Recorded Tuesday, Sep 20, 2022
Cameron 00:00
Welcome back to QAV, episode 537. We’re recording this on Tuesday the 20th of September, 2:15pm Brisbane time. How are you this week, TK?
Tony 00:21
I’m good. I’m well. Back from Melbourne.
Cameron 00:24
Happy birthday again to Alex, her birthday was over the weekend. You went down? Did you take her to mini golf this time?
Tony 00:30
No, she took me to a funky bar in Fitzroy which was good fun.
Cameron 00:34
By the way, as people may know, Alex not only does the checklist for this week but transcribes the episodes, and I know — she told me when I saw her the other day — that she finds it very uncomfortable hearing us talk about her on the show. So, I just want to say, Happy Birthday Alex. You’re awesome, we love you, we miss you, you’re the greatest, and I hope that’s made you blush a lot while you’re transcribing this.
Tony 01:01
She will be.
Cameron 01:03
Well, that’s good. Glad you had a good trip. We got our big TV, finally, so the last four or five days for us has just been rewatching the Godfather, Star Wars, Marketing the Messiah; first thing I always put on any TV when I have it. It’s like “oh, I wonder what that looks like on this.” See if the 4k holds up. You remember Torsten made us spend all this money to film it in 4K?
Tony 01:24
Yeah, I do remember that.
Cameron 01:26
I have a 4k TV, I thought, “oh, I wonder if there was any point in that.” Its alright.
Tony 01:31
So, have you heard from Torsten since Bitcoin’s now worth a quarter of what it was last year?
Cameron 01:36
Of course, he’s going doubled down. You know, “buy more, invest more. It’s gonna be huge.” For listeners out there, Torsten was one of the producers on our film, and also produced a couple of films on crypto. He’s a big crypto guy. He’s been trying to tell us that we need to invest in crypto for the last few years, it’s all about crypto. But he’s German, so, you know, you have to forgive him. So, yeah, that’s been our week. Lots of TV. I want to shout out to Phil Muscatello. Poor Phil went to Cole’s to do a bit of shopping… Phil is from the Shares for Beginners podcast and the Australian Shareholders Association Podcast. Tony has been a guest on Phil’s show many times. He came out and his car had burnt down. His car had caught on fire and just totalled, his car’s just disintegrated.
Tony 02:25
Spontaneously combusted?
Cameron 02:27
Apparently. Yeah, it was a Skoda.
Tony 02:30
Darren McGavin was standing in the background wearing a raincoat, was he?
Cameron 02:35
Darren McGavin?
Tony 02:36
What the hell is The Night Stalker?
Tony 02:36
Remember that? Used to be episodes about spontaneous combustion on The Night Stalker.
Tony 02:41
Oh! It was the Fox and Scully before Fox and Scully.
Cameron 02:47
Really? The pre X Files, X Files?
Tony 02:50
Yeah, yeah. So, Darren McGavin played this New York reporter who would always, for some reason, happen to come across paranormal stories and track them down. He’d always be just about to expose it and then the evidence would disappear, or no one would believe him.
Cameron 03:06
Yeah, well, I’m glad I never watched that, and I watched The X Files instead, because if I had watched that, my son would be called Darren rather than Fox.
Tony 03:17
Darren McGavin was the actor, his name was Kolchak. I think that was the name of the actual TV series: “Kolchak: The Night Stalker.”
Cameron 03:26
That’s not a bad name, Kolchak. I could go with that, it’s kind of badass.
Tony 03:30
I used to really enjoy it, it was a good series.
Cameron 03:33
Alrighty then.
Tony 03:34
Like those TV shows in the 70s, had a great theme song. The start would always be him typing alone by himself at midnight, and then he’d just almost finish his sentence and the theme song would stop, and then there would just, like, be a mysterious noise in the background or something like that.
Cameron 03:51
I can’t believe I’ve never heard of this. I gotta check it out. Anyway, back to Phil Muscatello: glad no one was hurt, everyone was okay, and I’m sure his insurance will cover it. I hope his insurance will cover it. Anyway, good luck with that, Phil.
Tony 04:07
So, the car just burnt? So, someone’s obviously torched it, have they?
Cameron 04:12
it’s one of the growth investors that he’s had on his show at some time, I think, that he’s made fun of. They’ve come and started stalking him, torched his car as pay back. Your cars better be under lock and key, Tony. They’re coming for you next.
Tony 04:32
Oh, I shouldn’t laugh. That’s horrible for Phil, very sorry for Phil. Mind you, he lives in Balmain, so I’m surprised he needs a car, he could just pretty much walk everywhere over there. A great part of Sydney. But that’s really sad.
