Transcript QAV #611

QAV 611 CLUB

Cameron  00:06

Wel­come to QAV. This is episode 611. Should be 911. What’s going on in the mar­kets today? Not 611. Record­ing this on the 14th of March 2023. How are you, TK?

Tony  00:21

Not copacetic, Cam.

Cameron  00:24

I just taught Tony a new word off air: copacetic.

Tony  00:29

I’d say not cop­ing and pathet­ic would be how I’d describe my port­fo­lio today.

Cameron  00:33

Well, yes. What a day. I was hav­ing a look at the All-Ords charts just before, looks like the All-Ords has wiped off all of its gains since ear­ly Novem­ber.

Tony  00:47

Wow.

Cameron  00:48

So, that’s excit­ing.

Tony  00:52

If you’re a short sell­er.

Cameron  00:54

Yeah. So, obvi­ous­ly, as every­one is aware, of course, the Sil­i­con Val­ley Bank col­lapsed late last week, as well as anoth­er cou­ple of banks in the US have col­lapsed, and it’s set fear and gloom into the mar­ket. I just read in the Finan­cial Review before I sat down, “Black Mon­day in the bond mar­ket points to pain ahead. The biggest fall in short term bond yields since the 1987 crash is send­ing investors and cen­tral bankers a clear mes­sage about what’s to come in the wake of the SVB col­lapse. The extra­or­di­nary price action on glob­al mar­kets is proof the col­lapse of Sil­i­con Val­ley Bank is like­ly to rever­ber­ate for months to come as investors find them­selves caught between the need for cen­tral banks to con­tin­ue their year­long bat­tle against infla­tion, and grow­ing wor­ries that an over­ly lever­aged finan­cial sys­tem has become unsta­ble.” Did­n’t we fix that after the glob­al finan­cial cri­sis of 2008, and there was over lever­aged banks? Sure­ly, sure­ly the pow­ers that be put things into place, Tony, to make sure that would nev­er, ever hap­pen again.

Tony  02:09

Well, I was read­ing today in the Finan­cial Review that the Cal­i­forn­ian state reg­u­la­tor of finan­cial insti­tu­tions is also the Cal­i­for­nia insti­tu­tion that’s designed to pro­mote the tech econ­o­my in Cal­i­for­nia. They’re prob­a­bly scratch­ing their heads try­ing to work out how to reg­u­late SVB. The bond mar­ket gyra­tions aside, I’m not real­ly sure what’s dri­ving that, my feel­ing is that SVB is going to blow over. I thought it was going to blow over last week as well. My gut feel says that this is an over­re­ac­tion, that peo­ple are reliv­ing the GFC as the play­book even though this is com­plete­ly dif­fer­ent to the GFC. And I’ll tell you why I say that, because this is a case of bad reg­u­la­tion in my opin­ion. I mean, the Sil­i­con Val­ley Bank is a bit unusu­al, and it’s very dif­fer­ent to the banks we have in Aus­tralia, the big com­mer­cial banks in Aus­tralia. Sil­i­con Val­ley Bank took deposits from par­tic­u­lar­ly tech com­pa­nies, and there were all sorts of rea­sons why tech com­pa­nies went to SVB; one of them being that they also then link back to tech com­pa­ny founders and tech com­pa­nies and invest­ed in start-up funds. But if you remem­ber back in 101, in Aus­tralia, you know, peo­ple put mon­ey in the bank, the banks then either lend back as mort­gages to a dif­fer­ent set of cus­tomers, or go into the bond mar­ket with it and, you know, try and earn mon­ey that way on the deposit. So, banks basi­cal­ly take deposits and then roll them up and try and invest those deposits, either by lend­ing them as mort­gages or oth­er invest­ments, and make a spread on the inter­est rates they charge the cus­tomers. SVB was tak­ing mon­ey from start-ups, lend­ing it back to the start-ups, and then when that was prov­ing a bit dif­fi­cult, they were then look­ing for oth­er invest­ments. They made the mis­take of buy­ing a lot of gov­ern­ment bonds when the yields were low, and now that inter­est rates are ris­ing and the yields are up, those bonds aren’t worth very much. And the reg­u­la­tors in the States did­n’t make SVB take any loss­es on the fact that they had neg­a­tive equi­ty. Their assets should have been writ­ten down mark to mar­ket, because, just to explain, if I buy a bond for $100 and it pays me 1%, which trea­suries were doing as long as a year ago — or as short as a year ago — and now trea­suries are pay­ing 4%, my $100 isn’t worth that any­more. If I had to go out into the mar­ket and sell that bond, you know, I’d get a pro­por­tion of that. I might get $80 for it, or what­ev­er the math works out, such that the per­son buy­ing it from me gets a 4% yield to match what’s in the mar­ket now. So, there was a paper loss for SVB which did­n’t have to be marked to mar­ket. How­ev­er, when peo­ple start­ed with­draw­ing mon­ey from SVB and they start­ed sell­ing these bonds to pay peo­ple out, they were tak­ing a real loss, not just a paper loss, and that’s what caused the prob­lem. As soon as the tech com­mu­ni­ty worked out that’s what was going on they all pulled their mon­ey out last week, and of course, that led to a crash. The oth­er inter­est­ing thing I think about all this is that US gov­ern­ment has said, “that’s okay, we’ll hon­our the deposits in SVB.” So, that’s help­ful in that, you know, Aus­tralian com­pa­nies, a lot of tech com­pa­nies in Aus­tralia were invest­ed and they get their mon­ey back, so that’s help­ful. How­ev­er, it cre­ates moral haz­ard. So, if you have this loose reg­u­la­to­ry envi­ron­ment, you’re encour­ag­ing peo­ple to take risks, and then you’re com­ing along like mum and say­ing, “oh, that’s okay. You’ve bro­ken some eggs; I’ll just clean it up for you.” So, you’re actu­al­ly encour­ag­ing peo­ple to take more risks and fur­ther risks.

