QAV 543 CLUB

Cameron  00:06

Welcome back to QAV, TK, episode 543. Recording this Wednesday the second of November, the day after Cup day. It is 1:28pm Brisbane time, 2:28pm Cape Schanck time where you are, and it doesn’t look like it’s hailing today in Melbourne.

Tony  00:27

Not Cape Schanck. No, it’s not. It’s raining. It’s cold. It’s like 10 degrees and raining. Overcast, windy. And it’s November.

Cameron  00:36

You didn’t brave going to the actual cup, putting a fancy hat on and everything yesterday?

Tony  00:42

We didn’t do it yesterday, no. We went out on Saturday to Derby Day, but didn’t do it yesterday. Too cold, too wet.

Cameron  00:49

And how did your punting go over the last, well the Spring Carnival anyway?

Tony  00:55

Well, the classic response is about square. It’s pretty true.

Cameron  01:00

What does that mean, about square? Like you view one some and you lost some, and you’re neutral?

Tony  01:04

Yeah. As Jenny says, there’s a wide tolerance of error in “about square”, that’s what we always say.

Cameron  01:13

Right.

Tony  01:14

No, I lost I lost a little bit on Saturday, not too much, and then picked it up yesterday. And then put it all on my horse in the cup, which didn’t do any good.

Cameron  01:25

That’s sad.

Tony  01:25

Smoking Romans. Yes.

Cameron  01:26

Smoking Romans.

Tony  01:28

Yeah, unfortunately bad ride. Jamie Kah who’s a good jockey should have known better. She went too soon. I was cheering in the backstroke. Gosh, it looked really good until it hit the turn and then the favourite started to come around and she panicked and took off, and it was too soon. Both her and the favourite faded in the straight, which is the classic rookie mistake in the Melbourne Cup. You don’t go until the clock tower. Everyone knows that. Except for Jamie Kah.

Cameron  01:53

And me. I have no idea what you just said. I did not watch the race, did not even realise it was on until you posted your thing for it.

Tony  02:04

You’re in Brisbane though.

Cameron  02:06

Yes.

Tony  02:06

It’s the cultural centre of Melbourne for a couple of days anyway.

Cameron  02:09

Yes, I did go once. I went to the Melbourne Cup once when I lived down there. Yeah. It’s not fun.

Tony  02:15

Well, to be honest, the Cup day isn’t a great day to bet on anyway. It’s a lot of novelty races; the Greys race. It’s actually better these days. Sydney’s got the Big Dance, which is the $2 million race on now. So, fields are improving. But yeah, it’s a bit of a raffle. Derby Day is probably the best, although Stakes Day which is Saturday is getting better. And Miss Dunsford, my horse, will run tomorrow on Oaks Day, which is the Thursday, so I’ll be heading back up there just for the race probably. Have a look.

Cameron  02:45

Good luck.

Tony  02:46

Thank you.

Cameron  02:46

If any QAV club members are at Oaks Day, they should keep an eye out for a tall, redheaded guy.

Tony  02:55

In the mounting yard.

Cameron  02:57

The mounting yard?

Tony  03:00

You’re not a racing person, are you? It’s where the jockeys get on the horses.

Cameron  03:08

Oh, of course it is.

Tony  03:10

I was gonna say it’s where the jockeys mount the horses, but I know you’d laugh at that.

Cameron  03:15

All right. Well, let’s get on to investing stuff, TK.

Tony  03:18

We’ve just been talking investing, come on.

Cameron  03:20

Oh, is that what you call it now? We’ve got a lot to talk about, there’s a lot going on. I have a lot of questions. Not a lot of questions from the club members this week, but a lot of questions from me to make up for it. Now, Chairman Mabb of the Australian Shareholders Association graced me with a telephone call last week, and among other things, suggested that we should change the benchmark that we’re using to compare our portfolios against. I have been using the SPDR 200 just because it was the one that Navexa had built in. He said, actually showed me, on Navexa you can put in any custom code that you want in there now, and it’ll benchmark against anything. He suggested benchmarking against BetaShares 200 ETF instead of the SPDR 200, because it’s total return as is the SPDR, but also, he said has lower management costs. So, they’re not taking that out of the return, and it will give a better performance. So, I changed them all over and then when I was doing my emails yesterday, I noticed that I was looking at our performance since inception. You know, the last time, the previous week, we were running at about 16% per annum since inception and the SPDR was running at like 5 or 6% per annum. BetaShares is running at 1% per annum.

Tony  04:46

Oh, really?

Cameron  04:47

Over the same period. So, we’re doing fifteen times better than the benchmark now, which may be true, but just seems ridiculous.

Tony  04:58

Yeah. Are you sure that BetaShares has dividends accounted for as well? Or accumulated as well?

Cameron  05:05

Well, I’m not now that you ask me. I think I was last week when I did it. But I went to their website today, I had a look at their inception date, which is May 18, so they’ve been around a little bit longer than our portfolio. I looked at their fund return after fees. Since inception, their fund is 5.74% — I assume that’s per annum — versus the index, which is 5.83. So, it’s pretty close.

Tony  05:32

When you say the index, do you mean the ASX 200 or the accumulation index?

Cameron  05:36

Well, they just have “index” on their chart, so I don’t know, really. Their three-year fund performance, which is close to our portfolio has been running down a little bit over three years: three years and two months. They’re at 2.92% versus what they say the index is, 3%, and we’re at 15%. So, Navexa says 1%, they say 2.92%. But anyway, their one year is -7.21% versus the index, -7.12. So, whatever index they’re comparing themselves to, they’re pretty close — which they should be as an ETF. Less management fees and whatever.

Tony  06:20

Yeah, I’m just not sure if it’s got dividends. I know they’re paying a dividend, so I guess they are. Well, no, hang on. If they’re paying a dividend, they can’t be accumulating it.

Cameron  06:29

Ah, really. So, as an ETF they’re paying it out, they’re not just keeping it as part of the whatever.

Tony  06:37

They’re not reinvesting, which is what we’re scoring against, because we reinvest ours.

