Transcript #610

QAV 610 CLUB

Cameron  00:06

Wel­come back to QAV, episode 610. Sea­son six, episode 10. We’re record­ing on the sev­enth of March 2023. Straight out of the ASA webi­nar, first one we’ve done for a cou­ple of years. How’re you doing, TK? Back in Syd­ney today, I see.

Tony  00:25

Back in Syd­ney, yeah. Got Rud­dy with me, he’s got a few days up here. We’re play­ing in a char­i­ty golf day on Fri­day, which will be fun. Just a bit tired after a two-day dri­ve back from Cape Schanck.

Cameron  00:37

Yeah, I bet. So, what do you and Rud­dy do now that you’re both off the booze when you’re hang­ing out togeth­er? What are you drink­ing? That’s what I want to know. Is it tea, is a choco­late milk, is it Clay­ton’s and soda? What do you drink?

Tony  00:49

It’s gen­er­al­ly flavoured min­er­al water. So, go and buy shares in Kirk’s because my con­sump­tion has gone through the roof.

Cameron  00:58

Yeah, we drink I think it’s Schweppes diet ton­ic water. A lot of diet ton­ic mixed with a bit of grape­fruit juice is our go-to drink these days. It’s very exot­ic for us.

Tony  01:09

I’ve been able to buy this diet ton­ic water with blood orange in it, which is nice.

Cameron  01:14

Yeah, we’ve had that a cou­ple of times, too. That’s nice. Well, let’s get into invest­ing stuff, TK. The buy list yes­ter­day had some com­mod­i­ty updates. We’ve also, you know, we were talk­ing last week about Grain­Corp and what its under­ly­ing com­mod­i­ty chart was, and I think we were using one of the Stock Doc­tor ones — W# — but Kane in Syd­ney, jew­ellery Kane — got­ta come up with a nick­name for Kane — Kane sug­gest­ed that he had anoth­er chart, a Trad­ing Eco­nom­ics chart, for USD bushel prices which he said seemed to map a lot more close­ly to GNC. And I had a look at it, and I think he’s prob­a­bly right. So, that was the one that I used yes­ter­day. Have you had a chance to com­pare that with the Stock Doc­tor one?

Cameron  01:14

Yeah, I actu­al­ly did it last week as well. So, I’ve got my notes to talk about it today. So, well done Kane. But same thing, I found Trad­ing Eco­nom­ics’ wheat graph was a bet­ter match. Some­thing hap­pened with W# a year or two ago where it’s just sort of halved it looks like, so they’ve done an adjust­ment to the unit there some­how which has bug­gered up the long-term graph. But yeah, Trad­ing Eco­nom­ics’ wheat is good.

Cameron  02:36

I’m just look­ing at the comms sta­tus. So, some changes we had this week: gold became a buy again, crude oil became a buy, cop­per became a buy and alu­mini­um became a buy. So, a lot of changes in the comms this week. Wheat is also a buy, by the way.

Tony  02:58

That affects the buy list a lot too, because there’s a few gold stocks on there now, there’s a few oil stocks on there now. So yeah, have a look peo­ple.

Cameron  03:06

You got any macro-eco­nom­ic analy­sis to say why these all became buys again?

Tony  03:12

I’d just be guess­ing. I mean, gold is always said to be the hedge against infla­tion, and we’re in a high infla­tion peri­od, so poten­tial­ly that. And oil, look, there’s a cou­ple of things about oil. It’s obvi­ous­ly the war in Ukraine, but that’s been going on for a while. The relax­ation of the COVID pol­i­cy in Chi­na was meant to dri­ve up the price of oil, too, but I’m not sure if either of those are the rea­sons in and of them­selves.

Cameron  03:39

I read some analy­sis in the finan­cial review this morn­ing about Chi­na. Appar­ent­ly, they just had some sort of Con­gress and their fore­casts for their econ­o­my are a lit­tle bit soft­er than peo­ple were hop­ing for, their growth for the next year. Their tar­gets, I think, 5%

Tony  03:59

I think it’s real­is­tic. That may prove to be ambi­tious, but it’s more real­is­tic than what they used to use at, like, 9 or 10% in the past. So, Chi­na is clear­ly com­ing out of the sort of, you know, it’s upgrad­ing its econ­o­my; it’s com­ing out of that sort of third world sta­tus where labour’s cheap and it’s now no longer nec­es­sar­i­ly the man­u­fac­tur­ing shop for the rest of the world. So, it’s growth will slow.