Cameron  05:54

It’s like the mum on Bluey. I was watch­ing Bluey this morn­ing and that actu­al­ly hap­pened: Bin­go dropped some eggs, and the mum does­n’t say, “oh, be more care­ful!” She’s like, “don’t wor­ry, hon­ey, I’ll clean that up for you.” Chris­sy was like, “bloody hell. The par­ents on Bluey, they’re always mak­ing us look bad.”

Tony  06:10

Well, that’s right. The par­ents on Bluey — the reg­u­la­tor — should have said “don’t play with eggs, kids, stay out of the kitchen.”

Cameron  06:17

But the argu­ment I’ve heard is that the depos­i­tors weren’t tak­ing risks, they were just deposit­ing their mon­ey in a bank, it was the bank that was tak­ing the risk. So, the depos­i­tors should be pro­tect­ed, they weren’t doing any­thing inher­ent­ly risky. The investors in the bank aren’t get­ting bailed out, as I under­stand it, and the exec­u­tives, of course, will all go to jail, as they always do in Amer­i­ca when these things hap­pen.

Tony  06:44

Well, they’ll prob­a­bly lay low for a while and come back and start up again, because it lacks moral reg­u­la­tions and the states make it easy to do so. I don’t know.

Cameron  06:53

They’ll end up work­ing for the next admin­is­tra­tion as Sec­re­tary of the Trea­sury or some­thing.

Tony  06:59

Well, you know what they’ll do, they’ll go to the gov­ern­ment and argue that they need to get their bonus­es paid out, because oth­er­wise they can’t attract good tal­ent to run these banks, and that’s the prob­lem.

Cameron  07:10

Like the good tal­ent that just col­lapsed the bank. You need more of that good tal­ent.

Tony  07:14

Exact­ly. Oh, and the oth­er point I want­ed to make, Cam; this anoth­er illus­tra­tion of why diver­si­fi­ca­tion has flaws. I mean, peo­ple have been told for­ev­er to put some bonds into your port­fo­lio because, you know, they’re safe as hous­es, they’re paid by the gov­ern­ment, etc. Well, this just bank­rupt­ed SVB because the yields are increas­ing on bonds, which means the cap­i­tals going down. So, so much for that the­o­ry.

