Transcript QAV 617

QAV 617 CLUB

Cameron  00:06

Wel­come to an unex­pect­ed QAV event this week. We’re record­ing this on Tues­day, the 25th of April 2023. I’m in Bris­bane, TKs in Toron­to, where I was­n’t expect­ing to hear from him for a cou­ple of weeks, but he sur­prised me with his pres­ence. Like Jesus, just popped in all of a sud­den. Like, “ah, I’m here.” How are you, TK?

Tony  00:29

Yeah, I’m good. I thought we had planned last week to do one this week at the same time.

Cameron  00:33

There you go.

Tony  00:34

Yeah. Any­way, I’m clear and free, so let’s go.

Cameron  00:37

That’s good. So, how’s the last bit of the trav­el been going?

Tony  00:42

Yeah, good. We had a cou­ple nights and days in New Orleans before this. Now I’m in Toron­to with Jen­ny and Alex who have arrived, which is good. I haven’t seen them for near­ly a month, so that’s great. And Rud­dy and I had time before New Orleans in a place called Amelia Island, just out­side of Jack­sonville in Flori­da, which was good.

Cameron  01:04

Wow.

Tony  01:06

It’s called the Red­neck Riv­iera.

Cameron  01:08

I saw your pho­to of the on the beach of Red­neck Riv­iera. Tell me about the high­lights of New Orleans. Did you do any­thing fun there?

Tony  01:16

I think it’s prob­a­bly bet­ter to talk about the low­lights. I mean, I absolute­ly hat­ed the French Quar­ter there. It was just full of peo­ple, real­ly touristy. Hard to get around. And then you sort of went one street away and it was like board­ed up places and it did­n’t feel safe, so I high­ly rec­om­mend peo­ple don’t go to New Orleans for the French Quar­ter, which is the tourist attrac­tion: Bour­bon Street and all that. But we jumped on the bus and saw the rest of New Orleans and then went to oth­er parts out­side of the French Quar­ter, and it was a love­ly town. Beau­ti­ful town.

Cameron  01:50

Well, it’s been, I think, as I said last week, it’s been prob­a­bly twen­ty years since I’ve been in New Orleans, but I used to love the French Quar­ter. I mean, yeah, it’s very touristy. That’s true. But I love once you get off Bour­bon Street and went out to, you know, some of the oth­er blocks. You’d hit a few blues clubs and jazz clubs. But I do remem­ber being there once putting my head­phones on, just sort of walk­ing, lis­ten­ing to music or some­thing — it was before the era of pod­casts. And then all of a sud­den, just think­ing, I haven’t been pay­ing atten­tion to where I was. I was the only white guy and peo­ple were giv­ing me this look. I think one guy said to me, “you must be lost, boy,” or some­thing like that. I was like, “yeah, I am, sor­ry.”

Tony  02:35

Yeah, we did­n’t feel safe in some places of it, so we got out of their quick. But yeah, out­side of the French Quar­ter it was fine. Was real­ly nice, clean, cruisy sort of a place with good restau­rants and bars and things. So, yeah, it was good.

Cameron  02:51

Did you see any blues? Any jazz?

Cameron  02:54

No.

Cameron  02:55

What?

Cameron  02:55

No.

Tony  02:56

No, well there was lit­er­al­ly noth­ing in the French Quar­ter.

Cameron  02:59

Real­ly? Wow.

Tony  03:01

There was one street that the tourist bus guide said, “this is where the music is,” but it just looked real­ly touristy as well.

Cameron  03:07

It’s changed a lot.

Tony  03:08

I don’t know if we were there dur­ing spring break or what, but it was full of frat boys and hens nights, and thou­sands of peo­ple just milling about doing noth­ing, get­ting in the way. It was just awful.

Cameron  03:19

Not your speed.

Tony  03:20

No.

Cameron  03:21

No women flash­ing their breasts when peo­ple threw them chains of beads from bal­conies.

Tony  03:27

Oh, is that what that’s about? No, there was­n’t. There were peo­ple throw­ing beads from bal­conies, but it just seemed to be get­ting the young boys to fight each oth­er to get them.

Cameron  03:36

No, you’re sup­posed to flash your boobs if some­body throws you a chain of beads.

Tony  03:41

Okay, no, that was­n’t going on.

Cameron  03:45

I flashed mine a cou­ple of times when I was there, did­n’t real­ly get the reac­tion that I’d hoped for. Any­way. Oh, well, that’s dis­ap­point­ing. Have you’ve been pay­ing atten­tion to invest­ing?

Tony  03:55

I have today. I had a bit of time to go over things today.

Cameron  03:59

Well, I haven’t, because I was­n’t plan­ning on doing a show with you this week, so I’ve got real­ly noth­ing to talk about. We’ve got a cou­ple of ques­tions that we’ll get into. I guess I can do a port­fo­lio update. The mar­ket was track­ing along quite nice­ly for a few days then again last week, and then they must have worked out that you were com­ing back soon, and every­thing sort of took a turn for the worst at one point there.

Tony  04:24

Is that because Tuck­er Carl­son left Fox News or some­thing like that?

