QAV Weekly Update 2023-07-25

QAV 629 Club final mix­down

Cameron  00:03

Wel­come back to QAV episode 629. Record­ing this on the 18th of July 2023. I’m in Bris­bane, Tony’s in Wag­ga, and we’ve got a big show. Big show. Lots of ques­tions. Lots of stuff to talk about. How’s Wag­ga, TK?

 

Tony  00:20

It’s frig­gin cold. I don’t know why I left Syd­ney. Syd­ney is beau­ti­ful at the moment. It’s 20 degrees, sun­ny days, haven’t had rain for months. And then zero degrees in the morn­ing. It’s prob­a­bly about 12 or 13 now at two o’clock in the after­noon.

 

Cameron  00:36

Why are you in Wag­ga?

 

Tony  00:37

Why? I’m on my way down to Mel­bourne to Cape Schanck, which is going to be even cold. But I get to see Alex, see my mates, going to the Bledis­loe Cup rug­by match at the MCG. Have some fun.

 

Cameron  00:49

Rac­ing still going on? Got some hors­es run­ning down there?

 

Tony  00:52

Not until prob­a­bly August. So, a cou­ple of weeks away. Late August, maybe six weeks away.

 

Cameron  00:59

Will you still be down there, or you’re only down for a week or two. Right?

 

Tony  01:01

Yeah, down for a week or two, head­ing back and then going back down at the end of August for Alex’s art show and rac­ing.

 

Cameron  01:08

Maybe we should do an event in August.

 

Tony  01:11

Maybe.

 

Cameron  01:11

No? Too much work.

 

Cameron  01:13

Okay. Well, the mar­ket’s had the best week it’s had in months, Tony. For the first time in I don’t know how long, my alert sheet when I checked it this morn­ing had noth­ing even close to a sell trig­ger. I’ve got it set up so when it gets close it says there’s near­ly a rule one, near­ly a three-point trend­line. I looked at it this morn­ing. Noth­ing. Not even any nearlys. I was like, wow, look at that. A clean sheet of good-look­ing stuff.

 

Tony  01:13

Yeah.

 

Tony  01:44

That’s great, isn’t it?

 

Cameron  01:45

I’d almost for­got­ten what that look like.

 

Tony  01:47

There’s a lot of ques­tions this week, every­one’s wok­en up now with the mar­ket.

 

Cameron  01:51

That’s right. When the mar­kets dead, no one’s got any ques­tions. When the mar­ket picks up, every­one’s inter­est­ed.

 

Tony  01:57

Well, that’s good. Thanks for the ques­tions. Yeah, I checked a fifty-two-week highs and lows in the AFR, and they’re back in favour of highs again. So, yeah, things are good.

 

Cameron  02:09

It’s come off a lit­tle bit yes­ter­day and today, but not by much. We’ll see how long it lasts. This could be it. This could be the big turn­around we’ve been wait­ing for. But it also could not be it.

 

Tony  02:24

Hope so, but who knows? A fool’s game, pre­dict­ing.

 

Cameron  02:27

Step­ping back in time. Some­body for some rea­son liked a tweet of mine from Jan­u­ary 28, 2020, which hap­pened to alert me to it. I went back and had a look at it. Tell you what, talk­ing about pre­dict­ing. I am the king. I am the king of pre­dic­tions.

 

Tony  02:46

We should use that.

 

Cameron  02:49

On the 28th of Jan­u­ary 2020, Max Mark­so, Aus­tralian PR gad­fly tweet­ed… I tweet­ed an arti­cle from the Fin, which was an arti­cle quot­ing Brett Gille­spie, hedge fund man­ag­er. He said, “pre­pare for a mas­sive bub­ble in shares,” Jan­u­ary 28 2020. I replied 1:44pm, “I think he’s a bit late. Aren’t we already in one? I’m wait­ing for the bub­ble to pop.” No soon­er have I spo­ken then the bub­ble popped. Well, you know, Feb­ru­ary the bub­ble pops, and it crashed down, and we had the COVID crash. So, I think that is all the evi­dence that we need, Tony, to mar­ket myself now as the guy who can pre­dict the stock mar­ket. Absolute­ly per­fect­ly.