Cameron  07:39

I saw an expla­na­tion of the whole sto­ry on Tik­Tok. Some­body asked Chet GPT to explain what hap­pened, and I thought this was pret­ty clever, so I’m going to play this:

07:52

“I used AI to explain to Sil­i­con Val­ley Bank col­lapse in Mon­key Banana terms, and I’m going to read that response to you. Here I go. ‘Ooh-ooh-aah-aah, me try to explain. Sil­i­con Val­ley Bank like big tree with many bananas. Many mon­keys like bananas and put their bananas in trees. Tree promis­es to get more bananas to mon­keys lat­er, but tree bad. Tree los­es many bananas in storm, tree not have enough bananas for all mon­keys. Mon­keys get scared and want their bananas back. Many mon­keys run to tree and grab their bananas, but some mon­keys too late. No more bananas and tree mon­keys sad and angry. Big mon­key come and take tree over. Big mon­key say he will find more bananas for mon­keys who lost their bananas. Big mon­key gives some bananas to some mon­keys now and more lat­er, but some mon­keys have to wait long time for their bananas. Oth­er trees see what hap­pened to big tree and get wor­ried. Oth­er trees have many bananas too but not lose them in storm. Oth­er trees hope their mon­keys not run away with their bananas, too. Me hope you under­stand now. The big tree is Sil­i­con Val­ley Bank, the bananas are the mon­ey, the mon­keys are the depos­i­tors doing a bank run, the big mon­key is the gov­ern­ment, and the oth­er trees are the region­al banks.’ That was lit­er­al­ly gen­er­at­ed by the Microsoft Bing AI, and I think it’s com­pre­hen­sion of this dis­as­ter is actu­al­ly kind of impres­sive.”

Tony  09:13

It is, yeah. Actu­al­ly, there’s a cou­ple of oth­er points, too. I mean, you know, the bank run, as we saw last week, is dig­i­tal these days. So, there’s no longer peo­ple stand­ing out­side wait­ing for their cash, this can all be over in twelve hours for a bank. So, that’s impor­tant to note as well. And I guess the oth­er thing that’s impor­tant to note is, the poten­tial down­side from all this is that there are oth­er banks who are poor­ly reg­u­lat­ed in the US who are sit­ting on lots of paper loss­es which haven’t had to be declared because they’ve been buy­ing bonds with low, even neg­a­tive inter­est rates in some cas­es, and haven’t been good at sell­ing those off and rebal­anc­ing their port­fo­lios as inter­est rates have gone up. So, I mean, there’s poten­tial out there. Maybe that’s why there’s been a run on the oth­er region­al banks; every­one’s shoot­ing first and ask­ing ques­tions lat­er. How­ev­er, I do think it’s con­tained to either the small banks or the Sil­i­con Val­ley Bank.

Cameron  10:07

Don’t they know how to play the game? They’re new­bies, are they?

Cameron  10:07

So, anoth­er out­fit called Sil­ver­gate, also col­lapsed last week due to its expo­sure to cryp­to, appar­ent­ly. I thought cryp­to was going to save the world, but appar­ent­ly it did­n’t save Sil­ver­gate. And then anoth­er bank called Sig­na­ture Bank also col­lapsed over the week­end, I think, but they’re doing an order­ly col­lapse. They said all of the depos­i­tors will get their mon­ey out, they don’t require the gov­ern­ment to step in.

Cameron  10:27

Yeah. In dig­i­tal, $42 Bil­lion US tak­en out of the bank in a day, I read. This is now the largest bank run in US his­to­ry. But four days before the col­lapse — I like this — Forbes put out its list of the best banks in the US and SVB was, I think, in the num­ber twen­ty posi­tion in terms of best banks in the US. So, I guess that tells you every­thing you need to know about how Forbes rate things.