Cameron  04:30

I saw that in the New York Times this morn­ing. I did have to won­der how he had any cred­i­bil­i­ty left with the audi­ence after all of the rev­e­la­tions came out from the Domin­ion case, that he secret­ly did­n’t believe any­thing that he said.

Tony  04:46

That was a good invest­ment for the pri­vate equi­ty peo­ple who paid $28 mil­lion for Domin­ion four years ago and then made $780 mil­lion US in four years.

Cameron  04:57

Well, yeah, they haven’t sold it. But yeah, I’m not sure where that mon­ey goes that they got from the set­tle­ment, but I’m sure some of it will get back to them. Maybe a spe­cial div­i­dend or some­thing. Was­n’t it to make up for lost rev­enue for the busi­ness for the last few years?

Tony  05:12

Oh, well it’s meant to be, yeah. But it’s an out­size pay­ment. And then the sec­ond ones com­ing, which they’re talk­ing about not set­tling.

Cameron  05:22

Smart­mat­ic, or what­ev­er it is?

Tony  05:24

Yeah.

Cameron  05:25

Well, port­fo­lio report: since incep­tion, were up 18.61% CAGR per annum accord­ing to Navexa ver­sus the STW up 7.42% per annum over that time. So, it’s pret­ty good. What are we, near­ly a month into this quar­ter? This quar­ter we’re up 4.57% per annum ver­sus the STW, up 2.02%. So, you know, we’re hav­ing a good quar­ter vis a vis the bench­mark. This finan­cial year were up 15.7% per annum ver­sus the STW, up 16.81%. So, we’ve near­ly caught up to the bench­mark for the finan­cial year. We’ve still got a few months left to go and we’re out­per­form­ing it so far this quar­ter, which is fas­ci­nat­ing because, you know, going back to Novem­ber last year, we were at 3.2% ver­sus the STW at 13.4. We were under­per­form­ing quite dra­mat­i­cal­ly, and we have near­ly caught up. So, that’s inter­est­ing.

Tony  06:35

Yeah, I mean, that’s just swings and round­abouts real­ly, isn’t it, in the short term. The mar­ket, I think, had one of the best Jan­u­ary’s ever, and now it’s come off again since then.

Cameron  06:43

I mean, we’re prob­a­bly not going to get dou­ble mar­ket this finan­cial year, but you know, even if we just match the bench­mark, I’ll be hap­py, because not many fund man­agers, not many investors are able to even meet the bench­mark, con­sid­er­ing our long-term per­for­mance is like three times.

Tony  07:03

Well, as you say, it’s been a very top­sy turvy year. So, to get 12% or what­ev­er it was you said before we’re get­ting is pret­ty good.

Cameron  07:12

15.7.

Tony  07:14

15.7, there you go.

Cameron  07:15

Well, and again, as we found the last cou­ple of years, the break­down of that accord­ing to Navexa, cap­i­tal gain is only 7.17%, income return is 8.54%. So, more than half of that is com­ing from div­i­dends and, well, we don’t have SKT — did we have SKT this year? It might have been the Sky… no, that’s in the light port­fo­lios, it has­n’t even been in the dum­my. They had this mas­sive cap­i­tal return that I know spiked one of our light port­fo­lios, but that’s not part of this. Let’s look at the big ones for the dum­my port­fo­lio this finan­cial year: LAU up 224% so far; RSG up 35; SMR, my acci­den­tal buy, up 46; TRS up 33; Wood­side up 24; CLX up 36; CVL up 32; DUR up 41; IGL up 55. Yeah, so a lot of them have done well, but LAU what a what a cork­er that’s been.

Tony  08:34

There must be some big div­i­dend pay­ers in there, though, to have an 8% div­i­dend yield. They’d be the coal stocks I would have thought.

Cameron  08:41

Well, Lind­sey, LAU, 9% income return on that. But the share price has been very good as well. But yeah, we’ve done quite well out a cou­ple of div­i­dends from them; one in Octo­ber and one in April that were both quite good. But yeah, I don’t know the break­down for the rest of it. Good div­i­dends this finan­cial year from AMO, ASG, BFG, BRI, CVL, FEX. Big one from FEX. IGL, KOV, KSE, LAU, Myer. Myer actu­al­ly has­n’t done very well from a cap­i­tal gain per­spec­tive, it’s down 12%, but a nice div­i­dend neu­tralised a lot of that. Yeah, they still haven’t paid out. I think that does­n’t pay out until, like, the 11th of May or some­thing, the Myer div­i­dend. It was crazy. Like, the ex-date was in mid-March and the pay­ment dates in May. It’s one of those ter­ri­ble ones, you know. Like in my alert spread­sheet, it’s tech­ni­cal­ly a rule one sell except for we’re hold­ing on to it because of the div­i­dend, you know.

Tony  09:59

Well, a clas­sic retail­er to pay the invoice on the last day.

Cameron  10:04

Yeah, there on nine­ty-day terms for pay­ing their div­i­dends. Any­way, so that’s that. Port­fo­lio doing good all in all. It’s been sort of a touchy year, but right now it’s look­ing pret­ty strong.