Cameron  04:24

Who is now?

Tony  04:25

It’s spread. I mean, I hear dif­fer­ent things: Bangladesh, parts of Africa.

Cameron  04:29

Viet­nam.

Cameron  04:30

Yeah, it was inter­est­ing read­ing the arti­cles in the Fin this morn­ing about this. They were say­ing, “well, on one hand we don’t trust Chi­na’s num­bers any­way. But on the oth­er hand, this is what they say their num­bers are gonna be and it’s low­er than what ana­lysts were think­ing and that’s a bad thing.” I’m like, well, is it? Any­way, they were say­ing it’s not nec­es­sar­i­ly going to be the boom time, anoth­er boom time for iron ore as had been pre­vi­ous­ly fore­cast. I guess it does­n’t real­ly mat­ter for us because we don’t lis­ten to fore­casts any­way. We just see ret­ro­spec­tive­ly, we don’t fore­cast. But I want to speak about com­modi­ties a lit­tle bit fur­ther. BRI, Big Riv­er Indus­tries, was a stock I was look­ing at last week, I think I bought some for the light port­fo­lio. It says on Stock Doc­tor, “Big Riv­er Indus­tries man­u­fac­tures veneer, ply­wood and form ply and the dis­trib­utes build­ing sup­plies.” It’s a typo in Stock Doc­tor, “then dis­trib­utes build­ing sup­plies” I think it should be. And I was try­ing to fig­ure out what the under­ly­ing com­mod­i­ty would be for that. Got any insights?

Tony  04:30

Yeah.

Tony  05:40

I think we’ve used lum­ber in the past, haven’t we, for tim­ber? That would be the one I’d look to. And I guess the gen­er­al com­ment about all these things is, if you’re a Stock Doc­tor sub­scriber, it’s rea­son­ably easy to call up the five-year month­ly share price for the com­pa­ny. And then you can over­lay a com­mod­i­ty graph, assum­ing it’s in Stock Doc­tor, they’re not all in Stock Doc­tor, and you can see if there’s a cor­re­la­tion between a com­mod­i­ty and the stock. Which is why we first looked at W# for wheat and found it did­n’t quite match, so I went look­ing on Trad­ing Eco­nom­ics and it matched bet­ter there. Even if you’re not using Stock Doc­tor or you’re using Trad­ing Eco­nom­ics and you can’t over­lay, you can still have a look at both graphs side by side and see if the peaks cor­re­spond to each oth­er and the troughs cor­re­spond to each oth­er. I did that for lum­ber in Stock Doc­tor and I was­n’t get­ting a great match, but I can’t think of much else to use. It’s man­ly tim­ber or lum­ber.

Cameron  06:38

Right. I’m in lum­ber futures in Stock Doc­tor… Oh, com­pare? Okay, there you go. There’s a lit­tle com­pare but­ton.

Tony  06:46

Got it?

Cameron  06:47

Yeah. Thanks. Had­n’t done this before. Yeah, that does­n’t real­ly map very well at all, does it?

Tony  06:52

No, it does­n’t real­ly. I think that was the only one avail­able in Stock Doc­tor, I don’t think they have a tim­ber.

Cameron  06:58

Yeah, not that I can see.

Cameron  07:01

Right? Well, that’s the way I always smooth out my con­crete, is with tim­ber. A big piece of tim­ber. And I just, you know, I just drag it across the con­crete.

Tony  07:01

I did see BRI also had a con­crete busi­ness as well, so per­haps the tim­ber side is smoothed out by con­crete.

Tony  07:18

When did you last con­crete?

Cameron  07:21

I watched, I watched my dad lay a back patio in about 1975, Tony. That’s my entire expe­ri­ence lay­ing con­crete, comes from that.

Tony  07:32

That’s the last time I did it, too.