Tony  11:09

And account­ing and reg­u­la­tion. I mean, the first ques­tion of any bank insto call now will be, what’s your bond port­fo­lio hold­ing and is it mark to mar­ket? And is that reflect­ed through the accounts?

Cameron  11:19

I don’t under­stand your com­ments there about using mark to mar­ket. If they use mark to mar­ket, I get that will enable them to write down the val­ue of those assets, but how does that help them when push comes to shove and they’ve got peo­ple try­ing to with­draw $42 bil­lion and they need to come up with the cash to pay them and they need to sell their assets at a loss, then, you know, scram­bled to come up with the mon­ey? How would that have helped them?

Tony  11:47

It does­n’t. That’s why it’s being hid­den. It helps the investors to know what’s going on and it helps the depos­i­tors to know what’s going on.

Cameron  11:54

Oh, right.

Tony  11:54

Now, it’s pos­si­ble that the move­ments in inter­est rates have hap­pened with­in a–no, it can’t have. I was going to say a six-month­ly peri­od report­ing peri­od, and so there­fore, they’re just declar­ing it now, but they have to report quar­ter­ly in the States. But they should have said, “hey, guys we’re insol­vent,” about three months ago, at least. Tell their investors and tell the depos­i­tors back then, but they just tried to hide it. Well, they did­n’t try to hide it. They did­n’t have to declare it under US account­ing or reg­u­la­to­ry rules.

Cameron  12:20

Were they insol­vent though? How do you deter­mine that? Like, if there had­n’t been a bank run, they would have been okay, I assume?

Tony  12:29

Yeah, that’s right if the loss­es had remained paper loss­es. It was only because — I’m not sure what the sequence of events was — some­one I think must have worked out that they were neg­a­tive equi­ty, and there­fore the deposits could­n’t all be paid out if there was a run. So, it’s becom­ing like, we were talk­ing once before about glob­al warm­ing; it can’t be fixed by the par­tic­i­pants, it’s got to be fixed by some­one com­ing in over the top because all the par­tic­i­pants are going to keep doing what they’re doing, because it’s in their best inter­est. So, it’s like, this is the reverse. It’s often called the Span­ish Pris­on­er prob­lem, where if you and I are sep­a­rat­ed and put in cells and the cops come to you and say, “oh, look, Tony’s con­fessed. You’d bet­ter con­fess,” you don’t know if I’ve con­fessed. If they said it to me, too, if we both say shtoom, we both get off. If one of us says some­thing, then the oth­er one gets off. Sor­ry, then you get off and the oth­er one goes to jail. So, what do you do? So, it’s the same sort of sit­u­a­tion. So, as soon as some­one thought there was neg­a­tive equi­ty in the bank and they could­n’t pay the deposits and start­ed with­draw­ing, that just start­ed the stam­pede. And then it became a real prob­lem, not just the paper prob­lem.

Cameron  13:38

Yeah. And I heard it was Peter Thiel who start­ed the whole thing. Yeah, co-founder of Pay­Pal, along with many oth­er busi­ness­es he’s been involved in. But I read some­where on Red­dit or some­thing over the week­end that he start­ed the thing. I also read that the CEO man­aged to sell $3.6 mil­lion in stock a cou­ple of days before the fail­ure.

Tony  14:10

Well, you’d hope that’s clawed back. I mean, under Aus­tralian insol­ven­cy laws, it could be clawed back. I don’t know what the US laws say. But yeah, I mean, that’s just egre­gious, isn’t it?

Cameron  14:21

Well, yes, and no. But again, like he had, I assume, no idea that this bank run was about to hap­pen. I mean, it’s not like the busi­ness was fail­ing before the bank run. They just had some assets that were worth­less.

Tony  14:38

Yeah, which he knew about, and the investors and depos­i­tors did­n’t, and he just hap­pened to sell his shares three days before a bank run. He prob­a­bly had cof­fee with Peter Thiel and then went, “hmm, shit. Note to self: sell shares.”