 

Tony  03:40

Well done.

 

Cameron  03:40

Yeah, Thank you. Thank you very much. Speak­ing about pre­dic­tion, Twig­gy For­rest and his soon to be ex-wife tried to con­vince the mar­ket that their impend­ing divorce would­n’t have any impact on FMG. I don’t think the mar­ket believed them. FMG’s share price went down yes­ter­day, but it’s back up a bit today.

 

Tony  04:06

Yeah.

 

Cameron  04:09

I’m sur­prised nobody’s asked us if that’s a bad news sell, Tony, we nor­mal­ly would get that.

 

Tony  04:13

I am sur­prised too. I think nor­mal­ly it would be, because there’s been plen­ty of oth­er cas­es of peo­ple with large hold­ings in com­pa­nies that they found­ed split­ting with their wife, and the share mar­ket tanks because the wife goes, whether it’s for sound busi­ness rea­sons or because it’s spite, they sell their shares, and it’s a large chunk to sell and tanks the share price. So, hope­ful­ly, Twig­gy is look­ing after his wife even though they’ve sep­a­rat­ed, and she does­n’t sell the stock. But that’s what the mar­ket thinks. I was sur­prised, too, I thought it would come off a lot.

 

Cameron  04:44

So, what do we do? Just sit and wait.

 

Tony  04:47

Yeah, well, we’ll have to use the three-point trend­lines, I think.

 

Cameron  04:50

Not bad news sell if the mar­ket does­n’t freak out.

 

Tony  04:53

Well, I mean, as I’ve said before, bad news sells are about peo­ple leav­ing the com­pa­ny who have a posi­tion of insid­er knowl­edge unex­pect­ed­ly resign and you can’t work out why, that’s the red flag. Yeah, poten­tial­ly this is bad news. The mar­ket does­n’t think so, she’s say­ing she’ll keep her hold­ing intact. But I would­n’t be sur­prised if at some stage in the future she starts to sell down, whether it’s order­ly or dis­or­der­ly, who knows. And I could be wrong in this pre­dic­tion. But I remem­ber an asset man­age­ment Kerr Niel­son, he split with his wife and the share price tum­bled at Mag­el­lan. He split with his wife and the share price tum­bled. So, it’s a well-worn path. We’ll just have towards the space and see.

 

Cameron  05:37

Yeah, I think, you know, I think in the Mag­el­lan case there was also some under­ly­ing prob­lems with the busi­ness. This busi­ness seems to be going well, despite pre­dic­tions that Twig­gy has been dis­tract­ed in hydro­gen and all that kind of stuff.

 

Tony  05:54

Not just dis­tract­ed in hydro­gen. There was also an arti­cle where he was reviewed because some­one had sent an anony­mous let­ter in say­ing he was shtoop­ing some­one in the com­pa­ny. So, whether that’s true or not, alleged­ly, I don’t know.

 

Cameron  06:08

I think there’s two arti­cles that con­nect it. Well, there are two arti­cles, and they came very close­ly togeth­er, that he and his wife are split­ting up, oh, and he’s been accused of hav­ing an affair with some­one in the office.

 

Tony  06:23

Yeah. Which he was cleared of, by the way, all clear. I think he was cleared of impro­pri­ety, so I don’t they actu­al­ly came out and said yes or no as to whether there was an affair going on. Although I think his wife has made that clear.

 

Cameron  06:38

That’s what I’m say­ing. I think the jury come to a con­clu­sion on that.

 

Tony  06:46

Yeah. And iron ore has just become a buy, I think, this week, and Chi­na’s stock­pil­ing and buy­ing our iron ore again. So,  it’s quite pos­si­ble that’s what’s sup­port­ing the FMG share price, and when that goes away then yeah, maybe it’ll come under some pres­sure.

 

Cameron  07:04

Yeah, well, that’s what always hap­pens when iron ore comes off, right?

 

Tony  07:08

Yeah. Well, added pres­sure if the wife decides to sell down. I apol­o­gise for for­get­ting her name. Mrs For­est-ex Mrs For­rest.