Cameron 04:44
Yeah, I hope he didn’t lose any valuable items in the car, any irreplaceable things. But no one was hurt, so that’s the most important thing always. I saw this article in the Fin the other day, Tony, “The Small Cap Fundie Crashing the Bears’ Picnic”. I just got this quote out of it that I thought was interesting: “another key factor in LSN’s process is investing in founder led businesses, or companies where management is significant equity stakes. About 60% of the fund possess those attributes. ‘When you have founders looking to grow their business and grow their share in the industry they operate in, they respect their capital base and they don’t look for growth for growth’s sake,’ Slayton says. Instead, they look to generate a strong return on capital, which allows a business to self-fund its future growth and return capital via dividends or buybacks to shareholders in due course.” Though that sounds familiar.
Cameron 04:46
Oh, definitely. I mean, it’s not an original concept for me by any means, but definitely concur with that. I mean, the more invest in the markets, the more you know that there are companies that manage for the short term, and companies that manage for the long term, and it’s the ones who manage for the long term that do better in the long term. And they tend to be run by the founders who have large enough stake in the company and the history to be able to tell the analysts and the fund managers and the industry to just take a hike. They’re gonna do things that are good for the long term.
Cameron 06:18
As opposed to a CEO for hire who’s in for eighteen months or two years and are just looking to get their bonus and their stock options.
Tony 06:26
Well, it’s not just that. That’s part of it, but it’s more of a political game for those people. If they put any of the fundies offside and they’re a shareholder, they’re not going to stick around. They’re going to lose. It’s a house of cards, really. I mean, it’s so political. To get into that role you’ve got to prove yourself, for sure, but that’s only one element of it. Then you’ve got to have the support of the board, and the board tends to, you know, again, it’s political as well. You’ve got to just got to keep scratching backs, right? If you’re haven’t grown up with the company, you’re beholden when you get that job to other people, whether it’s the stockholders which tend to be the large funds or whether it’s the board who gave you the job and then the board who gives you the pay rise every year. So, yeah, they do tend to have a short-term approach to things to just keep appeasing the people who put them there
Cameron 07:16
What was that Fem punk band in the 90s? Skunk Anansie, remember Skunk Anansie?
Tony 07:24
I haven’t heard of them. Sid and Nancy?
Cameron 07:29
Yeah, well, I think it’s sort of a reference on that. But they had a song, I think it’s called Yes, it’s Effing Political. There were the lyrics for it: “Yes they’ve been political. Everything’s political.” I’ve always liked that. People say, you know, “you’re getting political,” and everything’s political.
Tony 07:48
Yeah, I agree.
Cameron 07:49
It’s all about people, right? When you have more than one person, things are political. Good lyrics. Anyway, I I’ll get into trouble if I read those. I’m enough trouble. Thanks to Reg, QAV club member Reg, for giving me a hard time constantly about the Royals on Facebook over the last week. He’s trying to get a rise out of me every day, telling me to go watch the royal funeral. I took a lunch break today, I went to the kitchen, made some lunch, sat down in front of the big TV, thought I’ll see what’s on the ABC. Turned it straight off.
Tony 08:20
Yeah. I know. It’s terrible.
Cameron 08:25
How long has it been? A week and a half. And still.
Tony 08:29
I know.
Cameron 08:30
Complete wall to wall coverage. Are you kidding me?
Tony 08:32
Have you seen the Fin Review today?
Cameron 08:34
Yeah, yeah, I have.
Tony 08:36
I went to two news agents, because I walked into the first one and I thought to myself, “oh, they’ve sold out of Fin Reviews.” Then I go to the second one and I realised, no, that Fin Review with the big picture of the Queen’s funeral was actually the Fin Review, not the Herald Sun.
Cameron 08:51
I’m just appalled. Anyway.
Tony 08:56
Just a last thing on that. So, I was watching the ABC News this morning, and they had a piece on how long the Queen’s funeral went for and how terrific it was the royal family had stayed on the job for ten or twelve hours straight. I was thinking to myself, I mean, how many poor buggers do twelve hour shifts to make ends meet these days. As if the royal family deserves any extra kudos for sitting in a procession for twelve hours. Are they gonna ask for double time or something? Give me a break. It’s the only time they’ve worked all year and that’s not really work.
Cameron 09:32
Yeah. It’s a selfless service, Tony. It’s just all part of the selfless service they give. Back to stocks. I know I’ve asked you this question before, but I’m going to ask it again because it’s relevant and I couldn’t readily find the answer. Actually, I started to look for the answer and then ended up building a whole new knowledge base page on the website to help me find answers like this in the future.
Tony 09:59
We’ve talked about these procrastinators before. The so-called “workflow helps” that end up taking longer to code than what they help.
Cameron 10:12
Well, I coded it, I think it will be helpful for me and everyone else. But anyway, the question is, when do we sell a stock that’s gone dividend? If it’s still below water after the dividend has been paid, do we do it on the payment date or the day after the payment date?
