAV­ing.

Tony  34:26

Yeah, good. It is amaz­ing, though, Cam, that we can do it and beat the index. I’ve been doing it and beat­ing the index for a long time, but the fund man­agers can’t. I still don’t under­stand that.

Cameron  34:37

I don’t under­stand it. I was gonna say, like, you said, “we can do it.” No, you can do it. But, you fig­ured out how to do it and you’ve learned from oth­ers, and then you’ve taught all of us how to do it. And we can do it now that you’ve taught us, we can do it. Like, it’s not that hard.

Tony  34:55

No.

Cameron  34:58

I don’t want to take any­thing away from what you put togeth­er, but once you’ve put it… the putting togeth­er of it was, you know, I still think you deserve a Nobel Prize for putting it togeth­er. But they’d say, you know, “here’s your prize of a mil­lion dol­lars, Tony,” and you’d go, “pfft, well, that’s lunch. Make it worth my while.”

Tony  35:21

It’s like win­ning the Hard Quiz mug, isn’t it? What are you going to do with your Nobel Prize? Stick it up your ass.

Cameron  35:33

It’s not very noble.

Tony  35:34

No, sor­ry.

Cameron  35:35

But, like, you fig­ured out how to do it and you’ve taught us, and we can do it and it’s not that hard. I mean, there’s a learn­ing curve for us to learn how to use the check­list and etcetera, etcetera. But once you learn how to do it, it’s not that hard. It does­n’t take a lot of effort. There’re no excru­ci­at­ing emo­tion­al roller coast­ers as Cliff Asness said, it’s not that hard. And you would think that peo­ple run­ning these funds would have learned from peo­ple who came before them, who, you know, would have taught them the way that you’ve taught us how to do it. But that does­n’t seem to be the case. So, the ques­tion in my mind is always do they not know how to do it? Or, do they just not have to do it because it does­n’t mat­ter?

Tony  36:19

I sus­pect it’s a num­ber of things. I think first of all the approach that I take is, I’m just doing this to fund my lifestyle. It’s not my full-time job. Where­as, I think if I’m run­ning a fund or you’re run­ning a fund and it’s your full-time job, and you turn up to work for five min­utes each day and then piss off and have bacon and eggs and read the paper and then go and play golf, it’s not going to go well with your investors. But actu­al­ly, that’s…

Cameron  36:42

That’s when Elon Musk calls you and says go pre­tend that you work some­where else.

Tony  36:45

Yeah, exact­ly. But that’s the best thing you can do. It’s why Buf­fett stayed in Oma­ha. You don’t want to be in the hurly burly of hav­ing your head spun by man­age­ment or oth­er ana­lysts or oth­er fund man­agers, ring­ing up and say­ing, “oh, you missed out on that one.” You know, you stay away, stand out­side the game. I think that’s impor­tant. And I think these peo­ple who are full time employed think they have to be busy to earn their pay, and it’s the exact oppo­site; you should­n’t be busy, you should just have a sys­tem and imple­ment it and then go off and play golf.

Cameron  37:17

Well, that gets me back to some­thing I said in the show last week. I decid­ed that I don’t want to become the world’s great­est expert on eco­nom­ics, or invest­ing even, and all this kind of stuff, I just want to be real­ly good at QAV and that’s it. If I can apply the sys­tem effec­tive­ly, I don’t want to have to think about invest­ing any more than that. It’s just enough to get it done and no more. And I think you’re right, the more time you spend hav­ing to do this stuff, maybe it’s not good for you. You want to spend as lit­tle time as pos­si­ble on it.

