Transcript #602

QAV 602 CLUB

Mon, Jan 16, 2023 1:35PM • 1:14:44

Cameron  00:06

Wel­come back to QAV. This is sea­son six, for some rea­son. Year four, sea­son six, episode two, and it’s our first real episode for 2023. Hap­py New Year, TK.

Tony  00:25

Hap­py New Year, Cam.

Cameron  00:28

It’s been a month since we’ve record­ed an episode. How’s your month been?

Tony  00:33

Real­ly good. Great. Been to the Cape Schanck, played a lot of golf, been up here, had Alex and Sean stay­ing with me, had Rud­dy up, had a good New Year’s Eve, watched the fire­works. Yeah, it’s been real­ly good.

Cameron  00:48

Did­n’t miss the show?

Tony  00:50

I enjoyed lis­ten­ing to your com­pi­la­tions, Cam. Thank you for that, they were great. I actu­al­ly real­ly enjoyed the last one with the inter­views. It was real­ly good to hear the qual­i­ty of peo­ple that we’ve had on the show. They’re real­ly smart peo­ple.

Cameron  01:05

Yeah. And, you know, I thought there was some real­ly good insights and time­less insights going back there. My orig­i­nal idea last week was to actu­al­ly get Samati­no on the show to talk about his invest­ing and get an update from him. I tried call­ing him and I could­n’t get through, so I start­ed doing the edit. Then he did call me back, we had a long chat, and we’ve actu­al­ly decid­ed we’re going to do a pod­cast togeth­er; which you’ll love, because we’re gonna get back to Futur­ism and tech.

Tony  01:33

Yeah, good.

Cameron  01:33

And, you know, the whole open AI chat GPT thing. Steve’s a futur­ist, that’s what he does for a liv­ing. Urgh, I can’t talk about it: he’s pitch­ing a TV show — which I’ll tell you about off air, because he prob­a­bly does­n’t want it out there yet — which sounds real­ly inter­est­ing. But any­way, yeah, I think we’ll get back to doing… Because there’s cool stuff hap­pen­ing in tech now for the first time since Steve Jobs died, I think. And right­ly or wrong­ly, I think most of it is being dri­ven in part or in whole by Elon Musk. I know you’re not a big fan of Musk, but between Tes­la, open AI, Twit­ter, obvi­ous­ly, SpaceX, Star­link, Neu­ralink, and the bor­ing Com­pa­ny — you know, I’m not sure about that one — but out of those half a dozen things, you know, when you add all of those things togeth­er, it’s an amaz­ing port­fo­lio of cut­ting edge busi­ness­es that if he can inte­grate them all, if he can exe­cute on half of them and inte­grate them, it’s real­ly gonna be an inter­est­ing decade. But any­way, so we’ll see what hap­pens with that.

Tony  02:42

Well, yeah, that’s true. How­ev­er, you left one off that list: Twit­ter.

Cameron  02:47

No, I said Twit­ter.

Tony  02:49

Did you? Oh sor­ry. I’m glad I was­n’t a Tes­la share­hold­er in the last six-twelve months.

Cameron  02:54

Sure. But you know, things go up, things go down, maybe Tes­la’s not going to be the leader of the pack that it has been. But Twit­ter is an amaz­ing asset, whether you like or dis­like what he’s doing with it; to have access to five hun­dred mil­lion peo­ple that he can then plug his busi­ness­es into? As a for­mer bad mar­keter, hav­ing an audi­ence of five hun­dred mil­lion peo­ple that you can just manip­u­late and deter­mine what they get to see and what they don’t get to see; I mean, that’s worth $44 bil­lion, I think, eas­i­ly. So, we’ll see. Whether or not he can take that asset and do some­thing inter­est­ing with it remains to be seen. But any­way…

Tony  03:36

And even if he can’t, he can sell it to Rupert Mur­doch on the basis of the pitch you just gave.

Cameron  03:42

Like Myspace.

Tony  03:43

“Here’s Myspace.”

Cameron  03:44

Myspace 2. Dear me. All right let’s get into the show. Char­lie Munger turned nine­ty-nine last week, so Hap­py Birth­day Char­lie. Caught up with a local QAV lis­ten­er, Matthew, for a cof­fee this morn­ing and Tay­lor came along. We were talk­ing about Char­lie and Tay­lor said, “yeah, he looks nine­ty-nine, too.” Well, he does; he looks like he’s about to fall over. He looks like The Walk­ing Dead, but as soon as he opens his mouth you go, “oh shit.” He is not weak­ened at all in terms of his abil­i­ty to artic­u­late what he thinks is going on. He’s as sharp as a tack.