Cameron  06:41

So, I might need to change it.

Tony  06:43

Yeah. So, I think from memory the Dow is negative, just like this one you’re talking about, but the All-Ords accumulation index is being propped up because they’re getting dividends reinvested, which I think is the better comparison to what we do. I’m just looking at BetaShares in Stock Doctor, and it’s saying it tracks the soul active Australia 200 index, which I have never heard of. So, I don’t know what that means.

Cameron  07:08

Can you remember what the code is for the All-Ords accumulation index?

Tony  07:13

Is it XJA, I think, from memory?

Cameron  07:16

That sounds right. Yeah. Let me see if I can use that as the benchmark in Navexa

Tony  07:25

No. Unless it’s changed, you couldn’t in the past, which is why we went to the SPDR.

Cameron  07:31

Yeah, but now they seem to allow you to choose your own.

Tony  07:36

I think that’s always been the case, but they’ve never had the XJAO.

Cameron  07:40

Yeah, no, that’s not showing up still. You’re right.

Tony  07:44

Look, I’m happy to use BetaShares, but I’m just not convinced it’s an accumulation index. Maybe Steve Mabb can shed some light on that for us.

Cameron  07:50

Okay, well, I’ll leave it as it is for the time being, but we’ll probably change that if we can find something better. When it said 15 versus 1, I was like “that’s not right. That looks too good.” I mean, we’re good, but we’re not that good. Another RBA interest rise yesterday, TK. We have to up our rates again.

Tony  07:55

We do, yeah. So, it went up 0.25%, so we need to change the rates in our spreadsheets to 2.85. 2.85%.

Cameron  08:23

And the banks haven’t passed it on yet, but no doubt probably will.

Tony  08:27

Yeah, so NAB have passed it on according to the Fin Review this morning.

Cameron  08:31

Oh, okay.

Tony  08:32

Others haven’t yet, so I’ll do a survey next week and update our mortgage rates. But it’s worthwhile doing it in a week’s time when the banks catch up.

Cameron  08:41

Thermal coal, Tony, wow.

Tony  08:43

I know.

Cameron  08:45

Taking a bath, the old coal. I mean, it was only a week ago, or a couple of weeks ago, you were saying coals going gangbusters. And, you know, as usual when you say things like that, you crashed it. Back in the beginning of September it was trading at $459 USD per tonne, currently down $359 USD per tonne. Consequently, a number of our coal stocks, YAL, NHC, have taken a beating. TER, is that a coal stock?

Tony  09:23

It is.

Cameron  09:24

They’ve all taken an absolute shellacking this week. Had to sell.

Tony  09:29

I’ve had to rule 1 some of my coal stocks.

Cameron  09:33

Fortunately, I’ve bought a bunch of parcels of NHC over the last six months. Some of them are still way, way above, like 100% up, but a couple that I bought more recently are down now. But I’m doing a low dollar cost average. I cost ’em. But I was gonna ask you, are we going to get to do a fudged sell on thermal coal using your new Renko chart thing?

Tony  10:03

I’m not going to do a fudge based on the three-point trend lines. So, I’m making the sell price for coal around 250 per tonne, which is well below where it is now, but still a reasonable line to draw, I think; it’s not too far low to be a complete wipe-out. But the Renko chart, I did notice, just turned red. So, we’re using Trading Economics and I can’t get a Renko chart there, but if people are interested, there’s a website called bar chart which does have coal in there. It’s in a bit of a different format. So, Trading Economics, which we use in the scorecard spreadsheet that gets put out with all of the commodity prices in it doesn’t have a Renko chart, but it’s using the what’s called the Newcastle futures to graph its coal prices. So, there doesn’t appear to be any sort of actual coal price, but they use the next month’s futures price to do their graphing. Bar Chart also do that, but they actually have the detail and call it the ICE Newcastle December 22 futures price, which is the most recent current futures price as we’ve just rolled around into November 2022. And yeah, so that’s what they’re using. You can do a Renko chart there and it has turned red. I mean it’s a moot point, I’ve just rule 1’d all my coal stocks anyway.

Cameron  11:30

Whitehaven, New Hope?

Tony  11:31

I’ve still got Whitehaven; I don’t have New Hope. I still haven’t done enough research into Renko. I think if you’re scared, you know, you’re not sure what to do, then you can use the Renko and sell out of coal at the moment, but you may be buying back in fairly soon. And the reason why I’m a little bit hesitant to use Renko at this stage is I still haven’t worked out clearly in my process yet what the buy and sell process is for Renko charts. So, looking at the Renko chart for coal futures, it’s the first time it’s turned red. I’ve noticed before that a box on a Renko chart can take years before it changes, because it’s basically graphing the variance in the price over time. So, if it trades within a particular zone, particular variant zone, then the box can take a long time to change. So, even though it goes red, it might just go red a little bit and go back to being green, and then go back to being red. So, it doesn’t update and give you a full box until it’s broken through the variance, if that makes sense, even though the trend may change from green to red. We have a red box for the first time for coal, but I’m not sure if we should be selling when we get a second red box, for example, so we actually know that there’s been a breakthrough of the variance that’s fine outside of its normal tolerance, if that makes sense. So, yeah, I don’t know what the rules are yet. But yeah, I think if you’re concerned, you can certainly get out. At this stage, I’m still using all our normal rule 1s and three-point trend lines rather than Renkos until I can definitively say here are the rules for Renko charts.

Cameron  13:01

Okay. And you think 250 USD a tonne is around about the sell price for coal as a commodity?

Tony  13:08

Yeah, if you look at the Trading Economics chart, you can draw it. It’s gone up steeply and it’s coming back now. But again, if you look at the chart, it’s had these two steps forward, one step back sort of lines to it. Interestingly enough, if you look on the Trading Economics website, if you look above the chart it gives you a commentary which I think is quite a good analysis. There it calls out the fact that coal has dropped 15% this month, or, sorry, the month finished, October, which is one of its biggest moves for a decade. But it’s still saying the forecasts are that coal will continue to rise and demand for coal will grow at least 1% per annum. So yeah, who knows, until I can get better rules with Renko charts, I’m sticking with the 3PTLs.