 

Cameron  07:16

Mrs Twig­gy. “Bond pay­outs match stocks for the first time in over a decade.” Shout out to Jeff on the What­sApp group for post­ing this in the last week. This is an arti­cle in the Finan­cial Review by Jonathan Shapiro and Joanne Tran. “A surge in short term inter­est rates means that Aus­tralian investors can now earn the same income from buy­ing ultra-safe gov­ern­ment bonds as they would from share mar­ket div­i­dends. For the first time since July 2011, the three-year bond rate of around 4.2% is equiv­a­lent to the nom­i­nal div­i­dend yield on the bench­mark S&P ASX 200 Index. The con­ver­gence comes amid signs more Aus­tralian house­holds and insti­tu­tions are shift­ing their mon­ey out of risky assets, such as equi­ties, and into high­er yield­ing fixed income and cash.” Some­body, I think it was Ally post­ed on our Face­book group ear­li­er today a chart of the busi­ness cycle, and was ask­ing where do you think we are in the busi­ness cycle? And I said, I think some­where between capit­u­la­tion and depres­sion. When I read arti­cles about peo­ple pulling their mon­ey out of shares and putting them into bonds, that’s a sign of capit­u­la­tion.

 

Tony  08:37

Absolute­ly. And I mean, first of all, the share mar­ket div­i­dends have a frank­ing cred­it and the bond div­i­dends, the bond yields don’t. So, it’s not quite one for one. How­ev­er, you’re right. I mean, I’ve seen this play out before. Peo­ple leave the share mar­ket for, you know, whether attrac­tive bond yields or term deposit yields, which are fund­ed by bonds that the banks offer, the banks buy up and then offer term deposits against. And you know, it’s the clas­sic sell­ing at the bot­tom of the share mar­ket, buy­ing at the top of the bond mar­ket, right. Because, you know, peo­ple do want some kind of cer­tain­ty in their retire­ment. But if peo­ple leave the share mar­ket, the share mar­ket gets depressed, and then they start buy­ing bonds, the bond prices go up, which depress­es the yields. When the yields go down, inter­est rates go down. Guess what hap­pens to the share mar­ket? It takes off. So, yeah, it’s a clas­sic sell at the bot­tom of the share mar­ket, buy at the top of the bond mar­ket behav­iour that’s going on at the moment, and that’s prob­a­bly a good sign for the share mar­ket, I think.

 

Cameron  09:46

Yeah. I like the stages of the busi­ness cycle here. It starts with opti­mism, excite­ment — there’s one I can’t read, it’s all hand­writ­ten here. I can’t read the next one. Then it goes to eupho­ria, then anx­i­ety, it starts to turn to anx­i­ety, denial, fear, des­per­a­tion, pan­ic, capit­u­la­tion, despon­den­cy, depres­sion, then it starts to tick up again, hope, relief, and back to opti­mism. And you know, Ally said, “I found this inter­est­ing and won­der where we are.” Richard replied, ‘if it’s like the weath­er in Mel­bourne, all of them in one day.”

 

Tony  10:23

Yeah. Peo­ple have often com­pared to share mar­ket to the sev­en stages of grief, you know; it’s anger, denial, bar­gain­ing, accep­tance, etc., etc. And then we’ve spo­ken before about the cop­ic indi­ca­tor, which was using the stages of grief as a way of pre­dict­ing how long it takes for the share mar­ket to start climb­ing again after a trough. And that’s about four­teen months accord­ing to Mr Copic.es. I sus­pect, well, I mean, I’m not alone in say­ing I think we’re get­ting close to the top of the inter­est rate cycle. Even the RBA’s com­ing out and say­ing things like there might be one or two more rate increas­es, but that’s prob­a­bly it. And if the inter­est rate rise is com­ing to an end, the share mar­ket will take off.

 

Cameron  11:09

Speak­ing of the RBA, what are your thoughts on the appoint­ment of Michelle Bul­lock who’s the new RBA gov­er­nor?