Tony 10:30
Good question. I do it the day after.
Cameron 10:32
Okay. Because YAL and SSG both have the payment date today, and when I did my alerts this morning, they were both okay. They were both above the fudged or factored sell line if I included the dividend, but the payment date was today. So, if they don’t recover by, in YAL’s case, 52 cents by tomorrow, I’m gonna have to sell. I don’t know what the SSG one was. Big dividend for YAL though.
Tony 11:01
It’s great.
Cameron 11:01
52 cents. Well, it was until the share price dropped by more than that. So, now it’s not so great, but anyway. We’ll see if it rebounds. So, just the next day after the payment date.
Tony 11:14
Oh, look, that’s what I do. I mean, that’s just on the basis that the dividend statement arrived today, but I don’t know if the cash has, and so I always check it the day after.
Cameron 11:25
Okay.
Tony 11:26
Give it twenty-four hours to cycle.
Cameron 11:28
Just a note for people, Brett Fisher mentioned in Facebook that he contacted Stock Doctor support about why BSL, EVN, HLS, NCP, OMH and ZIM, or the alphabet stocks, still don’t have updated results. Their response was the development team has placed a fix and is currently being tested, they have to release the update next week. I think that was maybe over the weekend, he posted that, or something. So, if you’re having problems with companies not having updated results in Stock Doctor, let’s stop doc to know. And let us know on Facebook too, because that was helpful. Thanks, Brett for posting that. I think Chris Stratton added some more companies to that list in the Facebook group as well.
Tony 12:13
Yeah. Stock Doctor can take a while to release numbers in the reporting season, but it tends to be the small cap companies, the really small ones. So, if they’re not doing it for the larger ones that possibly is a patch they need to put in.
Cameron 12:25
Don’t get much larger than BSL.
Cameron 12:28
Okay. Getting to the update section. Most important update, Ralph Macchio is still sixty. Still looking forty-five. Watched some more episodes of Cobra Kai and don’t know how he does it. Portfolio’s doing OK. The DP. It’s still up a couple of points. Not much has changed from last week despite the market having a horrible week. Crashed again I think Wednesday last week and didn’t recover. Recovered maybe a bit today, I think, Tuesday. It’s been rough, but the portfolio’s still hanging in there. A couple points up for the financial year. So, we’re only a couple of months into that. The All Ords is way above it, or the ASX 200, but still we’re — I looked this morning when I was doing the club newsletter — since inception, the dummy portfolio’s performing 2.9 times better than the ASX 200 as our benchmark, so looking good. Which is better than last week, it was two and a half times. Now it’s 2.9 times. It goes up and down, but you know, it’s doing good since inception. Holding our own.
Tony 12:28
Correct.
Tony 13:20
Navexa sends me a weekly report on our dummy portfolio, and it’s saying it’s up 0.95% for the week, which is good given the All Ord’s went down, as you said. And the two biggest movers, one up one down: PWR was up 20% and Yancoal, as you said, was down nearly 12%.
Cameron 13:57
Which I assume is just the dividend coming out?
Tony 14:00
Yeah, it would be.
Cameron 14:01
So, there you go. All right. What do you got on your things to talk about, Tony?
Tony 14:06
Yeah, a couple of things. I mean, just on performance. It’s a really strange thing, but every year around this time, I start to get a little nervous because September and October — and particularly October — is kind of the witching month for the market. Every major crash since the Great Depression has happened in October, so I’m always a bit nervous going into this time of year when the market starts to go backwards. But it doesn’t change anything, I still do what I do and don’t change the system, but it just is strange that this happens. There’s a whole heap of theories about this, whether its people coming back off the northern hemisphere holidays and going back into the office and working a full week rather than being on summer holidays and starting to look at their portfolios and readjust. There’s a thing in the US anyway where a lot of options cycle through month end and they get closed out and then rebought again the next day. That sometimes happens in October. Someone tried to say it was the midterm elections which happen every two years. I’m not sure what causes this, I guess, additional risk in this time of year, but it just seems to be a thing. Nothing we can do about it. There’s some analysis to say that I’ve seen that September is the worst month, but you know, one of them has to be, so not going to say we should sell out in August and come back a bit later. But September has been the worst performing month over time, and October has been the month where most of the crashes