Cameron  00:06

Welcome back to QAV. This is episode 542, TK. We’re recording this Tuesday the 25th of October 1:46pm Brisbane time, 2:46 In the more advanced states.

Tony  00:25

Doesn’t feel that advanced at the moment. We’re underwater. It’s just incredible weather.

Cameron  00:29

I don’t know how your farmers survive with daylight savings in place. We can’t do it in Queensland. It’s impossible. How are you, TK?

Tony  00:40

Yeah, good. Well, you don’t need daylight saving with the farmers in Queensland, just do the southeast corner so everyone can stop frigging around about whether it’s an hour earlier or an hour later when they call people in Brisbane or the Gold Coast.

Cameron  00:52

Yeah. Okay. So, we should just have two different time zones in the state. That’s your solution to make things easier?

Tony  00:58

Yeah. Because no one calls anyone north of Gimpy do they, really?

Cameron  01:04

Oh, you’re including that much of the southeast corner. Okay. Yeah.

Tony  01:09

Might be the first stage towards a split for the whole of Queensland.

Cameron  01:14

Well, big news this week, Tony, I wanted to share with you and all the listeners. Fox has a podcast, so there you go.

Tony  01:23

What’s it called? Foot in the wall? Foot through the wall?

Cameron  01:26

No, that’s just what he does if I don’t upload his podcasts for him quickly enough. It’s called The Fox and the Furious.

Tony  01:35

That’s a great name.

Cameron  01:36

Yeah, well, it’s not altogether his idea. When we were in Phoenix, he and his cousins made a home movie that they called The Fox and the Furious where Fox was a superhero and was beating them up. So, anyway, he started his own podcast, and as eagle eyed listeners will know the story, QAV came out of a podcast my adult sons, Hunter and Taylor, did when they were eighteen or nineteen and they interviewed you and you talked about your investing methodology. I heard it and I was like, “holy shit. We should do a podcast about that.” So, who knows what I’m gonna learn from listening to Fox’s podcast. Mostly at the moment it’s about Minecraft and his friends at school, but, you know, something of an opportunity may come out of it. You never know. I’ve learned not to dismiss my children having podcasts, it can lead to good things.

Tony  02:30

Well, he obviously needs a few interview subjects for his podcast, though.

Cameron  02:35

That would be interesting. Yeah, you should go on as a guest on Fox’s podcast. Have a chat about investing for eight-year-olds. He can talk about his investing portfolio, or everything he knows about investing.

Tony  02:47


Cameron  02:47

All right. Well, onto stock related stuff. Commodity status. Platinum now a buy, aluminium now a sell. Don’t think we own any aluminium stocks, so that wasn’t really a problem. But I did add ZIM to one of the portfolios yesterday. I couldn’t remember, we’ve had a lot of conversations in the past; is ZIM a platinum stock or is it something else? I went back and looked through my notes and decided it was probably platinum enough. I think they also mine palladium.

Tony  03:16

Yeah, that’s right. Have you checked the palladium graph.

Cameron  03:19

No. That was too much work. I just decided it was good enough.

Tony  03:24

Fair enough. Keep it simple.

Cameron  03:26

I think we did decide it was a platinum stock last time, didn’t we? Do you remember? You remember everything.

Tony  03:31

No, I don’t. I don’t remember. I don’t remember everything, and I don’t remember deciding what ZIM was. But I remember talking about having palladium, because platinum was in a sell position, but ZIM was going up and we couldn’t work out why.

Cameron  03:43

Well, it went down after I added it to the portfolio. Unlike SMR, which is up 30% since I added it by mistake to the portfolio a few weeks ago. You win some, you lose some in this game.

Tony  04:01


Cameron  04:02

Any other commodities that we need to talk about, Tony?

Tony  04:06

I did have something to say about commodities. And people should check out the scorecard that has the list of commodities in their state in terms of three-point trend lines. No, the only thing I wanted to talk about was natural gas, and that’s in response to a question later on. But I did notice the scorecard didn’t have natural gas on it, so we should add natural gas to the scorecard, to our list of commodities.

Cameron  04:29

Is there a Stock Doctor chart for natural gas?

Tony  04:32

There is, but it looks like it’s tracking the US price, and the US price is a lot worse than the Asian price, which is the one that’s more appropriate to us. So, the Asian graph, I got mine off — what’s it called, Fred? The Fed St. Louis site which is a commodities site tracks almost all the commodities in the world and Asian natural gas. And I guess just for people if you’re unsure what commodity to do, because, as we’re just saying, you know, there’s different types of oil, different types of natural gas and various other things as well, in the case of natural gas, and this is indicative of what to do, I went to the Woodside results presentation. Almost all of these companies will include a graph telling you what they benchmark or where they sell their product and what they benchmark against. So, in the Woodside presentation, they were talking about the Asian spot price.

Cameron  05:28

So, I’m on Fred now. Is this global price of LNG, Asia?

Tony  05:34

Yeah, that’s the one.

Cameron  05:36

All right, I will add that to the weekly buy list where we track the commodities. So, seeing as we’re talking about it, let’s get it out of the way. What’s your position on LNG? It looks like it’s a buy.

