QAV #622 Transcript

QAV 622 CLUB

Cameron  00:06

Wel­come back to QAV episode 622. We’re record­ing this on Tues­day, the 30th of May 2023 at 2:40pm in the after­noon. We just spent the last forty min­utes most­ly talk­ing about the Suc­ces­sion finale.

Tony  00:27

Oh my god, that was so good. It was on last night. That’s why we’re talk­ing about.

Cameron  00:31

Yeah, we’ll get into that more, I guess, in after-hours. How are you, TK?

Tony  00:37

Good. Good weath­er in Syd­ney. Played golf yes­ter­day, went for a walk today. It’s love­ly.

Cameron  00:42

Backs doing okay.

Tony  00:44

A lit­tle bit sore, but it’s fine. I’m man­ag­ing it.

Cameron  00:47

You’re head­ing off to where?

Tony  00:48

To Wag­ga. Down to Wag­ga-to win­ter Wag­ga tomor­row.

Cameron  00:53

The exot­ic place. You know, it’s the Las Vegas of Aus­tralia, Wag­ga. The cap­i­tal of enter­tain­ment

Tony  01:03

Waka Waka.

Cameron  01:04

Yeah. Chris­sy and I got our COVID and flu boost­er shots on Thurs­day. They knocked me around for a cou­ple of days.

Tony  01:14

Oh, real­ly?

Cameron  01:15

Yeah. Not too bad. But you know, just kind of feel­ing not great for a cou­ple of days there. Could­n’t go to kung fu, that kind of thing. Did go and see Robert Forster on Fri­day night, which was great. Had a great night. Real­ly enjoyed the show.

Tony  01:32

Love­ly. Did you go back­stage?

Cameron  01:36

No. Why? For the lines of coke and strip­pers and stuff? What do you think’s going on back­stage at a Robert Forster show?

Tony  01:45

It’d be veg­an snacks, would­n’t it?

Cameron  01:47

Yeah, some­thing like that.

Tony  01:50

I thought Chris­sy knew him.

Cameron  01:53

She does, but she was play­ing it cool. And Tay­lor was look­ing after Fox, so we got home as quick­ly as pos­si­ble. But Roberts wife, Karen, who Chris­sy knows the best, got up on stage and did a few num­bers, which was real­ly nice, because you know, the whole album is about her fight­ing stage four can­cer and the fact that she’s still alive and could get up on stage and sing a few tracks was real­ly, real­ly love­ly. Shout out to Stu­art and Jemi­ma from Jind­abyne, who are new club mem­bers. I had a chat with them this morn­ing. Did the ol’wel­come to QAV Zoom call, which was ter­rif­ic. They’re a love­ly cou­ple get­ting their head around how to do a check­list and that kind of stuff. So, shout out to all our new mem­bers. If you want to reach out and have a “hold­ing your hand” ses­sion and talk you through stuff, it’s actu­al­ly… I said this to Stu­art and Jemi­ma, and I meant it, it’s hon­est­ly my favourite part of the job, is get­ting to talk to new QAV mem­bers and talk them through stuff. Explain stuff. It’s always good to get some face time with new — and not so new — mem­bers. I like get­ting phone calls from mem­bers and hav­ing a chat. It’s always fun.

Tony  02:57

This is not your favourite part of the whole QAV thing, hav­ing a chat for forty min­utes on Suc­ces­sion?

Cameron  03:04

Yeah, apart from talk­ing to you every week, my next favourite bit. I’m talk­ing about the work side of it.

Tony  03:10

This isn’t work, no.

Cameron  03:12

This is the fun part. Tony, if the US always comes up with a last-minute deal regard­ing the debt ceil­ing, as they have done this week, why did the mar­ket crash for two days? Accord­ing to the AFR, out of con­cerns and trep­i­da­tion about the loom­ing debt ceil­ing nego­ti­a­tions? And then it just went back to where it was one Mon­day. It bounced back when they pen­cilled in some sort of a deal.