occur. But, you know, we’ve probably only had four big crashes in the last hundred years. So, if you’re out of the market in October because you’re worried about a crash, then you’re gonna miss out on the rest of the years where it has performed. So, not much more I can say or do about it, but I’m always a bit nervous going into October. I guess on the other side of things, what’s happening in the macro world is that’s also a little concerning, it looks to me less and less like we’re going to get any sort of soft landing. Yeah, getting back to the other macro comments, the RBA Governor strikes me as someone under pressure, and he is under pressure. I’ve seen a couple of YouTube videos now where he’s spoken recently, and he’s almost growling. He’s a bit like Gollum on Game of Thrones with his “precious” interest rates, and he just looks like he’s under a tremendous amount of stress. And that could just be the stress that there’s a review of the RBA going on, there’s been people howling for his resignation since he said interest rates wouldn’t rise this year and they have a couple of times already. Or it could just be the stress knowing that putting interest rates up hurts the economy. But I think it’s a shortfall of the RBA, and I’m pretty sure this won’t be addressed by the review. But if your only lever is interest rates, to bring the economy back to the inflation range you want, then, you know, it’s like every problem is a nail if you only have a hammer. And personally, I don’t think interest rates are gonna solve this one. I think when the Ukraine war is causing energy prices to increase; when supply chain problems are causing house construction costs, for example, to increase; when staff being away because of COVID reasons is causing wages start to rise as people try and attract people to their businesses with sign on bonuses, etc., because they can’t get all this stuff back; none of those are solved by interest rates. And so, interest rates I think just adds to the problem even though putting up interest rates will inevitably cause inflation to come down because it will crash the economy. So, there’s a lot of imperfect solutions going on, a lot of people in key positions under pressure. I just don’t have any confidence that this is going to end. But again, that’s a prediction and we don’t act on predictions. I guess it’s just where my mind is at the moment. We’re in September heading into October, oftentimes not great months for the share market. Interest rates are likely to go up in the States again this week and possibly here at the start of next month. And yeah, I just don’t know if that’s the answer. And I guess the other issue that I’m grappling with is that, particularly in the States, to alleviate pressure — and in the UK — to alleviate pressure on things like high energy prices, the government’s pouring money, again, into people’s pockets. That caused the whole problem in the first place with inflation as well, because, you know, hindsight is a wonderful thing, but perhaps the interest rates were cut too low during the COVID pandemic and now they’re trying to scramble to get back on top of inflation. And as someone pointed out recently, inflation is always caused by increasing money supply in the economy, which is what we had a lot of during COVID. And now, you know, interest rates might be the way to solve that traditionally, but when inflation is a supply problem rather than a demand problem, I don’t think it will. So, I’m not confident about the economy going forward or where the share market is going to end up. But that’s all by the by, they’re just thoughts and predictions. We’ll keep doing what we do. But I guess I will caution people if they have any exposure to risk at the moment to wind that back, and by that, I mean margin loans or any other sort of borrowing that they might have taken on when interest rates were good to invest in the market. Just be a bit careful.
Cameron 19:26
Well, but, you know, the MMT people told us this wouldn’t happen, Tony. It was fine. We can issue as much cash as we want. It’s all good. It’s modern, Tony, modern! This time it’s different.
Tony 19:39
Yes. Well, and they’re now arguing it doesn’t work when inflation is happening, so that’s kind of like the get out of jail pass at the moment. But I agree with you, when we drilled down with those interviews we did, I could never get past how the Reserve Bank print money, and it does not affect the economy without spreading pixie dust on the printing presses and no one could ever really explain that to us.
Cameron 20:02
Well, maybe it wasn’t the printing of the money that caused the problem, as you say, it’s all of these other macro-economic factors: wars, trades, COVID, all that kind of stuff that’s doing and not the money that they tipped into the bucket.
Tony 20:16
Do you think you’re at a point yet where we can put wording in the Bible about Renko? Or do you want to wait a bit?