Tony  10:15

Yeah, good.

Cameron  10:16

Well, do you have any­thing else you want to talk about in terms of news of the invest­ing world this week, TK? Or do we just get into some ques­tions?

Tony  10:25

I guess just get into some ques­tions. I don’t real­ly have any news of the invest­ing world, or news over here. I hap­pened to turn on Bloomberg this morn­ing because I was look­ing through some chan­nels, and the head­line was “Morn­ing open­ing in Aus­tralia,” so I thought, okay, I’ll turn it on. It was nice to see the Opera House and the Har­bour Bridge in the back­ground of the TV pre­sen­ter, who then talked about the US mar­ket. Noth­ing about Aus­tralia at all. So, that was dis­ap­point­ing.

Cameron  10:53

And of course, it’s ANZAC day here today and the mar­kets closed any­way.

Tony  10:57

Right, because I did try and down­load a Fin Review before we went on air and there was none. Well, thanks for work­ing on a pub­lic hol­i­day, Cam.

Cameron  11:06

There’s no pub­lic hol­i­days when you run your own busi­ness, as I’m sure every­one who runs their own busi­ness knows. Chris­sy said to me, “oh, you’re not tak­ing the day off?” And I’m like, “who’s putting out the pod­cast if I take the day off? Chat GPT’s not doing it for me, yet.”

Tony  11:23

You’re hold­ing down the fort there. Alex is over here with me, so you’re doing it this week.

Cameron  11:29

So, speak­ing of which, I had to do the buy list yes­ter­day. And you know, I had­n’t done a buy list for quite a while because I use Alex’s every week, and she uses your sheet. If I do one, I use the Flit­man mod­el. And so, I had to grab data out of Alex’s sheet, I had to grab data out of the work that Max­ie does for us — I have a free­lancer who does some analy­sis work for us each week and she’s out of New York. I have Chris Strat­ton who’s built his auto­mat­ed mod­el that also cross ref­er­ences the man­u­al data that he pulls out of Stock Doc­tor, and we cross ref­er­ence that against Alex’s call on the man­u­al data each week. So, I had four datasets, and then I had the Stock Doc­tor data set that I had to pull into the Flit­man mod­el, and I need­ed to pull all that data togeth­er and cross ref­er­ence it against each oth­er and fig­ure out one ver­sion of the truth for this. Nor­mal­ly, it would have tak­en me all day and bro­ken my brain to do that. I just opened up GPT and I said, “lis­ten. I’ve got this prob­lem, I need to inte­grate these datasets with these columns and this data, I need to com­pare this col­umn in this sheet to that col­umn in that sheet, and if it agrees I need this result, if it dis­agrees, I need that result. Blah, blah, blah, blah, blah.” I spent half an hour writ­ing all of my prob­lems into Eng­lish lan­guage, gave it to GPT, and it was like, “sure, here’s how you do it.” Boom, boom, boom, boom, here’s a for­mu­la for this, here’s a for­mu­la for that, here’s a for­mu­la for this. I imple­ment­ed it, and it bloody worked. And I tell you, it was insane how many prob­lems it solved for me. I could­n’t have got through yes­ter­day with­out GPT, it just absolute­ly saved my bacon yes­ter­day with­out Alex. So, I tell you peo­ple, if you still think GPT is just a fan­cy chat­bot and you do any­thing that involves infor­ma­tion work, you’re real­ly miss­ing out. It absolute­ly blew my mind again yes­ter­day what it enabled me to do.

Tony  13:37

Yeah, well as Rud­dy calls it, Chat GDP.

Cameron  13:41

GDP? Okay. So, there you go. Thank you GPT4 for sav­ing my bacon yet again yes­ter­day. All right, well, let’s get into the ques­tions. First one is from John. Hi, John. “In ref­er­ence to share invest­ing ver­sus share trad­ing on the ATO web­site for tax pur­pos­es, which one does Tony use?” And then he help­ful­ly includ­ed a link to the ATO web­site. And I know we’ve talked about this before over the years. I’ve replied to John, “look, I’m pret­ty sure you clas­si­fy your­self as a share investor as opposed to a share trad­er,” and we talk about CGT impli­ca­tions of buy­ing and sell­ing all the time. But do you just want to talk about that a lit­tle bit for John’s ben­e­fit, how you think of the dif­fer­ence and how the ATO thinks of the dif­fer­ence?