Cameron  13:54

And any idea why it’s taken a hit recently?

Tony  13:59

I don’t know. I suspect it’s got to do with China going into lockdown all the time to solve its COVID issues. I know that iron ore has gone through a big drop recently, and at least coking coal is used in the iron ore process, so I expected that price dropping. I understand why that’s happening. If China isn’t going to buy as much iron ore, or people don’t think it will buy as much iron ore, then it makes sense that they wouldn’t buy as much coking coal, which is used in the process to make steel from iron ore. So, whether that’s had a drag on the thermal price as well, or whether it’s just simply the fact that China’s economy is slowing down there, that can be the case as well. I know China came out, I’m not sure whether it was during their five-year plan announcement or whether it was during the recent Council, and said that they were trying to boost their own supplies internally of coal, so that may also be spooking the market.

Cameron  14:51

Maybe it had something to do with Hu Jintao being escorted from the committee meetings, or COVID at Beijing Disney, or something like that.

Tony  15:01

Was Hu Jintao trying to show a lump of coal in Parliament?

Cameron  15:09

No, only Australian politicians do stuff like that.

Tony  15:13

Yeah, so that’s about as much as I know. I did rule 1 some of mine.

Cameron  15:18

Keep an eye on it, you’ll let us know.

Tony  15:20

Yeah, I’m still looking at Renko. Interesting sort of process, but not as straightforward on the buy and sell side as I thought when I first looked at it.

Cameron  15:28

Moving right along. Let me ask you about JHG, Janus Henderson Group. I added them to a portfolio a couple of days ago and I was doing a little bit of research on them and noticed that they’ve got a dividend coming out. But I also noticed that they recently announced that they have something called a “foreign exempt listing”. They’re listed on the New York Stock Exchange and according to their website, or according to stuff on Stock Doctor actually, there’s something to do with this foreign exempt and a CDI one for one for the dividend, and I couldn’t make head nor tails of what it actually meant. Do we get the dividend as Australian shareholders?

Tony  16:12

We do. So, the only material difference that will happen with this dividend is that we won’t get franking credits for it, because the profits were earned overseas so there’s no tax credit for it in Australia.

Cameron  16:23

So, can you summarise in English what a foreign exempt listing means?

Tony  16:28

Not sure exactly what that term means, but I know with companies like JHG it’s listed overseas, but then they trade in Australia on a back-to-back basis almost like a proxy. So, there aren’t two companies in other words; there’s no JHG company working in Australia, but the listing here mirrors the listing in the US. In fact, I think JHG might be a London listing from memory, not sure if it’s New York or London, but anyway. It’s listed on one or both of those exchanges and it’s also listed here, but there aren’t three companies operating in those countries. There’s just a thing called a CDI, which from memory, DI is Deposit Instrument, I think it’s Collateral Deposit Instrument, but basically, it’s saying that it’s a listing in Australia which mirrors the listing overseas. And so, if you get a dividend payed overseas, it gets paid in Australia. If there’s any sort of other activity like a capital raising that happens in Australia as well as on the New York Stock Exchange, it’ll happen on the London Stock Exchange as well. Yeah, so it’s like a proxy, I guess. BHP did it for a while, James Hardy from memory has that kind of listing. But also, too, Australian companies can have them as a CDI on the New York Stock Exchange, for example. So, I remember when I was at Cole’s Myer, the company was listed here on the ASX, obviously, but it had a CDI listing in New York to allow to raise capital over there as well. Yeah, so that’s all, but it does mean we don’t get franking credits with dividends because it’s an overseas company.

Cameron  17:54

Okay, but we do get the rest of the dividend, though.

Tony  17:57

We do, yeah.

Cameron  17:58

Good, so I didn’t screw up for once by buying it.

Tony  18:03

It is going ex-dividend in a day or two. JHG’s on the buy list, if people are interested in it, have a look, and take into account the fact it’s going to go ex-dividend in your buying decisions.

Cameron  18:13

Yeah, it’ll probably take a little bit of a hit to the value of the dividend when it goes ex.

Tony  18:19

Correct.

Cameron  18:19

I wonder if they pronounced the J as a silent J.

Tony  18:23

No, they pronounce the J.

Cameron  18:24

You sure? Okay. You know, in ancient Rome they had the Temple of Janus, which they had the doors open in times of peace and the doors were closed in times of war. So, you know, they didn’t pronounce the letter J in ancient Rome, it was just “yanus”. So, when their yanus was open, they were at peace. And when their yanus was closed, they were at war. I think there’s a lesson in that for all of us, you know, keep your yanus open at all times if you want to be at peace. Don’t get too clenched up.

Tony  19:04

Wasn’t Janus the two headed God looking forward and looking back at the same time?

Cameron  19:09

That’s why they had two doors, yeah.

Tony  19:11

All right. Okay.

Cameron  19:14

Keep your yanus open. That’ll be the title for this episode. IMA. IMA did my head in this week. So, it was in the dummy portfolio. I had to rule 1 it, and then I went to see what to replace it with, it was also at the top of the buy list when I went to replace it. And it wasn’t even a Josephine when I went to buy it. Because I know we’ve talked about this before, people have had the question, “what do I do if I have to sell something but it’s on the buy list,” and you were like, well, I’ve never really seen that happen in thirty years because it’s usually a Josephine or something if I have to sell it. In this case, I had to rule 1 it but it was also at the top of the buy list and wasn’t a Josephine. I was like, “what do I do?” So, I panicked, and I bought SDG, and then Caine and Gary reminded me that it was going out of business. The cray thing is I actually, I’m getting really good at Excel, I have to say, thanks to help from a lot of people in our Club, I’m learning how to use look ups and indexes and search terms. I’ve even built a budget for my household the other day. I’ve got it all set up where I can…

Tony  20:23

Wow.

Cameron  21:25

I had a budget before, don’t go wow yet. Now, when I download a bank statement it automatically categorises everything by looking at partial descriptions of the thing, and then I have codes and it categorises it. Like, I’m quite impressed with myself, just quietly.