 

Tony  11:14

A cou­ple of peo­ple have told me she’s good. She’s prag­mat­ic. She’s been easy to deal with in the past and has some com­mer­cial says, where­as they found Philip Lowe an ass­hole, alleged­ly. Found him dif­fi­cult and dog­mat­ic to deal with. So, that’s feed­back of a cou­ple in a sam­ple. So, hope­ful­ly it’s good. Did I ever tell you I came close to meet­ing Philip Lowe? It was a qui­et time in the Syd­ney CBD, and I was walk­ing from the top of Mac­quar­ie Street down through Mar­tin Place, and the RBA head­quar­ters are on the left at the top of Mar­tin Place. And I was the only per­son in that sec­tion of Mar­tin Place in the mid­dle of Syd­ney, except for Philip Lowe who was com­ing out of the RBA build­ing, because they’re on Mar­tin Place, or there abouts. So, he’s stand­ing there, I’m stand­ing there prob­a­bly about twen­ty yards away, twen­ty metres away, and we lock eyes. He sees me recog­nise him, and he starts to run away. He just lit­er­al­ly hikes his pants and start sprint­ing wher­ev­er he was going.

 

Cameron  12:21

Yeah, well, he knows your rep­u­ta­tion. He’s like, holy shit! Kynas­ton!

 

Tony  12:26

I thought that was real­ly fun­ny. Like, he does­n’t want to inter­act with any­one in the pub­lic. He’s just like, “I’m otta here. Go away.”

 

Cameron  12:32

Its just you, I think he’s scared of you. So, you’ve got con­tacts in the rar­efied world of high finance. So, you’ve got peo­ple who have giv­en you the inside goss on Michelle Bul­lock.

 

Tony  12:47

Yeah. And they think she’s more approach­able and more prac­ti­cal and more prag­mat­ic than the last guy.

 

Tony  12:52

And a woman. So, that’s good. I mean, it was a tricky appoint­ment, I thought, because on the one hand, the RBA has been reviewed and found want­i­ng. So, point­ing an insid­er to sec­ond in charge is, you know, a brave sort of move to make. She must have con­vinced them that she was­n’t part of the prob­lem and that she could fix it. But on the oth­er hand, she’s a female. So, it’s good to see a female lead­ing the RBA, one of our insti­tu­tions.

 

Cameron  12:52

And a woman.

 

Cameron  13:19

And she does­n’t offi­cial­ly take over until Sep­tem­ber.

 

Tony  13:24

I thought it was rich, too, that the front page of the Fin Review today was cov­er­ing Philip Lowe’s speech where he was blam­ing the gov­ern­ment for not enact­ing enough leg­is­la­tion to boost pro­duc­tiv­i­ty for the infla­tion prob­lems. I’m like, real­ly? Don’t think rais­ing inter­est rates has caused infla­tion, mate?

 

Cameron  13:41

Well, I know you think that. You know, yeah. So, what’s her back­ground? She stud­ied at the Lon­don School of Eco­nom­ics, has a Mas­ter of Sci­ence from there. What else has she done with her­self before the RBA?

 

Tony  13:54

Well, Mas­ter of Sci­ence is a good indi­ca­tion, isn’t it? That she’s gonna have at least some kind of, well, you would hope a Mas­ter of Sci­ence would have some kind of sci­en­tif­ic think­ing about these things and not just, you know, blind­ly believ­ing in things or apply­ing dog­ma, which often seems to be the case in eco­nom­ics.

 

Cameron  14:10

You know what she did before the RBA?

 

Tony  14:13

No.

 

Cameron  14:14

Noth­ing. She went straight from uni­ver­si­ty to the RBA.

 

Tony  14:18

But she’s not an insid­er and part of the prob­lem.

 

Cameron  14:21

She com­plet­ed an intern­ship at the RBA, fol­low­ing which she began employ­ment at the bank. Since then, she has been con­tin­u­ous­ly employed by the RBA, hold­ing var­i­ous roles. Wow, okay. Yeah. Well, good luck to Michelle Bul­lock.

 

Tony  14:39

Yes. Good luck to her.

 

Cameron  14:41

Hope­ful­ly she can fix things. Rhi­no. Are you a RINO, Tony?

 

Tony  14:45

RINO was reces­sion in name only, isn’t it?