Tony  14:30

Yeah, sure. And I guess the dis­claimer is this is not indi­vid­ual tax advice for John or for any­one else lis­ten­ing. So, look it up your­self on the ATO web­site, but more impor­tant­ly, talk to your tax accoun­tant about it. So, my under­stand­ing is that you can basi­cal­ly nom­i­nate which one you are your­self and as long as you’ve done a rea­son­able num­ber of trades dur­ing the year you can nom­i­nate your­self as a share trad­er or you can nom­i­nate your­self as a share investor, and the ATO pret­ty much from what I’ve been told accepts that nom­i­na­tion. The dif­fer­ence being if you’re a share investor, you get the cap­i­tal gains tax relief. Which means, if I hold a share for twelve months or more then the cap­i­tal gains tax has halved, which I think is fair­ly impor­tant. The oth­er option is to be a share trad­er, which just treats it as nor­mal sort of oper­at­ing expens­es and income, just like you do on your own PAY tax form. So, if you’re invest­ing in your own name and you make a cap­i­tal gain, you’ll pay what­ev­er your top mar­gin­al rate is of tax on that, and you’ll get no CGT relief. The div­i­dends will be taxed at your top mar­gin­al rate as well. But if you’re an investor, you do get the CGT relief after twelve months. That’s prob­a­bly the main dif­fer­ence. And cer­tain­ly, share trad­ing would help some peo­ple if they’re on a low mar­gin­al tax rate. It gets to be line ball if you’re, say, oper­at­ing through a com­pa­ny where the com­pa­ny tax rate is at most 30%, and half of the top mar­gin­al rate is 27.5%. So it’s, you know, pret­ty close either way, real­ly.

Cameron  16:06

So, what are the advan­tages of call­ing your­self a trad­er ver­sus an investor, then?

Tony  16:15

There’s not a whole lot, you just treat it as an oper­at­ing busi­ness. So, you’re con­duct­ing your busi­ness where your stock is shares, and you’re sell­ing them and tak­ing the income straight away to the P&L. Where­as as an investor, it’s more like a bal­ance sheet item which is seen as an asset, and there­fore you get cap­i­tal gains tax relief. So, it just depends on what invest­ment struc­ture you’re using, what the tax rate is in that struc­ture, and whether you want to get the deduc­tions avail­able for off­set maybe against oth­er income. Well, I guess that’s the same both ways. But I’ve nev­er seen an advan­tage in being a share trad­er ver­sus being an investor, because you lose that CGT relief.

Cameron  16:57

It sounds like you’re say­ing that if you’re a trad­er, you clas­si­fy it as your source of income, where­as if you’re an investor, it’s a long-term wealth build­ing exer­cis­es. Is that right?

Tony  17:09

Yeah, so one is seen as being a move­ment of assets and one is seen as been oper­at­ing income, like you’re oper­at­ing a cof­fee shop. Instead of sell­ing cof­fee, you’re sell­ing shares.

Cameron  17:19

Alright, thanks for explain­ing that. Hope that helps, John. The only oth­er ques­tion I have is from Dar­ryl. He’s ask­ing for the lat­est view on using Renko charts. He says, “been notic­ing the press late­ly about WHC returns, and now their deci­sion to go ear­ly on their mine expan­sion. I had a look at the charts and look­ing back in this case at least, fol­low­ing the Renko chart to sell would have giv­en a much bet­ter out­come than the coal price sell.” So, he said Renko would have got him out at $8.50-$9, where­as the coal price com­mod­i­ty sell would have kicked in around $7. And I said, “the last I heard, you were still think­ing about Renko charts and test­ing it.” Is that still where it’s at?

Tony  18:02

Yeah, so Rud­dy did some analy­sis for me, and Rud­dy being Rud­dy gave it to me the day before we left for the for the States. So, I had a chance to go through it today when I saw the ques­tion, or actu­al­ly I saw the ques­tion on Face­book a cou­ple of days ago when­ev­er it was put on there. I think the Renko charts are use­ful in sit­u­a­tions like White­haven Coal where you’ve had a big a big increase in the share price and it’s a long way away from its sell price. We’ve talked about this before, when do you, sort of, sell out? Do you wait until the sell price and give all your cap­i­tal gains back, or do you sell out ear­li­er? And Renko has you sell­ing out ear­li­er. As Brett says, it’s kind of like a mov­ing stop loss. There’s a math­e­mat­i­cal for­mu­la behind it, which we could actu­al­ly cal­cu­late and put into an alert, but it’s prob­a­bly just eas­i­er to look up the chart and work out when to sell. So, Rud­dy’s analy­sis actu­al­ly showed that using Renko charts gave about a 10% bet­ter return than not using them. Now, that’s the first sort of piece of analy­sis that he’s done, and I’ve looked at, and it was done way back. It was using the first time I did a trans­ac­tion dump from the dum­my port­fo­lio, which I think was about a year or a year and a half in. So, there’s a year and a half’s worth of data in it. So, we know what the results are from not using Renko charts, and then Mark went back and did two things: he did­n’t buy a share that the dum­my port­fo­lio did if the Renko chart was red, so it was a sell. And he sold a share when the Renko chart went from green to red, which we may not have done for the dum­my port­fo­lio. Cer­tain­ly, prob­a­bly would­n’t have done at the same time as the Renko chart turned to a sell. We use three-point trend lines. And some­times it works and some­times it did­n’t, but over­all, it was a 10% bet­ter-off result from using the Renko charts. So, I think it’s worth pur­su­ing. My next plan would be for myself to set up a dum­my port­fo­lio and trade it using Renko charts as well as all the oth­er things we use. We don’t change any of those, and give it maybe six months, at least, to see whether it turns out in real life to be bet­ter off than just the paper analy­sis we’ve done. And I think if we have two ticks for that, then I think we can imple­ment it into the process.