Cameron  14:53

We are not alleg­ing that at all if the CEO’s lawyers are lis­ten­ing. Jok­ing, just jokes. There has been some crit­i­cism I read today: some­body said “ ‘the Fed has basi­cal­ly just writ­ten insur­ance on inter­est rate risk for the whole bank­ing sys­tem.’ ” This is Stephen Kel­ly, Senior Research Asso­ciate at Yale’s pro­gramme on finan­cial sta­bil­i­ty. “And that, he said, could stoke future risk tak­ing by imply­ing that the Fed will step in if things go awry. ‘I call it a bailout of the sys­tem,’ Mr Kel­ly said, ‘it low­ers the thresh­old for the expec­ta­tion of where emer­gency steps kick in.’ ” Now, the Biden admin­is­tra­tion is say­ing it’s not a bailout, because the bank is going to shut the doors unless it gets bought out, I guess, tak­en over, the investors are going to lose their mon­ey, etc., etc. So, yeah, I don’t know. I don’t know how to read this. But any­way.

Tony  15:48

It’s a deposit guar­an­tee. Well look, you know, it’s an exam­ple of under-reg­u­la­tion in the states and moral haz­ard. Sim­i­lar to what peo­ple have called the Fed put in the share mar­ket when things were going great guns, peo­ple will often argue, “well, there’s no risk because as soon as the share mar­ket drops, the Fed­er­al Reserve will cut inter­est rates and prop it up again.” So, as long as you have Mum around, you don’t care what you do. You just go crazy, right on the walls. Kick eggs out the back­yard, who cares?

Cameron  16:18

As long as the par­ents from Bluey are run­ning things, you’re gonna be. I mean, yet again, the US bank­ing sys­tem has crashed my port­fo­lio. Like, every time they do some­thing over there it affects us. You know, I’ve seen a lot of con­ster­na­tion and gnash­ing of teeth in our forums and in emails from peo­ple. Unfor­tu­nate­ly, it has just been one thing after anoth­er for the last cou­ple of years since COVID. But last year, Ukraine, Chi­na, COVID inter­est rates, and now this. Did I for­get some­thing? I felt like there was anoth­er thing. It’s just one thing after anoth­er. I want­ed to do a comms update because there were a num­ber of com­mod­i­ty changes on our buy list yes­ter­day. Cop­per has become a Josephine, alu­mini­um became a sell, man­ganese became a Josephine, nick­el became a sell, and wheat became a Josephine. Gold, though, is hav­ing a great week, gold is just going crazy. I end­ed up adding two gold stocks. When I was try­ing to buy some­thing, I had to sell some things from the light port­fo­lios this morn­ing, and it was very hard to replace them because pret­ty much every­thing was hav­ing a down day except for some gold stocks. And so, yeah, gold is doing well right now. SVB has been good for gold. I believe this hap­pened dur­ing the GFC, too; peo­ple pulled their mon­ey out of the bank­ing sys­tem and put it into gold. But speak­ing of com­modi­ties, I did send you an email about this yes­ter­day I think — not sure if you’ve seen it yet — but S32. You and I both own some S32 accord­ing to our dis­clo­sure sheet, and I think we’ve got some in some of the QAV port­fo­lios as well. Accord­ing to my com­mod­i­ty break­down in the comm stocks tab, S32 is… They cov­er a bunch of dif­fer­ent things, nick­el, zinc, alu­mini­um, coal and man­ganese. The last time I did a break­down on it, alu­mini­um was 50% of their rev­enue, and alu­mini­um as I said is now a sell. Man­ganese was 20% and cok­ing coal was 30%. Cok­ing coal is a buy, but the oth­ers are a sell. What do you think about S32 in that sit­u­a­tion, Tony? Should we be think­ing about sell­ing that if alu­mini­um is a sell?

Tony  18:50

Sor­ry, I haven’t looked at it. So, alu­mini­um — what was the oth­er ones? What’s man­ganese doing?

Cameron  18:55

The break­down I’ve got in my spread­sheet from the last time I looked at it, which was­n’t that long ago, is alu­mini­um is 50% of their rev­enue. Alu­mini­um is cur­rent­ly a sell. Cok­ing coal was 30%, it’s a buy. Man­ganese was the oth­er 20%, and it’s a Josephine. So, 70% of their rev­enue is either a sell or a Josephine, 30% a buy.