Tony  05:52

Yeah, so the chart on the Fed for Asian LNG is a very strong buy. It’s shooting almost straight up.

Cameron  05:58

Yeah. Okay.

Tony  06:00

And that’s certainly been what’s been reported in the press over the last six to nine months since the Ukrainian war started.

Cameron  06:07

Right. People need their gas.

Tony  06:09

Yeah, I can’t explain why the US version of the gas chart is not doing that, but certainly the Asian ones been going gangbusters.

Cameron  06:18

Okay. If anyone can explain that, let us know. What else have we got? Portfolio update. Well, it’s been a crazy week on the All Ordinaries, Tony. It’s up and down like my waistline before and after my birthday. Came down, but then it was back up again last couple of days. Got any analysis on why the All Ordinaries can’t decide if it’s up a hundred points or down a hundred points on any given day?

Tony  06:48

Maybe it had a birthday?

Cameron  06:49


Tony  06:52

God no. Well, again, it’s forecasting. Everyone’s trying to second guess the Fed, the Reserve Bank. So, it’s like, people come out with reports saying the Fed in the US is getting close to its target, what do they call it? The neutral rate setting. So, it’s the target for interest rates so it doesn’t grow or shrink the economy. And therefore, they expect it to start tapering any rate increases, but who knows. And then someone comes out with a counter argument, and so the market just swings on that kind of volatility.

Cameron  07:23

It’s fascinating to me just to watch it going up and down with no sense of rhyme or reason. Emotions regarding the market to differ that broadly day to day just doesn’t seem rational.

Tony  07:39

It’s not really. I think it’s a factor of the incentives involved. I mean, a lot of this has been driven by the bond market, right? Because that’s where interest rates play out. If you’re on a multimillion-dollar bonus incentive, and you think you’ve got some kind of inside…

Cameron  07:56

What do you mean, if? What do you mean, if I am? Am I not? Do we need to renegotiate? Do we need to talk about the deal?

Tony  08:04

Yeah, we do. If you think you are, then we do.

Cameron  08:11

Okay, my lawyers will be in touch. Sorry, back to your point. If you’re on a multimillion-dollar bonus deal, what’s the bonds market got to do with it?

Tony  08:21

Well, they’re the ones who pay the most attention to the interest rate movements. And you can make a lot of money if you’re a bond trader out of just a very small movement in yields. And if you think you can forecast where it’s going because you got a mate who works at the Fed or whatever, you start piling in early to try and you know, get that edge which gives you your bonus. So, that’s what it’s all about. But of course, we all know forecasting is a fool’s game.

Cameron  08:45

So, how does that play into the All Ordinaries going up and down?

Tony  08:50

Well, because there is a bit of a correlation between what the bond market does and what the All Ord’s does in terms of the forecast bond rates feed into discounted cash flows and borrowing costs for companies. So, people, you know, I’d hate to be a spreadsheet jockey working for Goldman Sachs or someone like that right now. Like, almost every morning you’d get up and change your spreadsheet for what you think a company’s worth, which is ridiculous, but it’s going on too.

Cameron  09:15

So, it’s somewhat based on forecasting about the price of money for these companies and how that’s going to affect their bottom line, etc., etc.

Tony  09:25


Cameron  09:26

And their companies buying and selling stocks based on their predictions about what the future holds for these companies.

Tony  09:33

Yeah, and I mean, if you think about all the repercussions of trying to… well, what the Fed does, let’s not worry about trying to forecast what the Fed does, but if the Fed does start to taper interest rate rises and that leaves analysts to think there won’t be a recession in the US or Australia next year, then they’re going to get more bullish on their stock purchases and their stock recommendations and that will drive the market. And then someone will come out and say “no, no, the Feds gonna raise the interest rates further,” and that’ll swing the market back the other way. So, it’s a lot of noise at the moment. For me, the most interesting thing in the last week or two was the way the bond investors just drove the British market into the ground and claimed the scalp of Liz Truss. That was just incredible to watch. The bond vigilantes as they’re called, they’re just playing hardball, hard-nosed investing; “we don’t think the British government when it’s heavily indebted… You know, it’s a higher risk than the US government or the German government. And we’re going to sell off our bonds there. So, good luck, fellas. See you later.” It just forces the Prime Minister to resign and all sorts of things, and Boris Johnson to fly home from the Caribbean to put his hand up again.

Cameron  09:35

Have another crack.

Tony  09:39

Only for it to be slapped down.

Tony  09:56

So much for democracy if bond traders get to decide who the Prime Minister is.

Tony  10:12


Cameron  10:13

I saw a clip from Trevor Noah on The Daily Show saying that all of the former British colonies like India are now contacting Britain saying, “we don’t think you know how to run a democracy very good, and we will come in and take care of it for you. I think it’s in your own best interest that we come and run your government for you. Yeah, trust us. We know what it’s like.”

Tony  11:21

Australia wouldn’t be putting its hand up because we’ve had more of a revolving chair than they have.

Cameron  11:25

That’s true.

Tony  11:26

But yeah, it’s interesting, because the British government, or the Conservative Party, deliberately made it harder to change their leadership. So, Liz Truss got in because they had to go through a vote of parliamentarians, and then at least a six week or three month vote for the Conservative Party base, and they both had a weighted say in who got elected. And this time, they just went “no, you’re resigning. No, Boris, you’re not standing. No, you’re not standing. Rishi, you’ve got the job.” It’s just like, they bought in these democratic rules and then they just tossed them straight out.