Cameron  20:19

Oh, that’s real­ly inter­est­ing.

Tony  20:20

Yeah. I think the main thing is it cer­tain­ly will help in cas­es like the WHC case, where some­thing’s gone up a lot and it’s a long way above its sell line. But it seemed to me just from what I saw today that it was also help­ing not buy­ing some­thing that was still red on the Renko chart, even though it may have been pass­ing all our oth­er tests. You know, in a lot of those cas­es they were still falling knives.

Cameron  20:45

So, you’re going to imple­ment that sort of Renko dum­my port­fo­lio, and you’ll report back to us in six months.

Tony  20:54

Yeah, I’ll just pick the next top ten stocks in the buy list and put them into a dum­my port­fo­lio and trade them for six months or so, and see how they go.

Cameron  21:03

Oh, fas­ci­nat­ing. Good tim­ing on that ques­tion, Dar­ryl, and thanks to you and Rud­dy for doing that analy­sis for us, it’s inter­est­ing.

Tony  21:10

Yeah, and the oth­er piece of analy­sis I also had time to go through today was Ryan’s work on buy­ing from the top of the buy list ver­sus buy­ing from the bot­tom of the buy list, and sim­i­lar sort of result. So, he did it dif­fer­ent­ly. He went back through the his­to­ry of all the buy lists that we’ve pro­duced, and at least in their cur­rent form, that’s about two and a half years’ worth of buy lists. He picked, I think it was about ten or twelve at ran­dom, and then used the top ten stocks on the buy list at that time and trad­ed them for­ward. And it was a bit of work, because he had to check the com­mod­i­ty charts and check for three-point sells for those stocks, and then if they were a sell, to buy anoth­er one from a buy list at that sell time. So, he’s done a fair bit of man­u­al work on it. But again, his results are inter­est­ing. They’re show­ing that buy­ing from the top of the buy list is bet­ter than buy­ing from the bot­tom. And there was, I think, about two cas­es where it was­n’t, and they were pret­ty recent ones. But in the main, buy­ing from the top was bet­ter than buy­ing from the bot­tom. So, Dylan had done some work before Ryan to sug­gest that the QAV cut off should be 0.2 rather than 0.1, and I think from what I’ve seen in Ryan’s ear­ly results, that’s prob­a­bly going to be the case. So, again, I’ll set up a dum­my port­fo­lio for that, and run it for­ward for six months and just see the dif­fer­ence in buy­ing from the top ver­sus buy­ing from the bot­tom and val­i­date that going for­ward. And then if that works, then put that into prac­tice as well. And that will come with lim­i­ta­tions, because we may not be able to find fif­teen to twen­ty stocks with a QAV score above 0.2. So, that’s why I want to test it on paper first and get the kinks out from doing it live on a desk­top going for­ward.

Cameron  23:00

Did that fac­tor in ADT cut-offs?

Tony  23:03

He did do a bit of analy­sis for me. He bought the top ten stocks on the buy list and bought the bot­tom ten stocks on the buy list — and we chose ten because when he bought twen­ty, there was a big over­lap because there weren’t enough stocks to sep­a­rate them. So, we did ten. And then he also did the top ten with an ADT above, I think it was either $100,000 or $500,000. So, larg­er ADT stocks from the top, and they also per­form bet­ter as well.

Cameron  23:32

That’s inter­est­ing. So, high­er ADT stocks per­form bet­ter than low­er ADT stocks.

Tony  23:32

Well, I think it was just because they were com­ing from the top of the buy list was the more impor­tant thing.

Cameron  23:35

Oh, well good stuff. It’s inter­est­ing. I love it when there’s new ideas. Speak­ing of new ideas, some­body asked me again yes­ter­day when they can get their hands on the lat­est ver­sion of the Bret­te­la­tor that we’ve been test­ing for quite a while now, the one with the sec­ond buy line built into it. I know that the last email con­ver­sa­tion we had about this was, I think, before you went away. You said you were still test­ing it. That’s still the sta­tus on that?

Tony  24:13

Oh, no, it’s fine to go out. It’s okay.

Cameron  24:16

Cool.

Tony  24:17

Yeah. Looks good to me.

Cameron  24:19

Well, that’s excit­ing. I’ll work with Brett. I’ll shoot him an email after this and we’ll get a pub­lic ver­sion of that ready. So, cool. Thanks for that. And thank you to Brett Fish­er for his con­stant work on the Bret­te­la­tor. One oth­er thing I for­got to men­tion at the begin­ning of the show was one of the things I decid­ed doing the buy list yes­ter­day is that steel was a sell. Have you looked at the steel chart?

Tony  24:47

I haven’t, no, I haven’t looked at the charts for a while.