Tony  19:18

Yeah, I mean, it’s a hard one, isn’t it? Because it sounds like half’s a sell, the oth­er half is either a buy or a Josephine which would­n’t be a sell. Don’t know. The share price I’m just look­ing at it is down today, which I guess every­thing is. What’s the sen­ti­ment doing for South 32? Yeah, it’s down as well. Good ques­tion, Cam. I don’t know, I’d prob­a­bly sell it.

Cameron  19:43

I mean, sen­ti­ments down. It’s a Josephine but it’s well above its sell price. The sell price is $3.09, it’s cur­rent­ly trad­ing at $4.15. So, you think sell it?

Tony  19:56

It’s just so hard to know because it’s fifty-fifty, isn’t it?

Cameron  20:00

Yeah.

Tony  20:01

I mean, the safe thing to do would be to sell it. Yeah, leave it with me, I’m going to have to look at all the charts and make a deci­sion. Haven’t done it yet.

Cameron  20:09

One thing I just want­ed to have cov­er, too: the dum­my port­fo­lios down a bit, obvi­ous­ly, with the stuff that’s going on, but still doing rel­a­tive­ly well. Inter­est­ing­ly, I looked at it for this quar­ter — and we’re com­ing towards the end of the quar­ter — we are now neck and neck with the STW for the quar­ter. The STW was way ahead of us for most of this quar­ter, but it’s now fall­en back to zero for the quar­ter, which is around about where we’re at as well. So, it’s been inter­est­ing just the last few months, actu­al­ly, the gap between us and the STW for this finan­cial year has been drop­ping quite a lot. We’ve been catch­ing up as it’s been tak­ing more hits. It had a lot of growth over the last year, a lot more growth than we did, but it’s giv­ing a lot of that up at a faster rate than we have been giv­ing it up too. So, inter­est­ing how that’s start­ing to bal­ance out. But still, since incep­tion we’re I think two and a half to three times bet­ter, but cer­tain­ly has­n’t been a great year for the dum­my port­fo­lio, the last twelve months. It’s been one of those steady as she goes years, has­n’t real­ly been show­ing a lot of growth. We’ve giv­en a lot back.

Tony  21:26

Yeah, same with mine. It’s been a tough year, I agree.

Cameron  21:30

But we’re not under, though. We’re up, I think, a cou­ple of points in the last twelve months. But yeah, it’s not one of our big growth years.

Tony  21:40

It’s gonna hap­pen.

Cameron  21:42

Yeah. All right. What have you got on your list of things to talk about, TK?

Tony  21:46

I had a cou­ple of things. The RBA lift­ed inter­est rates last week to 3.6%. It’s inter­est­ing you said that the bond mar­ket was down today, because I would have said with the prob­lems with SPV, and if it does go through and cause oth­er prob­lems in the bank­ing sys­tem, it’s entire­ly pos­si­ble that could have been the last inter­est rate rise that we’ll see. If the yields are invert­ed again on bonds, then that might not be the case. Philip Lowe was out in the mar­ket last week talk­ing about inter­est rates and was hint­ing that he was get­ting close to the end of rais­ing rates and was say­ing nice things like he was going to meet with some peo­ple, I think, from Life­line because, unfor­tu­nate­ly, there have been some peo­ple who have killed them­selves over their finan­cial posi­tions due to ris­ing inter­est rates. So, he was try­ing to show his soft side, I guess, last week.

Cameron  22:41

I thought he was hav­ing to call Life­line for all of the attacks on him in the media last week.