Tony  04:24

Yeah. And think about all the stuff he said about Bit­coin in the last cou­ple of years and var­i­ous oth­er things; he is sharp as and spot on. Do you think if we drink Coke and eat See’s Can­dy peanut brit­tle, we can live to be a hun­dred as well? What is it with Char­lie and War­ren? Is it just because they’re rich and they get the best med­ical atten­tion? Like, I just can’t work it out.

Cameron  04:44

Prob­a­bly part of it, yeah.

Tony  04:45

Because they kind of defy all the con­ven­tion­al med­ical advice, don’t they?

Cameron  04:50

You know, I’ve got oth­er friends of mine that are in their nineties that are sharp and still with it and rel­a­tive­ly healthy. They’re not super rich but, you know, its good luck, a good diet, they’ve looked after them­selves.

Tony  05:04

But that’s my point. Char­lie and War­ren haven’t had a good diet.

Cameron  05:07

No, no.

Tony  05:08

War­ren was inter­viewed a lit­tle while ago, I think by one of the last peo­ple who bought one of those char­i­ty lunch­es with him for a mil­lion dol­lars or what­ev­er it was. They brought their daugh­ter along, and he said to the daugh­ter who was eight years old, he said, “I eat like I’m still eight years old, so don’t change what you eat.”

Cameron  05:24

Ham­burg­ers, fries and coke.

Tony  05:26

Ham­burg­ers, fries, coke, can­dy, yeah.

Cameron  05:31

All right. Well, Hap­py Birth­day any­way to Char­lie, and may we all be as lucky as he is.

Tony  05:39

Lucky, yeah, but he’s a smart guy. I mean, if peo­ple want a New Year’s Eve res­o­lu­tion — and I know that’s one of the ques­tions com­ing up — but go and read things that Char­lie’s put out. And I don’t just mean about invest­ing; read Poor Char­lie’s Almanack, which is fan­tas­tic, read Lat­tice, which is fan­tas­tic. There’re biogra­phies out about him about how he’s donat­ed so much back to uni­ver­si­ties in par­tic­u­lar. Not just donat­ed the mon­ey, but he gets his hands involved and says, “look, the sci­ence lab when I was at uni­ver­si­ty was shit. Here’s how you do a sci­ence lab,” and he redesigns a sci­ence lab. Just things like that. Very, very inter­est­ing guy.

Cameron  06:15

He’s real­ly a frus­trat­ed archi­tect.

Tony  06:18

Yeah. Well, he was a prop­er­ty devel­op­er, that was his first for­ay into invest­ing. He has some great things to say about that. He talks about how he learned pret­ty quick­ly that, you know, if he did­n’t just build a box, he could add some val­ue and charge a high­er price. If he made it nicer than the oth­er ones that were there, put some palm trees in the front yard, all that kind of stuff, he did well. But then he got intro­duced to Buf­fett and he realised that prop­er­ty devel­op­ment was a slow burn and Buf­fett was get­ting a much bet­ter and quick­er return, so he changed.

Cameron  06:47

Yeah. Well, I meant luck in terms of health, not in terms of invest­ment, but how much of that is mon­ey or luck or genet­ics, I don’t know. But I think, you know, we stand a good chance the way tech­nol­o­gy’s going. I think if you can sur­vive the next fif­teen years, you’re prob­a­bly going to take advan­tage of all of the stuff that Ray Kurzweil has been promis­ing us for twen­ty-five years. And who’s that oth­er guy I used to inter­view? Aubrey de Grey, all of that advanced med­ical tech­nol­o­gy.

Tony  07:16

He had some prob­lems recent­ly, too, I read. He was kicked out of his posi­tion at wher­ev­er it was called.

Cameron  07:22

The Methuse­lah Foun­da­tion.

Tony  07:23

Some­thing like that, yeah.

Cameron  07:25

Well, there you go. Let’s talk about com­modi­ties, Tony. I mean, com­modi­ties have been going up and down and chang­ing sta­tus more often than Scott Mor­ri­son and port­fo­lios dur­ing his Prime Min­is­ter­ship. I think the sta­tus, accord­ing to Alex’s analy­sis on Mon­day, is we now have iron ore as still a buy, gold as still a buy; both coals, ther­mal and cok­ing, are Josephine’s; crude oil is a sell; cop­per’s a Josephine; plat­inum is a buy; alu­mini­um is a sell; zinc’s a Josephine. Tin’s a buy; mag­ne­sium is a sell; man­ganese is a buy; steel is a sell; LNG is a sell; nick­el is a Josephine; and iron and steel scrap is a Josephine. So, there’s not a lot of buys in the whole com­mod­i­ty sec­tor right now. Iron ore and gold, real­ly, of the ones that real­ly mat­ter. Yeah.