 

Cameron  14:50

A new acronym. We had TINA, There is No Alter­na­tive; TARA, There are Rea­son­able Alter­na­tives; and now we’ve got RINO, Reces­sion in Name Only. it’s what they’re call­ing the US equi­ties mar­ket, I think. Sup­pos­ed­ly in a reces­sion, but they’ve got a bull mar­ket at the same time.

 

Tony  15:07

I thought Trump called oth­er mem­bers of the Repub­li­can Par­ty RINOs, Repub­li­cans in Name Only. Is there gonna be a reces­sion? Isn’t there gonna be a reces­sion? It’s a, you know, again, it’s a tough pre­dic­tion. As we know, I use my three-legged milk stool. Petrol prices have been com­ing down in the last six months, so that’s good. That’s one leg of the stool put back. But inter­est rates have been going up, so that’s bad. And the dol­lar has been fair­ly neu­tral, so that’s good. So, I think we’re prob­a­bly one leg of the way towards a reces­sion now, where­as in the past, I think it’d been a cou­ple. So, it’s prob­a­bly look­ing bet­ter, but could still eas­i­ly slip into a reces­sion. It won’t take much. I think the upcom­ing earn­ings sea­son next month is going to be real­ly inter­est­ing. It’s going to tell us just how bad­ly the last six months have gone for cor­po­rate Aus­tralia.

 

Cameron  15:57

So, yeah, where are we? We’re in mid-July now?

 

Tony  16:01

We’re in con­fes­sion sea­son.

 

Cameron  16:03

We’re in it now. Right.

 

Tony  16:05

And there’s been a cou­ple of con­fes­sions. Par­tic­u­lar­ly amongst the retail­ers, who are always the canary in the coal mine for reces­sion. So, Har­vey Nor­man came out with a prof­it down­grade. Who else? Adairs, which was on the buy list a while ago?

 

Cameron  16:21

I think Twig­gy For­rest does­n’t under­stand what he’s sup­posed to con­fess dur­ing con­fes­sion sea­son. He con­fessed too much to his wife, it seems. Sor­ry, Twig­gy, we love you.

 

Tony  16:36

Yeah. So, you know, it’ll be an inter­est­ing report­ing sea­son. And I think, I mean, that’s look­ing back­wards, so they’re not look­ing for­ward. But gen­er­al­ly, when they present their results, they’ll give you an idea of what’s going to hap­pen, or what they’re see­ing so far in the ear­ly months of trad­ing and if it’s going… It could be it-it’s one of those inter­est­ing report­ing sea­sons where the num­bers go down, but the share price goes up. If they say, look, we think we’ve come through a bad peri­od, but we’re get­ting bet­ter. So, we’ll see. I’m not going to pre­dict.

 

Cameron  17:07

Well, speak­ing of look­ing back­wards, we were talk­ing on the show last week about me pro­vid­ing a 3PTL sell alert each Mon­day when I put out the buy list. Thanks to Chris Strat­ton and Brett Fish­er, they both approached me with solu­tions for doing it, and so I added some­thing on Mon­day to the offi­cial buy list. I hope that’s help­ful for some peo­ple. Any new 3PTL alerts, I’ll tag them into the spread­sheet each Mon­day mov­ing for­wards. Of course, if you’re not check­ing that, or check­ing my emails, then I can’t help you. Unless I come and knock on your front door.

 

Tony  17:48

Or if you want to buy or sell some­thing lat­er in the week, you should still also check as well in case it’s changed.

 

