QAV 540 CLUB

Cameron  00:06

Welcome back to QAV, TK, and everybody. This is episode 540. We’re recording this on Tuesday the 11th of October 1:47pm in Brisbane, 2:48 now in Sydney. Happy birthday to Hunter and Taylor, they turn twenty-two today and they’re back off to LA tomorrow for six weeks to sow their wild oats, or whatever the hell they’re doing over there. “Business,” they’re going over for “business”. By business, they mean having sex with lots of girls and getting drunk.

Tony  00:47

And according to them last time, having large plates of coke passed in front of them. “But we didn’t have any. We didn’t have any.”

Cameron  00:53

There are guys walking around parties with AR 15s. But as I was telling Ruddy the other day, for Taylor, when Taylor goes out clubbing here, he’s a six out of ten. When he goes to LA with an Australian accent, an identical twin brother and his clients that have millions of Tik Tok followers, then he’s an eight, you know. All of those things make him an eight in LA where he’s only a six here, so that’s why he goes over, I think it’s to make him an eight

Tony  01:23

Right? And does being non-American make you a twelve and then you get points taken off for Tik Tok followers and the other things?

Cameron  01:33

You’re not in touch with the young girls today, Tony.

Tony  01:37

No, I’m not.

Cameron  01:39

That’s a good thing.

Tony  01:39

And of course, they weren’t the only birthday this week. “Happy birthday Mr President…”

Cameron  01:44

Regretfully I had my birthday yesterday. Turned fifty-two. Okay, that’s really…

Tony  01:52

Creepy?

Cameron  01:53

Kinda creepy, yeah. Thank you, I have to thank you, and I’m happy about the gift you sent me but also not happy about the gift also

Tony  02:03

Oh well, send it back.

Cameron  02:05

Well, no. Tony sent me a lovely gift. It was a bottle of scotch called Cowboys of Patagonia. And it’s lovely. I had one glass on the night it arrived, which was the night before my birthday, I think, because the boys came over for a dinner. But it’s ruined me forever. It’s ruined scotch. I can’t drink anything else but this now because its so bloody good. Have you had this?

Tony  02:29

I haven’t. I’m gonna order some now, though.

Cameron  02:31

I had the first sip, and seriously… Like, okay, in all fairness, it’s been a while since I’ve had a good scotch, but I had one sip of this, and my brain exploded. I was like, “oh my god, I can never drink anything else ever again.” This was really complex and rich, then full bodied, and yeah. It’s really nice. So, thank you, but you’ve ruined me forever now, I have to drink expensive Scotch now.

Tony  03:00

I hope Niko Devlin’s not listening, because it’s one of his competitors.

Cameron  03:05

His competition.

Tony  03:07

Single malt whiskey society. They’re based in Edinburgh; they’ve got a branch out here. But when I joined Nico’s Australian Whiskey Appreciation Society, of course Facebook kept giving me ads for other ones, other societies and I joined this one too. And they’re both good, I recommend both of them. This one is like a one off, so the distilleries they use are all around the world and they don’t tell you where it comes from. But you can go on to a Facebook site, which will decode the numbering system and tell you where it’s from. But the reason they don’t tell you where it’s from is because they take the spirit, they source their own casks, they fill their cask, they might, you know, put other shavings in or store it away for a while and then recast it in another barrel. Anyway, they do their hocus pocus and they bottle it themselves, give it a funny name, and release, I don’t know, a dozen or so a month all around the world. And they’re all cask strength, which is important, and they’re lovely.

Cameron  04:06

I’ve got to read, I’ll read for everyone what it says on the label of this. Apologies to people who don’t care about scotch, but you’re on the wrong podcast. It says — this is the description on the single malt whiskey website for Cowboys of Patagonia– “an intriguing mixture of flapjacks, malt extract, cinnamon buns, chocolate orange and a steak grilling over sweet chestnut charcoal made us rather curious as we took a sip. Wow, It was a smoky and sweet dirty steak; think caveman or cowboy. However, there was a small difference as we served it with a deep purple full bodied Chilean malbec with those on the tongue flavours of danson and blackberry alongside notes of pepper and spice, while in the long finish a savoury sweet note of a Turkish coffee. Following that is an ollo roso butt, we transferred this whiskey into a heavy charred first fill punchin.” I didn’t understand 80% the words used there, but I liked it, nonetheless.

Tony  05:10

No, me neither. And they are good marketers.

Cameron  05:13

Yes, very good. Anyway, thank you again, it’s really, really nice. Made my birthday very special. All right let’s get back to the show. Oil and copper were buys at one point. Not sure copper is a buy anymore.

Tony  05:32

Yeah, I had a look today. I think it’s right on its sell line at the moment.

Cameron  05:36

Yeah, that’s what I thought yesterday, too. So, would you consider that a buy or a seller or a Josephine?

Tony  05:40

Josephine. Just don’t touch it for the moment till it resolves itself. Oil, I think, is a buy again. Actually, it may always have been a buy because we’re using the Brent graph.

Cameron  05:52

I think it was a Josephine a little while ago

Tony  05:53

Oh, you’re right, actually. Good point, we should call it up and have a look.

Cameron  05:57

And what about gold? I had a look at gold yesterday and I thought it may have changed, too.

Tony  06:06

I think gold’s getting close, and I’m using the Australian dollar gold chart, but I don’t think it’s crossed yet. Yeah, no, you’re right. Brent was a Josephine, now it’s just become a buy again. That’s oil. And then I’m using goldprice.org for the chart, because it’s a place that has a five-year Australian Dollar gold priced chart. Yeah, so I’ve got a H1 of first of July 2020, H2 of first of April 2022, and it looks like the line is just touching.

Cameron  06:46

Are you talking about the buy line?

Tony  06:48

Yeah, looks like it’s just touching the buy line.

Cameron  06:51

So, keep an eye on gold, people. I think it might be a buy too, soon, with the way it’s going.

Tony  06:57

Yeah.

Cameron  06:58

Okay. Jolly good. Navexa mentioned us in their blog. They were talking about good investing podcasts, and they threw us in there. That was nice of them, thank you guys. Speaking of Navexa, portfolios doing well. I think since inception the dummy portfolios up about 16 odd percent versus the ASX 200, the Sexy 2, which is up about 4.5% over the same period of time. So, we’re still doing three and a half times better than the Sexy 2. But I particularly want to give a shout out to SMR that I accidentally bought last week, and I shouldn’t have, because it was coking coal and coking coal is a sell or a Josephine. It’s up 15% since I bought it last week. So, thank you for SMR for saving my butt.

Tony  07:51

A little boost.

Cameron  07:54

I appreciate you looking after me Stanmore — Stanmore/Stanhope? One of those.

Tony  08:02

You have to wear the bad mistakes, so we’ll happily take the good ones. Speaking of mistakes, did you mean to buy Sunland group for the dummy portfolio?