Tony 20:16
Yeah, possibly. But I think it’s all probably in the concoction that’s causing the problem. But typically, that’s the way the economy is run. They pour money into the economy when we’re in what looked like it was going to be a recession, like COVID, or the GFC, when that has taken hold, and they raise interest rates to balance things back again. So, that’s the one-dimensional approach to the economy, but we’ve got a multi-dimensional problem now because of all the other things that are going on, too. So anyway, not a great economic backdrop I don’t think at the moment, so I’ll just keep being diligent. A couple of other things to report. I know I was asked a question a month or so ago about ETFs and LICs and why they weren’t on the buy list, and we gave the answer then about ETF’s that the operating cash flow really reflected the amount of funds being put into the ETFs or taken out rather than the underlying business that they were operating. I wasn’t as strong on the LIC side of things because operating cash flow does actually reflect more dividends paid, and when they sell things, their income from sales, that kind of thing. But I did do a bit more of a deep dive into LICs to see if we should add them back, and I don’t think we should. That’s on the basis that I did find some examples where operating cash flow was negative, which meant that in the case of those LICs, that they had costs — and LIC’s typically have costs like bonuses to the managers, and share trading, etc. — so, they’ve had negative operating cash flow where they haven’t had enough dividends from the companies that they’ve invested in to, for example, pay a dividend, and they’ve actually operated at a loss. Although operating at a loss for a LIC doesn’t really mean a whole heap, because if they’ve got the cash reserves to pay the dividend and they’ve sold things at a loss or they haven’t received enough dividends to cover that, they can still do that out of reserves and run at an operating loss. However, the portfolio may have gained considerably on paper. So, the LIC might be in a very strong position, but it does record negative operating cash flow because, for example, they’ve paid fees to the manager and dividends to their investors, and they haven’t received enough operating profit from sales or dividends to cover that. So, it’s again, it’s a bit of a strange example. I’m trying to use operating cash flow to gauge the strength of the business, so I’m going to keep LICs off the buy list because of that. And then a few other things. Renko charts I’ve been looking at quite a bit this week, they do seem helpful in predicting when something that’s gone up a lot is turning down, and they seem to be less volatile than trying to draw sharper or steeper sell lines on our three-point trend line charts. So, that seems to be good, but I am still playing around with the charts in Stock Doctor. Brett from the Brettelator pointed out to me during the week that when you click on the pencil… So, if you go into the drop-down box to select what type of chart, whether it’s a line or a bar chart, or a Renko chart, there’s a little pencil. If you click on that, it allows you to select “auto” which draws the bricks in the Renko chart according to mathematics, or you can put your own brick size in. And so, you need to select “auto” as the default. I’ve also found a couple of other things which are a bit puzzling. I’ve adopted a process so far of clicking on the Renko chart, selecting “auto”, doing the Renko chart for the longest time period, and then doing it for five years. A couple of times I’ve refreshed the Renko charts in Stock Doctor and had some strange results, so just be careful of that. Just make sure that if you’re doing it to double check, it and make sure it makes sense before you make any investment decisions based on Renko charts in Stock Doctor.
Tony 24:13
No, I think I’m a long way off changing the Bible. I think we need to do what I’m doing, which is to run a few things on paper in parallel, and just see whether they perform better than what we’re doing.
Cameron 24:22
Cool.
Tony 24:22
What else? I have been picking up some more stock codes which aren’t in my master spreadsheet, so they need to be added to the manually entered data sheet. Three of those I picked up during the week are TLC, DRR and PLS, they need to be added. None of them made it to the buy list after I added them, but they are new large cap stocks that haven’t been around for a while. I did add them in case they become important later on and qualify for the buy list. So, they’re now added.
Cameron 24:49
New IPOs, the large cap stocks?
Tony 24:53
Relatively new, yeah. Probably in the last six to twelve months. Okay.
Cameron 24:56
Okay. You know, Andrew Flitman gave us a process for the users of the AF sheet which we’re supposed to do once a month or so, where we download all the new companies. There’s a filter in Stock Doctor that you run, and it gives you a list of all the companies that have IPOd in the last, you know, whatever timeframe you want to set, and then you just throw those into the sheet. And, yeah, it’s a good system.
Tony 25:24
That would certainly help with mine, but there’s also the added complication that when I do a download, I’m just pulling companies with positive operating cash flow. So, there can be something which has been around for a while but then goes positive for the first time, so that’s also something that could mean that we’ll have a new company download which doesn’t have manually entered data.
Cameron 25:43
Yeah. The way his works is you update the manually entered data tab on the AF sheet with the new stock codes, and so then it’s got them there if they turn up in the checklist positive cash flow, they are already in the manual enter data sheet ready to go.
Tony 25:59
So, is it the complete download of all stock’s codes?
Cameron 26:03
No, you run it, from memory, I haven’t done this for a month or so. But you run it… Andrew made a little video for us which I have to watch every time I do it to remember what he said. I’ve got a filter set up that he tells us how to do in Stock Doctor, a separate filter that just grabs the stock codes for companies that are newly listed in the last, you know, thirty days or sixty days, whatever. Then you just copy that and stick it into the manually entered data tab, I think, and it auto populates the rest of the fields. It gets ready for you to enter manually entered data into the fields so when you do your download those stocks are automatically in the manual tab ready for inputs, manual inputs.
Tony 26:47
Yeah. Okay. So, I mean, Andrew is much better at Excel than I am. I guess he started off doing a download of all stock codes and putting it in, and then just runs updates on a monthly basis.
Cameron 26:57
Yes.
Tony 26:58
Okay. Because what I’m saying is, if he didn’t, if he did it the way I did it which is just to start at the point of time with all the ones that we’ve downloaded to have positive operating cash flow, if you just download the updates of new IPOS…
Cameron 27:12
Oh, I see what you mean. Yeah.
Tony 27:13
Something could have been around for a while which has now got a positive operating cash flow, and you’ll miss it.
Cameron 27:19
So, it’s not nearly listed but hasn’t turned up previously. I see what you mean. Yeah, I don’t know. Andrew, if you’re listening to this, let me know if you did that.