Cameron  07:34

He prob­a­bly drank about twelve bot­tles of beer when he was doing it, so I’m not sure it was a good exam­ple of how to do it prop­er­ly. All right. New rate rise com­ing today, they reck­on, Tony. The RBA’s meet­ing again?

Tony  07:47

In about an hour’s time, so we may even know it dur­ing the record­ing. But yeah, fore­cast to go up anoth­er 0.25. Infla­tion is still stub­born­ly high in Aus­tralia, so every­one expects it. Who knows? We’ll see in an hour’s time, there’s no need to spec­u­late. I did have a look, just on that, I did have a look at the mort­gage rates of the banks, the big banks, between our last show and this one, and they’ve come back a lit­tle bit. There’s a lot of com­pe­ti­tion going on for mort­gages amongst the banks. So, I’m get­ting a rate now at around 6.48, so around 6.5. So, if peo­ple want to update their QAV spread­sheets for the check against div­i­dend yield, it’s now 6.48%. Which is down from I think it was about 6.8 some­thing up until recent­ly. But yeah, it’s inter­est­ing. I think the mort­gage mar­ket is very hot, and not that it affects us, but it may have an impact on bank stocks going for­ward if they’re hav­ing to dis­count a lot to get mar­ket share.

Cameron  08:47

Well, get­ting back to the RBA. They’re cop­ping a shel­lack­ing in the Finan­cial Review. It’s just sto­ry after sto­ry in the ABC and the Finan­cial Review I’ve seen in the last cou­ple of weeks, just com­plete shel­lack­ing echo­ing, I think, some of your con­cerns about the RBA you’ve expressed on the show.

Tony  09:06

Yeah, I think watch this space with the RBA. Well, some of the arti­cles are sug­gest­ing that the whole struc­ture of the RBA will change, or the board will change. So, cur­rent­ly the gov­er­nor usu­al­ly comes from inter­nal­ly with­in the RBA; they’ve been around for a long time, they’re an econ­o­mist. And then they appoint exter­nal board mem­bers, typ­i­cal­ly from busi­ness. I think there might be a union rep on the board as well. I think some of the noise com­ing out in the arti­cles I’ve been read­ing is that they may change that so it’s a board of econ­o­mists going for­ward. I’m not sure if that’s going to be an improve­ment, giv­en the one econ­o­mist in charge has had a few stum­bles in the last twelve months, but we’ll see. I also sus­pect that giv­en that if, you know, when a gov­ern­ment focus­es on an insti­tu­tion like this and does a review, there’s usu­al­ly a rea­son­ably sub­stan­tial change com­ing out of it. They’re not gonna just waste a year of review­ing some­thing and then say, “yeah, it’s good. Tick. Move on.” So, I would­n’t mind bet­ting that some of the pow­ers at the RBA get passed back into the gov­ern­ment, prob­a­bly into the trea­sury depart­ment away from the RBA board. But we’ll see, it’s all spec­u­la­tion on my part.

Cameron  10:14

Makes me think of the gov­ern­ment fund­ed his­to­ry that’s just been writ­ten on our involve­ment in the inter­ven­tion in East Tim­or. You read about that?

Tony  10:25

I heard you talk about it on the pod­cast last week, yeah.

Cameron  10:32

Incred­i­ble, yeah. Spent, what, five years and mil­lions of dol­lars writ­ing the his­to­ry, and then get it and go, “oh, geez, that’s bad.”

Tony  10:43

Not just that, but the whole bug­ging, you know, scan­dal of the… And it’s, you know, ger­mane to busi­ness because it was Wood­side who were push­ing the gov­ern­ment to give them an inside run­ning on con­tract nego­ti­a­tions. And yeah, the gov­ern­ment said, “okay, sure. We’ll bug the oth­er side.” And then when the whis­tle blow­er came out to call the gov­ern­ment on it, he was slapped with law­suits. I can’t remem­ber the sto­ry now. Did he go to jail?

Cameron  11:10

Wit­ness K?

Tony  11:11

Yeah, Wit­ness K. Did he go to jail?