Cameron  24:49

Steel sort of plum­met­ed this month and I decid­ed it was a sell, which had a mate­r­i­al impact because we owned a lot of BlueScope in the dum­my port­fo­lio and the light port­fo­lio, and in my super. So, I had to sell a tonne of BlueScope yes­ter­day, and sold it all at a prof­it, too, which was nice. But again, it was one of those indi­ca­tors where — I did­n’t look at the Renko, though, — but it was one of those indi­ca­tors where the com­mod­i­ty sell got us out while the share price still looked rel­a­tive­ly healthy. It has­n’t start­ed to turn down, I don’t think, dra­mat­i­cal­ly. I haven’t looked today. Well, I did­n’t look at what hap­pened to it yes­ter­day after I dumped it, but yeah. Actu­al­ly, it fell a lot yes­ter­day. Yeah, I think a lot of peo­ple decid­ed it was a sell. It opened at 21.39 and hit a low of 20.53 yes­ter­day, sta­bilised around $20.70. But it’s been going up for the last six months/year to date, it’s up. Go back a year ago, it was trad­ing at $16.76, now trad­ing at about $20.64. Apart from a bit of a fall yes­ter­day, it had a bit of a drop, the 20th of April was when it start­ed com­ing back. It has come back a lit­tle bit, I guess, in the last week, but yeah, any­way, our com­mod­i­ty sell got us out of BlueScope, so we’ll see how that works for us. But just an FYI for peo­ple if they did­n’t notice that in the buy list yes­ter­day, I think steel is a sell. Check it for your­self, obvi­ous­ly, see what you think. But looks like a sell to me. Well, that’s it. I’ve run out of things to talk about.

Tony  26:33

Oh, look, I got a pulled pork ready.

Cameron  26:36

Oh, I for­got. You got a pulled pork. Nice. We should have done that before the Q&A. What are you doing for the pulled pork this week, Tony?

Tony  26:42

The Nation­al Aus­tralia Bank. I think some­one asked for it last week on the ADT stock that was new to the buy list, from mem­o­ry.

Cameron  26:51

Great.