Cameron  11:59

Really? They didn’t follow them this time around?

Tony  12:00

They did follow them, but like, the way around the rules was for the Prime Minister to resign, and then to only have one nomination to replace her.

Cameron  12:09

Oh, right. Well, that makes things easier. I mean, Xi Jinping thinks that’s a good model. He said just, “one candidate, that’s all you really need. Yeah, it works. Simple. Simplest ways are the best ways.” Occam’s razer tells us that; simplest solution is probably the right one. Back to our portfolio. Last thirty days, the dummy portfolio is up 2.67% versus the SPDR 200, which is up 3.9%. So, it’s still beating us by a good third. Since inception, were up 16% and the SPDR 200 is up like 5.7%. So, I looked a little bit earlier when I did the newsletter today, we’re still beating it by 2.8% over three years. Sorry, 2.8 times over three years, nearly three times.

Tony  13:02

Yeah, nearly three times. And I just wanted to make a point about that, because I was thinking about it during the week. My portfolio is kind of, you know, in a similar direction to the dummy portfolio. It was on a high a year ago, and now it’s dropped back. So, I’m in the same boat when I did a bit of a review. But you know, first of all, last year, we were getting 24% CAGR, that kind of number, and now we’re getting 16% CAGR. And the average between 16 and 24 is 20. So, at some stage, we’re going to revert to the mean again. And so, whether it happens tomorrow, or next week, or next month or next year, there’s going to be a catch up in the market, and we’re going to be catapulted back towards our standard average returns. So, I’m not overly worried with the fact that we’re down and we’re trailing the index in the short term. I’ve seen this before, and I’m pretty sure — again, you can’t forecast when — that we’re going to catch up. The 19.5% that I had before this latest downturn was over a long period of time, so that gives me sort of the confidence that we are going to regress back to the mean at some at some point. And that’s why we need to stay invested, I guess, as well. And you know, by the way, 16% is still pretty bloody good. I’m looking at people out there who make a big song and dance about being 1% above the index over time.

Cameron  14:22

Yeah, we’re nearly three times above the index.

Tony  14:26

And what was it, 90% of fund managers don’t beat the index actively?

Cameron  14:30

Yeah. No, I believe you, like, I believe that over time, things will continue to go well for us. We have good years and bad years, but the good years make up for the bad years. Not that it’s a bad year, as I said. Well, over the last year it’s been down but in the last thirty days were back up. The portfolio is performing well again, even with the choppiness of the market. What else do you want to talk about?

Tony  14:57

Just a couple of things. Three of the major banks plus Macquarie are going to report this week because they’re on a September 30 end of year. So, watch out for those. Expect new numbers in Stock Doctor next week, I would have thought. There’s a lot of analysis in the paper now saying the results will be good because interest rates are rising and that’s helping them, because they don’t lift deposits, but they lift mortgage rates. So, they should be good. That’s one to watch. We’re into AGM season. A couple of stocks from the buy list that I own had some news: AMP came out and said that their funds under management reduced or shrunk by the least that it has and in any of the quarters in the last few years since it’s had problems after the Hayne Commission. They’re basically saying that the people have stopped taking their money out of the portfolio and the funds under management shrunk because the market shrunk. So, that’s a positive for that stock. And the other one in the news was Whitehaven Coal, which has completed a buyback it announced earlier in the year which has been supporting its share price, and it’s going to have an AGM, I think, tomorrow and analysts are expecting it to see the continuance of the buyback or start a new buyback. So, that will also help underpin that stock.

Cameron  16:12

Speaking of banks before you go on, I added NAB to my Super portfolio in the last couple of days. So, NAB is back on the buy list, talking about banks. It’s always interesting when we see banks in our buy list. I’ve never had a lot of success with banks in my portfolios. I always buy them, including Macquarie, and then have to sell them again pretty quickly. I haven’t got them in the right period of uptick in the last couple of years, but having another crack with NAB, we’ll see how they go.