Cameron  11:13

Wit­ness K and his lawyer Bernard Col­laery. I think both did some jail time, both have been sub­se­quent­ly released. I think Wit­ness K did a cou­ple of years; I don’t know how long Col­laery did. I was hav­ing lunch with a mate of mine yes­ter­day, anoth­er Bris­bane pod­cast­er, Trevor Bell, who does the Iron Fist and the Vel­vet Glove which is a week­ly pol­i­tics round-up. He was telling me he just read Bernard Col­laery’s book which he said is amaz­ing, real­ly amaz­ing insight. And just the way that he, a lawyer, and Wit­ness K were treat­ed by the Aus­tralian Gov­ern­ment for reveal­ing their dirty laun­dry. It’s just… But it’s Chi­na that we need to wor­ry about: it’s Chi­na’s treat­ment of peo­ple we need to wor­ry about, not the Aus­tralian Gov­ern­ment. We’re get­ting side tracked here. Let’s talk about ASIC suing Mer­cer Super in its first green wash­ing case. Saw this in the Finan­cial Review the oth­er day. “The cor­po­rate watch­dog has accused retail super­an­nu­a­tion giant Mer­cer of mis­lead­ing mem­bers about the sus­tain­abil­i­ty of its invest­ments in a land­mark green­wash­ing case. It is the first time the Aus­tralian Secu­ri­ties and Invest­ments Com­mis­sion has tak­en the com­pa­ny to court alleg­ing green­wash­ing after both it and the con­sumer watch­dog pledged to crack down on this sort of mis­con­duct last year. ASIC alleged Mer­cer super­an­nu­a­tion, which over­sees $27.5 bil­lion in assets, mis­led mem­bers of its sus­tain­able plus fund by claim­ing it exclud­ed com­pa­nies that were involved in car­bon inten­sive fos­sil fuels, but then heav­i­ly invest­ed in fif­teen stocks from the sec­tor includ­ing AGL Ener­gy, BHP, Glen­core and White­haven Coal. It also told mem­bers it exclud­ed alco­hol pro­duc­ers and gam­bling out­fits from the fund, but then invest­ed in thir­ty-four com­pa­nies across the two sec­tors, includ­ing Crown Resorts, Tab­corp, Bud­weis­er, Carls­berg and Heineken.”

Tony  13:17

That’s lit­er­al­ly astound­ing, isn’t it?

Cameron  13:19

Like, what were they think­ing? How did they think they would get away with this? It bog­gles the mind.

Tony  13:27

It does, does­n’t it? I did­n’t see the arti­cle, I just skipped through the head­line when I was read­ing the paper, but when you sent me the link I was just absolute­ly gob­s­macked. And then fur­ther on, “Mar­ket Forces super­an­nu­a­tion researcher Brett Mor­gan added that the case should put funds on notice that their sus­tain­abil­i­ty claims will be test­ed. He said that ‘eight of eleven major super­funds sus­tain­able invest­ment options analysed by Mar­ket Forces, includ­ing the Mer­cer prod­uct, were poten­tial­ly mis­lead­ing con­sumers by invest­ing in com­pa­nies expand­ing the fos­sil fuel sec­tor.” Eight out of eleven.

Cameron  14:00

Yeah, and it’s obvi­ous­ly a big enough prob­lem that ASIC have called out that they were going to crack down on it. I mean, call­ing it green­wash­ing I think is doing them a favour. I mean, its fraud, basi­cal­ly.

Tony  14:13

Yeah, they’ve tak­en fees for some­thing they’re not deliv­er­ing.

