Cameron  00:06

Welcome to QAV. This is episode 612. We’re recording this on the 21st of March 2023. This is our last recording before Tony disappears for a month and a bit. So, if you don’t have any questions in by today, don’t bother for another couple of weeks.

Tony  00:28

No, that’s not true. We’ll try and get some recordings in while I’m overseas.

Cameron  00:32

We will try. We just had a great chat with Tim Lincoln. Finally, we’ve managed to get Tim on. That’ll probably come out as next week’s show, I think, while we’ll both be travelling. You’ll be going overseas, I’ll be coming back from Sydney, so people will enjoy that. He was lovely. Really lovely to chat finally to Tim, seems like a nice bloke.

Tony  00:52

Yep, I agree, It was great.

Cameron  00:53

Well, I wanted to start off today’s show by wishing a big QAV congratulations to Rupert Murdoch on his upcoming nuptials. He’s not divorced from Jerry Hall yet, but he’s getting married again after that divorce goes through to his fifth wife, who I’m sure is a lovely lady who’s only in it for love and devotion, and all sorts of good moral values.

Tony  01:25

It’s possible that she has a thing for men who are thirty years older than her, but yeah.

Cameron  01:31

Ninety-two-year-old immortal billionaires. I read a quote from him in the Fin today saying this will be his last one. At least it better be. Ninety-two. Wow. Well, listen, we’ve got portfolio updates to get into. There’s been a lot of selling from me in the last week, not a lot to buy, we’ll get into commodity updates. But before we get into all that, TK, I’ve been working on a thing over the last couple of days, I haven’t shared with you yet. Kind of the maxim’s of QAV. Not, you know, the fudge and the Josephine and those sorts of things we call the maxims, but going through, you know… I’ve had a few club members call me and go, you know, “what are we going to do?” “The market this” and “the market that”, and I keep saying these little bon mots of wisdom that I’ve picked up from you over the years. I’m trying to basically get the essence of the philosophy of QAV down to a handful of bullet points. So, let me run through these with you and see what you think. Number one; the market always goes up over the long term, based on history. If history is true, if history repeats itself anyway, for as long as there have been markets, they’ve always gone up over the long term. We expect that to be true — barring complete collapses of the global economy.

Tony  02:51

Yeah, well, that’s called positive expectancy. So, you’re investing in an area that you think, or you know, generally returns a positive return. It has to be over the long term, I guess. But it’s, you know, that’s the reverse of going to a casino, which has negative expectancy. You can play roulette, you can see it right there on the table in front of you, there’s one less slot you can win money on then you need to break even. So, it’s negative expectancy. So, that’s really, your right, that’s the essence of investing. You cannot invest where there’s negative expectancy, you’ve got to invest where there’s positive expectancy.

Cameron  03:25

Right. So, number one; the market always goes up over the long term. Number two; the market goes in cycles. Positive to negative, then back to positive, crisis to boom and back again.

Tony  03:36

That’s — what’s it called? Not Fibonacci? No. It’s Mandelbrot. The market’s a Mandelbrot: you can look at it between the hours of ten and eleven and it will do the same thing. You can look at it between the hours of ten and four, it will do the same thing. You can look at the hours, you know, over the month of March, it’ll do the same thing over the year, over a hundred years. It goes up and down in cycles, but directionally, it goes up. And it has to. Going back to point one: if the stock market isn’t going up, the economy’s going backwards. Governments are in disarray. We have many more problems to worry about than the stock market if it’s not going up. And that’s why everyone pulls all the stops out if they’re a regulator or a government to ensure the stock market goes up.

Cameron  04:22

Number three; in between those cycles, it’s always erratic. Good weeks and bad weeks.

Tony  04:26

And Testing.

Cameron  04:28


Tony  04:29

And testing. It’s always testing you.

Cameron  04:31

Oh, testing you. Yeah, right. Number four; there’s no crystal ball to tell you when the cycle changes from positive to negative.

Tony  04:39

The market never rings a bell when it’s at the top or the bottom.

Cameron  04:42

Number five; stay fully invested, even during the negative cycles, because you never know when it has turned around until you have hindsight.