Tony  16:40

And then the only other thing I’ve got is the pulled pork, which this week is NWH, that’s the ticker code for NRW Holdings. It’s confusing, ones NWH, ones NRW, but anyway. NWH for those who don’t know it, is in the business of engineering. When I owned it once before it was probably more a mining contractor than it is now. They’ve certainly diversified into other areas. They do civil engineering now as well as mining contracting, as well as what they call MET, which is the third spoke to their wheel. And MET stands for Mining, Energy and Tech. They’re manufacturing equipment for the mining sector. They’re getting into energy, so, oil and gas as well as mining. And they’re also expanding and following the thematic, which is the battery metals. So, for a long time they’ve just been focused on gold, iron ore and coal, they’ve been getting into lithium now as well. So, they’re on the buy list. I guess other news for them is them dropped the takeover offer for MACA, MLD, late in August. So, they were trying to diversify and buy out that company, but Theiss, another overseas engineering firm up their offer, and NWH have backed away. They’re back on the buy list now. The price I’m doing this analysis at is $3.50, which is less than consensus target. And before I go into the numbers, I guess I should mention that mining services companies are very cyclical, which is one of the reasons why NWH is trying to have other areas like civil engineering to fall back on if the mining boom, or when the mining boom comes to an end. But I’ll just point out that sort of strategy of hedging your risk is a good one, but it’s doesn’t eliminate risk. So, you know, the share price will still suffer when the mining boom ends and contracting work starts to dry out. But this is the classic case of selling picks and shovels in a gold rush. So, mining contractors are good during mining booms, which we which we’ve had. And I guess the benefit of it is that, you know, if they lose a contract with BHP, they pick one up with RIO, or if gold becomes a sell, then they pick up something with coal. So, that’s a benefit to them, you’re not having to go through and pick which of the mining companies you’re going to invest in, they pick up work with a lot of them. So that helps them. Back to the numbers. $2.50 is less than consensus target. The ADT for this company is quite high, it’s $2.6 million, so it’ll suit most of our listeners. It’s trading on a 5% yield which is also very good but is less now than the current mortgage debt rate, which is near enough to six so it doesn’t score there, even though it may interest people who are interested in yield. Stock Doctor financial health is strong and steady, which is very good, and the Pr/OpCaf is also very good for this one; it’s 3.9 times, so the share price is 3.9 times operating cash per share. PE is 11.53, which is reasonably low but not the lowest, so it doesn’t score for that. And the share price is currently above both IVs, IV1 and IV2, and book plus 30%, which is only $1.13. And that’s probably a fact of the fact that mining companies like this don’t have a whole lot of assets, because they’re often just providing labour to mining companies, skilled workers, for example, or services to mining companies. So, even though it’s good on the value metric of price to operating cash flow, it’s not scoring on our other ones, IV, one, IV, two or plus 30, which is interesting, I think. But anyway. The analysts are forecasting 12% earnings per share growth, which is pretty good. But when we apply the growth over PE hurdle to in our spreadsheet, we only get 1.08. So, it’s less than our overall rate of 1.5 for a score there. Directors holdings are only 2% which I thought was interesting, so that’s a zero in our spreadsheet again. Not sure why that’s the case, but it is. I’d have to go back and do a deep dive to have a look at that. Potentially, maybe someone who owned the company originally has sold out, but certainly doesn’t get a score for owner-founder. Gets a score for being a new three-point upturn; like I said it’s back on our buy list just recently. It gets a score for consistently increasing equity. And all of those scores add up to a quality score of 10/16, or 63%, and a QAV score of 0.16. So, it’s not at the top of our buy list, but it’s certainly a large cap stock if anyone needs that for their portfolio. Have a look.

Cameron  21:26

And we don’t need to keep an eye on the commodity status for any of the stocks that they’re involved in selling into, like the gold industry, etc.?

Tony  21:39

Good question. I’ve never done that, and my guess would be it’s probably fairly well spread across most of them. And then they’ve also got Sybil, which doesn’t have a commodity as well. I think they’ve done a good job of spreading their risk far and wide on the mining stocks. So, no.

Cameron  21:57

So, they’re kind of neutral.

Tony  21:58


Cameron  21:59

Thanks for that Tony. NWH. Something with Hattitude. I never can come up with a good thing for what NWH stands for, but I know they don’t like the police, that’s all I know. Okay, Q&A time. First one is from Alex: “there’s a recent question posted to this forum about investing in the gold ETF as well as Tony’s comment on last week’s episode that being an investor just means being an allocator of capital. It all just reminded me of a book by Percy Allen called Crashproof I read years ago. The basic premise championed in the book is to move between uncorrelated asset classes and/or sectors as they cycled through, under, and over performance through the use of technical indicators. For example, the All Ord’s EMA 50 Day crossing the EMA 250 day to the downside was an indicator to get out. A similar signal in an uncorrelated asset like physical gold was an indicator to buy into as a store of value and hedge against inflationary pressures during sideways or downward moving markets. When things reverse, sell gold and buy companies, or in their example ETFs. Given most of us are sitting on a high percentage of cash, inflation is reducing the buying power of cash, gold is now a buy again, I think,” don’t think so. “The gold price is increasing with increasing economic uncertainty, the effect of a falling AUD, and Australia being a large exporter of gold, and gold has historically been a strong hedge against inflation. I wonder if it’s worth sitting in physical gold, GOLD on the ASX, rather than cash until there are things to buy according to QAV. An alternative is to hold a basket of gold miners, GDX, as you get the dividend payment from a productive asset. However, with mining costs fuel and general supply chain sitting at five times the revenue boosts they’re receiving from increased gold prices (those are real time figures from an industry source) the price may sit flat with little to no dividend payments. Is this a topic that’s been explored before?” What do you think, Tony?