Tony  21:25

You could probably sell that.

Cameron  21:25

Yeah? If anyone knew what my budgeting looked like, they wouldn’t be buying budgeting advice from me. But anyway, so, I had a note set up to remind me to buy SDG, but I had it running on one tab and not the dummy portfolio tab. Anyway. So, I bought it, then I sold it again and bought MQG instead, for about the fifteenth time. MQG has never really been a long-term hold for me since we’ve been doing this.

Tony  21:26

Well, I’d still buy the next one. What commodity is IMA mining? It’s tin, isn’t it? No, mineral sands? I can’t remember.

Cameron  21:33

Yeah. Mineral sands sound right.

Tony  21:35

It wasn’t a commodity sell, was it?

Cameron  21:37

Well, I don’t think we’ve got a commodity chart for mineral sands.

Tony  21:42

Didn’t we have one? We looked at one for rutile or zircon from memory.

Cameron  21:48

Did we? Maybe.

Tony  21:49

Yeah. IMA is mineral sands. Sure it’s not a Josephine? I’m looking at its chart. Yeah, no, you’re right. It’s not a Josephine. However, you wouldn’t be buying it today because it’s having a down day. It’s down 2%.

Cameron  22:04

Right. I don’t think that was the case yesterday, though.

Tony  22:07

Yeah ,okay.

Cameron  22:08

So, in theory, then, leaving aside mineral sands for a second, if you had to rule 1 something but it’s at the top of the buy list, what do you do?

Tony  22:19

Well, if you rule 1 it, I mean, it’s dropped 10% at least. I’m surprised that it’s having an up day or it’s not a Josephine if it’s dropped 10%, right? Like I said, I’ve never seen it happen before, but if it does, I’d still probably by the next thing because you can hold on to it, but you’ve just suffered a 10% loss and it may go further south.

Cameron  22:38

And you wouldn’t sell it and then rebuy it, doesn’t make any sense. Yeah, right. You’re just paying brokerage. Well, apart from the fact that I then bought SDG, I did the right thing. Well, thanks to our good friends in Russia. Dennis won’t agree with that when he’s editing, but I don’t think he has any power in Kyiv at the moment from what I read.

Tony  22:59

And no water either.

Cameron  23:00

No water, no power, hope you’re doing okay, Dennis. But our good friends in Russia have said they’re no longer going to protect the grain exports from Ukraine and that’s pushed wheat prices up, apparently. So, I did a little bit of a look at wheat stocks on the ASX. Yeah, well there’s things like NUF, Nufarm.

Tony  23:29

Is Nufarm a wheat stock? I thought it was a chemicals company.

Cameron  23:33

They’re on the list of wheat stocks.

Tony  23:39

It would be a supplier to farmers.

Cameron  23:43

Well, I googled the wheat companies on the ASX, found a list that had Nufarm and a few others. I just wondered if you were looking at, you know, wheat as a potential thing.

Tony  23:56

No, I’m not.

Cameron  23:59

I mean, we’re one of the biggest agricultural producers in the world.

Tony  24:03

We are, but there are no listed companies from what I know.

Cameron  24:08

“Nufarm is a crop protection and specialists seeds company. NUF product helps farmers to protect their crops against damage caused by weeds…” Okay, so they don’t actually sell wheat at all. Well, that removes that problem.

Tony  24:25

I can’t think of any companies that are solely in the wheat business on the ASX. There are not many agricultural companies at all listed. But you’re right, I mean, if wheat’s doing well then, the suppliers to the farmers will probably do well; like Nufarm, like Elders. They tend to go boom and bust along with the farming cycle. We’ve had this question before, “do we track the commodities and then try and buy stocks based on the up turns in commodities or not?” And you could, but the QAV process is looking to buy cheap companies as well, not just those which are tracking up trends in commodities. I’m not really a commodities trader, even though it figured largely in the process in the last couple of years — hasn’t always. For example, a year ago people were saying, “should we be buying coal?” And the stocks weren’t on our buy list because they’ve only just started throwing off operating cash flow because of the rising coal prices. So, I would rather wait for the companies to meet our metrics even though we could have gotten in earlier if we’d tracked the commodities better.

Cameron  25:25

Right. Well, something like GrainCorp. See, this is where I got this. GrainCorp, Nufarm, Elders. Here’s my problem, it was the Motley Fool website that I was looking at.

Tony  25:37

From memory, GrainCorp is a trading desk for wheat. So, it probably is doing better when the price is up, but I’m not sure.

Cameron  25:46

Australia’s largest grain storage and handling network on the East Coast, according to Motley Fool.

Tony  25:52

I guess if the price is up, volumes up, which would GrainCorp do better, but I’m not sure if the price being up in wheat actually makes a difference to them.

Cameron  26:01

Well, no. I think you have mentioned in the past that when certain commodities are going up, you know, you’ve gone to the buy list to see if there’s anything on the buy list.

Tony  26:13

True. I saw your question and I couldn’t find anything on the buy list. But it is interesting, isn’t it? I mean, we are a nation that rides on the sheep’s back and we don’t have any, of many listed agricultural companies.

Cameron  26:27

Does that happen at the mounting yard as well?

Tony  26:28

There’s Costa Fruits, which is listed; there is *…* which is the cattle company; but they haven’t been great investments, and they’re terribly cyclical, as well. We’ve had all the co-ops, like Bega, for example, with the cheese farmers. Blessed are the cheese makers. And they often have problems, because if it’s a co-op, it’s got a thousand owners who all have different agendas. So, they can often be dysfunctional, farming cousins, but they don’t operate in the way that a large company operates, and so they don’t lend themselves easily to being a listed investment.

Cameron  27:10

Well, thanks for talking that through with me. There’s a new book out about Berkshire Hathaway, the Financial history of Berkshire Hathaway: the Complete Financial History. No biography.

Tony  27:23

What does that mean? Its just their company statements, is it?