 

Tony  03:16

Yeah, I think the mar­ket isn’t open yet in the US. They’re on their memo­r­i­al day week­end hol­i­day, so it opens tonight. So, we’ll see what hap­pens. But no, I agree. I don’t know how many times I’ve seen this play­book, and it always ends the same way with a deal with min­utes to spare and the prob­lem gets kicked down the road. It’s a strange sit­u­a­tion. But I agree with you. The only analy­sis I saw which made any sense was more to do with the bond mar­ket, and peo­ple just weren’t pre­pared to take any risks that there could be a prob­lem with the US gov­ern­ment debt not being hon­oured. And so, they just weren’t enter­ing the mar­ket and the mar­ket was freez­ing up, which may have had some ram­i­fi­ca­tions in the stock mar­ket if banks could­n’t bor­row or what­ev­er. And the sad thing about it is it’s a bit like the boy who cried wolf. This is, what, the thir­ti­eth time they’ve done it or some­thing. Next time they do it, and they don’t get a deal done, it’s going to be a real prob­lem because every­one’s going, “nah, it’s the debt ceil­ing again. It’s a sideshow, for­get about it.”

Cameron  04:35

I think there was one instance I can recall in the last decade when they did­n’t do it by the dead­line, and they had to start putting peo­ple-send­ing them home. I think dur­ing Oba­ma’s reign gov­ern­ment employ­ees had to go home for a week. But it only last­ed, like, a few days or a week or some­thing and they final­ly came up with some­thing.

Tony  04:57

I don’t know. I’ve got a dis­tant mem­o­ry. It may have been the Clin­ton years; they actu­al­ly did drag it out for two or three months and peo­ple were tak­ing leave and stuff. But the gov­ern­ment, the gov­ern­ment nev­er default­ed, they just did­n’t pay their employ­ees for a while. So, you know who los­es in these things? Not Wall Street.

Cameron  05:14

No. It’s the pun­ters. Speak­ing of pun­ters, con­grats to my old mate Den­nis Bas­tas. I read in the news over the week­end that he’s now worth $1.23 bil­lion, his esti­mat­ed net worth. So, offi­cial­ly, I think the rich­est guy I know. As I always say, I remem­ber Den­nis when I had to take him out to lunch because he could­n’t afford to buy lunch. He now runs one of the gener­ic phar­ma­ceu­ti­cal com­pa­nies in Aus­tralia. When I say runs it, owns it. And he’s done very well for him­self. And I haven’t spo­ken to him for a cou­ple of years. Chris­sy and I had lunch with him a few years ago when we were down in Mel­bourne. Love­ly guys, salt of the earth. Nicest-like you, but Greek. He’s the Greek Tony Kynas­ton. Real­ly, real­ly, real­ly nice guy. And I remem­ber that he told me this sto­ry. When I first met him, he was… I think he was run­ning the dig­i­tal arm of Vil­lage Road­show in the late 90s, and then he was at a start-up called Isis, which was an unfor­tu­nate name for a start-up, in ret­ro­spect. And yeah, then Isis ran out of mon­ey. He was like the CEO of one of the divi­sions of Isis, they ran out of mon­ey, and he was out of work for like, a year. I’d take him out to lunch on my Microsoft card, like, once a week or every cou­ple of weeks, down in South Yarra. I remem­ber, he went to Greece for some fam­i­ly wed­ding or some­thing, and he came back, and he said, “yeah, I met this guy who owns, like, the biggest gener­ic phar­ma­ceu­ti­cal busi­ness in Greece at the wed­ding. And the guy said to me, you know, ‘who runs all the gener­ic phar­ma­ceu­ti­cals in Aus­tralia?’ And he said, ‘I don’t think there is one.’ He goes, ‘well, maybe we should enter that mar­ket.’ He goes, ‘yeah, I’ll write a busi­ness plan for you. I’ll go back and I’ll research it.’ ” So, he wrote a busi­ness plan for the guy, then they did a joint ven­ture and Den­nis end­ed up run­ning it. He called me up, he goes, “do you know any CFOs? I need a CFO,” and I said “yeah, I know a guy.” So, that guy, who was my accoun­tant at the time, became his CFO. Any­way, then they float­ed it. And you know, then they sold that to a bunch of Indi­ans about four years lat­er for 400 mil­lion bucks. And then he bought some­thing else. And he just keeps buy­ing stuff and gets big­ger and big­ger, and now he’s worth over a bil­lion dol­lars. And just came from meet­ing a guy at a wed­ding in Athens and going “yeah, I could do that. Sure.” Any­way, great sto­ry. I know he’s a big fan of the show, Den­nis. Nev­er miss­es an episode.

Tony  07:43

Yeah, we should get him on.

Cameron  07:45

Yeah, we should get him on. No, I’ve tried before. He does­n’t like pub­lic­i­ty, Den­nis.