Tony  37:51

Can you imag­ine if I went to work and the boss kept say­ing, “where’s Kynas­ton? His office is emp­ty again.” You’d make up things to do, and that’s part of the prob­lem. You over com­pli­cate things. So, that’s one thing. The oth­er thing is that Buf­fet­t’s always been say­ing that the effi­cient mar­ket the­o­ry is wrong, that you can beat the index with a sys­tem. And he wrote a great paper that peo­ple can look up called the “Super investors of Gra­ham and Dodsville”, and that was in response to Eugene Fama who came out with the effi­cient mar­ket the­o­ry back in the 70s or 80s, when­ev­er it was. And he said, “look, your the­sis is that no one can beat the mar­ket,” which is kind of also the the­sis behind the sto­ry we just read out, and the ETF providers, are peo­ple can’t beat the mar­ket. But he said, I’ve been doing it for, what­ev­er, like thir­ty years at that stage, prob­a­bly. And he said, “and here’s ten oth­er peo­ple that I used to col­lab­o­rate with, or have crossed paths with, who are also doing Ben­jamin Gra­ham’s way of invest­ing, and they’re all beat­ing the mar­ket, too. So, I think your the­sis is wrong.” So, that’s the sec­ond point. But there are so many peo­ple out there who are adopt­ing so many dif­fer­ent styles and flavours of the month that they’re over­look­ing the thing in front of their nose. And as Buf­fett said, “I’ve been teach­ing val­ue invest­ing for forty years, and peo­ple still haven’t caught on.” So, there’s that. And then, I think we spoke about the oth­er thing, which I think is that there’s this tremen­dous pres­sure on peo­ple when they do go through, if you’re a fund man­ag­er, and they go through a peri­od of under­per­for­mance. And it’s gonna hap­pen to QAV lis­ten­ers, we are not always going to out­per­form the mar­ket in every peri­od. That’s just not pos­si­ble. We will do it over time, but when we under­per­form there’s going to be pres­sure on peo­ple to say, “oh, that QAV. I can do it bet­ter.” Or, “I can jump on the oth­er train that’s doing bet­ter, and I’m going to be a growth investor now,” and blah, blah, blah. But that’s the worst time to jump off, because regres­sion to the mean means that a peri­od of under­per­for­mance is fol­lowed by, not just a peri­od of bet­ter per­for­mance, but a peri­od of out­per­for­mance, and so you missed that great sling shot back and that’s what hap­pens. The fund man­agers, they see all their funds being with­drawn and they’re under pres­sure to to change what they’re doing. The ones who have done it well are the ones who resist that pres­sure, and they say to them­selves, “look, peo­ple come and go but I’m gonna stick to my knit­ting and in the long term, will come good,” and they do.

Cameron  40:08

It kind of reminds me of this new David Simons show, We Own this City, about polic­ing in Bal­ti­more. I’ve been lis­ten­ing to some inter­views with him and George Pele­canos, the cocre­ator of the show, and talk­ing about what’s wrong with polic­ing, and they’re just bang­ing on about the fact that polic­ing in the Unit­ed States mea­sures the wrong things. Cops get incen­tivised and reward­ed for the wrong behav­iours. They get incen­tivised and reward­ed for being able to put dope and guns on the table and for arrest num­bers, but the respect they have in the com­mu­ni­ty, the trust they have in the com­mu­ni­ty, the hatred against them in the com­mu­ni­ty, the abil­i­ty to get infor­mants to coop­er­ate with them because they trust them does­n’t exist, because the behav­iours they’re exhibit­ing don’t… David Simon says they haven’t been taught real polic­ing, these guys, they’ve been taught this one style of polic­ing which is, he believes, not effec­tive because it’s short-ter­mism. Because the may­or wants to get crime num­bers down right now; the chief of police needs to get them right down because he’s up for re-elec­tion, or pro­mo­tion and the may­or is up for re-elec­tion and pro­mo­tion. So, it trick­les all the way down. And I think it’s the same with fund man­agers, they’ve got quar­ter­ly tar­gets, year­ly tar­gets that they have to hit so that their boss­es and their boss­es… and it’s how the share mar­ket rewards peo­ple based on bonus­es and options, and all these kinds of stuff. Where­as, you and Buf­fett don’t have a short-ter­mist view, right? You have a long-term view, so you just keep doing what works. You don’t have to wor­ry about what looks good.

Tony  41:48

Yeah, short-ter­mism. It’s not just in the fund man­age­ment indus­try or the polic­ing indus­try that’s the prob­lem, it’s in the CEOs. It’s in the busi­ness­es that we’re invest­ing in. So, that’s why I think one of the ben­e­fits of invest­ing with a founder is that they’re tak­ing the long-term view, they’re not being pushed around by ana­lysts who you want bet­ter num­bers this half. They’re just going, “well, I’m here for the long haul. All my mon­ey is tied up in this, I’ve been doing well over the last ten-twen­ty years. I’m gonna keep doing what I’m doing.” Where­as, if you’re a CEO and you’ve got a tenure of the aver­age five years, you’ve got to hit some runs quick­ly.