Cameron  27:26

It’s an in-depth look at their business history without any personal drama or about, you know, Warren and his wife, and Charlie…

Tony  27:39

Really, that’s the fun. Does it at least have a few quips along the way from Warren or Charlie? It’s 200 pages of 401’s, or whatever they’re called over there, and returns? It’d be pretty dry reading.

Cameron  27:53

Couple of good quotes I got from this article, I was reading about it. I think this is a quote from the author of the book, whose name is Adam Mead. The Complete Financial History of Berkshire Hathaway. I like this one: “building Berkshire was an exercise in patience combined with opportunism and a reminder that opportunity cost matters. There was no grand strategy.”

Tony  28:19

That’s true. There’s a grant process, I think that’s probably a better description. I mean, Warren never set out to build a big conglomerate, he just applied a process.

Cameron  28:29

The other quote that I liked here was from Warren: “Charlie and I have never been in a big hurry. We enjoy the process far more than the proceeds, though we have learned to live with those also.” But I really liked that, like enjoying the process.

Tony  28:47

Yeah, exactly.

Cameron  28:48

And I thought that was good for QAV club members, is just to learn to enjoy the process.

Tony  28:55

Correct.

Cameron  28:55

That’s what I’ve spent the last few years doing, you know, is learning to enjoy the chess game of playing this and figuring out that the proceeds will take care of themselves, but to enjoy the process of learning how to become a skilled investor.

Tony  29:12

Yeah, I think that’s the same with everything in life. It’s the old maxim: you don’t watch the scoreboard, you watch what you’re doing. If you’re into share investing to make a quick million bucks and you don’t like it, it’s gonna get pretty stale very quickly. So yeah, you’ve got to enjoy the process for sure. Which I think is why QAV is attracted to a certain type of individual who, as you said, likes Excel spreadsheets and numbers and the logic of it all.

Cameron  29:39

Well, I don’t like any of those things.

Tony  29:41

But you’re attracted to the process still. Or just the proceeds.

Cameron  29:48

I know you’ve got to hold your mic there, but it’s making noise every time you move your hand.

Tony  29:52

Oh, sorry. Well, we can take a break and I can try and prop it up the book or something. Do you want to do that?

Cameron  29:58

Let’s just pause while you do that.

Tony  29:59

Okay, sorry. My microphone is sagging. Okay, there’s a leaning tower of books here now which are gonna fall down, probably. I’ll just have to be very careful. Won’t breathe.

Cameron  30:12

Yeah. Okay. Well, that’s all my notes for this week, Tony, what have you got on your list of things to chat about?

Tony  30:21

Just a few things. QAV stocks are in the news. SUL, what are they called now? They used to be called Super Auto, now they’re called Super Retail Group, I think. They had a trading update, and their sales were up 20% for the quarter, and JB Hi-Fi had a similar quarterly report as well. So, these reports are coming out when companies are having their AGMs. I guess retail sales are holding up, but whether that continues into the future with interest rates rising, who knows? But certainly, some strong numbers coming out of retail at the moment. I got a note from my stockbroker about Whitehaven Coal recently, and the headline was “MOAB Away.” MOAB stands for the Mother of All Buybacks. So, Whitehaven, even though the share price has dropped in the last couple of days along with the other stocks, they are going to start a 25% buyback. 25% of the issued capital will be repurchased on market over the next twelve months, and that comes on the back of 10% being bought back over the last period of six or twelve months, I’m not sure. So, that’s a lot of stock being taken off the market which will support the share price or should. According to my stockbroker’s numbers, they plugged the lower share count into their model, and they’re saying that it should lift the share price by 35% over the next twelve months as they buy stock back. So, the number crunchers at Ord Minnett are saying that. However, as we’ve seen in the last few days, coal stocks are down on a coal price correction, which is about $100 a tonne as you said before. And also, too, Coronado Coal has been in the news, which is one of our buy list stocks. They made a quarterly report which talked about their sales being down 15%. For two reasons; one because the coal price drop, but also, they’re a coking coal miner and producer and… I can see you’re looking at me holding the books up now. This is like the leaning tower of Babel, and its about to go as well. I’m not an engineer, I’ve got a very unsolid base here. *Crash* oh, there it goes. Shouldn’t have touched it.

Tony  30:56

Wish I got a photo of that. What’s wrong, your hinge is just loose? You can’t tighten up the hinge and boom?

Tony  32:47

No, that’s the problem with the one I have in Sydney, too. This one goes completely straight, and if you’re loosen it, it just flops. There’s no in-between.

Cameron  32:56

There’s no screw to tighten it up.

Tony  32:58

Yeah, there’s three screws. Like I said, it either goes completely rigid or it goes completely bent.

Cameron  33:07

I know that problem.

Tony  33:08

Anyway, it’s gone full Viagra at the moment. Hopefully it will hold for the rest of this show. Yeah, so Coronado Coal is a coking coal producer. And like I said before, the iron ore price has dropped dramatically on the basis of less demand coming out of China, and so coking coal has taken a bit of a crash as well, which I think might be feeding into thermal coal prices, because traditionally they’ve been linked. Although, Coronado have come out and said two things during its announcement of its results. One is they’re still talking with the overseas company called Peabody, another coal miner from the States who are talking about taking over Coronado. And then I think there was some conjecture that was falling through, but now it’s back on, or they’re in discussions anyway. But also, the CEO or the Chairman of Coronado came out and said that he was thinking of getting back into thermal coal. They had gotten out of thermal coal at some stage in their history and focused on coking coal because they didn’t want to be associated with the other coal companies that are seen as being poor ESG investments. But that hasn’t worked for Coronado, apparently, because the coking coal share prices, which used to be on a parity with thermal coal prices, have dislocated and dropped compared to the thermal coal prices. So, the chair of Coronado likes money more than ESG, so he’s getting back into thermal.

Cameron  34:44

I read that story. He said something to the effect of “yeah, we said we were gonna stay away from thermal coal but hey, money’s money. Too much money on the table.”