Cameron  14:16

They’re claim­ing they’re doing one thing, and then hood­wink­ing investors by doing the oppo­site of that and mar­ket­ing it under this green­wash­ing thing. You know, I don’t want to make any alle­ga­tions, because I haven’t checked this with my lawyers, but there’s a great book called the Psy­chopath Epi­dem­ic that we should real­ly read. This is the sort of stuff we talked about in the book, right? Busi­ness­es just doing stuff that on paper… Reminds me of the whole Robo-debt thing, the com­mis­sion that’s been going on. When you hear these sto­ries, you just shake your head and go, what were they think­ing? How did they think they would get away with this? How did nobody put a stop to this at some point and go, “Hold on. Sor­ry. We’re doing what now? We’re say­ing we’re doing this, but we’re real­ly doing the oppo­site. No, wait, whoa, whoa, whoa, time­out, time­out. Let’s stop and talk about this.” Obvi­ous­ly either it did­n’t hap­pen, or if it did hap­pen, that per­son got told to shut the hell up, and, you know, did­n’t make a noise about it for what­ev­er rea­son, did­n’t go to the press, did­n’t go to any­one. You just hear these sto­ries all the time. Well, you know, my con­clu­sion writ­ing the book was, this is evi­dence of psy­cho­path­ic cul­tures where they just think they can do what­ev­er the hell they want. And even if they get caught out, so what? They’ll get a slap on the wrist, the prof­it that they make will pay for the fines. Nobody goes to jail. The media cycle turns, every­one for­gets, and we just go about busi­ness, right?

Cameron  14:16

Yeah, risk and reward, real­ly. I’ve worked in some big com­pa­nies and it’s very hard to do any­thing with­out it being legal. So, I’m sur­prised that Mer­cer has done this. And it’s just, you know, Mar­ket Forces who may be, you know, biased in terms of try­ing to find prob­lems, because they’re try­ing to get peo­ple to invest sus­tain­ably. If they can find eight of eleven oth­er funds who are doing the same thing. I mean, this smacks of fund man­agers going, “oh, but they do it. We’ve got to do it to keep up,” you know, and it’s just incred­i­ble. And they’ve got large incen­tives to do it. And it begs the ques­tion, if that indus­try is doing it on this issue, which is so easy to check, what are they doing with oth­er funds?

Cameron  16:36

What else are they doing?

Tony  16:37

Yeah, what else are they doing? And I know that, and I won’t allege any­thing, I know that a num­ber of ana­lysts in the Super­fund indus­try point to the fact that there are a lot of unlist­ed assets in large indus­try funds in par­tic­u­lar, and that if you look at a com­pa­ra­ble, say, a real estate invest­ment trust that might have a large amount of com­mer­cial prop­er­ty in it, and then look at its per­for­mance over the last twelve months and the way the asset prices are being writ­ten down, and then you look to a super­fund that claims to have large amounts of com­mer­cial prop­er­ty in it and the assets haven’t been writ­ten down, you know, what’s going on? So, if they’re doing it on this issue, what are they deal­ing with all the oth­er things that they tell the pub­lic?

Cameron  17:22

So, there’s a cou­ple of oth­er things that came to mind when I read this. Num­ber one is, apart from how did they think they were going to get away with it, is why did they feel the need to do it? Is it because it was too dif­fi­cult to find enough green funds or green com­pa­nies to invest in and to still get the kind of returns that they have to get to keep their jobs or to keep their mem­bers, and they fig­ured they had to colour out­side the lines in order to get the sort of returns that they need­ed to get? Or if not that, then what’s the moti­va­tion for doing the oppo­site of what you tell your cus­tomers you’re going to do, what your mis­sion is? There has to be a moti­va­tion in there some­where, and I’m not clear on what that is but I think it’d be real­ly inter­est­ing to know more about it. Hope­ful­ly, it comes out as part of some court case. Sec­ond­ly, we’ve talked about, you know, our atti­tudes, or your atti­tudes and I agree with you, on invest­ing in coal com­pa­nies and min­ing com­pa­nies, etc. Even though we may moral­ly and eth­i­cal­ly say, yes, we wish we could stop all min­ing tomor­row, that would be a good thing. And if, you know, there’s a way of sup­port­ing that, we will do it. At the same time, as you say, buy­ing shares in a com­pa­ny as long as it’s not part of an issuance isn’t real­ly giv­ing mon­ey to the com­pa­ny. So, it’s nei­ther here nor there. And the third thing that real­ly just jumped out at me is, you know, we’ve talked many times on the show about how the finan­cial ser­vices indus­try in this coun­try is just rife with rip­ping off cus­tomers, and this is just anoth­er exam­ple of that. Like, we just fed the Haynes Roy­al Com­mis­sion yes­ter­day and here we have more. Like, you would think the finan­cial ser­vices sec­tor after the Roy­al Com­mis­sion would go “well, we bet­ter lock our shit down for a while here. We bet­ter be above board and fly right here for a while, you know. There were big penal­ties and very embar­rass­ing tes­ti­monies and all that kind of stuff, a lot of media cov­er­age,” despite the Lib­er­al gov­ern­ment try­ing to pre­vent it from hap­pen­ing for many years. And here they are still at it. I just can’t get my head around how you run a com­pa­ny like that after that and then go “yeah, it’s alright. We got out of that okay, let’s go back to the well.” Again, this sug­gests to me a psy­cho­path­ic organ­i­sa­tion­al cul­ture, because I can’t fig­ure out any oth­er expla­na­tion for it. But any­way, the point I want­ed to make is just that you just can’t trust any­one out there. Don’t trust us, even. Hon­est­ly, don’t trust us. Don’t trust any­one. Trust no one. Do it your­self. Yeah, don’t trust any­one, right?