Cameron  17:54

Yeah, Chris sug­gest­ed to me yes­ter­day that maybe I should keep a run­ning list of 3PTL sells on that sheet with dates beside them, so if peo­ple miss it one week, they can go back and see it next week. So, I’ll think about that. It might become a lit­tle bit unwield­ly, but we’ll see how it goes. Speak­ing of Brett, though. So, Brett raised an inter­est­ing ques­tion with you and I via email this week: “do we still need the Josephine? Can we retire the con­cept of the Josephine and the sec­ond buy line and just call the sec­ond buy line, the buy line?” And I had been won­der­ing the same thing for a while because when I’ve been doing my “how’s your father” chats with the new sub­scribers, when I give them the grand tour of QAV, and I’m explain­ing how the Bret­te­la­tor works and I’m explain­ing how buy lines work, I’m always going, well, this is the buy line but we kind of ignore that one because we’ve got this oth­er one here that we need to look at. And in the back of my head I’m think­ing, why do we even have that one? I nev­er use it any­more. It’s just the sec­ond buy line. Brett and I had a Zoom call yes­ter­day and we were talk­ing about this, among oth­er things, the 3PTL sell alerts. Also, by the way, the regres­sion test­ing. He’s going to have a think about how we can use Google Finance to pull down five or ten years of his­tor­i­cal data and we might be able to come up with some­thing for that. Lucky for us, Brett does­n’t have a job yet, so Bret­t’s unem­ployed. It’s good for us. He does­n’t under­stand why he’s not get­ting snapped up, he does­n’t know that I’m out there telling peo­ple, “don’t hire this guy. We need him to do work for us.” But, you know, he said that you said that there might be times when, like com­ing out of the COVID cough, when the first buy line was use­ful. So, what I did when I was talk­ing to him yes­ter­day, is I went back through Navexa to look at all the stocks that we bought com­ing out of the COVID cough, and threw them into the Bret­te­la­tor with the dates that we’d bought them to see where they were with respect to the sec­ond buy line back then, and all of them would have crossed the sec­ond buy line when we bought them. So, I think we were using… Because as I recall, going back a cou­ple of years we did­n’t use a sec­ond buy line. The rule for a while was if some­thing was a Josephine, we would­n’t buy it until it had an uptick, a healthy-look­ing uptick. And that’s what we were doing com­ing out of COVID. We were wait­ing for things to have an uptick. You intro­duced the idea of, it has to cross a sec­ond buy line, a new buy line, or the lat­est buy line as Brett prefers to call it, I think at some point after that. But when we looked at it in the Bret­te­la­tor, they had pret­ty much all-they’re either right on their lat­est buy line or had just crossed their lat­est buy line com­ing out of COVID when we were buy­ing things any­way. So, we were try­ing to find an exam­ple yes­ter­day com­ing out of COVID where the sec­ond buy line did­n’t apply, and we could­n’t find one. We looked at six or sev­en stocks, all around the April/May time­frame when we were buy­ing back in after COVID, and they were all above the lat­est buy line. So, yeah, I haven’t been able to come up with an exam­ple yet of where we would­n’t have been able to use it.

 

Tony  21:19

I’d have to get back and dredge through my data to find an exam­ple. But okay, so if we go back to the start, there was no sec­ond buy line, there was only “the buy line”, which is what Bret­t’s putting in the Bret­te­la­tor as the sec­ond buy line. So, it’s H1 and H2 are the high­est points on the graph, and he draws a line. At some stage, which I think was com­ing out of COVID, I adopt­ed the idea of the buy line fol­lows the sell line. That was a thing we had to bring in for COVID because we found there was such a steep drop off that and then we were get­ting an uptick that we want­ed to buy into, but we weren’t form­ing a sec­ond peak, I think from mem­o­ry. I can’t remem­ber the exact details. And so, he said, well, let’s go back, let’s go back pri­or to COVID and look at whether it was a buy or not pre­vi­ous­ly, we’ve had a sell and now we can do a buy. So, that’s when that came in, and we then retired the orig­i­nal buy line, which became the sec­ond buy line. And then about a year or so lat­er, we start­ed to try and find a way of defin­ing what a Josephine was, and that’s when we said, well, let’s just use the old con­cept of the buy line and call it a sec­ond buy line.

 

Tony  22:29

Right.

 

Tony  22:29

But I think what’s hap­pened is, in the last cou­ple of years, the con­cept of the buy line fol­lows the sell line is the one that’s redun­dant, and a sec­ond buy line, which was the orig­i­nal way we used to do it, is the one that’s more applic­a­ble. But we have had expe­ri­ences in the past where both or one or the oth­er comes into play and is more appro­pri­ate.

 

Cameron  22:49

Yeah, well, there was one exam­ple. I think it was FMG we were look­ing at where it did­n’t real­ly dip much at all in COVID. It had a small dip, but very minor, it kept going up. So, the first buy line, the orig­i­nal buy line, just applied to that. It did­n’t cross a sell line and you could­n’t draw a sec­ond buy line on it any­way, because it did­n’t go down. You know, it kept going up on the right. It kept going up and up and up. So, you could­n’t even draw a sec­ond buy line after, you know, it had a bit of a Josephine. It’d go down for one month, and then it’d be back up the next month. So, that was the only one we could find.