Cameron  08:13

I did. Well, I mean, did I mean to? Yes, I bought it. There’s a post on Facebook that they’re shutting down

Tony  08:20

. Didn’t run off, yeah. But I did a pulled pork about it about a month ago.

Cameron  08:24

Well, I can’t remember what happened yesterday, Tony, did you say don’t buy it?

Tony  08:30

No, I didn’t. I said, you know, be careful, it’s in rundown.

Cameron  08:34

Oh. Well, something else I need to check now before I buy things is what you said about something. So, what should I do? Just follow the rules?

Tony  08:46

Correct. Unfortunately, I think it’ll probably become a sell. It’s in rundown, so the share price is dropping.

Cameron  08:51

Yeah, I saw it’s down a bit.

Tony  08:53

If we didn’t get a dividend to compensate for that, then we’re going to probably have to sell it for rule one.

Cameron  08:58

Well, should I just sell it now then?

Tony  09:00

Yeah, probably. It makes sense to. Just check the dividend dates before you do just in case you received one, because they’ve been doing a lot of capital returns and dividends, and dividends are coming out right about now. So, if you didn’t get a dividend, I’d sell it. I mean, that’s a tough thing. You’ve highlighted a good thing here about… we can’t, I mean, the Bible is bulging now with caveats in terms of Josephine’s and commodities and all that stuff, but to have to then go and put in little asteriscs on some shares that we’ve had a good look at and they’re not to buy is pretty hard.

Cameron  09:32

Well, MLD is another one of those. Maca keeps showing up at the top of our buy list every week, and I have to remember that it’s… Because I bought that one a while back, remember, and I had to sell it because they’re being acquired and the acquisition price was about the same as the buy price, etc.

Tony  09:49

Yeah.

Cameron  09:50

I haven’t looked to see if it’s moved since then. I don’t want to know. But yeah, there’s a lot of these stocks that we can’t buy for various reasons.

Tony  09:58

My buying process is always to check the stock out before I buy it. Do a Google search, see what’s happening, check the announcements, see what’s happening, and you can quickly work out whether you’re comfortable or not buying it. Generally, it’s not an issue, but I don’t know if it’s because of the market being in downturn, or whatever, but there’s a few funny ones coming to the top of the buy list at the moment.

Cameron  10:19

Yeah. I mean, I have gotten into the habit of checking the news recently with the buys. I don’t know when I bought SDG, but there you go, I obviously forgot to check the news that day.

Tony  10:29

Or you could just listen to what I say.

Cameron  10:33

I listen, it’s the remembering bit that’s hard, Tony.

Cameron  10:39

I don’t remember anything. How else have I screwed up, or coked up? I should have used that last week, I cocked up on that one. What else have I cocked up on this week, Tony?

Tony  10:39

Ah, right.

Tony  10:52

Nothing, Baldrick.

Cameron  10:56

“I have a cunning plan, Sire…”

Tony  10:58

“I’ll take this turnip…”

Cameron  11:02

“The last time you had a cutting plan, Baldrick, was when your mother’s roof was too low and you decided to chop off her head.”

Tony  11:11

Good old Blackadder. Yeah. So, last thing I had was just to remind people we had a rate rise last week, and for people who are still using my spreadsheet, cell AM31 in the two sheets (the download data sheet and top scorer’s list) needs to be 2.6% now. I did a survey of mortgage rates from the four major banks and they’re now averaging 5.96%. That 5.96 goes into sell AW32 in my spreadsheet to keep it up to date. And that’s all I got except for a pulled pork.

Cameron  11:46

People using the Flitman model can just go to the variables page. Do you want to talk about the TGA consolidation?

Tony  11:55

Yeah, I do. I’ve got it down as a question that’s coming up. I can do it now, if you like?

Cameron  11:59

You can do that later, I just want to make sure we touch on that because it’s had me scratching my head in the last couple of days, too. You want to do your pulled pork?

Tony  12:09

Yeah, I do. And thanks to Ally, thank you Ally, for asking for Best&Less to be investigated. And again, she has a question later on which I’ll go through about whether Best&Less is better than Myer to buy. They’re both on our buy list. People may shop at Best&Less, it’s a value apparel retail, it’s for the price conscious shopper. They have two hundred and fifty stores in Australia and New Zealand. And in New Zealand, a lot of them are called Postie stores, which was a chain I’m familiar with from living there. And this kind of retailer could probably do well in a recession as the market goes more towards the value-oriented end, which was I guess Ally’s question. Something to look at. I want to make a general comment, though, on retailers, especially those that are relisted after private equity ownership. My notes have a big “beware!” in them, because it’s getting to become a well-worn path now — particularly for retailers, but I guess private equity can do this with any sort of company — but private equity bought out Dick Smith from Woolworths, or they bought it maybe after it was spun off from Woolworths, but Dick Smith went broke soon after it went relisted. I’m pretty sure Myer has never been back to its listing price, it was owned by private equity, they bought it off Coles Myer, held it for a couple of years and then relisted it. And Best&Less fits this category. So, it listed in July 2021, and even though it rose above the list price, it’s now back below its IPO listing price slightly. So, there’s a history of private equity owning assets and “fixing them”, I’ll use inverted commas. I mean, their business plan generally is to sell as many assets as they can to load up the company with debt, to cut all the fat out of it, and then find someone to sell it to. They get quite a bit of upside, because they focus on metrics like return on equity — which they know investors are focused on — and after they’ve done their PE magic, their private equity magic, they recycle the asset. That’s telling in itself because, you know, this is capitalism read in tooth and claw. They argue, and anyone could argue, that they’ve done a good job at improving the profitability of the company that trimmed the fat, they sold off assets which are outside of core. If you’re a retailer, why are you, you know, holding property networks? You’re not a property player, you’re a retailer, etc., etc. If they did such a good job with the company, why aren’t they still the owner? And they’ll say, “oh, but we make most of our profits in the first couple of years when we restructure the business.” Yeah, of course. Of course, you do. So, why should I buy it off you? So, buyer beware with these things. It’s a generalisation, doesn’t always happen, but there is a track record here. Private equity, in my humble opinion, is almost the exact opposite of the owner-founders that we’re trying to seek. So, they don’t take long term decisions for the benefit of the company, they tend to do the reverse and try and look for short term hits that they can rip costs out, or fat, and try and position the company to relist.

Cameron  15:21

They’re Gordon Gekko with Teldar Paper.

Tony  15:23

They are. Yeah, exactly.

Cameron  15:25

Strip it and sell what’s left.