Tony 27:28
I’m sure he has. Mine’s a bit more clunky, so I from time to time — like once every six months or after reporting season — just compare what’s been downloaded from Stock Doctor with what’s in the manually entered data sheet.
Cameron 27:41
Well, you could just do a download of all of the stocks in the ASX and drop them into your manually entered data tab and they’d all be there, right?
Tony 27:49
Yeah. But then you’ve got to take the data that you’ve already added in the past and try and match it up. So, Andrew has written some kind of macro to do that, which I have not.
Cameron 27:56
Oh, yeah. Pain in the ass. Hate Excel.
Tony 28:06
Anyway, so I’ve just been doing it manually myself over the years. Those three just haven’t been part of my manually entered data sheet, so just added those.
Cameron 28:16
Actually, I tell you what, I know a way to do this because I do this every week when I’m doing my trading stuff. So, you create a tab in Excel, you download the complete list of all codes, you drop it into column A, you grab all the stock codes out of your manually entered data sheet that already exists, and you copy and drop that into column B. Then you do a find duplicate in there. You find duplicates, you colour the duplicates, you sort so it’ll show you in these two tabs all the ones that don’t already exist in your manually entered data tab. They won’t be the duplicates, they’ll be the uniques when you sort it. You just grab that, copy and paste those back into your manual data tab. Boom, they’re the ones that don’t exist. Done, son. See, I’m becoming an Excel guru. Sign up to my new Excel course, Cameron Does Excel, you’re gonna love it.
Tony 29:14
Kung Fu Excel with Cameron.
Cameron 29:15
Yeah, and I’m doing it all in Italian too, so.
Tony 29:19
I do something similar; I just don’t go to that find duplicate stage. I just drop the download, drop the stock code column from the download, drop the stock code column from the manually entered data, sort them both alphabetically and just go through manually and look at the differences.
Cameron 29:33
But do you drop the monkey, Tony?
Tony 29:36
No?
Cameron 29:37
Drop the pilot? What was it? Shock the Monkey, Peter Gabriel.
Tony 29:45
That’s a different dong. There’s Shock the Monkey and then there’s Drop the Monkey, that was Joan Armatrading, wasn’t it?
Cameron 29:51
No, Drop the Pilot was Joan Armatrading, Shock the Monkey was Peter Gabriel. I was thinking it was a “Drop the Monkey” there but, you know, my brains joining dots that don’t exist. Alright, let’s get going.
Tony 30:04
So, I do that every now and then. And the last thing I’m about to talk about is, I just want any listeners out there who are satisfied with their brokerage account, I want to convert the dummy portfolio into something with real money. So, I’ve had some advice and feedback from someone in the industry, a fund manager, who said that running a dummy portfolio without having money behind it isn’t respected in the industry and that we should just put some money into a fund and then use that as a dummy portfolio. But we really want to do it as a one stop shop so we’re not fiddling with it. So, I need a recommendation from someone, whether it’s CommSec or Etrade or something similar, on a service that also does the portfolio reporting, handles cash balances — as you know, we go to cash from time to time and dividends get paid, etc. — and, yeah, satisfied with them and that works well. I’ll set up a dummy portfolio using real money.
Cameron 31:03
Cool.
Tony 31:04
Let us know.
Cameron 31:05
All right. Tony’s just gonna drop a lazy hundred grand in it. You know, just dig under the couch. Time for Q&A.
Tony 31:14
I’ve got a pulled pork to do.
Cameron 31:15
Oh, the pulled pork. Who are you doing for the pulled pork this week, TK?