Tony  04:50

Yeah, I mean, there’s times we’ll go to cash, or at least partly to cash. But yeah, generally, stay invested. As we were talking about with Tim Lincoln, the market doesn’t ring a bell at the bottom, but you can sense capitulation when people start selling out. Just like you’re getting with questions now, “what are we going to do?” This is exactly the time when people change style, change their investment philosophy, or just sell out. And when that happens, it’s almost like the decks are cleared and the market takes off again.

Cameron  05:17

I’ve had a couple of people, not members, I think, but people who are light members, I think, saying, “I’m just gonna go to ETFs.” I’m like, “that’s fine. Just go to ETFs. If you can’t stomach it, like, that’s great. I mean, you know, this kind of investing isn’t for everybody. Yeah, you’ve got to have the stomach to just wait it out.”

Tony  05:38

Yeah, going to ETFs is better than going to cash or putting it somewhere else in another investment class, yeah.

Cameron  05:44

Six; only buy stocks when you can buy them at a significant discount to their intrinsic value.

Tony  05:50

Why overpay? There are two thousand stocks on the stock market, why would you overpay for one?

Cameron  05:55

Seven; over the long term, the stock price of companies that consistently perform well, i.e., generate lots of free cash, should do better than the stock price of companies that don’t perform well.

Tony  06:05

Yeah, well, you can see that in your local coffee shop, can’t you? Two coffee shops are next to each other; the one that’s brightly lit, clean, you know, happy smiling staff, is gonna do better than the one that hasn’t had a sweep, the windows are boarded up, and the guy’s smoking behind the counter as he’s talking to his SP bookie while he’s trying to make you coffee. It’s just obvious that one does better than the other.

Cameron  06:30

Like I just said to Tim about Stock Doctor which I think they do a really good job of, have a good product and give great customer service. I think they do both of those, and I think any business that does both of those tends to outperform businesses that don’t do those over the long term. And eight, this is where I finished right now; think long term, but preserve capital by setting stop losses, then reinvesting those funds as soon as you can.

Tony  06:57


Cameron  06:58

Anything I’ve missed out?

Tony  07:00

Well, as I said to Tim in that last interview, I think you have to be aware that when you start down this path of investing for yourself, you’re doing it for the rest of your life. Don’t think this is the train that’s going to stop in a station so you can get off and do something else. Well, you can, but to make it work you’ve got to stick to it for the rest of your life.

Cameron  07:18

Yeah. I think about putting these up on the website, because I think just trying to encapsulate the thinking that you’ve imparted to me about investing over the last four years, the philosophy, I guess, of how you invest and just trying to capture that. Because as Tim said, it has been a difficult two and a half years for investors, and it may continue to be difficult for some time. But I just keep reminding myself it always goes up over the long term, so we just keep doing what we’re doing, and I don’t really care if the portfolio goes up a little bit, down a little bit, up again, down, I have to sell. I don’t care. As I said to you off-air before, I’m kind of bored by all the doom and gloom in the news, in the marketplace right now, of a bank collapsing and being bailed out and this and that. I’m like, “ah, you know what, I really don’t care. Like, the regulators will do what the regulators do, governments will do what the government’s do, the market will go up or it’ll go down.” But eventually, it’ll go up. And you know, our portfolios will do well when the market stabilises and goes up when the conditions are right. In the meantime, we’re just minimising the damage by letting stuff go if it drops too far and playing a good safe game of chess.

Tony  08:33

Well, yeah, and taking the emotion out of it. That’s the important thing. The last couple of weeks have been really tough for me, too. I’ve had this kind of death spiral of rule one sells, and three-point trend sells, and commodity sells, and then I’ve found myself in gold miners, gold stocks, right?

Cameron  08:50

It’s all gold.

Tony  08:51

Yeah. And then I’m sure, you know, in a year’s time, or however long it’s gonna be, the banks are gonna be super cheap and we’re gonna be in bank stocks. It’s like, I don’t have to predict it, think about it, all I have to do is do it.