Tony  07:52

Well, he would have just enjoyed that last five min­utes of the show then.

Cameron  07:57

Yeah, he was actu­al­ly one of my advi­sors at my first start-up, before The Pod­cast Net­work, when I did the star-tup called Golf Lounge, where we were try­ing to set up an online golf book­ing busi­ness in, like, ’99 I think it was. He was one of my advi­sors in that event. Where were you then? You should have done it with me.

Tony  08:20

Yeah, I prob­a­bly would have been a cus­tomer.

Cameron  08:22

Yeah. That’s when Mary, Princess Mary of Den­mark worked for me.

Tony  08:27

Oh, real­ly?

Cameron  08:28

She was part of my golf lounge busi­ness. Yeah, it’s anoth­er sto­ry. Any­way, con­grat­u­la­tions to Den­nis. Love­ly guy if you ever run into him. Doug Tynan uses a check­list, Tony.

Tony  08:39

Yeah, I saw that arti­cle in the Fin Review. It’s inter­est­ing.

Cameron  08:42

Yeah, “Doug Tynan has a sim­ple invest­ment secret,” it said in the Finan­cial Review. “In a mar­ket crowd­ed with macro­eco­nom­ic crys­tal ball gaz­ing and noisy high con­vic­tion stock pick­ing, the GCQ fundy is build­ing a busi­ness based on one thing…” One thing. “You want to know the secret to life: one thing.” “Doug Tynan loves a check­list. In a funds man­age­ment mar­ket crowd­ed with macro­eco­nom­ic crys­tal ball gaz­ing and noisy high con­vic­tion stock pick­ing, the for­mer VGI part­ners exec­u­tive is build­ing a busi­ness based on one thing: does an invest­ment make it through an exten­sive vet­ting process? So far, it appears to be work­ing. His GCQ fund post­ed a 26.1% return for the six months to the end of April, out­per­form­ing its glob­al equi­ties bench­mark by 17.6%. He says, ‘some of the key pro­fes­sions in the world, whether air­line pilots or ER doc­tors run off check­lists because the world’s a very com­pli­cat­ed place.’ ” He’s been lis­ten­ing to this pod­cast, Tony.

Tony  09:40

Yeah.

Cameron  09:41

“ ‘How­ev­er, in a lot of funds man­age­ment, the more expe­ri­enced a fund man­ag­er gets the less they use a check­list. An air­line pilot with thir­ty years’ expe­ri­ence can fly the thing blind­fold­ed, but they still use the check­lists and they don’t begrudg­ing­ly do it. And when­ev­er there’s an inci­dent glob­al­ly, they ground the planes, work out what went wrong and improve the list. We’ve done that with invest­ing. When­ev­er we’ve made an error or lost mon­ey or not made the mon­ey that we thought we would have, we’ve stopped and said, ‘how could we have avoid­ed this with the check­list?”” Found that inter­est­ing.

Tony  10:11

Yeah, man after my own heart.

Cameron  10:13

Yeah. A big fan of the check­list. Sounds like he read the same book you read, actu­al­ly.

Tony  10:17

Yeah, it’s The Check­list Man­i­festo. Good book.

Cameron  10:20

You’ve nev­er run into this guy before, Doug Tynan?

Tony  10:23

Nev­er heard of him. I’ve got a feel­ing… No, hang on. I should­n’t say that. In the arti­cle it said I think he was for­mer­ly from VGI part­ners who were a big short for. I’ve heard of them, but I haven’t heard of Doug.

Cameron  10:34

I won­der if we can get him on the show. We can com­pare check­lists.

Tony  10:38

Yeah, good. It seemed like their check­list was dif­fer­ent to mine. It was­n’t all nec­es­sar­i­ly num­bers based. It was things like, has the com­pa­ny had a nat­ur­al com­peti­tor for the last twen­ty years or not?

Cameron  10:50

Sounds very Buf­fe­ty. Do they have a moat?

Tony  10:53

Yeah, kind of try­ing to quan­ti­fy those con­cepts, I guess.

Cameron  10:56

Speak­ing of peo­ple you know, how’s your rela­tion­ship with PwC?

Tony  11:01

I stopped using them a cou­ple of years ago. Which is a shame, I could’ve got some real­ly good inside dope on tax avoid­ance if I’d stayed with them. Not that I would ever do tax avoid­ance. But that’s ter­ri­ble, isn’t it?