 

Tony  23:32

Okay, have a look at, from mem­o­ry it was CBA. And I just had prob­lems call­ing up CBA in the Bret­te­la­tor; might be one of those data issues with Google Finance. But any­way, I chucked in anoth­er bank, ANZ, and if you look at the graph, even using today’s date, you can see dur­ing the COVID cough it’s got a very u‑shaped depres­sion. So, it drops down and then comes back up again. And if we use the sec­ond buy line, or the orig­i­nal buy line, we would­n’t be buy­ing back into ANZ until it had almost reached its peak again because H1 and H2 were very sim­i­lar in height pri­or to COVID. So, we did­n’t get any of the upside of the COVID cough, we’d just have to sit on our hands and wait. And that’s when we brought in the idea of the buy line fol­low­ing the sell line, I think, from mem­o­ry, so we could buy into the banks or any stock, I think, com­ing out of the COVID cough ear­li­er than if we’d wait­ed for that sort of flat top sec­ond buy line. So, my take on all of this is that we need them both from time to time. The sec­ond buy line is the orig­i­nal buy line, which is prob­a­bly going to suit our pur­pos­es 90% of the time. It’s only when we have some­thing like the COVID cough where things dip and then we want to buy into them on the way up that we need some oth­er way of draw­ing the buy line.

 

Cameron  24:54

If you go into the Bret­te­la­tor for ANZ and plug in the first May 2020, just the date, it’s actu­al­ly got a much low­er H2. It comes in late 2019.

 

Tony  25:09

Yeah, but look at the buy price. So, the buy price at that time is $27 and the share price is $15.60. But when we came out of the COVID cough and the share price start­ed going up, we’re not going to get any of that upside, because we’re wait­ing for a buy price of $27. So, I think that’s when we, I think, from mem­o­ry, that’s when the buy line fol­lows the sell line came in, I think. And then we rel­e­gat­ed and got rid of the orig­i­nal buy line, which is now the sec­ond buy line, but we brought it back in as the Josephine test lat­er on.

 

Cameron  25:42

So, we would have been cre­at­ing a new buy line to work out when it came out of being a Josephine.

 

Tony  25:49

I’ll just plug some more dates into the Bret­te­la­tor. And I might have the wrong exam­ple, I may have to go back and play around with this to find a stock that is a good exam­ple. But from mem­o­ry, that’s what it was. We were sit­ting on our hands wait­ing for those stocks to come out of a steep depres­sion, because the buy line was too high, and we weren’t get­ting any of the upside. Yeah, so hap­py to have the sec­ond buy line be the buy line, but we just have to be aware that it’s not going to work when we have these short, sharp, deep sell offs and retrace­ments.

 

Cameron  26:31

Yeah, Brett and I talked about that, and I said, well, you know, if we have anoth­er one of these, if we have anoth­er COVID cough style event, then you know, you’re prob­a­bly going to rework the rules about how we respond to that. We’re always adjust­ing the rules when we have to, but in terms of the short term, if we can get rid of Josephines and first buy lines and sec­ond buy lines and just go back to “there’s a buy line,” I think it’ll make it eas­i­er for peo­ple to work out what to buy and what not to buy.

 

Tony  27:02

Yeah, so get­ting rid of the buy line fol­lows the sell line if you want­ed to do that. So, we’re going back to the sec­ond buy line being “the buy line”, but we still need Josephines because some­thing could still be above its buy line but be dip­ping down. And then we’re where we were before, which is if its cur­rent price is less than a month end close pri­or, it’s a Josephine. And then peo­ple will say, “well, what about on the first day of the month? What do we do then?” So, yeah, there’s a few rules to work around there. I’m hap­py with that.

 

Cameron  27:36

Yeah. All right. Well, we’ll let you think about that when you’re play­ing golf in zero degrees tem­per­a­ture in Wag­ga.