Cameron  09:02

I was laughing about playing a safe game of chess, because I was having breakfast with the boys on Sunday morning. Taylor and Hunter were having a game, and Taylor is generally the best player out of the three of us by a longshot, but he struggles playing his twin brother for some reason. There’s this, like, psychological issue. Anyway, halfway through the game, Hunter was crushing him. Like, he played this sequence of moves that was tactically brilliant and absolutely had Taylor on the ropes, and it was really impressive stuff. And I said to Hunter, “whatever you do, don’t get cocky right now.” Because it’s like The Doctor, if there’s one person you never want to put in a corner, it’s Taylor with a game of chess. Hunter was like, “no, no, absolutely not.” No, it’s what he called “park the bus.” He said, “when we played soccer, we had this thing if you get a goal up you just park the bus in defensive positions. You don’t let anything through, don’t take any risks.” And I said, “right, that’s good.” And then Taylor crushed him. Taylor beat him and absolutely came back from having a serious deficit and crushed him. It was insane. They both played so well in this game, it was super impressive. But yeah, anyway, so playing a defensive game, that’s how I think of QAV right now. We’re just playing defensively. The markets are all over the place and we’re just like, “okay, well, we sell stuff when it breaches the stop loss and buy something else, and just keep rotating the dice and just waiting for things to turn around.” And they will. Don’t know when, but they will. And when they turn around, we’ll do well. And that’s just how it goes.

Tony  10:46

Yeah, I mean, I know a lot of people are drawing parallels between now and the GFC and I don’t think that’s valid, because I think it’s completely different. There are some things to compare, I guess, but to contrast as well; banking being particularly one of them. But what does feel like the GFC is just how the portfolio is going down. And, you know, we’re having to pay attention to it a lot more than what we’d like or what we’d normally do. But I’m glad I went through the GFC, because that gave me the experience to know that portfolios can go down a lot. But, you know, eventually they’ll come back, and then when they do come back, they come back like a freight train. And if you’re not there when they come back, you go back to muddling through. You’ve missed out on the big game. So, it’s important to be there.

Cameron  11:29

Well, our portfolio actually is doing quite well — the dummy portfolio, I’m talking about. So, I was doing my weekly report this morning, and from inception, we’re now up 16.81% per annum versus the STW up 6.3% per annum. So, we’re still doing two and a half times better than the STW since inception. And for new listeners, that’s since the second of September 2019. For the financial year, you know, we’ve been underperforming but we’re underperforming by a lot less right now than we have been. The STW is up 10.95% for the financial year, we’re now up 7.38%. So, a couple of months ago, it was doing twice as well as we were for the financial year. Now we’ve cut into that quite a lot. And the last seven days is actually kind of interesting. You know, there’s been a lot of red, but then you’ve got LAU which is up 15.5% in the last seven days; RSG is up 7.5% in the last seven days. A lot of the other stocks have just been, sort of, neutral. But when I look at this quarter that we’re still in, from the first of January through to the end of March, our portfolio is up 1.81% versus the STW, which is up 0.31%. So, we’ve sort of been turning around our performance vis-a-vis the STW this quarter. Like it wasn’t that way a month ago;   ago, it was well ahead of us for the quarter. But just in the last few weeks since the SVB collapse and all that kind of stuff has been going on, we’ve actually recovered quite a lot.

Tony  13:16

Yeah. And in some ways, it’s kind of surprising to hear the STW is up 10% odd for this financial year, given everything that’s happened this financial year. So, the banks have had a good run, I guess, with rising interest rates which has supported the STW. But yeah, I fully expected that not to last.

Cameron  13:33

Yeah. So, it’s interesting how things turn around. Anyway, that’s my portfolio updates. But yeah, as I said earlier, there’s been a lot of selling, very little to buy. I think I bought some more OML today for the dummy portfolio.

Tony  13:47

Shoot, I’m going to talk about that today. That’s the pulled pork.