Tony  15:28

Yeah. And they’re kind of using the one-up Wall Street mentality against the retail investors, because a lot of people, you know, they’ll see a Myer coming back on and they’ll think, “oh, I should buy that. I shop there, it’s not bad.” So, they buy it. These listings often have a large retail shareholder base, and they’re the ones who aren’t sophisticated enough to dive into the company and look at the numbers. So, buyer beware. However, the caveat with all that foregoing is that what often happens with these retailers, if they survive, is that they actually come on to our buy list like Myer has and like Best&Less has after a while. The share price drops, and management is brought in and stabilises the company, and if they’re good, it becomes a reasonable company to look at. And I think that might be the case for Best&Less. I’ll go through the numbers first and then make some commentary. Not a big company: the ADT for Best&Less is $111,000, so not huge, but big enough, I guess. I’m doing my analysis at $2.43 share price, which was the price on the weekend, which is below the consensus target. I noticed the yield for this company is nearly 9.5%, 9.47%, which is very high. The share price has not quite halved in the last twelve months, possibly a reason for it. But that would indicate to me — even though I think it’s a good thing — it would indicate to me that there’s no growth prospects out there at the moment for this company. So, oftentimes you’ll see a retailer will take cash and return it in the way of dividends rather than make a silly acquisition or invest too much in retail stores if they already have a high market share. So, their growth options are limited. So, that’s potentially the case, however having said that, the consensus forecast is that they’ll get 15% growth next year. So, this possibly is a sweet spot of a company with lots of cash paying a really good dividend and also having growth. So, there are three big ticks. PE is 8.4 and there’s only been two PEs we can use so far, and it is the higher of the two. I think the last half was only about seven, so doesn’t score for that, but that’s still pretty low. Pr/OpCaf is only 3.7 times, so that’s again very low, very attractive. The share price is above IV1 but less than IV2. Interestingly enough, it’s way above book plus 30%, so net equity per share is only 59 cents for this company, and the share price is $2.43. That would suggest to me that as a result of private equity selling assets, there’s not many assets on the balance sheet. So, an issue, but one we may overlook for all the other benefits of this company. Consensus growth is forecast to be 15%, which means on a growth over PE the score is 1.83, and our hurdle is 1.5. So, it’s interesting it’s scoring as a yield stock and as a growth stock, which is great. The yield is obviously higher than bank debt, even though bank debts gone up. But that’s good. And I want to come to the kicker with this one. This is probably the most interesting thing I found about this company: directors holdings are 25%. So, it’s not an owner-founder because the company’s been through private equity hands and relisted, but a chap by the name of Brett Blundy holds 16% of the company. If anyone has worked in retail or knows a bit about retail, Brett Blundy is right up there with the best retailers in Australia. Started off with a group called Sanity, record stores, and basically grew a retail empire from there back in the late 80s, early 90s, I think from memory. So, he’s got a 16% stake, so he sees an upside, and he’s a really experienced retailer. Probably up there in the retail Hall of Fame with people like Solly Lew, Jerry Harvey, the guys who run Reese Plumbing. You run out of names pretty quickly in this sort of pantheon, but Brett Blundy is up there. So, that’s a real positive I think, and it scores because someone on the board has a high shareholding. It also has a new three-point trend upturn and consistently increasing equity. So, I give it a quality score of 94% and a QAV score of o.25. So, well done Ally, it’s one to check out, people.

Cameron  19:42

And what did you say the ADT is on that?

Tony  19:44

$111,000.

Cameron  19:46

Always surprised when I’m looking at Myer, how low it’s ADT is. It’s like $50,000 or something like that.

Tony  19:56

It’s more than that, I think.

Cameron  19:57

Really? It’s not much more, it’s a small cap stock.

Tony  20:00

I had a look because I was comparing them before. I think Myer is about $600,000 from memory.

Cameron  20:05

What? See, I told you my memory is shit.

Tony  20:09

No, I’m wrong too. It’s $862,000.

Cameron  20:12

Really? Well, it’s the other Meyer I’m talking about that has a small ADT. It still makes it a small cap stock, and you know, we use a million ATD as the cutoff between a small and large cap stock, so still a small cap stock. It’s Myer.

Tony  20:31

It is, I agree. Did you see the Fin Review today? The directors wrote to Solly Lew and said, “make an offer for the company rather than creeping up the shares.”

Cameron  20:39

Stop buying stock. Yeah, I did see that, yeah.

Tony  20:41

I thought, “hmm, I hope that’s not an indication of the quality of the board.” That was a very dumb move, I thought. It’s like, “Solly, we don’t like you doing something. We’d rather you do this.” Oh, really?

Cameron  20:58

I didn’t really understand that I was gonna ask you about that one. The other thing I read this morning that I liked was the smartest man in England was out here speaking to the Business Council of Australia or something, and he was trashing Liz Truss and Boris Johnson and the Tories generally having lost the plot, having no clue and how Brexit is ruining the country etc., etc. And he was using Scott Morrison’s secret self-appointments as an indication of how democracy suffered during lockdown.

Tony  21:33

Well, I don’t know if you have to be the smartest man in Britain to point out those things. You could probably take the average person in Britain to point them out, really.

Cameron  21:41

All right, you ready to get into Q&A’s?

Tony  21:43

Yeah, lots of them. Thank you for the questions, everyone, it’s quite on point and quite detailed.

Cameron  21:49

Had a bit of a drought of questions recently, so it’s interesting that when they come, they all come at once. First one is from Kieran: “Hi Cam. I had a question about dividend payments and sell lines. I think I may have misunderstood something Tony has said in previous episodes, but I’ve had a few stocks in the last couple of weeks that were trending down, then went ex-dividend. After going ex-dividend they’ve continued to decline so that they are either below their rule number one sell or their 3PTL even if you add back the dividend to the price. I’ve held on to these in the anticipation that once the dividend is paid, the price would go up. They’d probably still be sells, but the price wouldn’t be so low. Anyway, on several of them the price hasn’t risen after the payment date, and they are declining further. This may be where I’m going wrong. I know that a price will dip when a share goes ex-dividend, but is it usually the case that it then rises once the dividend is paid? If so, why is that? How do we deal with sells in this case? Do we chuck it as soon as the price with the dividend added back crosses our sell line, or hold until the payment date and sell then? Cheers, Kieran.”