Cameron  11:17

Yeah, I was gonna ask you what you thought of the whole PwC melt­down. Like, it’s pret­ty appalling.

Tony  11:23

My take on it is, par­tic­u­lar­ly under the con­ser­v­a­tive gov­ern­ment when they ped­dled the small gov­ern­ment mantra, the Pub­lic Ser­vice was capped and even cut for staff num­bers, but con­sul­tants grew and they’re now like 25% of the head­count in the pub­lic ser­vice. Which I think is the real appalling prob­lem. You can’t have these peo­ple who are advis­ing you on the one hand and work­ing for you on the one hand, then going out and advis­ing clients on how to catch you on the oth­er hand.

Cameron  11:51

Chi­nese walls, Tony, we’ve got Chi­nese walls. Chi­nese walls, it’s all good. Don’t wor­ry about it. Nev­er been a prob­lem. Nev­er been a prob­lem in the his­to­ry of cor­po­ra­tions, Chi­nese walls. They always work, Tony. Flaw­less­ly, Tony. There’s nev­er been a book writ­ten about how Chi­nese walls fell over and leaked. There’s no leaks in Chi­nese walls, Tony, nev­er hap­pens. That’s your prob­lem.

Tony  12:13

A few trap doors, few secret pan­els: press this one and the door opens. So, look, I know pub­lic ser­vice is intran­si­gent and dif­fi­cult to man­age peo­ple out, of and that’s one of the rea­sons for not grow­ing it. But they’ve got to rebal­ance that so there’s a head­count increase as con­sul­tants go down. And well, I think PwC’s just got to be put in the dog­house for a while. Fed­er­al gov­ern­ment should­n’t have any­thing to do with them for five years.

Cameron  12:39

Think that’s going to hap­pen?

Tony  12:40

Nup. Because these peo­ple donate to the polit­i­cal par­ties, big time. Big donors. “Want to go to the Olympics? Yeah, sure. We’ll do that for you. Want to go to the footy? Want to go to the State of Ori­gin? Yep, no wor­ries, come to the PwC box.”

Cameron  12:56

Ah, dear, it’s appalling. Speak­ing of appalling: the Bret­te­la­tor has had prob­lems for the last week. Not Bret­t’s fault at all. Seems to be, for me any­way, it’s had a lot of prob­lems in Safari. It’s just does­n’t load, or very, very slow­ly any­way. I opened it in Chrome, and it works a lot bet­ter. So, I think there’s some sort of prob­lem with Safari and Google Finance. I don’t know what Apple’s done to Google, but some­thing’s gone awry. So, if peo­ple are hav­ing prob­lems, no one’s report­ed it apart from you. And me. I haven’t seen any­one else com­plain about it. Maybe peo­ple just aren’t using the Bret­te­la­tor as much as we do. But if you’re hav­ing prob­lems, my tip is open it in Chrome and see how you go.

Tony  13:44

That’s the same thing I had. Yeah, I was sur­prised it was­n’t all over the Face­book group, that it was­n’t load­ing, but I had prob­lems. That made me think it was just my set­tings on my lap­top, but I got it work­ing in Chrome. It could still be my set­tings in Safari, but I haven’t been able to get it to work for a week now.

Cameron  14:01

I did­n’t change my set­tings. It was work­ing fine one day and then not work­ing the next. Speak­ing of things not work­ing, did you know that Apol­lo tourism is now THL? Have we talked about that?

Tony  14:16

Yeah, we did. They were going through a merg­er with a New Zealand Com­pa­ny.

Cameron  14:20

Tourism Hold­ings Lim­it­ed.

Tony  14:23

Yeah. That hap­pened last year, I think. End of last year.

Cameron  14:27

Yeah, I noticed that Apol­lo was still show­ing up in our man­u­al data in the check­list and THL isn’t. So, we haven’t made the change. But I just want­ed to let peo­ple know. Now, I know this is a very sneaky attempt that Apol­lo’s mak­ing to get through my Apol­lo fil­ter. I see what you’re doing there, Apol­lo; you’re try­ing to get back in the QAV good books.

Tony  14:51

They’re rebrand­ing.

Cameron  14:53

Yeah, they went through a rebrand­ing exer­cise just to avoid my steely gaze.

Tony  14:58

I won­der what PwC will rebrand to. Nation­al Gov­ern­ment Hold­ings?