Tony  22:47

Well, that’s true, too. He might have to call the unem­ploy­ment office in Sep­tem­ber when his con­tracts up for renew­al, but that’s anoth­er mat­ter. Yeah. So, inter­est rates are lift­ed. There’ll be anoth­er meet­ing, of course, in ear­ly April, and we will see what hap­pens then. I would have thought if there is a prob­lem with banks that would be the end of the inter­est rate ris­es, but we’ll see. I’ve actu­al­ly been watch­ing the rolling year records tables in the AFR every day, which I tend to do when I read it, just for fun, because we often see the buy list stocks are the ones that are hav­ing their rolling highs. So, this is from last Thurs­day: there were twelve com­pa­nies that had rolling year records, and there were a lot of com­pa­nies that had rolling year low points, and Qan­tas and KFC were both on that list. And QBE and ATF were both on the list as well even though they’ve just fall­en off the buy list because their share prices are up. So, what’s that? Four out of twelve stocks? A third.

Cameron  23:48

Can you explain what this rolling thing is? Again? What does this table show us?

Tony  23:53

Yeah, so on most days the Fin Review pro­duces a table on the share mar­ket page, and it lists the com­pa­nies that are at their twelve-month high stock price and then the com­pa­nies which are at their twelve-month low stock price. It’s a rolling twelve months, so it’s called the rolling year records table. And it’s just a quick and dirty way to see what’s doing well and what’s not doing well, I guess. I just thought it was inter­est­ing that we are see­ing a lot of buy list stocks on that list. The oth­er thing I think is inter­est­ing is it’s been a long time since the rolling year highs have been equal to or out­num­ber the rolling year lows, so the mar­ket is going down at the moment. And I’m actu­al­ly won­der­ing whether that’s going to be some kind of indi­ca­tor for us to use in terms of, you know, when we should be sit­ting on our hands or whether we should be invest­ing. So, I don’t know, if I get some time and resources, I might inves­ti­gate that and see. It’s cer­tain­ly a mus­ing of mine. But the good news, I guess, is that as you were say­ing, the mar­ket’s going down but some of our stocks are hit­ting their twelve-month peaks, which is good for us. One of those stocks which can’t be too far off its twelve-month peak is Myer. It pro­duces its results a month after the rest of the mar­ket because they don’t want to be tied up doing results dur­ing their busiest sell­ing sea­son, which is Christ­mas, and so they roll off at the end of Jan­u­ary rather than the end of Decem­ber. And, yeah, it was well received, the prof­it results were. The report has rein­vent­ed Myer in a gen­er­ous mood, and it’s because they’ve giv­en a div­i­dend increase. “Myer’s shares surged more than 18% to a six year high after the depart­ment store reward­ed its long-suf­fer­ing share­hold­ers with a spe­cial div­i­dend after post­ing its high­est first half year net prof­it in almost a decade.” So, to the peo­ple who’ve held on to Myer, good on you. It’s turn­ing around, which is nice. Cou­ple of oth­er things. I’ve been meet­ing with Ryan on Zoom about the analy­sis he’s doing — he made a com­ment dur­ing our last meet­ing that we’re still look­ing at whether buy­ing from the top of the buy list is a bet­ter port­fo­lio than buy­ing from the bot­tom. Ear­ly indi­ca­tors are that it is, which may have some impact on our invest­ing going for­ward. But the com­ment he made was that one of the things that was hurt­ing the bot­tom of the port­fo­lio was that they were churn­ing a lot more because they were break­ing their rur­al ones more often. So, I know we’ve had lots of churns with rule ones in the last six to twelve months, so that’s an inter­est­ing obser­va­tion and I’ll be look­ing through that in more detail in the com­ing weeks.

Cameron  26:29

So, explain that to me, again, slow­ly. The shares that are in the bot­tom of the buy list…

Tony  26:34

The shares that are in the bot­tom of the buy list… Yeah, so Ryan’s doing analy­sis. He’s gone back through our his­to­ry of buy lists — and in fact, that’s an inter­est­ing thing we should do. Maybe we should put the buy lists on our web­site, or make them avail­able to our lis­ten­ers, they might be able to short cir­cuit some of the analy­sis and have a look at things them­selves. But any­way.

Cameron  26:59

They’re all avail­able in Drop­box, the whole his­to­ry of our buy lists.

Cameron  27:04

On the web­site?