Tony  24:05

Oh, I think it’s a worthwhile strategy. It’s different to QAV, and I don’t know if the returns will be as high or potentially better, I guess. But there’s a lot there. So, to pick apart bits of it. So, there was a statement there about the earning power of cash going down because of inflation, and that’s true. However, given that we hold cash because we want to deploy it back into the market as the market goes from being a sell to a buy, the buying power of cash actually goes up. So, what I mean is if we sell $1,000 worth of shares, go to cash and then buy back into that same stock or another stock and the markets down 15/20% from where we sold out, then we bought 15/20% more stock. It’s like the cash has grown. It’s certainly grown its purchasing power in terms of the stock market. That’s not withstanding the fact that inflation is eating into it for other purposes, but on a net basis, generally, I stay in cash. That’s the first point. Second point is my experience is I don’t stay in cash for very long. I certainly didn’t during COVID, and certainly haven’t this time around. I did go to about 50% cash a month or two ago, but it’s all been reinvested again since then. That’s another point, too, is that if people are sitting on cash, I have rebought positions. So, I have a double position in some stocks. So, I would rather do that than sit in cash because I want to be exposed to the market. And I guess that’s the third point, which is kind of underlying this discussion, is one that we’ve talked about before a couple of times is that do we use a three-point trendline sale or some other way of telling whether the market is going to turn down? And in this case, I think we would have done well if had of sold-out last year and bought a short fund which one of our listeners is trying. Doug is trying it out. But that’s not always the case, and I went back and had a look over history, and it’s not always the case that if the market goes down the portfolio underperforms. And that’s what I’ve found: my experience is, a) I can usually find stocks to buy, even in downturns, and b), they don’t have a correlation with the market. So, for example, the markets going down, but energy stocks and coal stocks are going up. So, while higher energy costs impact on a lot of businesses and increase their costs, it’s good if you own the energy stocks that are going up. So, I understand Alex’s point, and I think it’s worthwhile investigating, Alex, but it’s not what I do and I never really find myself having long periods of sitting on lots of cash to worry about it.

Cameron  26:45

You like to expose yourself to the market, Tony? At all times.

Tony  26:53

Yes, Cam, I do.

Cameron  26:54

Good, I’ll keep that in mind. Should be on a coffee mug. “QAV: expose yourself.”

Tony  27:01

I just had a vision of one of those little boys peeing in the pool, or in the, you know, the fountain in the Italian backyards?

Cameron  27:12

Yeah. Good old Renaissance statue. Right. So, and rather than being exposed to gold, you’d rather be exposed to stocks that the QAV process has determined are undervalued?

Tony  27:29

Well, yeah. And that’s a good point you’ve when you’re talking about it. Gold isn’t a buy at the moment, and therefore the gold’s miners aren’t buys at the moment. So, if you did go to gold rather than to, say, a short, an ETF that shorts the market, you might not have as much upside as buying the ETF that shorts the market.

Cameron  27:50

Now, I know that Buffett and Munger quite famously aren’t big supporters of the idea of buying gold.

Tony  27:57

They hate it.

Cameron  27:58

I know I’ve heard both of them say things like “gold doesn’t produce anything,” “it doesn’t generate any value,” etc., etc. Are there other good reasons why they don’t like to hedge their portfolio in gold? Like you, are they just better off actively finding undervalued things to invest in rather than taking what might be the easier path and hedging with gold.

Tony  28:21

They don’t like hedging, full stop. I think one of them said something like, “hedging is like walking the tightrope with a net: you’re never going to really commit to it until the net goes away. Then you focus. That concentrates the mind.” So, that’s how they approach investing, they don’t like edging. Yeah, they don’t like investing in gold. Buffett talks about that being an unproductive asset, doesn’t produce anything. That’s not quite true, because gold is obviously used in circuit chips and for jewellery and things like that. But historically most people have bought it as a hedge against inflation. And look, you know, it’s interesting, we’re in a period of high inflation, yet gold isn’t really going up much. And so, that either means that the hedge is finished, or they’re using — well, they can’t be using Bitcoin, because that was an even worse investment to hedge with than gold.

Cameron  28:51

That’s the new gold, digital gold.

Tony  29:15

Yeah, people have used it to hedge against inflation, which of course hasn’t worked. And I do wonder how much of all this goes back to the days when the dollar was tied to gold. So, Fort Knox was full of gold and there was the gold standard, which Richard Nixon, I think, eliminated. But gold certainly had, at least in the minds of investors for a long time, still had a place in their portfolio, historically, or sentimentally, because of that hedge against inflation. Don’t know, not the gold expert, but I’ll buy gold miners when they pop up on our buy list, and I’ll stay invested for as long as I can in the market otherwise.

Cameron  29:51

If you had invested in Bitcoin a year ago when it was trading around $91,000, Tony, now that it’s trading around $30,000, you would be able to buy more of it with the money you no longer have. But, if when the market started to tank in the beginning of April this year, if we’d gone to cash and invested in Bitcoin when it was $61,000, we would have only lost 50% of our money in the last whatever months. Okay, maybe Bitcoin’s not the right place to be putting our cash or gold. But thank you for those thought-provoking questions and comments, Alex.

Tony  30:35

I think they are good thoughts, Alex.

Cameron  30:37

Ben and Jackie: “hi, Cam and TK. Assuming we are fully invested and not requiring the dividend payments elsewhere and broker fees, capital gains, etc., are covered from outside the portfolio, my question is, how would Tony go about reinvesting the dividends to get maximum compound growth? For example, do we put the money on the top one or two stocks, or do we wait until we sell a stock and put it towards the next on the buy list? Also, can TK explain how the All-Ords figures are calculated?” That’s an easy one. Let’s go to the first one. “And can you explain the double slit experiment in quantum mechanics, Tony?”