Tony  34:54

Yeah, at least he’s honest. So, anyway, they’re the stocks in the market. One more is Macquarie Group; we’ve spoken about it. Its results are announced and they’re also in Stock Doctor, so we’ve had an update on Macquarie. Yeah, it’s still on the buy list, which is good, and reasonably high up.

Cameron  35:11

Good, because I just bought them today. That’s good to know.

Tony  35:14

Yeah, I mean, it’s always a bit tricky around this time when something’s on the buy list and they’ve announced their results, but they haven’t flown through Stock Doctor. Generally, the share price is a guide, but…

Cameron  35:25

They’re down 1.58% today, so there you go.

Tony  35:28

Oh great, well then. Yes, so Macquarie results are in and they’re in Stock Doctor and it’s still in the buy list. The next thing I want to talk about was a quote I picked up from Alan Kohler in the Eureka Report recently. He was highlighting moves in the US market, and his quote is, “since the start of this year, Meta shares have fallen 71% and Microsoft, Alphabet and Amazon are down a bit more than 30%. The Fang Index has lost 44% from its peak.” So, a lot of drops in the internet type stocks in the US this year. *”It is different every time. It’s always different, Tony, it’s never the same. * [Alan Kohler quote played] And they have been trading on some high PE’s because they’re special, and they were going to go to the moon, but they haven’t. Lastly, oil and copper. So, I think the latest scorecard done on the weekend had both of those as a sell, but they’ve been turning around a bit in the last few days. So, I’ve got them both as a buy.

Cameron  36:27

I think oil was a buy, I had copper as a sell. I’ve changed it on mine now to copper as a buy. What do you think about aluminium?

Tony  36:36

I haven’t checked aluminium, sorry.

Cameron  36:38

I decided it was a sell when I was putting out the thing on Monday, but I wanted to get your thoughts on that. Because I think we talked about it sometime in the last couple of weeks.

Tony  36:55

We copped a reprimand from Brett for not following the Bible rules, I think.

Cameron  37:01

Oh, yeah. Well, Brett also checks your numbers on your pulled porks apparently and criticises them when you get the numbers wrong. Brett’s got nothing better to do at the moment. He’s out of work. He’s just checking your figures.

Tony  37:19

Thanks, Brett. We love you. Thanks for checking my figures.

Cameron  37:24

Exactly. Yeah, a tricky one, aluminium, I’m still finding. I decided it was a buy.

Tony  37:30

It looks like a buy to me.

Cameron  37:31

A little bit tricky to draw the second buy line there, because I can’t really find two nice easy peaks. But I figured it was peaky enough.

Tony  37:40

No, there’s a peak. The obvious highest peak is March 2022, but there is now a peak at July 2022 as well. Actually, if Brett has some time on his hands, maybe he could try and get a feed for all these commodities and put them in the Brettelator. That’d be a big help.

Cameron  38:01

Stop looking closely at Tony’s numbers. This is Tony’s way of trying to stop Brett from looking at his numbers. What are you doing as the second H2 for the PTL? August, did you say?

Tony  38:14

July. 29th of July 2022.

Cameron  38:17

Okay, but if you draw it through that, then you’ve only got two points. Where’s your third point?

Cameron  38:23

Where’s your third point? This is the same conversation we had with Brett. There’s no third point; it’s a three point trendline but there’s no third point. So, I went for August.

Tony  38:37

Using a point there.

Cameron  38:38

A point. And then I think it sort of crosses September, sort of runs down that little leg there to September. So, the cross is somewhere in there. Anyway, I figured it’s turning up for the last couple of months, so it was probably a buy.

Tony  38:55

Yeah, it’s definitely above its sell line.

Cameron  38:58

Okay, because I nearly bought CAA today, but they were slightly a Josephine when I looked at them. So, I bought VEA instead, which is a crude oil business, but just bought Coles Express.

Tony  39:11

VEA?

Cameron  39:13

Viva something?

Tony  39:14

Yeah, Viva Energy Group.

Cameron  39:17

But aluminium you think is good?

Tony  39:19

Yeah, I think so. I’m just looking at copper which is also buy now. I’m just looking at C6C, it’s starting to rocket up again, but it’s below its second buy line. Anyone who’s aggressive might want to get back in to C6C at the moment.

Cameron  39:34

Cool. Lots of changes in commodities. It’s so all over the place at the moment, gotta keep an eye on it.

Tony  39:39

I think the whole globe is all over the place at the moment. It’s a time of change.

Cameron  39:45

It’s a mess. Wait until the Republicans win back, you know, the midterms. When’s that set, in like a week? I think the seventh.

Tony  39:56

I think they’re voting now, aren’t they?

Cameron  39:58

There’s early voting, yeah. I’ve seen some stuff from 534, is that the name of it? The analysis outfit? Yeah, they’re predicting they’ll win both the Senate and the House, so.

Tony  40:14

Okay. I’ve heard predictions on the House but not the Senate, the Senate is still too close to call, apparently.

Cameron  40:20

The senate is close, but on 538 the last I saw they said the Republicans were slightly ahead and they’re forecasting.

Tony  40:30

I saw sections of the debate between Dr Oz and the Democrat in Georgia, which is one of the states they’re monitoring for the swing.

Cameron  40:38

A little bit.

Tony  40:39

The democrat had a stroke, and it was a very strange debate.

Cameron  40:44

And still came across as better than Dr Oz, who’s just an idiot. But anyway, yeah. So, God knows what’s going to happen to the markets after that happens and the results are in on that, too.

Tony  40:57

Yeah, I couldn’t predict. “To the moon.” Well, the Republicans are better economic managers than Democrats, so “to the moon.”

Cameron  41:05

Yeah, Trump did such a great job. So, what else you got on your talking points, there, TK.

Tony  41:13

Pulled pork, there, Cliffy, pulled pork.

Cameron  41:17

Now, do we need to get Brett on the phone before you do this?

Tony  41:20

Hang on. Sharpen your pencils. Straighten up. I’m going to read some numbers out that can be checked.

Cameron  41:26

GNG. I just bought some GNG, so I hope you give them good marks. Don’t put the kibosh on GNG with the pulled pork.