Cameron  42:21

Yeah, it’s the short-ter­mism, I think, that’s killing every­thing. Okay, John, “Cameron, how are you?” Good, thank you, John. “Ques­tion for Tony on down­turns and prepar­ing one­self for going through peri­ods of loss­es. Look­ing at the dum­my port­fo­lio chart, we were about 40%. up in May/June time last year. Now we’re about 25% up, so a drop of about 15%. This prob­a­bly reflects where we are at in most of our port­fo­lios. This is fine and part of the process, as long as it does not con­tin­ue for many years. So, won­der­ing how long Tony has had a falling port­fo­lio for in his invest­ment his­to­ry. Also, any tips on how to man­age it from a psy­cho­log­i­cal point of view?” Negro­nis is the answer to the sec­ond part of that ques­tion, I know.

Tony  43:05

And golf. It’s a good ques­tion. I think GFC was prob­a­bly the worst per­for­mance in the port­fo­lio, and it was pret­ty hor­rid because I did­n’t have three-point trend­lines to guide my sell­ing process. Peo­ple have asked me about the share mar­ket dur­ing the GFC, and I would say things like, “well, it’s not a loss until you sell.” So, I was a buy and hold investor, I was hold­ing all the way through. But, eigh­teen months in and the port­fo­lio was down more than half. It was get­ting tough. But no, I did­n’t wor­ry, I knew there was always going to be some­thing bet­ter com­ing and I was always focused on the num­bers. There were some oppor­tu­ni­ties still dur­ing that peri­od, because most of the com­pa­nies in Aus­tralia were rais­ing cap­i­tal at a deep dis­count, so I was able to take part in some of those which turned out real­ly well. Com­mon­wealth Bank comes to mind, Wes­farm­ers comes to mind. So, that was good. But yeah, it was­n’t an easy peri­od. But you know, I focused on oth­er things. I was rais­ing my daugh­ter, I was coach­ing her bas­ket­ball team at school and there were lots of oth­er good things going on in my life. So, it was­n’t just all doom and gloom. And that’s, that’s prob­a­bly one thing to always be aware of, is that invest­ing isn’t every­thing. I also did­n’t so much rue the fact that I was los­ing mon­ey, I’ve rued the fact that I was los­ing a cycle. That’s prob­a­bly the biggest thing, that I had planned out a dou­bling in every four or so years going for­ward, and this was one dou­bling I was­n’t going to get. And that has a big impact on your net wealth at the end of your life — it had an impact, obvi­ous­ly, along the way — but I always see things in terms of, you know, I’ve lost a dou­bling rather than I’ve lost mon­ey. So, that’s kind of, I guess, a way to abstract it, but that helps you to deal with the emo­tions as well. But I always remem­ber the car­toon Jeff Wil­son used to show, and it was a guy dri­ving down the road and he sees out the win­dow of his car a bill­board say­ing “mar­ket crashed, one kilo­me­tre” and then down the road a bit fur­ther it says “mar­ket ral­ly, five hun­dred metres.” So, bear in mind that it does­n’t mat­ter how bad the share mar­ket gets, it’s always going to ral­ly at some point after that. And, I clear­ly remem­ber in March of 2009 when the results start­ed to report, I just fell over myself, I was so hap­py every day. I could­n’t believe the prices that the com­pa­nies were trad­ing for when their results were this good, and I lever­aged up and bought in and made all the mon­ey back — and, some — you know, with­in about six months.

Cameron  45:27

So, you did­n’t lose a cycle?

Tony  45:29

I prob­a­bly did, because that would have gone for a peri­od of about three, three and a half years. So, I got back what I lost, and then a lit­tle bit more. So, I was a lit­tle bit bet­ter than square after three or four years after the GFC. So, yeah, I did lose a cycle. But that’s how it went, and that’s how it goes. But that peri­od after the GFC was excep­tion­al.

Cameron  45:50

Did that make up for the cycle that you missed out on?

Tony  45:53

Yeah, prob­a­bly.

Cameron  45:54

 Because you’re 19.5% is over 25–30 years, so.

Tony  45:59

Yeah, takes those peri­ods into account. And bear in mind, through that 19.5% takes into account that I did­n’t have three-point trend­lines dur­ing the GFC. I think if I had’ve sold out ear­ly into the GFC and gone to cash and then bought back when things turned up, I think I’d have a bet­ter per­for­mance record than that.