Cameron  15:06

Chi­nese Walls Lim­it­ed. Using GPT to find com­pa­nies with a qual­i­fied audit. I had a ques­tion from Alex F on Face­book ask­ing if any­one had tried to use Chat GPT to find com­pa­nies with a qual­i­fied audit. So, I did try. Chat GPT now for the peo­ple who aren’t aware has access to the inter­net. If you’re a pre­mi­um sub­scriber, it has access either via Bing or via a num­ber of dif­fer­ent plu­g­ins. So, I actu­al­ly asked it‑I gave it Apol­lo touris­m’s web­site and I said, “can you tell me if this com­pa­ny has a qual­i­fied audit?” First I asked it if it knew what a qual­i­fied audit was, and it told me what it was. So, it did under­stand that. Then I asked it to check if Apol­lo Tourism had one. It could­n’t find one, but that may be because Apol­lo Tourism is now THL. The web­site sort of redi­rects now though. I know that in our man­u­al data we’ve still got Apol­lo list­ed as hav­ing a qual­i­fied audit, but I don’t know if that’s true now that they’re THL. But then I asked GPT to give me a list of all of the pub­licly list­ed com­pa­nies on the ASX that have a qual­i­fied audit. It could­n’t do that. It basi­cal­ly said, go do your own work you lazy bas­tard. No, it said “I’m sor­ry, I can’t do that.”

Tony  16:25

It’s beneath it.

Cameron  16:26

Yeah.

Tony  16:29

Puny humans, that’s beneath me. Do your own work.

Cameron  16:33

It said, “as of my knowl­edge cut-off in Sep­tem­ber 2021, I don’t have real time access to such spe­cif­ic and up to date mar­ket data, includ­ing lists of com­pa­nies with a spe­cif­ic audit sta­tus. How­ev­er, this infor­ma­tion can be poten­tial­ly obtained, etc., etc., etc.” And I said, “hold on a sec­ond, you do have access to the inter­net. Can’t you do it for me?” “I’m afraid I could­n’t find a com­pre­hen­sive list of all ASX list­ed com­pa­nies with a qual­i­fied audit. How­ev­er, audit reports for pub­licly trad­ed com­pa­nies are typ­i­cal­ly includ­ed in their annu­al fil­ings, such as form 10k in the Unit­ed States. In the con­text of Aus­tralian com­pa­nies list­ed on the ASX, these reports can typ­i­cal­ly be found on the ASX com­pa­ny announce­ments plat­form or the com­pa­ny’s own web­site. The audit report is usu­al­ly includ­ed in the annu­al report of the com­pa­ny. In these annu­al reports, you need to look for the reports of an inde­pen­dent reg­is­tered pub­lic account­ing firm or the audi­tor’s report sec­tion. If the audi­tor’s report is qual­i­fied, it will be men­tioned in this sec­tion.” Then it tells me how to do it. “Unfor­tu­nate­ly, as an AI, I’m unable to auto­mate this process for every ASX list­ed com­pa­ny. You’d have to check each com­pa­ny’s annu­al report indi­vid­u­al­ly or use a spe­cialised data­base or ser­vice that tracks this infor­ma­tion.” You know, I don’t know about that. But I think that as it pro­gress­es, we might be able to fig­ure out a way around that. Alex sug­gest­ed we just down­load all of the annu­al reports and feed that into it and say, “check all of these.” Which isn’t easy to do yet unless you have your own AI run­ning local­ly, which I’ve tried to do in the last cou­ple of weeks. And I haven’t suc­ceed­ed, because I’m not quite nerdy enough to fig­ure out how to do that. But some peo­ple are doing it with some suc­cess. Hope­ful­ly we will get to a point, is my point, in the not-too-dis­tant future where we will be able to say, “here’s a list of com­pa­nies, go check their web­sites, find their lat­est annu­al report and tell me if any of them have a qual­i­fied audit.” That’s not, you know, I think, a big stretch for the role of an AI in our invest­ing research. What these chat or gen­er­a­tive AI sys­tems are good at, these large lan­guage mod­els, is read­ing stuff and under­stand­ing the stuff that they read. So, you should be able to point it at a bunch of web­sites, say, “find the lat­est annu­al report, read it and give me a report. Build me a spread­sheet on which ones have a qual­i­fied report and which ones don’t.” So, hope­ful­ly that will make life eas­i­er.