Cameron  13:50

I know, I saw that. Anyway, yeah, it’s been very slim pickings out there. Nearly everything’s either having a down day or there’s a few things that are good in the buy list but I already own, you know, two parcels of everything because they’ve been the only things, I’ve been able to buy for the last few weeks. So, yeah. Commodity updates this week: there were a few changes. Let me just bring up the buy list to refresh my memory. Thermal coal has officially become a sell in the last week, which caused a little bit of havoc with some of my stocks. Wheat became a buy again; didn’t really save GNC, though, in my portfolio. And a Josephine for lithium this week; I know that we’ve got one lithium stock, I think, that we’ve been talking about. Everything else, iron ore is still a buy, gold is still a buy. Looks like coking coal is a Josephine, not sure where that’s… Oh no, it’s a buy still. It’s just popped its head up.

Tony  14:58

No, I got that wrong. When I sent you an email, I made the mistake of looking at the weekly graph, not the monthly graph.

Cameron  15:07

Yeah, it’s just a buy. It’s broken through its 2BL. But crude oil is a sell; copper and platinum are Josephines; aluminium is a sell; zinc and tin are Josephines; magnesium is a sell; manganese is a Josephine; steel is a buy, but LNG is a Josephine; nickel is a sell; iron and steel scraps is a buy; and then titanium dioxide, our newest entrant, is still a buy. But very, very choppy on the commodity markets at the moment.

Tony  15:38

And just following up from the last show we did, I sold my South 32. I think you did from our portfolios. You asked the question because I think aluminium was half of South 32 was a sell. When I dug into it, I thought, yeah, the majority of the things it had were either Josephine’s or sells, so I think we should sell it.

Cameron  15:55

Also following on from last week, Mark Dugmore, one of our mining guys, rallied to the call talking about mineral sands. He said, “the prices for the heavy mineral sands products, rutile and ilmenite.” Yeah, sorry, Siri just started talking to me. “rutile and ilmenite, the minerals as source for titanium metal (think paint on the outside of your house, in the plane you next fly on, or in TK’s golf clubs) and zircon (think tiles) are difficult to find on a regular monthly basis. Iluka Resources,” ILU on the ASX, “will sometimes have the benchmark prices in their ASX releases, but you can never get an up-to-date price graph. I tried to graph it some time back but gave up because of the time lag.” And he’s given us a couple of charts to have a look at. But thanks for that, Mark. It’s always good to have people that are in the know help us out with that stuff. But it looks like it’s just going to be difficult to get real time charts for mineral sands.

Tony  17:00

But you did find one for titanium dioxide, yeah?

Cameron  17:03

Yes. That’s the only one that I really have that’s of any use.

Tony  17:09

Okay. Which is good. That’s a mineral sand.

Cameron  17:12

It’s something. So, what have you got on your list of things to talk about today, TK?

Tony  17:19

Yeah, just a couple of things. I did a download to decide what to do the pulled pork on, and the stock I was going to do is called BRB. I’ve forgotten what that stands for. Anyway, it was under takeover today, and the company that was taking it over is RMS, Ramelius Resources, so we’ve got one stock on the buy list taking over another stock on the buy list today. I decided not to do BRB because it’s up some 30%, it had a big jump yesterday. That’s Breaker Resources NL, is BRB, had a big jump yesterday when Ramelius decided to lob and offer.

Cameron  18:01

Good luck to anybody who owns that. I don’t.

Tony  18:04

I decided not to do a pulled pork just to preserve that jump in the price of BRB. But yeah, it’s been on the buy list, so good luck to anyone who owns it. I did want to talk about banking, I do agree with you 100%, that it’s noise, but there’s a lot going on and it is interesting to just lift the lid a little bit. I wanted to talk about two things. One was the fact that in the takeover of Credit Suisse by UBS, the Swiss regulators have written down the bank hybrids to zero, and that was a thing which caught my eye out of all the whole disruptions in the in the banking world this week. And why does that interest me? Because, I mean, do you know what a bank hybrid is, Cam?

Cameron  18:52

No, I’m hoping you’re going to explain all of that to me. Is it a bank that runs on electricity instead of petrol? No?