Tony 31:20
Yeah, someone asked whether I could do it on GNP. Yeah, GNP, GenusPlus Group, who I hadn’t heard of. They’re not on the buy list but I thought I’d do it anyway. Interesting situation, so worthwhile exploring. I forget, now, who asked the question. Phil, I think. The first thing to say is, Phil, if you own GMP, sell it. It’s failed it’s sentiment, it’s gone way past it’s sell line recently, so get out. So, that’s the first thing to note. And the fact that it doesn’t have positive sentiment means it’s not going to be on the buy list, or score well, because we give points for sentiment. But anyway, I’ll just run through this as an example of a company which may be on the buy list, I guess, at some stage in the future. It’s small, though, average daily trade of $24,000, so it’s not a big company. And I suspect it’s probably growing, and I’ll get to that during the numbers. But anyway, this company is the provider of infrastructure for both power and the telco sector. So, it’s running cables, and a bit of electrical engineering, and it looks like it’s particularly doing that to the mining sector — so, the mines and mining sites. So, that’s what it does. Small engineering firm listed now on the ASX called GenusPlus. Analysis is done at a price of 97 cents, which is above our IV 1 but less than our IV 2, and also above book plus 30% which is 69 cents. So, it’s only scoring one point out of all those price metrics. Does have a yield, but not big: 1.8%. So, it doesn’t score for that. It scores very well on the growth over PE; the consensus growth in earnings per share for this company is forecast to be at 56%, which is quite good, which means our growth over PE is 4.6 times, which is very good. Our cut-off is 1.5, so it scores double for that. What else can I say? The price is less than the consensus target, so it scores for that. The interesting thing about this company is that 53% of the market cap is still held by directors, so scores for that, and obviously as an owner-founder company. There’s potentially room for those people to sell down, too, if they ever need to do that to raise money, or to use those into the share industry, which is something which can help companies grow. The Pr/OpCaf, though, for this one is 15 times, so that’s a bit more than twice the threshold that we’re looking for. However, it did cross my mind that if it’s growing at more than 50%, that Pr/OpCaf could come down next year. So, it’s worth watching. In terms of manually entered data, it does have a low PE — I think it’s only been listed for four halves — and it does have consistently increasing equity, which is a good sign, I think. The financial health is satisfactory in Stock Doctor, and steady, so it scores for those. Overall, the quality score for this company is 10/15, or 67%, but the QAV score is only 0.04. So, yeah, it doesn’t meet our criteria and doesn’t score well for us, particularly on the basis of price to cash flow and sentiment, but I expect it will improve over time if it keeps being well managed, which it probably will be given the amount of share ownership of the founders and the board. If the forecast EPS growth happens, then operating cash flow should probably improve, perhaps enough to meet that metric for us. So, there are some things to like in this company. But I guess with companies like this, all the upside is factored into the share price and that’s possibly what’s happened recently; the markets in a skittish situation and doesn’t like paying up for future earnings, and so the share price has dropped through its 3PTL sell line.
Cameron 35:29
Right. Well, thanks for that, Tony. Hope that helps, Phil. Q&A and statements of fact from some of our listeners.
Tony 35:44
Sounds just like Q&A on the ABC, doesn’t it. It’s like, no questions and answers, just just statements and opinions,
Cameron 35:50
Statements of belief. Yeah. Testimony.
Tony 35:53
Maybe you should wear like, a, I’ll wear a hijab and you can do some blackface, and we’ll just be like a real Q&A episode on the ABC.
Cameron 36:00
Wow, getting us into some sticky situations there, Tony. I already had to get Dennis to beep out stuff in the last episode, I don’t want to make a habit of having to beep out stuff.
Tony 36:11
No, I mean, the ABC likes to have a very diverse Q&A session.
Cameron 36:16
They do. I can’t watch Q&A; it just makes me too angry. I just, you know, I end up yelling at the screen. It’s no good.
Tony 36:23
I just find it really boring these days. There’s nothing of information value at all in it, so I don’t watch it.
Cameron 36:29
Alright, first question from Chris, or statement from Chris, actually. “Hi Cam. Thought I’d shoot off a quick answer to the question on NL companies.” Last week we had an NL company, I think you thought it was from the Netherlands?
Tony 36:41
Yeah.
Cameron 36:42
He says, “NL stands for no liability.”
Tony 36:45
Good enough answer, isn’t it? Quick, rapid-fire answer.
Cameron 36:48
Hot take. Tony’s hot take: Netherlands. “These types of companies can only be used where the principal activity of the company is mining. The main difference with this type of company is that if the company issues partly paid shares, the shareholder has no obligation to pay any calls for the unpaid capital.” None of that makes any sense to me, but he sent a pretty link: “researchdata.edu.au, search up no liability companies, you’ll find stuff there.” Thank you for that, Chris.
Tony 37:17
Yeah, thanks, Chris. You’re right. I vaguely remember NL companies being no liability, but more fun to say they’re from the Netherlands. But thanks for pointing it out. It just goes to prove the hive mind is much smarter than this individual. I did go to that link and have a look, it’s a very strange, anachronistic sort of situation. There’s apparently a law on the books from 1881 about No Liabilities companies; they have to be in the mining sector, and they have to be based in New South Wales. So, it’s a strange one. I mean, maybe it was some kind of tax incentive back then to get mining companies up and running in New South Wales. But the No Liability side has probably been superseded by the normal Proprietary Limited companies now, which have limited liability for owners and directors. The only difference is that it looks like in this no liability case, people can issue shares which require part payment now and then part payment in the future, and that people cannot cough up for the second leg and just lose their shares. So, I’m not sure that that’s widely used today, and I haven’t heard of any examples of it being used today.
Cameron 38:26
We did have a company that we talked about last week that’s an NL company.
Tony 38:29
Yeah, an NL company. So, it’d be interesting to know why that company chose that path to go down.
Cameron 38:34
Yeah, maybe they’ve been around since 1880. Clive Palmer wasn’t around in 1880, was he? Or an ancestor of his?
Tony 38:42
I couldn’t say.