Tony  18:59

We could also extend that for them to screen scrape all the fig­ures we need as well and cut out any sort of data provider.

Cameron  19:06

Osten­si­bly, yeah, you’d be able to get it to go through an annu­al report and turn all of the fig­ures into some sort of digestible for­mat. I fore­see the day in the not-too-dis­tant future where we’ll be able to use these AI tools for research in that kind of man­ner. Peo­ple will prob­a­bly build, you know, and they already are build­ing AI based invest­ing ser­vices where they’re sort of doing this for you, I guess. They’re basi­cal­ly grab­bing all of the data out of Refini­tiv or Reuters or some­body and putting some sort of a Chat GPT style inter­face to it so you can query it and ask it ques­tions. There’ll be a lot of those. You may just be able to cut out the mid­dle­man though and point it at a com­pa­ny’s web­site and say, “analyse their finan­cials and plug it into this sort of a check­list.” I’m not sure.

Tony  20:02

I was kick­ing myself last week. I should have twigged to how we could ben­e­fit from AI when you start­ed talk­ing about it, because I noticed Nvidia, the chip mak­er to AI sys­tems, was up 25% last week. I should have gone out and bought their shares when you start talk­ing about GPT.

Cameron  20:18

Yeah. Microsoft shares are up because they own 50% of Open AI and video shares are up, Google shares, or Alpha­bets shares, are up. Not sure about Face­book’s though. I don’t know if you saw this, but Face­book qui­et­ly killed its whole Meta­verse strat­e­gy a month ago.

Tony  20:34

So, their rebrand­ing did­n’t work either.

Cameron  20:38

No. The 100 bil­lion dol­lars that Zuck threw into the meta­verse is tak­ing a back step now that it turns out AI is going to be the next wave and not the Meta­verse.

Tony  20:50

Well, there you go. There’s a salu­tary les­son about try­ing to pre­dict things, isn’t it? If Zucker­berg can’t get tech trends right, who the hell can?

Cameron  20:59

Good point. Quick port­fo­lio report. Dum­my port­fo­lio is still track­ing about two and a half times the bench­mark since incep­tion. I think we’re doing about 16.2% per annum ver­sus about 7% for the STW. For new lis­ten­ers, incep­tion is Sep­tem­ber 2019. So, com­ing up on three years, I mean four years. Three- and three-quar­ter years.

Tony  21:25

Four years, yeah.

Cameron  21:26

For the finan­cial year, though, the STW was way ahead of us. But as I said to Tony ear­li­er, our per­for­mance isn’t bad for the finan­cial year: we’re up 11% for the finan­cial year. That’s not too bad. I mean, the STW is up about 16%, so it’s doing bet­ter than we are in, you know, one brief peri­od of time. But being up 10/11% in a year is noth­ing to cry about. For the quar­ter, were basi­cal­ly at zero now. We’ve come down a lot with the last, sort of, goings on in the mar­ket. And the STW is, I think, up 1% for the quar­ter. So, it’s doing slight­ly bet­ter than we are but there’s real­ly not much between us. It’s been a mis­er­able cou­ple of months in the mar­kets, as we know.

Tony  22:23

Yeah. And I was talk­ing before off air with you, I had a look… I’m try­ing to find some­thing to buy at the moment, I thought I might be able to after the debt ceil­ing was resolved. But I still haven’t quite got there with a cou­ple of things. But I was look­ing at this com­mod­i­ty score­card that gets pro­duced every week by Alex, and every­thing is either a Josephine or a sell, I think with the excep­tion of mag­ne­sium. I can’t even think which com­pa­ny mines mag­ne­sium, at least in a large amount. It’s prob­a­bly part of South 32 or some­thing like that. But yeah, that kind of shuts down a quar­ter to a third of the mar­ket for us to look at buy­ing from. Espe­cial­ly in a large cap space, it leaves things like Qan­tas and QBE in my sort of invest­ing uni­verse, but they’re both Josephine’s at the moment. So, I can’t buy any more of those. And noth­ing new is pop­ping up. I guess the oth­er thing about the com­modi­ties all being sells or Josephine’s is, there’s not much going on in the world eco­nom­i­cal­ly to dri­ve those com­modi­ties, so they’re all going back­wards as well. Yeah, like you said, not good news eco­nom­i­cal­ly around the world at the moment. But as we also said off air, it’s a great time to buy and to be invest­ed, because things could turn around quick­ly. And when they do, they just pop, and you want to be in the mar­ket then.