Tony  26:53

So, I mean, I would think all the lis­ten­ers would know Nation­al Aus­tralia Bank, it’s one of the big four banks in Aus­tralia. The big four banks in Aus­tralia tend to have strengths and weak­ness­es in dif­fer­ent areas, and NAB strength is in busi­ness bank­ing. So, less so in sell­ing mort­gages, a lit­tle bit in cred­it cards. They have a bank in New Zealand. But it’s your vanil­la sort of mort­gage lender, and in NAB’s case, busi­ness lender as well, that’s its strength. And also, wealth. So, they bought one of the old stock­bro­kers in Mel­bourne, JBWere, a lit­tle while ago, and so that’s enabled them to have links into high-net-worth indi­vid­u­als and home offices and things like that. So, they’re NAB’s strengths. But oth­er­wise, it’s much like the oth­er big four banks. It’s run by a guy called Ross McE­wan, who’s very well regard­ed. I tend to think prob­a­bly one of the best CEOs in the bank­ing space. And also, the chair­man is an expe­ri­enced banker by the name of Phil Chron­i­can, and he’s also high­ly regard­ed. So, I think the bank is well man­aged at the moment. It does come with a risk, in that there has been a bit of talk around town that Ross McE­wan may decide to resign or retire. And the rea­son for that is that when he took the job, he came across from the UK — he is an Aus­tralian, but he’d been over in the UK fix­ing up banks after the GFC — and came back to run NAB, but said he’d do it for five years. And that time, I think, is in its last year now. And so, there’s spec­u­la­tion about who will take over and what it might mean for NAB. So, that is a risk. CEO changeovers, even when they’re well man­aged — and I think with some­one like Phil Chron­i­can in the chair, what­ev­er hap­pens will be well man­aged. And of course, Ross McE­wan may decide to extend. He won’t be tied to his ini­tial fore­cast of a five-year term if it suits him. So, I think it’s a risk. There’s always a risk when new CEO comes in that they might clear the deck, so to speak, and write things down, which depress­es the share price. And that’s usu­al­ly for two rea­sons; one to reset the floor for all their options going for­ward off a low base, and sec­ond­ly, it’s prob­a­bly their only time to do it dur­ing their tenure as CEO. Because if you don’t clear the decks when you start and take down all the pro­vi­sions you need to, then it’s pret­ty hard to do lat­er on because it will affect the share price. So, there is a risk that may hap­pen. But we don’t know. It’s only a risk, I guess. I’m kind of lean­ing towards the side, with Chron­i­can as Chair­man, that it will be well man­aged what­ev­er hap­pens. Any­way, that’s the first risk. I guess the oth­er thing to talk about with the big four banks in par­tic­u­lar is inter­est rates. So, inter­est rates are going up as we all know, and the banks in these kinds of high inter­est rates or ris­ing inter­est rates times make more mon­ey than when inter­est rates are low­er — out of mort­gages any­way — because they raise the rates quick­ly and they don’t raise the rates on deposits equal­ly as quick­ly or to the same extent, so their mar­gins improve when inter­est rates are ris­ing. But I guess the risks at the moment are that if inter­est rates rise too much and tip the coun­try into reces­sion, then the banks are going to face more mort­gage defaults, which is also a bad thing for banks. And one of the biggest indi­ca­tors of how well the bank­ing sec­tor is, is how much they are pro­vid­ing on their bal­ance sheets for bad and doubt­ful debts. They’re not pro­vid­ing as much as they have been in the past at the moment, but if we do look like going into reces­sion, they’ll start putting away mon­ey to cov­er their loss­es for peo­ple who default on their mort­gages, and that will be a mate­r­i­al impact on their prof­its. So, that’s poten­tial­ly a risk as well. And then the oth­er risk is that we may be at peak inter­est rates for this cycle. If we’re not there, we’re close to it. The RBA did­n’t put inter­est rates up this month, they’re call­ing it a pause, but there are signs infla­tion may be near­ing its peak and might even be com­ing down. So, if inter­est rates start to go down again, then that kind of mar­gin increase for the banks is over and they’ll start to reduce their mar­gins. And I guess if inter­est rates get very low again, they’re going to have to do what they did in the past and look for oth­er ways to grow their, their bot­tom lines. They’ve all now exit­ed out of insur­ance and wealth, I guess were the two main adjunct busi­ness­es they got into when inter­est rates were low, and they may start look­ing at things like that again which comes with risk. And they may also start look­ing over­seas, which has nev­er been a prof­itable hunt­ing ground for Aus­tralian banks for a whole vari­ety of rea­sons. Least of which is that, par­tic­u­lar­ly in the US, retail mort­gages don’t work the same way as they do in Aus­tralia, and Aus­tralian CEOs don’t have expe­ri­ence with that kind of mar­ket in the way they do in Aus­tralia. So, there’s risks, I guess, in the big four banks at the moment, but that’s one of the rea­sons why NAB is on the buy list. It’s a big, strong com­pa­ny with lots of insti­tu­tion­al investors, lots of ana­lysts look­ing at it, and yet it pops up on our val­ue screen. So, I think the rea­son for that is because peo­ple are fac­tor­ing in some of these risks into the share price. So, that’s, you know, good for us. When the price is right, I’m hap­py to take on that risk. And so, NABS on the buy list and there’s no rea­son, I think, not to buy it giv­en all the risks above I’ve just spo­ken about. In terms of the num­bers, like I said, it’s a very large ADT stock: it’s $131 mil­lion on aver­age trad­ed per day. So, it’s quite large. I’m using a share price of $28.46 in my analy­sis, which is rough­ly about what it trad­ed at yes­ter­day. It’s less than con­sen­sus tar­get, but it is above IV1 and just above IV2, and it’s also greater than book plus 30%. So, even though it’s on our val­ue buy list, it does­n’t pass any of those val­ue met­rics. But what it does pass with fly­ing colours is Pr/OpCaf. So, price to oper­at­ing cash flow was about three times for this bank, which is quite low. Stock Doc­tor rates NAB a star income stock, which we score as half a point, so it’s a dif­fer­ent rat­ing to a star growth stock which we give a full point to. And this is the way that Stock Doc­tor rates com­pa­nies which are suit­able for peo­ple who want div­i­dends and income rather than nec­es­sar­i­ly growth. The yield on NAB is 5.31%, so it’s quite a high yield­ing stock. But again, does­n’t pass our tests because it is yield­ing low­er than the aver­age of the mort­gage rates out there in the mar­ket. Just again, slight­ly low­er. And that’s the inter­est­ing thing with NAB, I think, is that it keeps scor­ing just below our thresh­olds for IV2, book plus 30% and div­i­dend yield, which, again, I think is prob­a­bly due to the fact that it’s such a high­ly trad­ed stock with lots of peo­ple focus­ing on it and invest­ing in it. So, I would­n’t expect it to be mate­ri­al­ly over any of our nor­mal sort of bench­marks. Fore­cast growth in EPS of 16%, which again is good, nice and strong, but does­n’t score for our growth over PE tar­get, which we want 1.5 to score a one, and this is 1.21. So, again, a good sol­id score, but just below our cut-off for our rat­ing. Finan­cial health in Stock Doc­tor is strong and steady. The PE is 13.1, which isn’t too bad. It’s below the mar­ket aver­age I thought, but it’s not quite the low­est of the last five halves. Three years before it had a low­er PE, so I think poten­tial­ly when we roll around into the next half, it will score on that met­ric. It has had a recent upturn, so it’s back on the buy list which is why we’re talk­ing about it. So, it scores for that, but zero for con­sis­tent­ly increas­ing equi­ty. So, in the last year in par­tic­u­lar, usu­al­ly equi­ty is reduced slight­ly. All in all, for the num­bers, the qual­i­ty score is 8.5 out of 16, which is 53%, and the QAV is 0.17, which is rea­son­able but not quite at the top of the buy list. And I guess the oth­er thing to note about NAB is it’s the only big four bank on our buy list cur­rent­ly if you exclude Mac­quar­ie, which is the fifth bank and is high­er on the list but NAB is our big four bank on the buy list at the moment.

Cameron  35:30

Thanks, Tony. Your scores are a lit­tle bit dif­fer­ent to what I got yes­ter­day: I gave it 63% and 0.20, but close enough. And it was also at a dif­fer­ent share price to, it was $28.77 when I did it.