Tony  22:56

Oh, well I think we ran through this one last week as well. So, stock goes ex-dividend, price drops, we add back the dividend. So, we restore the price to what it would’ve been like. However, that could still mean in the ensuing period between ex-dividend and when you get the dividend banked with you that the price does keep dropping further. And even if you add the dividend back, it can go below a sell line; either a three-point trendline or a rule one sell. So, you still have to sell it in that case. In the normal course of business, and usually for large cap stocks like the banks or someone like that, they’ll go ex-dividend and by the time they pay it, the share price has recovered from that ex-dividend. But that’s just the rule of thumb, that’s just what’s meant to happen. It doesn’t always work that way. So, they can keep dropping and in a falling market, it’s probably a reasonable chance they’ll keep dropping. So, yes Kieran, add the dividend back until you get it in your bank, and then after if it drops below a sell line, sell it. Don’t forget, too, I meant to say, to add the franking credits as well. And depending on in what structure Kieran owns the stock, the franking credits will have different benefits to him. But generally, you want to add the franking credit back because you will receive something for that; either a tax rebate on your tax return, or if you’re a low marginal taxpayer, like you’re in a superannuation fund, for example, or the shares run in the superannuation fund, you’ll get a good chance of getting a rebate from the government. So, do that too. And the second question is “why do we do this add back until we get the money in the bank?” Well, it’s again, it’s just a rule of thumb. Usually, it takes a little while for that to happen, so we’re giving the share price some grace to recover, to get some buying back in the market. It’s usually a period of weeks before you get the check paid. Sometimes it’s a lot longer than that. But my thinking is that once you’ve got the money and you’re going to redeploy it somewhere else, you can’t really pin it back on the share thay paid the dividend if you use that capital somewhere else to buy another share. It’s having two uses for the same dollar. So, that’s the reason that I do it that way.

Cameron  25:17

Yeah, that was Mark’s question last week. He was saying “I’ve trousered the dividend even after the payment date, should I continue to factor it in?” And you said, “no, you’ve already redeployed it somewhere else, so it’s a different equation now.” Thank you for that. Thank you, Kieran. Josh: “Hi Cam. I have a question around investment prioritisation and risk tolerance. My fiancé and I bought our first home in 2018, and when setting up the loan I opted for a full offset facility to support optionality in the future. We are now in the later-on phase and have the loan essentially fully offset, as I always wanted to do this before pouring a heap of money into an investment account other than my superannuation, which I’ve had maxed to the 25k limit for the last three years. What are your thoughts on potentially taking, say, 100,000 out of this to support building the portfolio faster? I understand that this is clearly a decision focused on personal risk tolerance, however with my rate at around 4.2% which isn’t very high comparative to potential returns, I’d be interested in your views. For context, we’re in our late 20s at the moment with plans to buy a bigger home in a year or so. I also have the option to refinance the house and pull equity out of it thanks to appreciation since 2018. Is this something to consider, or is it along the lines of TK’s previous warning around margin investing, etc? TLDR. What are your thoughts around pulling money out of home loan offset accounts versus simply accumulating the funds over time? Is this similar to margin investing, or does it make sense to carry some interest expenses based on expected market returns for 2022 onwards? I realise that QAV is primarily stock market focused, but I feel this is probably a question many people have when looking at sorting/finding that entry capital to start investing and justifying the costs of research/learning as a function of total portfolio value. Thanks, Josh.”

Tony  27:16

Thanks, Josh. This one’s bordering on specific financial advice, so I’m going to just talk around my experiences and general frameworks for investing rather than giving Josh a written plan as to what he should do, because that would be illegal and I don’t want to close the podcast for Josh’s question, or my answer the Josh’s question.

Cameron  27:35

If they change the AFL sell laws as they’re talking about, we don’t even need an AFSL. But we’ll see what happens. Of course, Josh, you should see your financial planner and discuss it with them. A licenced financial planner first, Josh. Now Tony’s gonna talk to you about basic principles.

Tony  27:51

Yeah, general financial advice. So, I mean, the first thing Josh is we’re capital allocators as investors. Even if we’re running a business or a household, it always makes sense to put money where it gets the best return. That’s kind of the rule one of investing. All of the investments you’ve talked about here are about whether you should be using an offset account to reduce the interest on your home, whether you should be investing in the market, whether you should be refinancing to invest in the market, there are all kinds of secondary things. The first thing is to work out where to put the money, where you want to invest. And in the long term, the two horses that win in the Australian context, anyway, are residential property and the share market. So, that’s your starting point, and you’ve done one of them, so you want to consider doing the other one. And what I mean by that is an index fund in the Australian market over the long term gets around 10%, and residential property gets around 10%. Sometimes one gets 12, one gets 8, but you know, they’re generally on average the best places to park your money. So, that’s the first thing to note. The second thing to note is if you’re doing things like putting money into an offset account, you’re comparing the return that you’re getting from not paying interest against using that money somewhere else. So, whether it’s an index fund in the share market, or whether it’s property — and both of those two examples are getting over the long term 10% whereas you’re paying around maybe 6% in this market if you refinance — it makes sense to draw down and reinvest or to refinance and reinvest. So, they’re the general principles, because you can make more money in the long term from investing it somewhere else more than you’re saving by having money in an offset account to offset payment of your mortgage. So, they’re the kinds of basic principles. I did also want to touch on Super, you were talking about contributions to Super, and standard financial advice says to contribute to Super. I have from time to time contributed to Super, but it’s not my prime consideration. And I’ll make a couple of specific comments about Super: it’s a great tax advantaged way to hold your investments, but there are a couple of drawbacks. One; you have to live until you get to retirement age to get the benefit of those investments and the tax advantages that go with those investments, and two; if you’re not setting up an SMSF fund, you’re tied into having someone manage those funds for you. And three; it’s a one-way street. The money’s in there, so you can’t get it back except for exceptional circumstances. I know they allowed withdrawals during COVID, which was exceptionally, and if you’re very, very sick, you can withdraw from Super as well. So, there are some ways to do it. But basically, you’re stuffing money in without being able to take it out. So, you can’t take it out for a deposit on a house, you can’t take it out if your spouse gets sick or your child gets sick, it’s stuck in there. You can’t take it out if you’ve had a fantastic insight into where to invest, it’s all in the Superfund. One of the comments I will make again in general about the position as explained by Josh is he’s fairly young, and standard financial advice would be to go for a high growth investing option. I’ll make a general comment that if you look at the high growth options in managed Super accounts, and they generally have a whole suite of options because they’re trying to give people at different stages in their life the chance to have a high growth option so they can take risks, and if they stumble, they’ve got time to recover, versus someone who’s my age who’s getting close to needing to take a retirement pension out of the Superfund and I may not want to take those risks, I want to preserve the capital. So low growth and high growth and everything in between. In general, the high growth option in a Super fund isn’t much better than an index fund. So, sometimes they’ll get 11 or 12% versus 10% in the market, and sometimes they’ll underperform the market. And one of the reasons for that is they…

Cameron  31:48

Suck at their jobs.