Tony  20:21

Well, yeah, and I think I spoke about this before; sus­tain­able funds have tra­di­tion­al­ly charged the fee pre­mi­um, so there’s a real incen­tive for a fund man­ag­er to say their fund is sus­tain­able, they can put their prices up. And as is prob­a­bly the case in some of these funds, they’re doing noth­ing dif­fer­ent, they’re just charg­ing more for it. So, there’s a great incen­tive to call your­self sus­tain­able. And it’s either lax behav­iour or it’s hyper com­pet­i­tive behav­iour. I know if they’re includ­ing coal min­ing com­pa­nies they’ve had a great run in the last twelve months, so the temp­ta­tion is always there, because the fund man­ag­er is not just judged on their sus­tain­abil­i­ty, they’re judged on their per­for­mance. So, there is a great com­pet­i­tive force there forc­ing them to try and get the best per­for­mance. But, gee, I mean, I haven’t done the num­bers or the analy­sis, but I’d be pret­ty sure if I took the QAV buy list and took out coal stocks or, you know, what­ev­er stocks we want to exclude, we could still put togeth­er a decent port­fo­lio and get above mar­ket returns from it. So, it could also be lazi­ness on the fund man­agers part, to just take an exist­ing fund and slap a new label on it to charge a high­er fee.

Cameron  21:28

We should point out that these are alle­ga­tions at this stage. We’re not accus­ing… Well, ASIC or accus­ing, we’re not accus­ing.

Tony  21:40

We’re report­ing.

Cameron  21:41

Yes. There’s this great quote here from King and Wood Mallesons finan­cial ser­vices part­ner, Sarah Yu. Among oth­er things, she said, “there is an organ­i­sa­tion­al struc­ture piece to ensure that these risks are appro­pri­ate­ly man­aged.”

Tony  21:55

Is there?

Cameron  21:57

Well, she said there should be.

Tony  22:00

Oh, yeah, absolute­ly.

Cameron  22:02

Well, yes. Isn’t that called the board and the man­age­ment? Isn’t that the organ­i­sa­tion­al struc­ture base?

Tony  22:08

Or the legal depart­ment?

Cameron  22:09

Oh yeah, maybe we should have some­body who looks over what we’re doing and makes sure that we’re not doing any­thing ille­gal. There’s an inter­est­ing idea. I don’t know. It just bog­gles my mind, man. What the hell are they think­ing, I always have to ask myself. Speak­ing of what the hell are they think­ing: Gary point­ed out that a cou­ple of our old favourites, LAU and IGL, are about to hit the S&P Ordi­nar­ies index. I did­n’t see a bump, but then Andrew point­ed out that it takes effect on March 20th. That’s two weeks away. So, would we expect to see a bump?