 

Tony  27:45

Well, I’m hap­py to take the buy line fol­lows the sell line out and make the sec­ond buy line the buy line, and then have a Josephine being if the price is less than the month end close of the pri­or month.

 

Cameron  27:56

And when does it cease being a Josephine?

 

Tony  27:59

When the price is above the clos­ing price for the end of the last month.

 

Cameron  28:03

Right? Does­n’t have to cross a new buy line. It just has to be…

 

Tony  28:07

Well, it already comes into play when we’re above a buy line, oth­er­wise it’s a sell. So, if it’s below the sell line, it’s a sell. If it’s between the buy line and the sell line, I don’t know what we’d call that. We just don’t touch it. It’s not a buy or a sell, so we’re not doing any­thing with it. And if it’s above the buy line, how­ev­er, it’s trend­ing down com­pared to the clos­ing price at the end of last month, it’s a Josephine again.

 

Cameron  28:33

Right. And then when we get back to where we were ear­li­er with Josephine’s where it just has to be above the EOM price.

 

Tony  28:41

Cor­rect.

 

Cameron  28:41

Yeah. Okay. There you go, Brett solved.

 

Tony  28:45

Don’t throw the code away for the buy line fol­low­ing the sell line. I think we’re going to need it again.

 

Cameron  28:52

What have you got in your notes for today, TK?

 

Tony  28:55

A few things. So, speak­ing of regres­sion test­ing, Ryan’s been doing some work for me, and he’s come up with some results, which we went through yes­ter­day. So, he was look­ing at a cou­ple of things. So, first of all, let me explain what he’s done. He’s tak­en all the buy lists that we’ve gen­er­at­ed since QAV has been oper­a­tional in its cur­rent form, and he’s using those to be the data feed for regres­sion test­ing. And then he was going through cre­at­ing-he was using ten stock port­fo­lios, not fif­teen or twen­ty because there was just so much grunt work in it, it was eas­i­er to work with a ten-stock port­fo­lio. He was putting togeth­er ten stock port­fo­lios at dif­fer­ent start­ing points and then man­u­al­ly check­ing for their sell lines cross­es, their buy line cross­es, and the com­mod­i­ty prices, and also whether they were between a div­i­dend pay­ment and an ex-div­i­dend date, all those kinds of things that we look at. He was com­par­ing buy­ing ten stocks from the top of the buy list with buy­ing ten stocks from the bot­tom of the buy list start­ing at dif­fer­ent times. And what he came up with was there’s a lit­tle bit of a bet­ter return from buy­ing from the bot­tom of the buy list but giv­en that there’s only about prob­a­bly two and a half-three years of good data, it’s sta­tis­ti­cal­ly not enough to say that one is bet­ter than the oth­er. Which is my expe­ri­ence, that you can buy from the buy list, and it was to me whether the stock I was buy­ing was high up on the buy list or low down on the buy list. So, Ryan’s work has borne that. He also in that analy­sis was basi­cal­ly say­ing there was no ben­e­fit whether you were using QAV 0.1 as the top of the buy list or 0.2‑bottom, sor­ry. So, there seemed to be, again, no sta­tis­ti­cal dif­fer­ence in the cut-off for QAV. So, I’m going to park those and leave those there, because there were two things that I was inves­ti­gat­ing, but there kind of haven’t been con­clu­sive results to make a change on either of those yet. The oth­er thing he did for me was he also ran some analy­sis on port­fo­lios with large ADT stocks. He used 500k ADT or above. It could often take some time to put togeth­er a port­fo­lio because there weren’t enough on the buy list. And he was find­ing that they did under­per­form the oth­er two pieces of analy­sis, top of the buy list and bot­tom of the buy list. So, there seems to have been a bit of a bias against large ADT stocks over the last two or three years, which I guess has been borne out and what I’m see­ing in my own returns as well. So, that’s inter­est­ing. I don’t know if we can do much about that because I have seen it before, and it’s one of those things that some­times-small caps do well and some­times large caps do well, and they’re pret­ty hard to pre­dict when they cross. But it was inter­est­ing to have the analy­sis to back up my find­ings as well as my own expe­ri­ence on that.

Cameron  1:12:46

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