Tony  08:20

Yeah. Which are two big ones for us. But yeah, no, I agree. I think com­modi­ties have had a good run and they’re prob­a­bly com­ing off.

Cameron  08:28

Coal: I mean, if you look at the month­lies which is what we do when we’re doing these charts, obvi­ous­ly, coal is cur­rent­ly a Josephine. Rumours hit the mar­ket last week. Again, I have to thank Xi Jin­ping and the CCP, because Mon­day for the Light port­fo­lios — Mon­day, last week — I bought two coal stocks, YAL and TER. I made that deci­sion on Mon­day when it was a pub­lic hol­i­day, and then Tues­day morn­ing when the mar­ket opened, I bought them. Then a few hours lat­er some­body in the QAV club, I think it might have been Alice, point­ed out that ther­mal coal had just become a Josephine that day. I was like, “urgh!” By the end of the day, they were both down 5%, and I thought maybe I should just cut our loss­es and tell the Light sub­scribers, “Sor­ry, it became a Josephine, but know­ing that I would­n’t have bought them.” And then I thought, well, I bought them in good faith. They were a buy when I made the deci­sion, so I’ll just stick with it. And then lit­er­al­ly, like a day or so lat­er, the rumour came out that Chi­na is going to start import­ing Aus­tralian coal again after a two-year break. The Ord shut up, and they were all in the black again. Of course, my oth­er big mis­take from a cou­ple of months ago, SMR, that I bought when cok­ing coal was a Josephine and some­body point­ed out I should­n’t have bought it, it’s up 50% since I made that mis­take. So, you know, coal keeps sav­ing my ass when I make these deci­sions. But any­way, my point was gonna be that I think it might be that by the end of this month coal will be a buy again if that is any indi­ca­tion, if Chi­na’s open­ing up. What do you think?

Tony  10:07

You’re ask­ing me to pre­dict where the coal price is going?

Cameron  10:09

Yeah, sure. It was actu­al­ly back down today, I noticed. I’m just look­ing at the coal chart on Trad­ing Eco­nom­ics. It was going up for the last few days, it was up to $400. Start­ed the year at, like, $395, went up to $400 a tonne USD, back down to $394 today. So, maybe it’s eas­ing off a bit again.

Tony  10:29

Yeah, I mean, it could just be hype. It could be a news sto­ry. There’s that. I mean, the Aus­tralian minors have been sell­ing coal, so they’ve found oth­er peo­ple to sell it to besides Chi­na. So, the ques­tion is, if Chi­na opens up, is that addi­tion­al sales, or does Aus­tralia just go, “well, we’re full. We’re sell­ing coal to every­one else now, and we don’t have any more to sell to Chi­na?” I don’t know, not my core com­pe­tence.

Cameron  10:51

The mar­ket seemed to think it was a good thing, because all of our coal share prices spiked nice­ly last week. But you were say­ing ear­li­er off air, was it SMR, you said? You keep buy­ing it…

Tony  11:06

Not SMR, no. Yan­coal was one of them.

Cameron  11:10

They go up and then they go back down.

Tony  11:12

Yan­coal and New Hope are a cou­ple of ones I’ve just been cycling through all the time.

Cameron  11:17

New Hope has been an absolute cham­pi­on for me.

Tony  11:20

Oh, good.

Cameron  11:20

It’s sit­ting in my Super port­fo­lio. I think it’s up 180% since I added it to my Super port­fo­lio.

Tony  11:29

And Whitehaven’s like that for me — not quite 180%. But it seems like if you can get into one and get start­ed, they’ll kick on. But if you just keep cycling through a late-stage start, it’ll just be a pain.

Cameron  11:40

I was telling you off air, I got an email from one of our Light sub­scribers this morn­ing ask­ing me about SMR. He said, “first of all, Light is great. It’s doing real­ly well, I’m real­ly hap­py with my returns.” He said, “SMR is up 50% since I bought it, should I sell it and take the prof­its?” I of course said, “well, look, you know, I can’t give finan­cial advice, so I can’t tell you what you should do. But I can tell you what we will do, is fol­low the rules and explain that we don’t take prof­its because your expe­ri­ence is if you’re on a win­ner, you stick with it, because quite often they’ll con­tin­ue to win. Some­times it does­n’t work out. You know, some­times they don’t, some­times they do, but it’s your old thing about ‘why would you bench Michael Jor­dan?’ ”

Tony  12:21

Yeah. That is War­ren Buf­fet­t’s old say­ing, yeah.