Tony  31:13

Well, there’s a wave theory of light and a particle theory of light.

Cameron  31:17

Oh well, that was the easy one. Right. So, now explain how the All-Ords are calculated.

Tony  31:22

I’ll do that last. Okay, dividends. So, yeah, dividends just sit in my cash account and accumulate until I can use the cash to buy the next QAV stock. So, I don’t mind having little bits and pieces of cash in my account until I have a meaningful amount to invest. And if you’re just using dividends, you will probably have to wait twelve months until you get to, say, a 5% cash position just based on dividend yield, and then you can invest it. But generally, it’ll get redeployed along the way, as you said. If I sell something and want to buy a full position next time, and I’ve sold something that’s 10% below full position, I’ll add the dividend cash to it to try and bulk it up a little bit. So, no, nothing special there, it just goes into the cash account and it either gets spent on racehorses or documentaries or goes into the next QAV purchase.

Cameron  32:11

Documentaries? Oh, really?

Tony  32:13


Cameron  32:14

Okay. Yeah. I thought you’re gonna hit me with a new idea, another way to spend your money.

Tony  32:23

Now, that’s a good movie.

Cameron  32:26

What’s that?

Tony  32:27

Another Good Way to Spend Someone Else’s Money.

Cameron  32:31

Yeah, can you give me some money to make that movie?

Tony  32:38

Inside the Life of Cameron Reilly.

Cameron  32:40

I’ll even let you be in this one, more than just a voice in the background. For people who have seen Marketing the Messiah. Tony’s voice is the one that says “splitters!” When we’re talking about the People’s Front of Judea.

Tony  32:56

Yeah, the Judean People’s Front.

Cameron  32:58

That was Tony’s cameo: “Splitters!”

Tony  33:00

Okay, back to the question. How is the ASX’s All Ordinaries calculated?

Cameron  33:06

Yeah, how are the ordinaries calculated? He said he’s Googled it, but he needs it explained in TK English. “Tkenglish.”

Tony  33:15

Yeah, well it’s pretty easy. It’s just the top 500 stocks by market cap, and then they’re given a weighting according to their market cap. So, BHP which is the largest stock will have more of a say in the performance of the All-Ords and the smaller stock, but the top 500 that are market weighted by their size, which is their market cap. And then it’s just left that way for twelve months, and then rebalanced every year according to whether the five hundredth company drops in or out. But it does have a couple of limitations. So, if a company goes broke or it’s taken over, the All-Ords won’t be adjusted until the following March. So, if it was BHP, it’s going to have a big impact on the index if it suddenly disappears from the boards. Most times it won’t, but that’s one thing. Whereas the other indexes like the ASX 200 are balanced every quarter. So, they’re more up to date than the All Ordinaries. That’s pretty much what it is. A couple of other differences. The ASX 200, and in fact all the other ones, the top fifty, top twenty, etc., they also have some other considerations. So, you have to have a certain amount of liquidity to be counted in the index. So, the market index people would say, I think from memory, a company like Yancoal is owned by two big companies and there’s not much free float. Even though it’s a large market cap stock, we’re either going to weight it lower or even eliminate it from the index because it doesn’t have much of an impact on investing in the Australian market, in terms of how much you can buy. So, a couple of differences, but the All-Ord’s has been around since the 80s, I think, and is the traditional one that’s been used. A couple of other points which are interesting. I noticed when I was quickly Googling this, the All-Ords make up 77% of the market by market cap, the ASX 200 make up 72%. So, that bottom 300 stocks in the All-Ords are only accounting for 8% of the market by weightings, by market cap. So, not really having much effect. And similarly, I think the last time I had a look at the ASX top 20, I didn’t look at it for this lot, but I think from memory, that’s in the 63%/64% of the market cap is the top 20 stocks. So, a lot can be said for focusing on the ASX top 20 as well. That in itself is interesting, that the way that they run the indexes is by market cap weighting. So, if you’re a BHP and you move 10%, you’re going to have a much bigger impact on the index than if you’re a small company, like some of the ones that we invest in. If they move by 10%, it’s not going to move the index at all. But that’s one of the advantages we have, and that’s one of the reasons why a dummy portfolio or an investment portfolio using QAV can decorrelate from the market, because it can hold smaller stocks in it and they can all perform much better than the index just by the fact that they’re performing, and their performance doesn’t count much in the index compared to the big companies.

Cameron  36:21

So, the All Ordinaries is sitting at $6,991 today, is that just the sum of the prices of the top 500?

Tony  36:32

Yeah, it is. So, it’s the calculated market weighted index. So, you know, say BHP accounts for 10% of the market. So, they multiply BHP’s share price movement by 10% all the way down to decimal places and then movements, and then add them all up and get an average to work out the All-Ords.

Cameron  36:53

Get an average?

Tony  36:54

No sorry, I should say a total.

Cameron  36:56

Total. Yeah. But it’s based on their weighted position in the index.

Tony  37:02

Which is based on their market cap.

Cameron  37:04

Very good. There you go. The All-Ords in Tkenglish.