Tony  35:43

Yeah, I just had a look at the man­u­al score for PE, so I went back and checked it, and the spread­sheet, the down­load, I think the last one that Alex did, had it scor­ing as 1, but I think it’s a 0. That was the dif­fer­ence, I think, in those two scores.

Cameron  35:58

Right. I checked all of mine against Chris’s auto­mat­ed report yes­ter­day. Should be right, but I can’t remem­ber. I can look it up, actu­al­ly.

Tony  36:08

Yeah, have a look in Stock Doc­tor. I’m pret­ty sure that the sixth PE in the past was about sev­en from mem­o­ry.

Cameron  36:19

Record low PEs. I gave it a minus one. What did you give it?

Tony  36:23

I gave it a zero.

Cameron  36:25

Okay.

Tony  36:25

So, minus one would be the case if it was the high­est PE in the last three years. I get PE cur­rent­ly at 13.11 and the six before that were 14.1 in Sep­tem­ber, 15.5 in March, 15.7 in Sep­tem­ber ’21, 17.18 March ’21, 17.82 Sep­tem­ber ’20, and then 7.74 in March ’20. So, that’s the one that’s low­er, and that’s six PEs ago.

Cameron  36:57

I’ll have to drill down into the Strat­ton report and see why that did­n’t get picked up yes­ter­day.

Tony  37:05

Okay.

Cameron  37:06

All right. Well, thanks for that. NAB. Yeah, look­ing at the share price — and I did buy some NAB recent­ly — but the share price has been sort of a lit­tle bit top­sy turvy over the last year. A year ago, it was trad­ing around 3274. It’s cur­rent­ly trad­ing at 29ish today. 2879 when it closed yes­ter­day. But it’s kind of had some peaks and troughs there, down as low as 2592 in May last year. Not exact­ly a very con­sis­tent look­ing chart, but it’s done real­ly well in the last month. It’s gone from, well, 27 some­thing up.

Tony  37:47

Yeah, I think that’s the case with the banks since the inter­est rates start­ed ris­ing. No one can work out whether it’s good or bad. On the one hand, it’s because the bank mar­gins increase, but on the oth­er hand it’s bad inter­est rates have risen so quick­ly that we could go into reces­sion, which will hurt the banks. So, it has been a top­sy turvy year for the big four banks.

Cameron  38:06

And even if I look at the five-year chart on NAB, five years ago it was trad­ing at $28.59. Today, it’s at $28.79. So, you know, apart from the COVID cough when it dropped down to 15 bucks, it real­ly has­n’t done any­thing in five years. So, you know, blue chip stocks, you don’t real­ly expect a lot of growth out of them. But this is like… Actu­al­ly, god damn, go back ten years and it was trad­ing at $32.10 ten years ago, so it’s pret­ty much done noth­ing in ten years.

Tony  38:43

Yep. It’s basi­cal­ly giv­ing a div­i­dend yield only for the last long peri­od of time. Yeah.

Cameron  38:49

So, why would we even buy it?

Tony  38:52

Yeah, I think for me, the Ross McE­wan sto­ry I think is a good sto­ry. I think he’s a good CEO, well expe­ri­enced, well cre­den­tialed. I think if any­one’s going to make a change to NAB, he will. That’s the first thing. And the sec­ond thing is if inter­est rates don’t cause a reces­sion, banks should do well,

Cameron  39:13

Yeah, okay. So, with him and the busi­ness con­di­tions, they might do well as a busi­ness, but its share price in ten years has gone nowhere. You think there is still poten­tial for upside in the share price with all of those things you men­tioned?

Tony  39:29

Well, we’re play­ing the fore­cast­ing game, right. You know, you and I don’t know enough about banks to accu­rate­ly pre­dict how they’re going to go. I just like to price and the fact that it’s well run. So, you know, it scores rea­son­ably well on qual­i­ty and scores rea­son­ably well on price. It’s a big com­pa­ny. It may have gone side­ways for a long time; it might be about to have its day in the sun.

Cameron  39:51

Yeah, it’s a good reminder. I mean, I’ve talked about this recent­ly on the show: just trust the num­bers and don’t get involved.

Tony  40:01

Yeah, exact­ly. And there’s also a bit of an old say­ing about buy­ing the cheap­est bank out of the big four and you can’t go wrong. They tend to regress to the mean. Even though NAB’s been going side­ways for ten years, it will one day get patched up and shine a bit. So, yeah.

Cameron  40:19

But you know, if the num­bers tell us to buy it, we buy it and shut up and trust the sys­tem.

Tony  40:24

Yeah. And if it does­n’t, we sell it. You use the sys­tem to sell it.

Cameron  40:28

Alright, thank you for tak­ing us through that. Got any­thing else you want to share with the pun­ters? How are your hors­es doing?…

Cameron  1:16:17

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 and not per­son­al finan­cial advice. We don’t know your per­son­al finan­cial cir­cum­stances. Please see a finan­cial plan­ner before mak­ing any invest­ing deci­sions.