Cameron  12:23

You know the rule about that. The first time you say, “as War­ren Buf­fett always says,” the sec­ond time you say, “as some­one said,” the third time you say, “as I’ve always said.”

Tony  12:31

“As I’ve always said,” yeah.

Cameron  12:35

Any­way. Week by week with com­modi­ties at the moment is fair­ly tur­bu­lent. So, yeah, what’s good today may not be good tomor­row.

Tony  12:47

Yeah, there was an arti­cle, I think it might have been in today’s Fin, about the com­mod­i­ty super cycle and how over the long term they fol­low a nor­mal sine graph, and we’re in the down­ward trend of the lat­est com­mod­i­ty super cycle. But again, it does­n’t real­ly wor­ry me or pre­dict things, because, you know, I think the trend start­ed in the last com­mod­i­ty super cycle about fif­teen years ago. So, you know, you have plen­ty of ups and downs in that cycle any­way,

Cameron  13:12

is that the El Nino or the La Nina of the com­mod­i­ty cycle?

Tony  13:17

Yeah, no, it’s just called the com­mod­i­ty super cycle.

Cameron  13:19

I did the dum­my port­fo­lio report to club mem­bers this morn­ing. The dum­my port­fo­lio since incep­tion is up about 16.5% per annum ver­sus the STW over the same peri­od, which is up about 6.6% per annum. So, though not quite three times, let’s say two and a half times the STW since incep­tion. Still track­ing nice­ly for the finan­cial year. We’re still lag­ging the STW quite con­sid­er­ably. We’re still up about 6.5% in the first six months of the finan­cial year. So, that’s not too bad. STW is up 14.7%, though, so it’s had a real­ly good run so far, this finan­cial year. But his­to­ry does what it does; it will pull back at some point, and we’ll keep going on our lit­tle steady jour­ney upwards.

Tony  14:17

Cor­rect, Yeah, there will be peri­ods, espe­cial­ly in a six-month­ly time span where we under­per­formed it. Yeah, we’ve been going, that dum­my port­fo­lio has been going for what, three and a half, four years now?

Cameron  14:27

In April It’ll be… No, Sep­tem­ber it’ll be four years. It was three years last Sep­tem­ber.

Tony  14:33

Okay, so just under three and a half years. I mean, it’s pret­ty much done what we said it would do: it’s achieved dou­ble mar­ket over that time peri­od.

Cameron  14:42

God, what a shock.

Tony  14:43

Yeah. How often in life do you find some­thing that gives you what it says on the cov­er it’ll give you.

Cameron  14:50

And, you know, I start­ed the Light port­fo­lios at the begin­ning of last year and we spent all of the cap­i­tal in the first one in April last year. Or did we start it in April? I think it was ful­ly invest­ed in April, just as the crash hap­pened — the Ukraine war crash, etc., etc. Even so, it’s now doing 11% up. All the port­fo­lios as a whole are up 11% over the last year or since incep­tion ver­sus the STW, which is up about 4.5%. So, even the Light port­fo­lio start­ed at the worst pos­si­ble time last year to start a port­fo­lio as a whole is doing two and a half times the STW. So, the thing just, like, bug­ger me, Tony, it works.

Tony  15:45

Now that should go onto a cof­fee mug,

Cameron  15:47

“Bug­ger me, it works.” You were telling me you want me to change the text on the web­site, so maybe that’s what I’ll put as the head­line: “Bug­ger me, it works.” In the last thir­ty days in the dum­my port­fo­lio, the super­star is SMR up 26%. In the last thir­ty days, LAU — anoth­er stock that I’ve had that’s been hit and miss for me over the years — Lind­say, it’s up 18% in the last thir­ty days. Can’t snort at that. I was telling you, I think in the one of the Light port­fo­lios, SKT, Sky Net­works, is up 85% since I added it last year. It’s anoth­er one of those stocks that I’ve said to Tony off-air I always feel dirty when I buy any­thing asso­ci­at­ed with Rupert Mur­doch. It’s even worse than buy­ing a coal stock.

Tony  16:38

A coal stock, I agree.

Cameron  16:40

You know, I feel dirty buy­ing coal stocks, but I under­stand the ratio­nale behind it. Buy­ing Sky Net­work always feels dirty too. Up 85% takes a lot of the dirt off.