Tony  31:53

I’ve said this time and time again, if you’re not financially literate and don’t want to do it yourself, investing is easy: buy an index fund, buy a house to live in so you don’t have to pay rent in your old age, pay off the mortgage, buy an index funds. So, you’re getting 10% over the long-term without having to do anything. The Superfund, on the other hand, is having all these kinds of comparisons made every quarter, every half, every twelve months with other super funds, and therefore they kind of concentrate on doing the same things. Generally, that same thing is to have asset allocators who say you should have a certain amount in bonds, a certain amount in commercial property, a certain amount in shares, etc., etc. Commodities, private equity, unlisted infrastructure, all those things. They just juggle the percentages that they allocate to each of those things for a high growth fund compared to a risk averse fund, a low-risk fund. But they still have those different allocations. Now, to me, that’s just adding expense to getting your return, which is not much better than an index fund, and sometimes worse than an index fund, so what’s the point? So, Josh is right to then say, “okay, I’ve got money in property, I want to get money in the share market because that’s another another investment category that provides a good return. If I’ve got money in property earning 10%, then why should I just go and buy an index fund?” So, that says to me, Josh is right. So, that says to me why put more money into Super, because you’re going to get index-like returns from the high growth option in Super. So, the only reason that Josh is considering his investments, and he’s doing this correctly, is because he thinks he can get better than the index, which I know from experience you can do. So, if that becomes the highest return available, and Josh feels comfortable that he can manage that investment process himself, and he feels comfortable with a process like QAV or something else he’s comfortable with, and he’s maybe done his learning and dipped his toe in the water and all that, then that’s the highest return. So, that’s where most of the investment funds should go. So, whether you do it quickly, slowly, whether you learn first — you should learn first — whether you do it all at once, they’re issues that come down to Josh’s risk tolerance, as he said, but he should be doing it if he feels comfortable, he can get better than the index. And that means he shouldn’t necessarily be putting money into Super, shouldn’t be paying off the mortgage, but should be putting money into managing his own investments if he thinks he can return more than the index. So, that’s my kind of guidelines for Josh. A couple of other specific things are he’s talked about when he should refinance given the state of the market, etc., etc. It’s always a tricky question, because no one, even the smartest man in Britain as you were talking about before, no one knows whether we’re at the edge of a precipice and the markets going to go into the doldrums for the next ten years, or whether we are at the start of the next boom; we just don’t know. So, again, my general advice to people is the markets been down for a little while now. It may have further to go, but it may also turn. So, now’s the time if you are thinking about refinancing to start to explore that, so that when the market turns and you want to get back into the market quickly, you can. You don’t have to draw down on those borrowings, you don’t have to incur extra interest in the meantime. It’s not a bad time to start doing that. I don’t think it’s a good time to margin loan, the markets going down. You could be called, whereas with a residential property loan you can’t be called; that’s a big difference. And the other point I’ll make is, depending on how the mortgage is structured in the refinancing, I would steer Josh or anybody who wants to refinance and borrow against their home, as I did many times, to look for an interest only loan and to look for an overdraft facility. So, what I mean by that is they’re not principal on interest loans, you’re not tied in up with the bank for the next forty years — which wouldn’t be a problem for Josh, but it will be a problem for some people — and because our investment process is lumpy, we often sell things and we might go to cash, you can pay off the overdraft and that reduces your mortgage repayments and you can draw down at any time and put that money back into work. So, it’s a revolving line of credit. I think that’s the best option. So, things like offset facilities and redraws I think are second-best options, but I know interest only is hard to get, so they might be best options out there for people. So certainly, its war whether you can get an interest only loan and an overdraft facility, Josh. I think that’s probably it. Josh made a comment about what he should be doing based on expected market returns for 2022 and onwards. I’d, apart from a very broad-brush approach like saying we’re in a downturn and one day it will be in so if you’re going to refinance, have it set up, get it ready to go so that when it does turn, you’re ready. You may not need it for a while, but it’s there. I’ve got no idea what the expected market returns are for 2022 or 2023, all I know is over the long term, they’ll be good. I think that’s probably all I want to say to Josh. The key points are put the money where you get the best return, which means the share market and doing it yourself, but only if you’re financially literate and feel that you’re comfortable with a process which will get you better than index returns. And then, anything with a with tax consequences will take care of themselves in a manner of speaking, and don’t forget, tax incentives are there to get you to do something which on the face of it isn’t a good thing to do. So, you pay less tax in a Superfund because why would you tie your money up for the next thirty or forty years, or forty-five years instead of having access to it at call. Or if you put it into a property with the ability to refinance and redraw. So, never do anything for the primary reason of a tax benefit, but it is a consideration; just like investing in property is a consideration, or a secondary consideration of investing in property is you can borrow against it and put it into other investments. And the last point, too, when you’re doing that Josh, is the mortgage can be deductible depending on how you’ve structured things and what you’re using the money for. So, if you refinance against your house and you take that money and put it straight into the share market, then you can make a case in your tax return to say that the interest payments for that mortgage are tax deductible because you’ve used them for investment. So, that’s another consideration. So, even though Josh says he has a low rate — and, really, even at 6% we are still at the low end of rates in the history of investing. So, if you then have them, if Josh is on the highest marginal tax rate, instead of paying 6% for mortgage bills, he’s paying 6 and then getting 3% back because he’s on the top marginal rate — nearly 3% back — it’s cheap money. Even if you can get 10% in the market, it’s still worth setting things up to invest; whether it’s in property or whether it’s an index fund or whether you do it yourself, it’s equivalent at least to putting it into your own residential property. But because it’s an investment, you’re also getting a tax benefit of negatively gearing. So, there is a slight benefit in doing what Josh is suggesting compared to buying a bigger house for him to live in.

Cameron  39:09

All right, thank you, Tony. Thank you, Josh. Doug is up next, I think. KT Kitson posted on our Facebook group an article from Markets Today called “How to use Renko chart for stop-loss.” Doug asked, “in this article, it outlines a nice 2% capital loss/risk rule. This also seems similar to a Colin Nicholson type rule that I can’t remember, but also determines position size based on risk. So, my question is, have you tested or considered these types of rules compared to the 10% rule one loss?”

Tony  39:46

Yes. I can’t remember all the details because this is back twenty years ago, but yes. One of the things I investigated coming out of the GFC in trying to do investing better was Colin Nicholson’s approach. I have huge respect for Colin Nicholson, he was a forerunner of what we’re doing now, and was a great guide to retail share investors. From memory, what he did was if he was going to buy a share, he’d work out what his stop loss was, so the equivalent of our three-point trendline sells. I forget now what he used, he may have used the moving average to do that, but I could be wrong there. Anyway, he’d work it out, he’d take the stop loss away from the share price, work out what that percentage was — so what percentage of the share price the stop loss was — and then work out what percentage of his portfolio if he lost that, if he bought the shares at that price and they went through the stop loss, he would only lose 2%. So, it’s basically the difference between the share price and his stop loss, times 2%, times his portfolio, and that gave him his position size. The drawbacks I saw in that were you can have a very large portfolio because that calculation, particularly if the stop loss was close to the share price, then you’re buying a larger proportion, but I could have that wrong. But anyway, when I ran through all those calculations, you could get up to a forty or fifty share portfolio doing that, which was just too big and index-like for me. In terms of our lingo, I guess, if you tried to apply a similar sort of thing to what we do, it means that you’d have smaller proportions to purchases for stocks that had a big gap between their share price and their three-point trendline, like the coal stocks do today, for example. If you are forced to stop out the share price, under Collins thinking, that should only be a 2% loss on the portfolio. So, you’re therefore holding a small position because it’s a big drop, if that makes sense. That means the corollary is if you’re buying stocks which are close to their three-point trend line, their sell-line, you’re buying very large positions. So, there could also be an element of churn. We’ve seen in the past, too, that if you buy a stock which is a couple of cents above its sell line, you can be selling it quick. But under Collin’s rules, that small drop in the share price, if it gets multiplied out to be 2% of the portfolio, it would be a large purchase in that kind of scenario.