Cameron  23:37

I think that’s the hard­est thing to con­vince peo­ple of. I know, there’s been a lot of QAV mem­bers who have got start­ed in QAV over the last cou­ple of years, and it has­n’t gone well for them. Not because they’re doing any­thing wrong, or not because QAV does­n’t work, but because the mar­kets pret­ty much gone side­ways for the last cou­ple of years. Down and side­ways as, you know, I keep point­ing out if you just look at the All-Ords over the last two years. It pret­ty much has­n’t moved. And depend­ing on when you got start­ed in your invest­ing — it has gone up and down over the last two years and end­ed up back where it start­ed — but depend­ing on when you start­ed and when you stopped, you could have lost 10 or 20% over that peri­od. I can under­stand that that’s psy­cho­log­i­cal­ly and emo­tion­al­ly dif­fi­cult for peo­ple, when they get excit­ed about some­thing, and they get into it. It’s just the unfor­tu­nate truth. That’s the way mar­kets go, in dif­fer­ent cycles. And what you know from expe­ri­ence, and I know from your expe­ri­ence, and from look­ing at your returns over the last thir­ty years, is down cycles in the mar­ket are fol­lowed by up cycles in the mar­ket, and if you’re not in the mar­ket when it’s stuck, you know, you nev­er know… Like our max­i­mums say you nev­er know when it’s turned around until lat­er. Six months lat­er you go, “oh wow. We’re up by 20%.” But if you weren’t in it at the begin­ning of that, you’ve just missed that 20%. There might still be anoth­er 20% left in it, but then you’re up 20%, not 40%.

Tony  25:14

Yeah, and I mean like you were say­ing, if you’re a new investor and you’re back­wards by 25% in the last twelve months or last two years, or what­ev­er the num­ber is, if I went back in time two years ago and said to you, “here’s the deal. You may well lose 25% in the short term, but you’re going to get dou­ble mar­ket in the long term, and when it turns, you’re going to prob­a­bly dou­ble the size of your port­fo­lio. So, you’ll be up 75%. Would you take that deal?” And you prob­a­bly would. So, please don’t stum­ble at the first hur­dle.

Cameron  25:46

You’ve got to take a long-term view with this, and the mon­ey is not real­ly gone when your port­fo­lio goes down by 10% or 20%. It’s not real­ly gone any­where, it’s just ones and zeros some­where.

Tony  26:00

Well yeah. It’s a token.

Cameron  26:02

It’s a token, that’s right.

Tony  26:04

It only goes if you sell up and take it out of the mar­ket and put it in the bank. Then you crys­tallise your loss­es. Yeah, los­ing a bit of mon­ey is one thing, but los­ing con­fi­dence is every­thing. That’s the old say­ing.

Cameron  26:14

As I was say­ing to Stu­art and Jemi­ma on the call this morn­ing, and one of the things that I’ve heard you say and Buf­fett say and Ben Gra­ham say, is long-term suc­cess as an investor is more about tem­pera­ment than intel­li­gence. It’s about being able to just per­sist, have dis­ci­pline, fol­low a sys­tem, weath­er the storms, ignore the hype, ignore the doom and gloom dur­ing the dark times and ignore the ram­pant hype dur­ing the bub­bles — equal­ly as impor­tant.

Tony  26:50

Yeah, equal­ly as impor­tant. And just about five min­utes ago we were say­ing how good Nvidi­a’s done last week, I would real­ly cau­tion any lis­ten­er out there who’s going “urgh, it has­n’t worked for me, QAV. I’ve lost 10%. But if I had put it in Nvidia, I’d be dou­ble my mon­ey now.” I think, please don’t go and put it in Nvidia. Even Kathy Woods who runs the Ark funds is being laughed at because she’s going, “AI is a new bub­ble. I can’t val­ue Nvidia on the kind of lofty PEs it’s trad­ing at the moment, like I just can’t.” Even she can’t coun­te­nance that kind of high val­u­a­tion in tech. So, you don’t want to be late to the train.