Tony  16:51

Yeah, if you can’t beat them, join them. Well, you know, you just men­tioned two things there which I’m going to join togeth­er: one is Rupert Mur­doch, and the oth­er one is, you know, the front page of our web­site and what we should put on it. And if I go back to when we first start­ed talk­ing about writ­ing books and all that kind of stuff togeth­er, I had this con­cept that we’re blind to things affect­ing us in our life; the way that areas of things which affect our life evolve to opti­mise the returns to the peo­ple in that indus­try sec­tor, but they have a neg­a­tive return on us. And one of them is finan­cial advice, right? If you’re finan­cial­ly illit­er­ate, if you’re une­d­u­cat­ed, you’re just a tick­et to peo­ple that are going to clip. They’ll charge as much as they can and pro­vide a pip­squeak ser­vice and you’ll get under­per­for­mance, and if you do get good per­for­mance, you’re over­pay­ing for it. So, I think that soci­ety works that way. It’s just like kind of evo­lu­tion­ary, right? If peo­ple can make mon­ey in an indus­try, they will, and that’s what Rupert Mur­doch’s done. If you’re going into the news­pa­per game tomor­row, would you have said, “well, tits on page three and ten pages of soc­cer, and if we can find a soc­cer play­er with a girl­friend with big tits, they go on the front cov­er.” That’s going to be how jour­nal­ism is going to evolve; you know, cost the lease and pro­duce at the best return, you’d nev­er think of that. But that’s how that indus­try has evolved and Rupert Mur­doch’s a mul­ti bil­lion­aire because of that, and that same evo­lu­tion and dynam­ic is going on in finan­cial advice, it’s going on in edu­ca­tion, it goes on in health, all the oth­er things which affect you and your life. And that’s why you’ve got to have your eyes open to these things. So, I hate invest­ing in Rupert Mur­doch, but that’s how the news indus­try has evolved and it’s suc­cess­ful. That’s why we always have to be vig­i­lant in every­thing we do; in the media we con­sume and finan­cial advice. Get finan­cial advice from some­one who’s rich­er than you. That’s the start­ing point, real­ly, isn’t it?

Cameron  18:44

Well, there’s our Tik­Tok and YouTube clip for the week.

Tony  18:47

So, that’s my rant, but I was think­ing about it before.

Cameron  18:49

“Tits on page three.”

Tony  18:52

I was­n’t think­ing so much about that, but it was more about how indus­tries evolved. Nash who won the Nobel Prize has this idea that things find a Nash equi­lib­ri­um: it’s where indus­tries or soci­ety or groups of peo­ple gen­er­al­ly set­tle, and it’s the least amount of work with the best return. That’s where news­pa­pers have fin­ished, unfor­tu­nate­ly, for us, because we’re try­ing to con­sume inde­pen­dent media. But yeah, we should be alive to that fact.

Cameron  19:22

And yeah, I think the broad­er point of what you’re talk­ing about there with how we’re blind is that, a good exam­ple is finan­cial sec­tor invest­ing. It’s an entire indus­try that is large­ly designed to keep peo­ple con­fused and stu­pid.

Tony  19:42

Yeah, that’s one of the things that these indus­tries evolved to do.

Cameron  19:46

Yeah, like there’s a whole indus­try that is designed to prof­it from peo­ple’s igno­rance. The more that they can per­pet­u­ate that igno­rance, the more mon­ey bro­kers make ana­lysts make, the finan­cial media makes, the bankers make, etc., etc. So, we’re doing our lit­tle bit to try and edu­cate peo­ple, so they don’t fall for those traps. And Fin­Tech Tik­Tok­ers telling every­one to get into cryp­to over the last cou­ple of years, etc., etc.

Tony  20:19

Actu­al­ly, I’m look­ing for­ward to the next cryp­to. I mean, I think that’s when things get inter­est­ing, you know, when some­one comes along and says, “hey, I’ve just made a mil­lion dol­lars out of invest­ing in what­ev­er.” Lithi­um. I sus­pect lithi­um is the new one, but we’ll see. Or green hydro­gen, or what­ev­er. Peo­ple will get burned; we’ll keep plug­ging away get­ting dou­ble mar­ket.

Cameron  20:41

Well, we need to come up with the next cryp­to. I think you’re miss­ing the big pic­ture here, Tony.

Tony  20:45

Right. We should join the Rupert Mur­doch’s of the world, the evil cap­i­tal­ist.

Cameron  20:49

You know, peo­ple have been telling me for thir­ty years I should start my own reli­gion. Because, you know, I under­stand the his­to­ry of reli­gion so well. If any­one’s going to start a fake reli­gion and manip­u­late peo­ple, that should be me. I should be the one doing it. I know how it all works. Part of me goes, you know, can I do an L. Ron Hub­bard? Yeah, I think I could. But could I live with myself? No. I could prob­a­bly do it.