Tony  41:43

Well, we won’t know who’s put the kibosh on after you just bought some.

Cameron  41:48

Double kibosh.

Tony  41:49

Yeah, cross the streams. So, GNG. It’s GR Engineering. I guess this follows on from the company we spoke about last week, because GR Engineering is another mining services provider and it continues the theme of selling picks and shovels during a gold rush, which is often a good strategy to invest in, rather than trying to pick winners out of the gold miners or coal miners or whatever. Reasonable size company, ADT, average daily transaction, of $200,000. So, will suit a lot of people listening today. The share price of the analysis I’ve done is $2.23, which was done a day or two ago. This company is interesting because it doesn’t have a consensus target, or it does but it’s old so we’re not going to use it, which means we don’t get an IV2 calculation because we don’t have a forecast EPS. I do like companies with little or no coverage, it gives us a chance to get one up on our stock broking friends. Market cap of 372 million, so it’s a reasonably sized company. Interestingly enough, the yield is 8.5%. Very high. Financial health is strong and steady, and the return on equity with this company is 61%, which is huge. So, I know we don’t track ROE but I thought I would mention that. We don’t have a forecast earnings per share, but you’d have to think it’s going up if they’re generating 60% return on equity at the moment. Pr/OpCaf is good, 5.33 times, so we’re buying cash with a quick payback. Net equity per share is low on this one, it’s only 37 cents, and if you add 30% to that for book plus 30, it’s 48 cents. So, the share price is $2.23, it’s way above book plus 30. And interestingly enough, Stock Doctor has a different NTA, so a bit of a gap between net tangible assets and the net equity per share; I haven’t done a deep dive, but I suspect might be goodwill sitting on the balance sheet from prior acquisitions. This company has made a history of acquiring other small engineering companies. Another positive for this company is directors hold 11%, including one of the founders who’s still involved, and who recently actually stepped up to be the acting MD again because the CEO of nine years has just announced that they’re retiring, and so the founder has stepped back into the shoes of the MD while they conduct a search to replace the departing MD.

Cameron  44:31

Sorry, before you move on, let me ask you about that because normally the departure of a CEO or a CFO can be a bit of a red flag for us, but this one didn’t seem so. I mean, I looked, the market didn’t seem to react negatively to it.

Tony  44:46

Yeah, well, the only thing that was a bit surprising was they didn’t have someone already in place or being promoted internally or they hadn’t identified someone, so it may have been a bit more abrupt, but the guy has been there for nine years. I couldn’t see anything negative in the announcements which would suggest that there was a fight going on or the guy was pushed out, it just seemed like he was calling time and he was going to stick around for a bit.

Cameron  45:10

Sticking around to late January, I think. This other guy is going to shadow him until interim until then. So, yeah, it didn’t look like he was shown the door and told to pack his box and leave his pass with the security guard. Yeah.

Tony  45:25

It was something I looked at, but I think it’s all kosher.

Cameron  45:27

Okay.

Tony  45:28

So, in terms of the manually entered data, it is the lowest of the six last PEs, it’s a new three-point trend up turn, and there’s consistently increasing equity over the last six halves. All in all, it’s a quality score of 108%, 13 over 12, and a QAV score of 0.2. So, in summary, this is a really interesting case, which is why I wanted to highlight it for people to have a look at. It’s a high yield, 8.5%, a high ROE, 61%, good Pr/OpCaf, little or no analyst coverage, and an owner-founder. And this is almost like the Holy Grail of the QAV process, I think, so certainly worth a look. And if you have a look at the share price, it’s been steadily increasing for a while now. So, there’s something good going on in this company. However, there are risks, of course, with any investment. The risks are if the MD handover is botched for whatever reason, if they can’t find someone that’s good, or they hire someone who doesn’t stick, or whatever. Labour costs we know are increasing, as they are in almost every industry, so that will definitely hurt this company at some stage, as well as a labour shortage, which has been called out by competitors to this company. There could be a new COVID outbreak. I read back through some of the past statements from the company and there was concern that things were being shut down because of COVID. So, if there’s another COVID outbreak and mining operations get shut down, or they can’t get into mines, that’ll be an issue for them. And I don’t know how long the mining boom will go for; it could obviously keep going, but we’re seeing the iron ore price come back, we’re seeing the coal price drop off a little bit. If the mining boom does end soon then that will obviously be a source of concern for the company going forward, too. But at the moment, it’s doing well.

Cameron  47:15

The share price has kind of been interesting over the last three months. It was as high as $2.45 back in late August, and then dropped down to $2 late September. Up, down, currently at $2.24. So, it’s hasn’t been a completely smooth ride, but, you know, we know what the market has been like over the last six months. It’s been just choppy generally, I’m not sure if that’s a reflection on their business or just the choppiness in the market in general.

Tony  47:45

Well, I think it’s choppiness in the market in general. Again, if you look at the five-year monthly graph, the lows for this company would have been around COVID. So, March 2020.

Cameron  47:54

64 cents.

Cameron  47:55

I think I have bought it and sold it a few times; I’ve had to rule 1 it a few times which is frustrating. If you look at the look at the chart since COVID. It’s been up, like, four times almost since COVID. It would have been nice to have held it all that time, but rules is rules. All right. Well, thank you for that. GNG. Thank you, Tony. It’s up today, so my buying it didn’t put the kibosh on it. If it drops now, it’s all you and the CEO. All right, we can get into questions. Cool. First one is from Samuel: “I’m interested in a pull pork on DBI if Tony is interested. I think it could be within the QAV rule book, or close to, but somehow does not get automated data to come up in the shortlist. It’s basically in infrastructure with more or less pre-sold capacity for years to come with predictable and very secure income.” What do you know about DBI, Tony?

Tony  47:55

Yeah. And it’s just been going upwards coming out of COVID, at a 30- or 40-degree angle on the share price. So, it’s done well.

Tony  49:03

Not much. It’s Dalrymple Bay, so it’s got to do with the coal port in Mackay from what I know of it, but I’ll definitely do a pull port next week on it. Thanks, Samuel.