Tony  22:50

Yes, but it can be a ongo­ing bump. So, both shares are doing well. Once they’re in the index we should see a bump from index funds buy­ing it, but they won’t be oblig­ed to buy it on day one. They’ll try and mas­sage that a lit­tle bit. And also, too, some funds will be buy­ing it now that’s been announced to try and get that bump, so the bump may have already occurred. And then there are fund man­agers out there who try and pre­dict what stock is going to be includ­ed in what index, and they’re buy­ing it last month. So, there’s a few bumps along the way. It’s not one clean bump. But cer­tain­ly, being a part of that larg­er index will def­i­nite­ly sup­port the share prices of the com­pa­nies. It’s a big­ger pool of peo­ple to invest in their com­pa­nies.

Cameron  23:34

Well, I think we hold those in some of the QAV port­fo­lios and I may hold them in my own port­fo­lios, I can’t real­ly remem­ber.

Tony  23:43

I hold IGL coin­ci­den­tal­ly because I was doing a Cham­pi­on Chal­lenger port­fo­lio a cou­ple of years ago, and it was in there even though it’s much small­er than what I nor­mal­ly invest in.

Cameron  23:52

Yeah, right. Well, good. Let me see, LAU… We’ve got it in the dum­my port­fo­lio and have a cou­ple of hold­ings of it in the light port­fo­lios, and I don’t hold it myself by the looks of it. I don’t hold IGL either, but it’s in the dum­my port­fo­lio and the light port­fo­lio. So, hope­ful­ly they all do well. It’s up 85%, IGL, in the dum­my port­fo­lio. Wow. And LAU is up 89% in the dum­my port­fo­lio, so they’ve already been good.

Tony  24:26

The bump may have bumped already.

Cameron  24:28

May have bumped already. Pre-bump bump. Speak­ing of peo­ple who say crazy things: Jer­ry Har­vey.

Tony  24:36

Alleged­ly.

Cameron  24:37

Well, no, he said it. It sounds pret­ty crazy. Accord­ing to Rear Win­dow in the Finan­cial Review: “there he goes again. Absolute­ly on cue, the final day of report­ing sea­son as always, Jer­ry Har­vey has deliv­ered anoth­er bizarre results side show. ‘My advice to you is to sell your house, sell your boat, sell your car, put the lot into Har­vey Nor­man shares and then ring me in three or four years and you won’t need to be a jour­nal­ist any­more,’ he told this news­pa­per’s Chan­ti­cleer col­umn one Tues­day. Geez, where have we heard that before? Five years ear­li­er to the day Har­vey said, ‘if the share price goes down to $4, then sell your house, sell your boat, sell your car, buy Har­vey Nor­man shares.’ Har­vey Nor­man’s shares closed that day at $3.85. On Tues­day, they closed at $3.85. That could have been a long five years in the rental mar­ket, and on trains, trams and bus­es.” So, what do you think about Har­vey Nor­man and Jer­ry Har­vey? I mean, should you be tak­ing invest­ing advice from the CEO of a com­pa­ny, Tony?

Tony  25:40

Well, again, we invest on the facts and the num­bers, not the sto­ry that’s spun by the CEO. So, yeah. Take it with a grain of salt.

Cameron  25:49

Great quotes in this.

Tony  25:50

And not just sin­gling him out, all CEOs. Take them with a grain of salt when they say things like that.

Cameron  25:55

Yeah, I think it was last week or the week before some­body in the Finan­cial Review was com­plain­ing about CEOs in denial. But I love some of the quotes in this arti­cle. “The mis­er­able old bas­tard, his words, not ours, went on to whinge that the mar­ket is under cook­ing the val­ue of the com­pa­ny’s prop­er­ty port­fo­lio, which is car­ried in the accounts at $3.9 bil­lion, and the com­pa­ny’s mar­ket cap is just 4.8 bil­lion. The prop­er­ty is more valu­able than plat­inum and gold, but it’s not regard­ed as that, he says. How non­sen­si­cal for Jer­ry to com­plain that the mar­ket is low balling his real estate assets when the mar­ket’s cau­tion is caused entire­ly by his refusal to pro­vide rea­son­able trans­paren­cy on those assets.” Any­way, I thought it was a fun­ny arti­cle tak­ing a crack at Jer­ry.