Cameron  46:15

We talked about this a while ago, your per­for­mance since you intro­duced the three-point trend­lines post GFC is more like 28% I think, on aver­age, right?

Tony  46:25

I’m not sure, sor­ry. I’d have to look it up.

Cameron  46:27

Let’s just go with that, lets just pre­tend its right. It was a lot bet­ter than the 19… no, I remem­ber it, maybe it was 24% or some­thing like that.

Tony  46:37

I think it was 23–24%, yeah.

Cameron  46:41

Which is excep­tion­al. So, yeah, the three-point trend­line. So, that gets back to John’s infer­ence, like, the way the QAV works now is we don’t just sit and hold when the mar­kets crash­ing or in a cor­rec­tion, we have our stop loss­es in place and we get out.

Tony  46:59

Yeah, and the ben­e­fit of that is if you’re some­one like me who’s not putting any more cash in usu­al­ly, into my port­fo­lio, that gives me cash for when the good times roll again. Just like COVID, I’ll sell out 60% of the port­fo­lio on the way down, and then rein­vest it on the way back up.

Cameron  47:15

Yeah John, well, yes, it goes up, it goes down, but we just have faith in our Lord and Sav­iour Tony Kynas­ton we’ll go up over the long-term.

Tony  47:24

Well, I have faith in the fact that I’ve seen it all before and mar­kets go up, mar­kets go down, and it’s just part of the process, right? But the thing is, like, bear in mind, I’m mak­ing light of it but there is a psy­chol­o­gy in all this and it will be test­ed. The mar­ket will always probe human psy­chol­o­gy. So, if you’re feel­ing bad when the mar­kets going chop­py like this, then you’re gonna have to get a bit more expe­ri­enced because it’s gonna go bad at some stage — whether it’s now or the next cycle — and it’s gonna test you, and you’ve just got to have the expe­ri­ence to say, “I fol­low the sys­tem. Okay, I’ve got cash, and the cash is ready to go when the mar­ket turns again — which might be next week, next month or next year. Who knows?”

Cameron  48:02

Yeah, and look, a lot of peo­ple lis­ten­ing to this have a lot more mon­ey than I have invest­ed, but I think it’s all rel­a­tive. To me it just seems pret­ty sim­ple: if the mar­kets cor­rect­ing, you just fol­low the rules. If you have to sit on the side­lines and wait a lit­tle bit, you sit on the side­lines and wait. Yeah, we will know that, unless it’s the end of the End of Times as we know it, the mar­ket will come back at some point. We’re just wait­ing for it to come back, for our sig­nals to tell us when it’s going to come back and then we buy back in. Like, yes­ter­day, when we did the buy list, I haven’t been able to buy much for the last month or six weeks. I think there was like five or six stocks I could buy yes­ter­day that I did­n’t already own. And so, there’s a lot of stuff that was avail­able and we jumped back in, we had some cash sit­ting there in some of our port­fo­lios we threw back in. We may have to sell them and wait again in dif­fer­ent peri­ods, but I don’t know, it’s just one of the things I love about the sys­tem is it just removes any think­ing or emo­tion, real­ly, for me from trad­ing.

Tony  49:05

Yeah, I agree. I mean, invest­ing, finan­cial mar­kets, they’ll always prey on the sort of wiring in the brain which has­n’t evolved to do this stuff. And so, to have a sys­tem to rely on so you don’t have to expe­ri­ence those emo­tions — or if you expe­ri­ence them, ignore them — and trust in the sys­tem is real­ly the key to this whole process.

Cameron  49:25

And there’s some­thing I was talk­ing about, the mis­takes arti­cle. I think I wrote this in one of the newslet­ters I sent out yes­ter­day, our job is to, we want to prof­it from oth­er peo­ple’s mis­takes whilst mak­ing as few of our own mis­takes as pos­si­ble. We will make mis­takes, me more than most, but the great thing about the sys­tem is it’s there to stop us from mak­ing mis­takes. We don’t get caught up in the exu­ber­ance dur­ing the bull mar­kets, like a lot of peo­ple do. And then we don’t get caught up in the doom and gloom when the mar­ket cycle turns, it just keeps us nice and in a very nar­row laneway.