Cameron  42:18

Well, the Markets Today terminology or description of this sounds slightly different to me, though, sounds more like our 10% rule. It says “position sizing is done by working out how much money you’re prepared to lose on one trade. The very common way to do this is to use what is called the 2% rule. This is a rule which dictates that you cannot lose more than 2% of your capital on one trade, and you set a stop loss to control that.” So, I’m assuming that means if I buy BHP in one trade, I’ll want a stop loss of 2%, equal to 2% of that trade.

Tony  42:56

Yeah, sure. I’m not sure about Marcus Hadley’s methodology, but Colin Nicholson’s one was to work out your stop loss first and then work out what position size would give you a 2% loss if you ran through that stop loss.

Cameron  43:09

Marcus does say that the traders put less money into risky stocks and in doing so limit their exposure to risk when he’s talking about position sizing, but I guess I think one of Doug’s questions, certainly my question is, if you leave aside Colin Nicholson’s approach and just take the same approach as our 10% for rule number one, if we replace 10% with 2% for rule number one, I imagine first up that would create a shit tonne of volatility. People complain about the 10% volatility, with 2% we’d be selling stocks constantly. But is there some upside in lowering that stop loss or increasing it depending on how you’re looking at it? Changing it from 10% to 2%, any upside in that, that you can, see? I guess you lose less money.

Tony  43:57

Not in the rule one rules. You do lose this money, but I think you’d be trading a lot more than what we do now. And we’re trading a lot this year, so I don’t think so. But you know, having said that, 10% and 2% are just numbers picked out of the air. I haven’t done the research to say what the optimal percentage is, I’ve just always used 10%. And the reason I use 10% was because I was offered a hedging strategy by the ANZ Bank at one stage, which would cost about 10% to do, and would stop the portfolio falling more than about 10%. So, it’s kind of a zero-sum game, but I thought, “well, if I just sell out when something drops 10%, I get the same thing for free.” So, that was my thinking around that.

Cameron  44:40

So, your 10% is just sort of arbitrary.

Tony  44:43

It is, yeah.

Cameron  44:44

Okay.

Tony  44:45

But look, I mean, for Doug, for KT…

Cameron  44:49

KT Kitson, yeah.

Tony  44:52

Please explore these further. Have a look at them and let us know if there’s some tweaks we can make to improve.

Cameron  45:00

Well, Alex replied to this thread as well. He said, “I’ve asked about this based on the van Tharp position sizing approach. I believe the response from TK was to test it and see how it performs relative to a fixed position size approach. Check out Brett Sweeney’s posts on July 1 and comments. You can find it by searching the group for ‘Van Tharp’ or ‘R multiples’.” I don’t remember that. Do you remember the van Tharp thing? Are you familiar with Van Tharp?

Tony  45:30

I don’t, sorry.

Cameron  45:33

That’s a heavy metal band out of LA before Van Halen, never really caught on.

Tony  45:37

Eddy van Tharp was on guitar, I think, from memory.

Cameron  45:41

That’s right. So, no comments on van Tharp position size upraising?

Tony  45:45

I’d have to take it offline. I’m not familiar with them, sorry.

Cameron  45:48

Sorry, Alex. We’ll come back to that.

Tony  45:50

Hang on. Sorry, you’ve skipped over Ally’s question about Beat&Less and Myer.

Cameron  45:54

I thought you already handled that with your BST pulled pork.

Tony  45:57

Okay. I did. Myer is higher on the buy list compared to BST, and Ally wanted to know whether she’s better off skipping down to BST to buy in. But look, I think it’s up to Ally, I’ve got no idea whether Myer will do better than BST. Myer is slightly more upmarket and Best&Less, so if we are going to go into recession Best&Less may do better. But there are so many other things at play, it’s pretty hard to separate them, really. So, if you feel like it, Ally, go for it.

Cameron  46:26

Okay, thanks, Ally. Now we’ve got Luke’s TGA question: “Can you ask TK to explain the TGA share consolidation scenario? How it works, why do they do it. what should I have done, etc.? I saw the price yesterday after it already dropped and hadn’t seen announcements, so was shocked. Then I saw the CFO left suddenly and was about to sell on bad news. Luckily, I read through more announcements and saw this consolidation before selling. Thanks.” Yeah, somebody emailed me on the day that the share price dropped 16% and said, “what’s going on?” And I was like, “I don’t know.” I went and looked at announcements, and there was nothing really on the day in Stock Doctor or in the news, but then I dug back a little bit and found they were talking about potentially doing a consolidation. I think it had to go through an AGM, that and the capital return or whatever it was, but it was very confusing on the day. And then still reading through the documents, I’m not exactly sure when this capital return is supposed to hit my account. I think it’s the 14th of October, but it’s been very hard to piece together.

Tony  47:38

That’s how I read it, too.

Cameron  47:39

Oh, okay. It’s no clearer to you?

Tony  47:42

I think it’s the same. I’ve read it the same way, too, but couldn’t be categorically sure about it. There’s been a lot going on with this company, so let me step through it. A little while ago they sold off a large part of their business which they call their consumer finance business. I think they sold it to Credit Corp from memory, because this Thorn Group is the old radio rentals, which, when I was a kid, some people in the neighbourhood would rent a television set — especially when colour TVs came in — and after a certain period of time, like two years, they could buy up the rest of their contract. In the short term you’d get a colour TV set. You paid a lot more than what you’d pay if you went up front and bought it.

Cameron  48:01

When I was seventeen/eighteen, early on when I moved to Melbourne, probably eighteen, I rented a big stereo. Like, the full stack thing with the turntable and the CD player, CD stacker, actually, it had in it. Like, a twenty CD stacker. The thing sat in my bedroom in the house that I was renting a room from. I ended up handing it back when I went broke. I think I lost my job and, you know, I had to hand it back and it was stupid. Really stupid shit.