Tony  26:39

It is a good arti­cle. I enjoy Rear Win­dow. I guess addi­tion­al back­ground, ana­lysts have com­plained for a long time about the Har­vey Nor­man accounts. And they’re a bit dif­fer­ent to most oth­er sim­i­lar type com­pa­nies, retail com­pa­nies in par­tic­u­lar. For a start, they do own a large prop­er­ty port­fo­lio, and most retail­ers have worked out that that’s a low growth game and they’re bet­ter off putting it into a trust on the side. Any­body who wants to invest in the real estate side of things and get a good yield can do that, but the oper­at­ing com­pa­ny is the main game, and so they split those. West­field was the clas­sic exam­ple on that one. Or they just do a sale and lease­back. They sell Bun­nings, for exam­ple, trans­fer their prop­er­ty into a Bun­nings Ware­house prop­er­ty trust and then the oper­at­ing com­pa­ny’s part of Wes­farm­ers. So, Jer­ry has­n’t done that, and addi­tion­al­ly he has a rela­tion­ship with his store man­agers which offers sup­port. So, it’s not clear. There’s a lot of aggre­ga­tion of the rela­tion­ship between the stores and the cen­tre office and who’s pay­ing fran­chise fees and who’s on sup­port. So, it’s very hard to work out, from the accounts any­way, what the bot­tom-line num­ber is for that com­pa­ny.

Cameron  27:54

Well, just for shits and gig­gles, I’m look­ing at Har­vey Nor­man in our check­list this week. It cur­rent­ly has a QAV rat­ing of 0.04 and a qual­i­ty score of 50%. So, we won’t be buy­ing it, but thanks any­way for the sug­ges­tion, Mr Har­vey.

Tony  28:21

Yeah. They’ve popped up on the buy list in the past, but it is very rarely there.

Cameron  28:25

What have you got on your talk­ing list for this week, Tony?

Tony  28:29

Yeah, so stick­ing with the news. I did notice that Guy Debelle who used to work at the RBA, I think he was sec­ond in charge there and left, went across to Fortes­cue Future Indus­tries and then sight­ed fam­i­ly rea­sons for resign­ing and leav­ing that quick­ly after join­ing, he’s now popped up in a super­fund called the Aus­tralian Retire­ment Trust. So, it seems like the fam­i­ly issues have quite quick­ly resolved them­selves, and so it does lend wait that there’s been some peo­ple jumped ship from Fortes­cue, which is a lit­tle bit wor­ry­ing for me. Any­way, that was Guy Debelle. On Myer, I noticed the share price is down recent­ly. They’re get­ting close to report­ing their results, I think.

Tony  29:12

And the share price went up 10% as a result, today. Well, as a result of some­thing today. But I would just say more pow­er to you, Sol­ly, don’t do me like you did me last time with Myer. But I think it was Jeff Wil­son that did me last time.

Cameron  29:12

Myer?

Tony  29:12

Yeah, they’re usu­al­ly a month after report­ing sea­son because they they don’t want to have a Decem­ber 31 end of year date because that’s their busiest sales peri­od, Christ­mas and New Year and Box­ing Day and all that. Inter­est­ing thing was Sol­ly Lew thought they were good enough to buy anoth­er 3% off. So, in Aus­tralian com­pa­ny law, an exist­ing share­hold­er who has more than 19.5%, I think it is from mem­o­ry, if they buy any more shares, they have to launch a takeover for the entire com­pa­ny. How­ev­er, if they want to con­tin­ue to buy shares, they are allowed to buy 3% every six months. It’s called the creep pro­vi­sion. And this is a well-worn track for Sol­ly Lew to get big­ger and big­ger stakes in com­pa­nies. Did it with DJs, he’s done it with oth­er com­pa­nies and he’s doing it with Myer now. But he likes what he sees, and he’s bought 3% more of Myer. So, I thought that was inter­est­ing.

Tony  30:26

Jeff Wil­son, yeah.

Cameron  30:27

We had a cou­ple of parcels of Myer in our light port­fo­lios, they’re up on aver­age about 60%. So, it’s been good to us.

Tony  30:34

Yeah, good.

Cameron  30:34

Don’t screw it up, Sol­ly, is all I’m say­ing.

Cameron  1:07:31

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