Tony  37:07


Cameron  37:07

Any other subjects — doesn’t have to be investing — anything. Like, a double slit experiment. Anything you need to be explaining to Tkenglish. The name of our new series, Tkenglish, a new documentary where Tony explains stuff. Rich white man explaining things, that’s what the world needs more of, I think. The world doesn’t have enough rich white guys mansplaining things for the rest of us.

Tony  37:32

Was it your wife of my wife who said the definition of podcasting was mansplaining?

Cameron  37:37

Yeah, something like that. I think my wife got that off of somebody. But yes, white men mansplaining the world to me. That’s very true, very true.

Tony  37:48

It is.

Cameron  37:49

Okay, hope that helps, Ben and Jackie. Steven. “Hi Cam, bit of a personal question for Tony if he’s happy to share with everybody.”

Tony  37:58

I’m happy to expose myself to the market.

Cameron  38:02

“What percentage of Tony’s investments outside of his primary residence are made up of Australian shares versus overseas shares…” We’re going to speak like that from now on.

Tony  38:16

CRenglish. “Cringlish”.

Cameron  38:21

Sort of a North Shore thing. “…Residual properties and commercial properties. It would be interesting to know how someone in Tony’s league spreads out his investments.” He didn’t include documentaries.

Tony  38:35

Well, it’s the residential property. So, it’s our apartment, it’s the holiday home, and the rest is in shares. Except for the tiny bit that goes into horses and docos and books.

Cameron  38:48

So, it’s all Australian shares.

Cameron  38:52

It’s all a simulation. That’s what it is.

Tony  38:52

Yeah, correct. I fail to see why investing overseas gives you any benefit. The ASX is big enough so that there is enough exposure to pretty much every asset class, if not every asset class. And, okay, so sometimes the US market goes up. I remember talking about this a couple of years ago with Ruddy and he was saying, “oh, you should have been invested in the US market, it’s up more than the ASX has been over the last five years.” Well, take a look at it now, it’s down 25% this year. So, it swings and roundabouts, and both Australia and the US — and all the other indexes — tend to have their time in the sun, but overall tend to hug around that 10%. And I’m not talking about Brazil or Turkey or somewhere like that, which might have very big swings in volatility, but the large countries all tend to work in the same way. I don’t know why that is, whether it’s a law of economics or a double slit experiment in stock investing.

Tony  38:56

Yeah. But if you think about it logically, if the UK market, for example, went up over the last hundred year at 15% it’d be a lot damn bigger than it is now. Everyone would be investing in the UK market. But they don’t, they spread it around, and it’s because pretty much markets over time will tend to hug that 10% growth. So, I’ve always been invested in Australia. Plus, you’ve got all the issues of currency hedging and any other tax implications, no dividend franking in overseas investments, etc., etc. So, I find it simpler to be in Australia, I find I know the companies, I’ve known the players, I know who to avoid. Because, you know, it’s not a big market, but over time you will get to learn where the good companies are and where the bad ones are, and which ones to avoid.

Cameron  40:40

There are times when you’re not able to stay fully invested, although you said earlier they don’t last very long, and forcing you as at the moment to take double positions and some of the stocks, but… *crash in background* You alright there?

Tony  40:58

That was Chrissy: “It’s mansplaining, dammit!”

Cameron  41:04

She doesn’t even listen; she just gets angry knowing that it’s happening. If you had more markets to invest in, so if you were also investing in the US market, you might be able to stay fully invested more easily.

Tony  41:21


Cameron  41:21

But it doesn’t seem to be a problem for you.

Tony  41:24

No, I’ve never found it to be a problem. But yeah, that’s a good point. I hadn’t considered that. I’ve received presentations from various stockbrokers and investment funds, and they talk about, you know, European banks being the value play around the world at the moment, for example. So, yeah, potentially you’re right. But I’ve never really been hard up for something to invest in, in Australia for more than a month maybe. So, I’m not that worried.

Cameron  41:50

Despite the fact that you expose yourself, you’ve never been hard up. You’ve never had to expose yourself overseas, you just expose yourself at home.

Tony  42:04

What’s interesting, like, I lived overseas and…

Cameron  42:06

Never exposed yourself when you were over there?

Tony  42:08

I never exposed myself to overseas companies. I just couldn’t find…

Cameron  42:12

It makes it worse when you put a limiter like that. “I never expose myself to overseas companies…”

Tony  42:21

Listeners, I’m trying to get us back onto investing.

Tony  42:25

Oh, okay, be like that.

Tony  42:31

No, but it’s interesting. I’ve lived overseas in both New Zealand and Canada, and in both places, maybe it was just me, but I couldn’t find the information I needed to do a QAV type analysis as readily as I can using Stock Doctor or something equivalent in Australia. And I know there are services around now, so maybe that’s changing, but the access to data was an issue. The financial press is pretty poor overseas. There’s the Financial Times I guess in the UK, and there’s the AFR, but like, The Wall Street Journal is only about a dozen pages each edition now. Canada didn’t have a business daily and neither did New Zealand, and so you’re stuck with the business page in the local rag, which was nothing. And when I spoke to people about it, they said, “oh yeah, I get my company advice from my stockbroker,” and I’m like, “what if it was a company they don’t like?” “Oh, no, they’re good, they look after me.” And I’m like, “okay.” So, yeah, I never dipped my toe overseas.