Tony  21:15

That’s the dif­fer­ence, isn’t it.

Cameron  21:16

A sex cult. That’s what Ray and I always talk about: why don’t we have a sex cut? Like, what’s wrong with us?

Tony  21:23

I would have thought that was self-evi­dent, but any­way.

Cameron  21:27

Let’s get back to the con­ver­sa­tion about you and the budgie smug­gler on the front page of our web­site. That’s gonna be our new mar­ket­ing add for peo­ple: Tony in a budgie smug­gler on the beach.

Tony  21:37

“Join our sex cult.”

Cameron  21:38

“You could be rich like me.” I’ll just say, “pay us $99 a month or I’ll keep send­ing you pho­tos of Tony in a budgie smug­gler.” Oh, speak­ing of com­modi­ties, Matthew who we were out to cof­fee with today was ask­ing me about the buy list and what the col­umn meant that said “Buy sell Josephine or a blank.” Let me just open up the lat­est buy list. Okay, so this is col­umn J. And I said, “oh, well, that’s the com­mod­i­ty sta­tus col­umn. That’s there because in the past I had jumped the gun and bought a stock with­out check­ing the com­mod­i­ty sta­tus, and so I inte­grat­ed it into the mid­dle of the buy list so it would jump out at me too much.” And he was like, “oh, I’ve just been buy­ing the things that said buy on there, I thought they were buys.” So, for any­one else who does not read the title of the col­umn you see up the top, it says “com­mod­i­ty sta­tus”. Next to it, col­umn K, is com­mod­i­ty type. So, that’s just telling you the sta­tus of the com­mod­i­ty. So, obvi­ous­ly if some­thing is a Josephine or if it’s a sell, we would­n’t buy it. If it’s a buy it means, it’s clear to buy. If there’s a dash there, it means either it does­n’t have an under­ly­ing com­mod­i­ty like N1H, N1 Hold­ings, or Bell Finan­cial Group does­n’t have a com­mod­i­ty that we can track. Or, in some cas­es, it means that it has mul­ti­ple com­modi­ties like South 32, nick­el, zinc, alu­mini­um, coal, and we need to get a lit­tle bit deep­er and break down the weight­ings of the com­modi­ties. I’m actu­al­ly try­ing to get one of my free­lancers to do all of that research for us soon, so we have done that analy­sis. Unfor­tu­nate­ly, in order to do that, if Stock Doc­tor don’t report it — and they often don’t — you have to go into the annu­al report, go to the rev­enue, and break it all down. There’s a bit of work involved, so I’ve asked her to go and do that for us so we can throw that in there. But in the mean­time, you have to do it your­self. So, yes, for the buy list, col­umn J is the com­mod­i­ty sta­tus, not telling you whether or not you should buy the stock. I mean, yeah, if it’s on the buy list and the com­mod­i­ty’s a buy, it’s prob­a­bly a safe bet. You’re prob­a­bly not gonna go too wrong there. But yeah. Well, that’s it. You’re gonna do a pulled pork, I think.

Tony  24:16

I am. Yeah, I’m gonna do a pulled pork on Vir­gin Mon­ey UK.

Cameron  24:20

By the way, the pulled pork com­pi­la­tion episode I did, every­one loved.

Tony  24:25

Real­ly?

Cameron  24:25

Yeah, I think the pulled pork is sort of the high­light of the episode for a lot of peo­ple.

Tony  24:31

Okay.

Cameron  24:32

It’s your analy­sis, you know, the way that you analyse these com­pa­nies and think it through. So, it is, it’s a win­ner. I was par­tial­ly doing it for that rea­son, because I know it’s pop­u­lar, and also par­tial­ly doing it to see how those com­pa­nies fared. And it was hit or miss, and obvi­ous­ly last year was a tough year in the mar­kets. And I guess that was my take­away from it, you know; you’re doing pulled porks on com­pa­nies that look good on paper. The fun­da­men­tals are good, they’re good busi­ness­es, but being a good busi­ness does­n’t nec­es­sar­i­ly mean that you will do well in the short term. The share price will do well in the short term; over the long term it prob­a­bly means it will do well. And this gets back to the ques­tion the Light sub­scriber sent me this morn­ing about “should I sell SMR and rede­ploy those funds.” I was talk­ing about this with Matthew over the cof­fee today. We’ve gone over this before; it seems good in the­o­ry — take my prof­its rein­vest it — but you don’t know how the com­pa­ny’s you rein­vest those funds into are gonna do. Because even though these com­pa­nies look good on paper and Tony does a pulled pork on them, they don’t always do well share price­wise in the short term. So, bet­ter to keep your mon­ey invest­ed in the thing that’s doing well.