Tony  48:52

Yeah, it is. Yeah. And I don’t think they do that business anymore, but they do some kind of financing arrangements still. I think the business with Latitude — it was called GE, now Latitude — and companies like Harvey Norman where you can get five years interest free, made the business a bit different. I think Thorn Group kind of morphed into something more like that. Anyway, they sold off that part of the business, at least the financing side to Credit Corp. They still have an operating business left, but they’re going through a bit of a restructure. Kinda like Sunland, where they’ve had a sale of a major part of their business, they’re returning capital back to their investors, and so that’s got to be taken into account. And eventually they’ll find a floor where whatever is left gets to its true value, when you stop returning capital. So, we’re on that path at the moment. Perhaps at the end of it, it’s hard to know from their alerts at what stage we’re at, but they have returned a lot of capital already. But the share price has been dropping, so people are taking the capital and banking it and then analysing the business and saying, “well that asset has been sold, so it’s worth less.” So, the price has been rating down. So, running through a few key points recently, and I think the most important one from what Luke has said is the CFO leaving. I looked at that announcement, very simple announcement, couldn’t see any succession plan, couldn’t see any replacement announced.

Cameron  50:17

It was a very dubious announcement, wasn’t it?

Tony  50:19

Well, looks like it.

Cameron  50:20

It just said CFO has finished his employment. That was it. Like, one line.

Tony  50:28

Elvis has left the building. Yeah, no, I agree. That would be a red flag for me. Now, we could find out more because this company isn’t great at communicating and it’s a small cap company, so we’re not going to get much press coverage or analyst coverage, but that was a red flag for me. So, that’s the first thing. In terms of capital returns and consolidations, you’re right, Cam, there was an AGM recently which approved both of those two things. And the share price has consolidated by basically a factor of ten. I think the psychology behind this is the board has said, “we keep returning capital, we’re coming off a low share price anyway, we don’t want to get down to pennies, a few cents, so let’s multiply everything by ten times and suddenly be worth $1.70 rather than 17 cents.” So, that’s probably the reason why they did that. I’m pretty sure it’s reflected correctly in Stock Doctor, but we’ve had problems before with the Brettelator on these issues. And so, if you look at the share graph in the Brettelator, it kind of falls off a cliff and the share price consolidates because it’s still using 17 cents as the current share price. So, be careful with that, we know we have problems with the data feed from Google Finance, wherever they get their data from, a) with consolidations that can take a while to come through, and then they may not go back and retroactively fit the old price to the consolidation. Whereas, Stock Doctor they do that, you get you get a consistent share price all the way through. So, in other words, the share price has been multiplied by ten throughout its history as well. So, that’s the first thing to note. So, you’ll need to use Stock Doctor or Yahoo Finance or some other data source to work out your sell line for this one. That’s the first thing. The second thing is the capital return, as you say, has happened. I think it hits the bank accounts in four- or five-days’ time. I’m not exactly sure about that because I couldn’t tell whether that was the ex-date or whether that was the payment date. They do say payment date, but not with any conviction in my opinion. So, I’m assuming you get the money, which is 12 cents a share in the old, then go dollar 20 in the current post consolidation calculation. So, you need to add back a lot. The current share price is $1.65. The Brettelator has a sell price of $2.56, which I think looks correct. I think the sell price looks correct, it’s the current price which looks wrong. I did a calculation in Stock Doctor, and I got $2.55 I think, so it’s about the same. And if you add the $1.65, add back the $1.20, you’re getting $2.85. So, it’s not a sell but it probably will be in a couple of days once you’ve banked that $1.20 capital return, stop adding it back to the share price,

Cameron  53:12

$1.20 per share and not 12 cents per share when it comes through?

Tony  53:15

I did some analysis today and I’m not that familiar with the stock, but I think they announced that it was 12 cents a share before the consolidation, and now the consolidation has happened it’ll come at a $1.20 is my thinking on that.

Cameron  53:22

Right. So, it’ll be $1.20 based on the number of shares you own post consolidation instead of 12 cents based on the number of shares you had pre consolidation. But it’s all the same thing, right?

Tony  53:39

Same dollar amount, yeah. So, I think it’s a sell because of the red flag of the CFO leaving.

Cameron  53:45

Really?

Tony  53:46

Well yeah. Guy left, no replacement, no announcement. It doesn’t look good. I think it’s gonna be a sell in a few days’ time anyway once you stop adding back the capital return. It’s a bit like Sunland group, right? They’re selling assets, returning the money to shareholders so the share price rerates down. It’s going to keep going down until it gets to a fair value for what’s left in the business. That maybe now, again, I couldn’t tell whether they still had more capital to return or not.

Cameron  54:11

You know, maybe they fired the CFO because of the shoddy job he did putting together these documents. No one can understand them.

Tony  54:19

Or the reverse. “Come on. Can you make them more complicated? What’s wrong with you?”

Cameron  54:27

Okay, so I have to sell TGA out of our portfolios now.

Tony  54:30

Yeah, I think so.

Cameron  54:31

God dammit. All right. Well, thank you for that. Alice says two questions. First question, “can you please clarify what the main commodity is for S32. What is aluminium value chain and metallurgical coal?” Well, I know metallurgical coal is the coal they use to make metal with, like coking coal from last week. It’s the same thing, right?

Tony  54:53

Correct, yeah.

Cameron  54:54

Versus thermal coal that you use to, you know, cook and run a power plant with. But aluminium value chain is, I mean, I know what a value chain is, and I know what aluminium is. Is there something I’m missing here?

Tony  55:07

I’ve always looked at South 32 as an aluminium commodity producer and a coking coal producer.

Cameron  55:14

Right. Does Stock Doctor have a breakdown?

Tony  55:18

No, I went back to their latest results.

Cameron  55:23

I think Alice posted a screenshot of a chart from their annual results as well.

Tony  55:29

Yeah, so those two metals are their biggest investments. And from memory, they’re both still either Josephine’s or sells.

Cameron  55:36

Well, I know coking coal is because of SMR. Although, apparently, SMR is doing great.

Tony  55:44

I saw an article in the Fin Review today that the Chinese have been on holiday for a week and then when the market reopened all coal futures have jumped today. That’s probably why you saw an uptake in both thermal and coking. Well, thermal coal is going gangbusters. I’m not sure about coking coal.

Cameron  56:01

Every article I’ve read about China’s economy recently has been like, “they’re screwed. That’s it. It’s all over.” Its smoke and mirrors, it’s all going to collapse like Japan in the 80s. But I don’t know, we’ll see.

Tony  56:15

I’ve heard that for about the last ten-fifteen years.

Cameron  56:18

Yeah, exactly. It’s the constant narrative. “China’s collapsing, China’s going to fail”. At the same time, “we have to do everything we can to defeat China because they’re the world’s powerhouse.” If we’re talking about the business success, their economic success, they’re capitalist China; and if they fly a jet over Taiwan, it’s “the communists, the communists are coming for Taiwan.” If it’s business, if it’s the economy, they’re all capitalists. It’s a bit of both. Alice’s second question, “if I have a capital of $40,000, I usually buy twenty stocks at $2,000 each. In this turbulent market, I might rule one five stocks in a week. This reduces the parcel down to $1,800 because of the 10% rule number one. Do I buy the next parcel at a value of $1,800, or $2,000?”

Tony  57:10

$1,800.