Cameron 38:46
Glenn says: “Hi, Cam. I thought that I would privately reply to the discussion on this week’s podcast after my Facebook post.” Now Glenn for the last few weeks… What are you laughing about?
Tony 38:59
He’s writing into us, and also on the Facebook post, and now clarifying the Facebook post.
Cameron 39:05
Yeah, yeah, yeah. So, Glenn has been hammering us over profit taking, taking profit off the table, with really good ideas. He’s doing a lot of work on it; he’s thinking about it deeply.
Tony 39:20
Yeah, thanks, Glenn. Sorry, I’m making light of your comments. They’re appreciated.
Cameron 39:25
He’s sent a couple of studies that he’s read that give evidence of the benefit of taking profits. “It’s one of many approaches that can be successful. There are many ways to skin a cat as long as it’s your cat.” That’s what I tried telling Chrissy the last time I skinned — skunned? Can you skun a cat? Is that the past participle of “to skin”?
Tony 39:50
Nancy and skunk skin the cat.
Cameron 39:56
That was another big hit. “Yes, it’s an effing skinned cat, everything’s a skinned cat.” “Also, Lincoln have back tested their star stocks using four different buy and sell systems, including taking profits. The results are close and available from Victor. I found that the best approach is the one you own psychologically. I think the most usable testing is, one; Lincoln using SD Max using Moving Average band sell points, and SD 30 TSR using 30% drawdown sells. The long-term performance is on growth and quality stocks, and performances is in the mid-teen’s percent. Two; the Stock Radar paper which is a Melbourne based service who covers approximately one hundred and sixty-five larger cap ASX stocks using a profit taking approach, usually Max 15% drawdown, only sell lines which are ratcheted upwards with price. Richard Lee, who’s the guy who runs the service, has done extensive testing over approximately nineteen years and runs portfolios based on these tested signals. He might be a good guest for the podcast. There are stock Doctor members who combine star growth stocks with Richard’s buy and sell signals. Also, I know of two QAV members using his signals, and the QAV buy list as a population where there are many common codes. The companies are agnostic to any factor, ie. value growth income. My understanding is that one of Richard’s long-term portfolios has a long term CAGR approximately the same as Tony’s. Cheers, Glenn.”
Tony 41:22
Thank you, Glenn. Well, let’s get Richard on the programme and talk to him about it, if he’s doing well as well.
Cameron 41:27
Have you given any more thought to profit taking?
Tony 41:31
No. The only thought I’ve got we spoke about: I’m trialling Renko charts, because they seem to take the volatility out. That’s my biggest problem with short term profit taking, is whether it’s a 15% drawdown or a 30% drawdown, you know, the stock can go back up again. I guess you can rebuy, but then you’re churning a lot. But yeah, it’s not how I’ve done things historically, and I’m loathed to quickly change the system on one metric because that may affect the whole return to the system. There could be unintended consequences anyway. But yeah, I’m always happy to evolve. So, let’s get Richard on to tell us how he does it.
Cameron 42:06
One of my questions for Richard would be: he runs multiple portfolios, but only one of them has the same performance as yours. Is that one just lucky? I mean, if he’s using the same methodology across multiple portfolios, you would expect them to all have roughly similar performance over the long term, right? Averaged.
Tony 42:28
Yeah, I wouldn’t know without asking him. Maybe he has a number of different metrics in the portfolios that he’s testing. So, I don’t know. I guess the other point I’d make about this whole issue, and I appreciate Glenn’s research, and, you know, if there are people out there who do it differently and have good results, or the same as me, or better, we’d love to hear about it, because that will short circuit the research that I need to do. But I’m always hesitant to change things quickly, because at the moment, and since about mid-late last year, the share market and our portfolios have been in decline. So, it’s possible that that decline has been exacerbated by us not taking profits when we should have. But, you know, that’s only one phase of the share market, and there’s been other phases where we could have taken a profit quicker which would have hurt us. So, when the market is going up, or as they say, “climbing the wall of worry” where it’s two steps forward, one steps back, you don’t want to take profits in those situations too quickly. So yeah, it’s been a persistent question for the last six months about why didn’t we take profits earlier? But I think it’s also driven by the phase of the share market we’re in. Not to say we can improve it, but I’m not going to be too quick to change things without proper research.
Cameron 43:42
But, you know, people should feel free to… What did Glenn say? “The best approach is the one you own psychologically.” You want to come up with your own process and do it with your own money, then…
Tony 43:54
Absolutely.
Cameron 43:55
Then may King Charles bless you.
Tony 43:56
Or point to people who’ve done it themselves as well. I’m always happy to learn and evolve, but I’m slow to do it.
Cameron 44:02
Well, that is all we have questions-wise this week. Short week, which is good, because I have to get to kung fu, but we have to talk after hours…
Cameron 58:56
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