Tony  25:35

I mean, I think it is. On bal­ance it is. It does­n’t mean coal will keep going up, but to get our dou­ble mar­ket return, we fol­low a sys­tem where we don’t sell things when they’ve gone up 50%: we ride them.

Cameron  25:47

Which is coun­ter­in­tu­itive.

Tony  25:48

It is.

Cameron  25:48

And is very dif­fer­ent to what a lot of the guests that are val­ue investors that we’ve had on the show do. A lot of them take their prof­its and rein­vest — for a vari­ety of rea­sons. Some­times they’re run­ning funds where they’ve got some­thing built into their poli­cies that they’ve got­ta do. They man­date, but we don’t, and I think that’s one of the rea­sons why your results are bet­ter than most of the guests that we have on the show.

Tony  26:13

Well, I think so. But again, we’d have to test it. We’d have to run our whole port­fo­lio over a long peri­od of time and see whether you’re bet­ter off tak­ing 50% prof­it, and then run all sorts of dif­fer­ent sce­nar­ios of whether 50 is bet­ter than 60, or 60 is bet­ter than 40, and is 100% bet­ter. What’s our thresh­old.

Cameron  26:29

Good job for our new intern.

Tony  26:30

He’s got a lot to do before he gets to that. But yeah, it would be a very inter­est­ing job to test that the­o­ry. But, I mean, we can do that, or we can just go, “well, Buf­fett said it. It’s worked for him, it’s worked for me, I’ll prob­a­bly put that to the bot­tom of the list.”

Cameron  26:46

Fair enough.

Tony  26:47

Maybe we can opti­mise it, but it works.

Cameron  26:48

VUK me, Tony, VUK me.