Tony  19:00

Well, you know, sometimes I think Credit Suisse was running on hot air. But anyway, it’s just another form of bond — or it’s not a bond, it’s a type of bond. So, that’s why it’s called a hybrid. It’s got some characteristics of being a bond and some characteristics of being equity, in other words, a share. And so, banks will often issue these, which have characteristics of being a bond. They pay a yield and then return the capital at the end. Or they have the right, or sometimes you have the right, to convert the outstanding amount into shares, into equity. So, they’ve been around for a long time. A lot of retail investors in Australia in particular will invest in bank hybrids. I never have, I don’t know much about them. To me, it’s as much about the credit risk as well as the price of the bond. So, I think it’s a fairly specialised area, but like a lot of things in markets, people have gotten used to them, retail investors buy them, and they tend to price them against other bank offerings. They always have strange names, like, CommBank issues “Pearls”, other banks issue hybrids with different names, and they have slightly different characteristics and slightly different prices. But people will generally say, “oh, well, the newest issue of CBA hybrids pays better than the latest issue of another bank shares,” for example. I tend to think they may have gotten away from the fundamentals of investing in this area, which is to work out whether you’re being paid for the risk of being owed the money by the bank. Anyway, it’s a big part of our market. Most investors, most of the general public, haven’t heard of it, but it’s there. And it’s been treated as if you’re investing in a government bond, or at least in a big corporate bond, so your money return is assured. But as the people in Switzerland just found out, who invested in the Credit Suisse hybrid, the regulator wrote those $17 billion worth of hybrids down to zero when it got UBS and Credit Suisse in the room and knocked their heads together and said, “right, UBS: buy Credit Suisse.” Credit Suisse went “nah, we’re not going to honour these hybrids.” The regulators said, “oh, yeah, read the fine print. We have the ability to write them down to zero.” And they did. So, I guess where I’m coming from is in the GFC, before the GFC, no one knew what a collateralised debt obligation was: a CDO, and a synthetic CDO, etc., etc. But they sure did during the GFC. And, you know, this is kind of one of the hallmarks of these things, when suddenly we find out that there are all these products circulating under the hood of the banking system which we never hear about, and suddenly ones just collapsed. I read in the Fin Review today that the hybrids in Australia had been marked down 3-5% because of that. So, I’m not saying we’re in anything like the GFC, but again this is an example of the products that are there in the banking system which can become fragile under stress. That leads me to point number two, which is that banking is just really all about trust. I sat down with Jenny the other night and had a quick chat about this because of her experience in banking, and I posed the question today to her, and I said, “if everyone in the world wanted to withdraw their deposits, how much do they get?” And she said, “Well, they get the government guarantee.” And that’s it. Because the way banking works is it takes deposits and it rolls them up and then it lends them out in home loans or in other ways, business loans, credit card portfolios, whatever. Or it uses them as security to go and do other things and issue bonds and things like that. So, according to Jenny, the way that the regulator’s stress test the banks — and I have to, you know, sort of parenthesized this commentary by saying the Australian banks are probably the best regulators in the world. Australian banks and Canadian banks were the only banks that came through the GFC pretty much untouched, and they’re very well regulated. And the regulator in Australia, APRA, the Australian Prudential Regulatory authority, is very, very good at keeping the banks up to scratch in terms of their risk profiles, because they know that the banks are important to the economy. And if the banks aren’t robust, then the whole economy is going to have problems. So, it’s very well regulated in Australia. However, APRA requires the banks to go through stress testing every now and then on a periodical basis, and one of the things it models is a bank run. They also model other things like, you know, dramatic rise in interest rates, dramatic fall in interest rates, what happens in a recession, all that kind of stuff. And they try and make sure that the banks have enough capital to see them through any sort of stress on the economy like this. But when I asked Jenny about the bank run stress test, she said, “yeah, they model the liquidity of a bank on a on a thirty-day basis.” So, if everyone wants to get their money out of the bank in the next month, how are they able to do that? That works on thirty days, but, you know, the SVB run happened in two hours. And some of the runs on Credit Suisse have happened because of the digital way that banking works very quickly now, as well. So, stress testing for thirty days isn’t going to cut it in this digital world. Now, I’m not trying to make people worry about the banks, but it is built on trust, right? If we all want to get our money out tomorrow, we get the government guarantee. If we all want to get our money out within thirty days, we might get another 10-15 cents on the dollar, which is everything the bank can liquidate within thirty days, which is generally government bonds. There are some other substitutes there. And then it goes into other levels of risky assets and illiquid assets, like hybrids, and eventually, mortgages. So, in the worst-case scenario, if the bank had to pay out all its deposits, it may have to come and take away our house. Sell it, get the mortgage back if we can’t pay it back, and then pay out the depositors. That’s never happened, but that’s how it has to work if depositors want to get their money out. So, banking is built on trust.