Tony  50:04

Yeah, well, it’s set up to avoid mis­takes, that’s exact­ly right. There’s stop loss­es in there that tells us when to sell, it tells us to only buy qual­i­ty com­pa­nies at great prices so you don’t go into the froth and bub­ble of the mar­ket. So, yes, that’s how it’s evolved to be defen­sive — and last, and last the long term. It’s evolved to keep us alive, basi­cal­ly, and don’t get blown up. That’s the secret in the mar­ket. Like, there’s all sorts of stud­ies which say, you know, if you missed the twen­ty best days in the stock mar­ket, you’d miss out on all the per­for­mance. You know, the mar­ket basi­cal­ly aver­ages for the oth­er thou­sands of days, it just breaks even, basi­cal­ly. So, we want to be in the mar­ket as much as pos­si­ble, and we want to be com­fort­able in the mar­ket for as long as pos­si­ble. And, we want to last in the mar­ket for as long as pos­si­ble.

Cameron  50:50

I like that, it is, it’s about sur­viv­ing, being in it. Because, that seems to be the trick; just to be in it and sur­viv­ing, and mak­ing just a few less mis­takes than the rest of the mar­ket makes.

Tony  51:02

Yeah, unfor­tu­nate­ly, like, a lot of peo­ple with­drew mon­ey from their Super in COVID and put it into Bit­coin or After­pay, or what­ev­er, and they’re prob­a­bly not going to be in the mar­ket going for­ward. So, that’s, you know, that’s unfor­tu­nate that we’ve wiped out a gen­er­a­tion, but that’s, you know, we’re try­ing to avoid that for our­selves.

Cameron  51:17

All right, hope that helps, John. Misa says “re: BYE qual­i­fied audit,” Byron Ener­gy qual­i­fied audit, “which is in the last full year report, but not men­tioned in the half year report.” She said, “my under­stand­ing is that half year,” he/she, I’m not exact­ly sure of the gen­der, sor­ry, Misa, “my under­stand­ing is that half year­ly reports are not audit­ed. Deloitte states this in the Byron half year­ly report. So, not sure if that means that there’s a qual­i­fied audit that it stands until the next full year results.” Is this true? They don’t have to tell you in the half year report if there’s a qual­i­fied audit?

Tony  51:54

So, I’ve always assumed they did. I’ve had a quick look at Byron Ener­gy this morn­ing, the qual­i­fied audit was the one which says that there’s a mate­r­i­al uncer­tain­ty about it’s going con­cern, and that was in the finan­cial notes. That was because they were high­light­ing the fact that they nor­mal­ly have to raise debt or equi­ty to con­tin­ue going because they’re an ener­gy explo­ration com­pa­ny, and that it was a risk twelve months ago when the annu­al report came out because of COVID — and oth­er things, I guess. It’s not men­tioned in the half year­ly report. I did quick­ly have a look, I could­n’t see that Byron had raised debt or cap­i­tal, so I’m not sure if their posi­tions any bet­ter dur­ing this half. But, they should have still had that note in their finan­cials, I would have thought, if they had a… because the account­ing rule is that you pre­pare the accounts on a going con­cern basis. And then, you’re sup­posed to put the aster­isks on that and say, “well, we’ve done that, how­ev­er, we’re not sure we are going to be able to con­tin­ue as a going con­cern if we can’t get fund­ing,” for exam­ple, in this case. So, even though there has­n’t been an audit, I would have thought the audi­tors should still say if there has­n’t been a prob­lem. If there’s still a con­cern, they should raise it, I think, or high­light the fact that the direc­tors have raised it. Look, it’s a good ques­tion. I think we should prob­a­bly get in touch with Jamie, our audit­ing friend, and ask for a bet­ter com­men­tary on the sit­u­a­tion than what I can pro­vide.

Cameron  53:13

James, if you’re lis­ten­ing to this… I think we’ve got some oth­er audi­tors too, that are club mem­bers now. So, any of our audi­tors that are club mem­bers, please let us know the sta­tus of a qual­i­fied audit in the half year report. That would be good to know.

Tony  53:29

Yeah.

Cameron  53:30

And thank you to Misa for point­ing that out. Well, that’s all of the ques­tions, Tony. After hours.

Tony  53:35

After hours…

Cameron  1:10:02

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