Cameron  43:32

We’ve been trying to figure out a way to get the data that we need so we can start a US version of the show, but it’s proved tricky.

Tony  43:42

Yeah, I’m still working on it. One of the problems is getting some clear time to work on it. If someone asked a question about the aluminium chart or a 3PTL coding question, I’d just have to push it aside. I just need to get clear run on it I think, and probably some help, too, from an analyst, to run some scenarios for me.

Cameron  44:05

All right. Well, thank you for their question, Steven. Hope that makes sense. Got a late question from Simo, TK, and he’s talking to me about… We mentioned, I think on the show last week, that I tipped $2,200 into the dummy portfolio to make up for missing dividends, and Simo is concerned that it might be screwing with our performance numbers. He says, “Hey, Camo, it’s a bit naughty, but you’re kind of borrowing from future cash coming into the portfolio. It keeps your starting balance the same but inflates your investment temporarily until the cash goes back into positive territory. As an example, if my starting investment balance on paper was $20,000, but I overspent by $2,000 or $22,000 worth of stocks, my cash balance is now minus $2,000. Assume I’m just taking investment money from an offset account, which has a lot more than $20,000 in it, it’s right there for me to just take more from to invest with if I want. But I really want to keep my starting balance as $20,000, because that’s my baseline on which I’m tracking the performance. The more I think about it, though, you’re probably best to withdraw the cash that you accidentally put in as soon as you can, because you don’t want to artificially enhance your performance numbers for the dummy portfolio. But until you have that cash there to take back out, either from dividends or sale of some shares, and you have been selling and buying a lot lately, you can keep track of the numbers by letting the cash balance go negative by the extra amount you accidentally put in just in the meantime.” That was my initial concern when we figured out that there was extra cash in there, but my understanding is that the way that Navexa reports it is it just calculates there’s been $22,000 of cash put in and it’s building the performance numbers around $22,000, not $20,000. Am I right?

Tony  45:57

Yeah, well, you’re right in terms of if they’re using a money weighted calculation. They’re not even looking at what the starting balance was, or what the cash balance is, they’re just saying “you had this many stocks in the portfolio at this period of time, and during that period of time the investments went up by this amount.” And they work it back to be an annual figure. There’s that. Look, Simo could be right, I need to do some analysis on whether to take it out or not. My gut feel says that Simo’s right from a dollar point of view. So, if we said “hey, presto, we’ve got $30,000 in the portfolio and we started with $20,000,” we really should say we’ve got $27,800 in the portfolio. But we don’t do that, we look at the performance.

Cameron  46:40

The CAGR number.

Tony  46:41

Yeah. And in fact, putting money into a portfolio actually reduces the CAGR number, because it’s increasing the base at the calculations done from it. But it all comes out in the wash in my experience, because my portfolio — except for the superannuation component of it, which tends to be hermetically sealed, almost — is money. The cash accounts got money coming in and going out because I invest in racehorses, or there could be some property expenses, or whatever, that I’ll take it out for. And also, too, historically, if I’ve had a bonus when I was working, I’d put it in. That would make this year look bad because the percentage would be down, because you’ve got that lump of cash which was introduced. Say it’s only had a couple of months to invest, then that portion of the portfolio might have gotten 2%, whereas overall the rest got 20%. So, you’ve got less than 20% if you average it out. But then next year you’re also still on the hook on a percentage basis for the new capital to perform as equally as the past capital has. So, it’s the percentage number I think which would be largely unaffected by putting new capital in. But look, I do need to do some analysis on, a) whether what we’re saying happened, and b), what to do about it. But I’m also looking to set up a dummy portfolio using real money, just trying to work out the best way to do that at the moment. Then hopefully Navexa or Sharesite can take a feed from the stock broking accounts and just work all that out without us having to check it all the time like we’ve had to do.

Cameron  48:11

So, for Simo’s benefit, when we’re reporting our performance figures, we’re not basing it on capital that we’ve put in and the current portfolio value, we’re just taking in Navexa’s CAGR numbers and they’re factoring in capital cash inflows and outflows and all that kind of stuff.

Tony  48:31

Not sure how Navexa works out CAGR, but in its other form which was the money weighted way of working out performance, it would just say there’s $2,000 more in the portfolio and that’s $2,000 more invested in the shares, or in the cash account, and it achieved this performance because it was invested for a hundred days or two hundred days or whatever. It would throw that in the mix with the money that had been there for the full three sixty-five days. It would work out an average of all that as a percentage, of all the things invested over the days that they were invested for. So, this is a common problem. I mean, fund managers face this all the time, because people pull the funds out or put their funds in, and they have to take that into account. Which is why companies like Navexa use dollar weighting, I think it’s called, dollar weighting in terms of their calculation. I’m not sure how Navexa is doing the CAGR calculation, but I think it’d be a similar sort of thing. It’s what’s the money earned that was sitting in the portfolio for a year, not how much was in there, what was taken out or what was introduced. But I will look further into it.

Cameron  49:36

Thanks for that input, Simo. That’s it. That’s it for questions, TK. What have you been doing with yourself after hours this week?…

Cameron  1:06:29

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