Tony  19:01

And after the Hayne Royal Commission…

Tony  19:02

Well, Hayne was sort of a different thing. Can you trust the bank? Yeah, sure I get that. But it wasn’t about stress testing a bank.

Cameron  19:15

No. Different kinds of trust.

Tony  25:20

Different kinds of trust. But that’s always got to be there. And I think in the back of people’s minds in these situations is that if everyone wants to get their money out, a) they can’t, and b) that’s the end of the banking system.

Cameron  25:30

And what is the amount that the Australian Government will guarantee?

Tony  25:37

$250,000. And people should look it up themselves, because I’m not sure whether that’s per account or per household, or what? So, yeah, I mean, Jenny and I are thinking now about splitting out deposits up over different banks so we can make sure we get it back if there’s a problem.

Cameron  25:56

Not crypto?

Tony  25:57

No, not crypto.

Cameron  25:58

That’s the cure for all of this, Tony.

Tony  26:00

Meant to be. Or gold.

Cameron  26:03

I saw somebody posted the other day the crypto price and how it’s fallen, along with everything else recently, saying, “oh, hold on a second, I thought this thing was supposed to be contrary to the world.” Although to be fair, bitcoins had a good run in the last week and a half. But yeah, it actually has had a good run since January.

Tony  26:28

Yeah, okay. I’m gonna play a clip if I can work out the technology here from a very old movie called It’s A Wonderful Life, and it talks about a bank run. And these things have been around since banks, basically, but this is a good summary of what happened. So, let me just try and cue this up if I can.


Ernie: “Don’t look now, but there’s something funny going on over there at the bank, George. I’ve never really seen one, but that’s got all the earmarks of being a run.”


George: “Now, Just remember that this thing isn’t as black as it appears. I have some news for you, folks. I’ve just found an old man Potter and he’s guaranteed cash payments to the bank. The bank is going to reopen next week.”


Charlie: “Did he guarantee this place?”


Ed: “But George I got my money here.”


George: “Well, no, Charlie, I didn’t even ask him. We don’t need Potter over here.”


Charlie: “I’ll take mine now.”


George: “No… But you’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here. Your money is in Joe’s house. That’s right next to yours. And in the Kennedy house, and Mrs Macklin’s house and a hundred other houses. Why, you’re lending them the money to build and then they’re gonna pay it back to you as best they can. What are you going to do, foreclose on them?”


Tom: “I’ve got $242 in here, and $242 isn’t going to break anybody.”


George: “Okay, Tom. All right. There you are, you sign this, you get your money in sixty days.”


Tom: “Sixty days?”


George: “Well, that’s what you agreed to when you bought your shares.”


Randall: “Tom, Tom, Did you get your money?”


Tom: “No.”


Randall: “Well, I did. Old man Potter will pay 50 cents on the dollar for every share you’ve got, cash.


Tom: “Well, what do you say?”


George: “Oh, Tom, you have to stick to your original agreement. I’ll give it sixty days on this thing.”


Tom: “Okay Randall.”


Woman: “Are you going to Potter’s?”


Tom: “Better to get half than nothing.”

Tony  28:30

Anyway, it’s a good summary. Bank runs have been around for a long time, and basically the clip says don’t forget that when you demand you’re taking money out of the bank, you’re actually taking it away from the person who’s borrowed from the bank to build their house next door to you. That’s the interconnectedness of the banking world. Okay, well, that was me for commentary. I wanted to do a pulled pork on oOh!media, OML.

Cameron  28:55

I’ll go sell my shares while you get started.


Cameron  1:33:15

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 investment decisions.