Tony  26:50

Jawohl. VUK, Vir­gin Mon­ey UK. I may have done this before, but it’s just come back onto the buy list. If I have done it, it’s quite a while ago, so it’s worth going over again. So, Vir­gin Mon­ey UK is a cou­ple of banks based in obvi­ous­ly the UK, based in Leeds. It’s changed its name, I think it may have actu­al­ly merged or acquired the Vir­gin Mon­ey busi­ness in the UK, but it was for­mer­ly known as CYBG. That was its name and indi­ca­tor, which stood for the Clydes­dale Bank­ing Group. It also has the York­shire Bank­ing Group as part of it now, and Vir­gin Mon­ey UK. It’s UK banks. These banks are retail banks, so they’re sim­i­lar to the ones that oper­ate in Aus­tralia. They offer mort­gages and sav­ings accounts, they have a lit­tle bit of wealth man­age­ment, super­an­nu­a­tion, invest­ments, they offer cred­it cards, per­son­al loans, etc. So, not too dis­sim­i­lar to the major banks in Aus­tralia. So, we’re not talk­ing about Gold­man Sachs or your Wall Street invest­ment banks, we’re talk­ing about the sort of bread-and-but­ter build­ing soci­ety-like banks that we have in Aus­tralia. And one of the rea­sons why we have this list­ed on the stock exchange here and it’s not just on the UK exchange, is because it used to be a divi­sion of the Nation­al Aus­tralia Bank, NAB. Quite a while ago, a CEO called Frank Cicut­to went on a bit of a joyride around the world and bought up stakes and banks in Amer­i­ca and the UK. The long sto­ry short, it end­ed real­ly bad­ly, which it always does for Aus­tralian banks invest­ing over­seas. And that, lis­ten­ers, is a red flag for me. If I see one of the big four banks invest­ing over­seas, it’s nev­er been done prof­itably — cer­tain­ly in my invest­ing life­time. And for a whole vari­ety of rea­sons. Part­ly, the banks some­times over­see work dif­fer­ent­ly in Aus­tralia, and that was the rea­son why NAB’s US invest­ments did poor­ly. Because in the US, peo­ple refi­nance all the time, you don’t take out a bank loan for a long peri­od of time and the banks over there don’t make it hard to get out of your cur­rent bank­ing arrange­ments. They just flip them when­ev­er the inter­est rates change in the US. So, a dif­fer­ent mar­ket, and NAB weren’t part of that cul­ture and they got burned bad­ly when inter­est rates went down. And yeah, it’s just been a com­mon theme for Aus­tralian banks. They don’t invest well over­seas. I think the oth­er point is, Aus­tralian banks are pro­tect­ed by the four pil­lars which stops them from being tak­en over by some­one else. So, they’re kind of insu­lar and they’re real­ly not tak­ing any sort of val­ue propo­si­tion when they go over­seas. It’s not like we’re doing bank­ing vast­ly dif­fer­ent or bet­ter than banks in the UK. They do it well, but they’re not world beat­ers. There’s noth­ing unique in the Aus­tralian mar­ket which we can take over­seas. They’re not like the only banks with bank­ing apps or inter­net bank­ing sites; they’re the same as the oth­er banks over­seas. The only rea­son they go over­seas is because they want to try and boost their growth pro­file in Aus­tralia, and they can’t take each oth­er out. They’ve pret­ty much soaked up all the minor banks in Aus­tralia. There’s still a cou­ple out there, but no real big ones for them to take over, so occa­sion­al­ly they try and go over­seas, and it works out bad­ly for them. So, long sto­ry short, NAB split off its UK oper­a­tions, they became CYBG, and now they’re called Vir­gin Mon­ey UK, VUK. So, that’s what you’re buy­ing if you buy this share. Onto the num­bers. The share price was $3.45 when I did this analy­sis. It’s about that now, might be $3.46, I had a look before we start­ed. $3.45 is actu­al­ly quite cheap com­pared to IV 1 and IV 2, which are respec­tive­ly $4.30 and $4.71. So, this is a cheap buy based on intrin­sic val­ue and based on book val­ue as well. So, the book val­ue for this share, the net equi­ty per share, is $7.85. So, it’s a long way below book val­ue for this, and obvi­ous­ly book plus 30. So, it’s scor­ing real­ly well on those met­rics. We’ll find out as I go through that the fore­cast earn­ings growth is neg­a­tive and that’s prob­a­bly why it’s cheap, but cer­tain­ly on an asset basis it’s very cheap. This share has just gone back onto the buy list, and so it has a recent upturn. The share price of $3.45 is slight­ly below con­sen­sus esti­mates on price, so that’s scores for us. The Pr/OpCaf for this com­pa­ny is cur­rent­ly 1.45 times. So, that’s real­ly low, you’re almost pay­ing to buy this stock in what it gen­er­ates in cash this year. So, on the val­u­a­tion side of things, it’s real­ly cheap. Stock Doc­tor health, it’s finan­cial health is strong and steady, so that’s real­ly good, too. But the ana­lysts are fore­cast­ing neg­a­tive 49% growth in earn­ings per share, so a big fall off and growth. I had a look at the lat­est results announce­ments, which for this com­pa­ny was back in Novem­ber, and they were actu­al­ly fore­cast­ing a mar­gin growth in the com­pa­ny. So, I sus­pect what’s dri­ving the ana­lyst’s fore­casts and down­grades is because of the UK econ­o­my. UK infla­tion is run­ning at 10.7%, so it’s high­er than what it is in Aus­tralia. And, you know, a lot of peo­ple are tip­ping the UK and Europe will go into a reces­sion. So, that will be neg­a­tive for the bank. So, that’s the risks, I guess, for this share. But if you’re buy­ing it cheap­ly, it prob­a­bly becomes a bit of a risk mit­i­ga­tion sce­nario. And I go back to our old cof­fee shop anal­o­gy for this one. If you’re being offered a local cof­fee shop, you know, just to pick some num­bers out of the air, say the per­son that is sell­ing it to you is offer­ing a price of $500,000 to buy this com­pa­ny off them. You know that they spent a mil­lion dol­lars on the fit out on the venue and all that kind of stuff. So, it’s hard for the cost of them to invest in the busi­ness and build it up, but this year they made $100,000, so you can pick it up on a PE of 5. But they’re say­ing, “look, it’s a real­ly tough mar­ket. If we go into reces­sion next year, you’ll make half that.” So, even if you do, you can’t go out and buy a cof­fee shop and start from scratch for the price you’re being offered this cof­fee shop. In fact, it’s going to cost you twice as much. And even if the sales and income go down, it’s still a PE of 10, which is stan­dard for the mar­ket, or it’s even a bit cheap for the mar­ket. So, it still stacks up as a good buy even in a worst-case sce­nario, I think. So, that’s my think­ing on this stock. But if the UK goes into reces­sion, the share price could go side­ways or could even go down. Who knows? That’s the risk. All in all, the qual­i­ty met­rics on this add up to 67%, and it’s a QAV score of 0.46 which is quite high, and that’s large­ly dri­ven by the Pr/OpCaf being at 1.45 times.

Cameron  1:13:56

The QAV Pod­cast is a pro­duc­tion of Space­craft Pub­lish­ing Pro­pri­etary Lim­it­ed, autho­rised rep­re­sen­ta­tive of AFSL 520442, AFS rep­re­sen­ta­tive num­bers 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.