Cameron  27:30

Yeah. But what we do know is, you know, as his­to­ry has proven for a very long time, com­pa­nies that have a good track record of gen­er­at­ing cash and good man­age­ment tend to out­per­form busi­ness­es that don’t have a good track record of doing that over the long haul. And if you can buy those com­pa­nies at a dis­count to their intrin­sic val­u­a­tion, you’ll do well more often than not. You know, not all of them will become a win­ner and you’ll have to rule one some and you’ll have to 3PTL some. But over the long term, more will do bet­ter than won’t, and you will end up with dou­ble mar­ket results.

Tony  28:09

Cor­rect.

Cameron  28:10

That’s what we know. That’s what his­to­ry has taught us, any­way. I mean, past per­for­mance may not pre­dict future per­for­mance, but your thir­ty years and Buf­fet­t’s six­ty years of test­ing that the­sis has worked so far, and there have been down­turns and glob­al finan­cial crises, and, you know, var­i­ous wars, and god knows what else in that peri­od of time.

Tony  28:36

Yeah, far more seri­ous in the cur­rent peri­od that we’re in.

Cameron  28:39

Plagues. It’s been plaguey in Bris­bane at the moment. They’re doing burn offs the last cou­ple of days, and the air is full of smoke and haze.

Tony  28:51

Oh no.

Cameron  28:51

Any how. And they’re hav­ing earth­quakes down in Mel­bourne this week. It’s the end of times peo­ple.

Tony  28:58

“Dogs and cats…”

Cameron  29:00

“…liv­ing togeth­er.” Might have to do an update to Mar­ket­ing the Mes­si­ah. “Guys, we were wrong, he is com­ing. It’s two thou­sand years late, but he’s com­ing back. It’s the end of times.” For the peo­ple out there that are sec­ond guess­ing or doubt­ing them­selves, you can do that. You can pull out and what­ev­er, crys­tallise your loss­es as you said, or you can just take a long-term view, cool your jets, relax, debrief. Don’t even look at the num­bers. Just keep fol­low­ing the rules.

Tony  29:34

Yeah, I mean, just think about what we’re say­ing. There are busi­ness­es out there that gen­er­ate cash hand over fist that aren’t out there on the front page of the news­pa­pers every week. The more bor­ing, the bet­ter that they are, because we can buy them cheap­er, and we can get them on four or five times cash flow. And yet, peo­ple get drawn like moths to the flame and, you know, want to buy the lat­est big suc­cess sto­ry. Hop from the peak of one mar­ket to the peak of anoth­er mar­ket. We’re going to do a pulled pork today one of the ones I men­tioned: Qan­tas, QBE, Mac­quar­ie Bank. They’re all there. They’re all so cheap on a cash flow basis. And yet, because they’re not out there mak­ing head­lines every day — and I know Qan­tas does but for the wrong rea­sons some­times — but they’re not out there sexy, the price that were offered to buy these things is real­ly cheap. And if you buy a good busi­ness cheap­ly, how pos­si­bly can you go wrong? All that can hap­pen is man­age­ment can stuff up, in which case they’d be replaced, and you might go back­wards for a while. The econ­o­my could stuff up, so politi­cians can stuff up. Yep. And that will get fixed at the next elec­tion. And you might have to cool your jets for a while. But yeah, it’s the age-old wis­dom of the mar­ket. You’re being offered cheap busi­ness­es all the time. But there’s always oth­er noise around there to dis­tract you: “look at this, look at that. Look at this!”

Cameron  30:57

And there will be glob­al finan­cial melt­downs and crises and wars and trade wars and plagues. And all of that will come. As, you know, one thing I’ve learned from you over the last few years is just that’s busi­ness as usu­al, right? That’s nor­mal. Things come, the mar­ket tanks, then the mar­ket recov­ers, then it tanks and then it recov­ers, and then it tanks and then it recov­ers.

Tony  31:22

And we love the volatil­i­ty. I just love it.

Cameron  31:25

Volatil­i­ty is your friend.

Tony  31:27

Yeah, if Eugene Fana was right, and the mar­ket is com­plete­ly effi­cient and price dis­cov­ery is per­fect, then there’s noth­ing to buy. But we know that he’s wrong, because every day there are good com­pa­nies out there throw­ing off lots of cash flow who are offer­ing their shares to you at a very, very cheap price.

Cameron  31:46

And as War­ren Buf­fett said at the AGM a cou­ple of weeks ago, the secret to invest­ing suc­cess is oth­er peo­ple doing dumb things. That will nev­er change.

Tony  31:56

No, exact­ly.

Cameron  1:18:13

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.