Cameron  27:05

Well, for club mem­bers, you know, via the club mem­ber sec­tion. They have access to all the buy list his­to­ry, yeah.

Tony  27:11

Okay, well, that’s good. So, Ryan’s tak­ing that his­to­ry and he’s gone back a cou­ple of years, and he’s recon­struct­ed port­fo­lios based on buy­ing the top ten stocks in the buy list and buy­ing the bot­tom ten stocks on the buy list, and then he’s tracked them over the last cou­ple of years and sold them if they’ve rule oned or if there’s been a com­mod­i­ty sell, or if it’s been a three-point trend­line sell, and replaced them with anoth­er stock from the top or the bot­tom. So, he’s find­ing the top stocks are per­form­ing bet­ter than the bot­tom stocks, and he thinks one of the rea­sons is because if he has to sell some­thing, there’s more rule ones on the bot­tom of the buy list, and then the stock he buys becomes a rule one as well quick­er than the top stocks. So, inter­est­ing obser­va­tion.

Cameron  27:53

But the ones from the bot­tom of the list that don’t rule one, there’s not enough upside in those to neu­tralise the loss in the rule ones?

Tony  28:07

Yeah, I don’t know. I haven’t looked through the num­bers yet. But that would be the case, I would think. But yeah, Ryan’s gonna pull it all togeth­er and present it.

Cameron  28:14

So, what would your the­o­ry be for why the stocks at the bot­tom of the list get rule oned more than stocks at the top of the list? We rank it on QAV score which fac­tors in the qual­i­ty score, so it’s low­er qual­i­ty, or just low­er QAV score in total means more rule ones?

Tony  28:34

Yeah, I don’t know. Poten­tial­ly, the stocks at the top of the buy list are more deep val­ue, so they might be at the bot­tom and going up. Where­as the ones fur­ther down the list might be already start­ing to go up, and now they’re going back down again. I don’t know.

Cameron  28:48

So, this might be an argu­ment for the cut off instead of being 0.1, being 0.2 or 0.5 or some­thing.

Tony  28:55

Yeah, so that was some work that Dylan did for me last year. He thought 0.2 was a bet­ter cut off, but nev­er real­ly fleshed it out as to whether it was 0.2, 0.15, 0.18. So, after we get this ini­tial work from Ryan the next step will be to start doing some decile or quin­tile analy­sis to see, you know, what the best cut-off is for the QAV score. But we’ll just get through this first bit, first. It’s actu­al­ly quite painstak­ing, going through and cre­at­ing a port­fo­lio and track­ing it through for rule ones and three-point trend line sells and com­mod­i­ty sells. But we start­ed with a sim­ple test first of all to see if it was worth­while going any fur­ther, and at this stage it looks like it is, but I’m just still wait­ing for Ryan to do a fin­ish report.

Cameron  29:38

Okay, inter­est­ing.

Tony  29:40

Yeah. So, that was good. I want­ed to go back; a cou­ple of weeks ago I men­tioned that Brett Fish­er, from the Bret­te­la­tor, had sent me an email about Renko charts. I had mis­re­port­ed say­ing that he thought that they were as good as the mov­ing aver­age, but I got that wrong. He’s say­ing that their anal­o­gy is to a trail­ing stop loss. So, again, I’m still wait­ing for Rud­dy to pull that piece of work togeth­er. His ini­tial results were that the three-point trend­line buy sig­nals were bet­ter than Renko charts, but the Renko charts were bet­ter for get­ting us out ear­li­er when things turned down. Which I guess is what a trail­ing stop loss does. And I think Bret­t’s point was, it may be eas­i­er to use a trail­ing stop loss rather than a Renko chart, but any­way, we’ll, again, wait for that piece of work to come through and see where that takes us as well. And last­ly, I’ve got is the pulled pork, which was a request from last week on SRX.

Cameron  30:37

What’s SRX do?

Tony  30:39

SRX was spun out of Ilu­ka Min­ing, and it’s a rutile min­er. The name is Sier­ra Rutile Hold­ings, SRX.

Cameron  1:00:15

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