Cameron  49:13

Nice one. I’m not sure if he’ll be able to hear it because he’s going to Kilimanjaro, but he’ll be able to hear it when he gets back. Next question from Sam. “I’d also like to give you some feedback about another experience I had when travelling. I think the QAV system really works if you want to do as little monitoring as possible.” People may remember, I think it was last week, Samuel asked about going away for a couple of weeks, what would you do, etcetera?

Tony  49:36

If you didn’t have internet access.

Cameron  49:37

And I suggested you just give me all your money. “I’ve been living in France for all of August and September 2022, and found it was very easy to monitor first thing in the morning, which still gave me time to buy or sell…” He’s French

Tony  49:51

What a great life.

Cameron  49:52

I know, yeah, says the guy who’s sitting at Cape Schanck.

Tony  49:57

Oui oui.

Cameron  49:58

“…Still gave me time to buy or sell on alerts before the market closes. The system of QAV really gives you a solid framework and provides clear guidelines making the daily check quick and efficient. The trust comes with time and results, of course, and is always harder in a bear market, but I have had enough confidence to sleep through most of the trading day in Sydney. I really appreciate how your podcast is teaching and enabling rather than prescriptive. I find it confidence building. Thank you and TK for your good work, may you continue for many years to come. Already following you since September 2019. Wow.” Wow, indeed, Samuel.

Tony  50:36

Thank you, Sam.

Cameron  50:37

That’s great. Yeah, I mean, I’m glad to hear that. It’s nice to get that feedback about the confidence that he’s got in the system now. “Going back to Europe next week, and then onwards to Kilimanjaro, hence the two weeks offline. Thanks for the thoughts during your last podcast. QAV Melbourne also had a good brainstorm on being offline for two weeks, and several of us had similar experiences with different methods, including delegation, and some reduced exposure and finger crossing. Being able to talk about it with others also helps.” Well, good luck with that. I’m sure nothing dramatic will happen in the world in the next couple of weeks, Samuel. It’ll be fine. Don’t worry about it at all and stay safe at Kilimanjaro. Bless the rains down in Africa, when you’re there, and if you hear the drums echoing in the night, you know what to do.

Tony  51:29

And you’ll come back and there’ll be a new person in the White House, or at least in the Speaker’s chair in the House, maybe.

Cameron  51:35

Yes. Gary: “would TK please explain the for and against in his opinion of a DRP, Dividend Reinvestment Plan, and DSSP, Dividend Substitution Share Plan, please? And can you have both at the same time?” He wants a threesome with a DRP and a DSSP. How does that work?

Tony  51:58

Gee, really had to stretch my memory there. I haven’t come across a dividend substitution share plan for a long time. But I do remember owning AFI shares a long time ago, and, you know, had relatives who owned them which I put them onto. I don’t know if they still do, they did do a dividend substitution share plan, I think that’s what Gary’s talking about. And the difference between a DRP and a DSSP from memory is that if you do a DRP that means you take your dividend, but you take it as shares; so, the company buys shares on your behalf, but the Tax Office still treats the dividend as a dividend. So, you never receive the cash from the dividend because the company issued shares in your name to the equivalent amount, but the Tax Office says, “who cares, you still owe us tax on the dividend.” So, that’s one of the reasons why I don’t partake in the DRPs, because I still have to pay the tax on the dividends. The counter argument is you do your tax once a year and you get DRPS twice a year, and you can sell a share when it gets time to pay your tax. So, that’s true. DRPs are often done at a discount, so usually around 4 or 5% to the last the share price. So, you are buying shares at a 5% discount, but you’re foregoing the cash and using it somewhere else, and you’re tied to that particular company. So, you may not want to invest in that company at the time. So, that’s what a DRP is. The DSSP is engineered to get around that taxation issue. So, the company isn’t issuing a dividend to you and then buying shares instead of paying you in cash, it’s basically just saying we are going to issue shares to you, and it just happens to be that those shares are the same price as a dividend, or the same number of shares as if you hadn’t got the dividend and gone and bought the shares. So, it’s kind of a sneaky way around paying income tax on the dividend but you’re accumulating shares. There are tax implications, because those shares have a zero-cost base when it comes time to pay CGT, Capital Gains Tax, when you sell them. The Tax Office will catch up with you at some stage, but it’s deferred for a long time. So, that’s the difference. I think you can have them both in operation at the same time, I think, but again, I’m really going back a long time to AFI, and I can’t think of any other companies I’ve ever come across which offer a DSSP. But I think you just tick a box and say whether you want to participate in either a DRP or a substitution plan or neither, and then the company will work out what to do in terms of the share allocation for you, or payment for you.

Cameron  54:33

So, we’re not giving you a dividend, we’re giving you a share.

Tony  54:40

Right, we’re just giving you a share because we love you, and it happens to be around dividend time and equal to the value of the dividend, but it’s not a dividend.

Cameron  54:50

It’s not a dividend.

Tony  54:53

No, correct. Yeah. So, I mean, I think one of the reasons why the Tax Office hasn’t caught up with this plan is because I think AFI is the only company that does it on the ASX. So, it’s probably not a big deal, and I don’t know how many shareholders in AFI would care enough to do it. But it’s a bit like some of the other changes we’re seeing now about franking credits and off market buybacks, and things the Tax Office eventually gets round to clamping down on but they’re not big deals, so it takes them a long time to do it.

Cameron  55:23

Wonder if I can do that with my income if I just don’t call it income. I just call it cash grants.

Tony  55:31

Yeah, QAV just happen to give you some shares instead of payment.

Cameron  55:36

It’s not income, it’s just money that appears in my account every month. But we’re gonna call it something different. A pretty vase of flowers.

Tony  55:47

Payment substitution plan.

Cameron  55:52

I thought that’s what you just called your involvement in this podcast in the first place. The Cameron Gift Program.

Tony  56:01

Correct.

Cameron  56:02

That’s how I explain it to people anyway. All right. Thank you, Gary. Hope that helps. That’s it for questions for Q&A this week, TK…

Cameron  1:01:04

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