Cameron  57:12

Because we want to have equal capital invested across the board.

Tony  57:16

Well, it won’t be equal because Alice has bought some stocks at $2,000 and then she will buy some more at $1,800, but she’ll have twenty stocks. If she wants to increase the next purchase back up to $2,000, she can probably only fit four stocks in. She’ll have some leftover, in which case, she’ll have nineteen stocks plus cash. The basic rule of thumb is sell one thing, buy one thing. There are some exceptions to that rule, like if we go to cash, which we’ve done, and if we’ve still got some shares in the portfolio and we’ve sold something, we will just wipe the board and try and buy equal weightings to get back up to twenty stocks again with cash. We won’t say, “oh, I sold Fortescue Metals group with this parcel, so I’ve got to buy another parcel at that amount.” But yeah, generally, sell something, buy something.

Cameron  58:02

But okay, let’s say you buy your twenty stocks at $2,000; you rule one a stock, it goes down by 10%, but then you have another stock that goes up by 10%, but you have to sell it because it breaches it’s 3PTL. So, then you’ve got to buy two stocks to replace those two stocks, but you’ve got $4,000 in capital there now, so do you spend $2,000 on each?

Tony  58:32

You can, yeah. Is that likely to happen?

Cameron  58:35

If I stand on one leg, then the wind changes…

Tony  58:38

Yeah. Generally, I don’t. I mean, Alice is suggesting she sold five in a week. That’s a bad week, but it can happen. Well, it’s the same thing, really. She’ll have five times $1,800, so she divides it by fives and buys five stocks. It’s the same as saying “I sold one for $1,800 and I’m buying one for $1,800.”

Cameron  58:59

But what if your other fifteen stocks have gone up by 10% each. They’re still in your portfolio, you want to have a relatively equal amount of capital spread across each of your stocks, right? So, as the other ones go up in value, you want to make sure that the parcels of the new stocks you buy are roughly equal to the average value of the parcels of what you currently hold.

Tony  59:22

That’s a valid argument. That could lead to having too few stocks in the portfolio, which might suit Alice. I’m not too worried about the number of stocks I have in the portfolio dropping, because I’ve seen that I can handle the fluctuation and I’ve seen it all before. But if you’re keeping it above at least fifteen it can sort of smooth out a little bit. So, if you do what you say, so say for example she has two Michael Jordan’s in the portfolio and they’re up 50 or 100%, and then she says “okay, the next position I’m gonna buy is going to be my average waiting.” You’re not going to buy twenty stocks, you’re gonna buy less than that. If it happens again, you’re gonna buy less and less and less because those two Michael Jordan’s pull the average up. So, be careful of that.

Cameron  1:00:04

Might be why the dummy portfolio only has thirteen stocks in it.

Tony  1:00:08

Well, it could be, yeah.

Cameron  1:00:11

I keep averaging out the size of the parcels and then trying to buy that much of the next stock, and we’ve run out of capital, but we only have… I can’t remember the total, I think it’s maybe a few more than thirteen, like sixteen or something, but we’ve run out of money. There’re a few double positions in there, too.

Tony  1:00:30

Yeah, we should be trying to keep above fifteen.

Cameron  1:00:33

Okay, thank you, Alice. Good question. Jackie: “doing a deep dive into SDG last night,” well, we already… “would you not buy it on this basis?” Yes. There you go, Jackie.

Tony  1:00:45

Does no one listen to my pulled porks? Should I just not do anymore pulled porks? Good work, though, Jackie, for picking it up.

Cameron  1:00:55

We have tiny little brains, Tony, and we’re managing very full lives.

Tony  1:00:59

Don’t speak for Jackie, I’m sure Jackie’s got a big brain.

Cameron  1:01:02

I’m talking about myself. I’m learning Italian, learning Kung Fu. I can’t remember everything you say, Tony. That’s why I take notes. I just need to check my notes. Sam, last question. Speaking about Michael Jordan. “Just wondering if you can have a look at the coal sell line. I’m using the trading economics website for commodity pricing, and the coal price curve is so high that it becomes very difficult to draw a sell line that is not giving away a huge amount of value. I know the view needs to be long term, but I’d be interested in the group’s view on this and how to handle the future price variations, as there will always be some, and perhaps TK’s view on it, too. I think we had to fudge the iron ore last year to have a sell line protecting the portfolio. Even Michael Jordan needs a break sometimes.” Yeah, that’s why he went to baseball. Isn’t this the Renko charts?

Tony  1:01:55

It is, yep.

Cameron  1:01:55

Sam hasn’t been listening the last few weeks.

Tony  1:01:58

He’s busy.

Cameron  1:01:58

Come on, Sam. He speaks French already. He is French. Okay. Yeah.

Tony  1:02:06

So, I had a look at the coal chart, and you’re right. It’s a long way above itself sell price, it’s probably about double. But we’re drawing the sell line based on the last two years’ worth of data. So, I’d be loath to take monthly data for anything less than that, because you’re going to have lots of fluctuations in our buys and sells. You can look at the coal price chart and it goes up steeply about a year ago, comes back again, then goes up steeply again. So, I mean, you could always sell and buy I guess, on that first dip, but I would rather hang on for as long as possible. So, yeah, my solution is to investigate Renko charts, check out bar chart. The only Renko chart I can find for coal is for coal futures, but that’s still certainly going up. So, I think that’s going to be the solution in this case, but we’ll still keep investigating it. If anyone can find a Renko chart for coal that’s the commodity rather than a future contract for it, that would be helpful. I couldn’t find one when I had a look today. And I’m still doing work on Renko charts, so I’m kind of throwing this out there as a potential solution to these stocks and commodities which are way above their sell lines, but I still haven’t got the rules nutted out yet. So, for example, Brett and I were talking about when do you sell? Do you sell when you get the first stage of a red box on the Renko chart, or do you wait for a full red box and at the start of the second red box, you know it’s a trend and you sell? So, you know, there’s still a fair bit of experience we need to go through.

Cameron  1:03:42

So bottom line is, “yeah.”

Tony  1:03:46

Well, bottom line is until we find something better, which I think could be Renko charts, I’m sticking with the sell line where it is. It’s already a two-year graph period that we’re using, and, you know, it’s twenty-four graph points, so if we make it a one year chart, for example, it’s getting a bit silly to do monthly graphs over a short time period trying to draw a line.

Cameron  1:04:08

So, Renko is still under investigation as possibly an alternative method for these commodity stocks. But in the meantime, we stick with the 3PTL for the commodity, and for individual stocks, rule one and 3PTL, etc., until further notice.

Tony  1:04:25

Yeah, correct.

Cameron  1:04:27

Thank you, TK. Thank you, Sam.

Tony  1:04:28

Amazing questions this week.

Cameron  1:04:30

Yeah, good job people with the questions. That’s a full lid for the questions. After hours, Tony, what have you been up to?…

Cameron  1:14:41

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