Commodity updates; FMG red flag status; how share incentive plans work;

In the Club edition:

Pulled pork DTL; what TK looks for when he does a pulled pork.



[00:00:00] Cameron: Welcome to QAV, Tony, episode 644, the 31st of October. It will be ended. That’s the name for this episode, Tony.

[00:00:22] Tony: Yes, it will be ended at some stage. Or it will just end, it will end at some stage.

[00:00:29] Cameron: I posted a quote from, uh, science writer Verna Vinge on Facebook the other day, Tony. Was offended by his grammar. ChatGPT told me it was fine though, so, I, uh, I don’t know. Don’t know who to believe, you or ChatGPT.

[00:00:44] Tony: I mean, I, I was reasonable familiar with that quote and I always cut up some slack cause I thought, well, you know, maybe Vinger is not speaking in his native tongue or something or, you know, but yeah, it always struck me as a really strange quote. The human era will be ended. It’s like, why don’t you say the human era [00:01:00] will end?

[00:01:01] Cameron: Because it will be ended by something else, by

[00:01:05] Tony: Well, then say that!

[00:01:07] Cameron: Well, it was inferred in the sentence. Superintelligent machines will arise and the human era will be ended. I think it

[00:01:16] Tony: era will end. That’s inferred too.

[00:01:21] Cameron: yeah, I guess you could say, yeah, that’s arguable.

[00:01:24] Tony: Anyway, I was just always told when you write something, don’t spend a dollar, spend 50 cents and say it with less words.

[00:01:31] Cameron: Hmm, Mark Twain who said I would have made this letter shorter, but I ran out of time. Well, Tony, it’s been another dismal week for investors and on the stock market. Uh, we’re speaking at about. 3 o’clock in the afternoon, Sydney time, and the market’s down to, uh, 6, 9, 6, 1, [00:02:00] uh, give or take. Um, a week ago it was up over 7, 000, 7, 080, so it’s lost about 100. points. You know, uh, over the last week, uh, I think over the last year now, uh, we’re sort of, sort of basically where it was a year ago.

[00:02:18] Cameron: No, it’s less lower than where it was a year ago. Lower than where it was, a lot lower than where it was two years ago.

[00:02:24] Tony: It’s less than where, it’s about where it was in 2007 before the GFC. In fact, it may even be lower.

[00:02:29] Cameron: Right. Well, I don’t know. What do we, what do we, what do we have to do? What do

[00:02:37] Tony: Yeah.

[00:02:37] Cameron: do to get it to turn around?

[00:02:41] Tony: I wish I knew. Maybe all the QAV subscribers can buy on the same day and push the share price up. Then we can, we’ll GameStop it.

[00:02:52] Cameron: Yes.

[00:02:54] Tony: we’ll get momentum that people can buy into and then we’ll sell out.

[00:02:57] Cameron: Yeah. To the, to the moon. Hold on a [00:03:00] second. Can I help you, sir? Oh, why are you in here then? You heard a robber in the house. Okay, well, go and tell him to take some of your Lego, because I’m sick of standing on it.

[00:03:16] Tony: How come he’s home?

[00:03:19] Cameron: Oh, it’s a long story, but, um, so, last week, he and his best friend and a bunch of kids were playing Tiggy at school. Fox tiggied his best friend a little bit too hard and his friend fell over and put his hand out and broke his wrist.

[00:03:36] Tony: Ooh. Oh.

[00:03:37] Cameron: He’s got a sling on it, and he had to have a follow up at the hospital today because they were a little bit concerned with how he was healing.

[00:03:46] Cameron: But both of his parents have COVID. So, Chrissy picked the kid up and took him to… Uh, the hospital and they were there for four or five hours and Fox went along too. It [00:04:00]was like, his appointment was at eight 30 this morning. So Chrissy and Fox and this kid Jack were there all day. And by the time they got out of it, they just thought, well, there’s no point going to school.

[00:04:10] Cameron: So they just, she took Jack home and, and his mother is one of Fox’s teachers, so she was home anyway. So anyway, yeah,

[00:04:20] Tony: Yeah, well,

[00:04:20] Cameron: bit of a. Bit of a drama day. Okay, um, yes, back to the market. So, yeah, it’s, uh, I don’t know, just, we don’t seem to be able to get a win at the moment. It’s just one thing after another.

[00:04:37] Tony: correct.

[00:04:40] Cameron: Well,

[00:04:40] Tony: I can’t, well, I don’t know what to say, Cam, but you’ve succinctly put it there with 50 cents worth of words, I think. It’s just one goddamn thing after another.

[00:04:48] Cameron: Yeah, yeah, yeah. It’s been a dismal couple of years. Um, this week on the buy list, Iron Ore and Steel are a buy. Thermal Coal and Lithium were a sell, which means we had to offload [00:05:00] a lot of thermal coal stocks. Aluminium is a Josephine. We talked last week about the, these, this charting that I’ve been doing about buys and sells and Josephines, and I mentioned last week that the sells number, uh, the three point trendline sells had spiked.

[00:05:16] Cameron: It was back down. this week. Um, so everything was sort of trending downwards. The buys are down. Over the six or seven weeks, I’ve been tracking these. The buys have been dropping. The sells are also dropping and the Josephines are dropping. So I thought last week it was the beginning of some sort of trend, but it sort of went back the other way this week.

[00:05:39] Cameron: I wanted to ask you though, Tony, With Iron Ore being a buy, Fortescue Metals Group is a buy, it’s back on the buy list. But we talked about the, yeah, but we talked about that a few weeks ago and we said too many red flags. Uh, with all the executive resignations and the general [00:06:00] consensus in the marketplace that Twiggy’s lost his marbles.

[00:06:02] Cameron: Uh,

[00:06:04] Tony: At least Joe Astin thought

[00:06:05] Cameron: Joe Astin thought so, that’s right. Yeah. What, what, what are your thoughts on FMG? Uh, change since then, or are you going to wait to see some sort of, uh, executive stability?

[00:06:18] Tony: really good question. I’m not sure, given that, like, given I’m sitting on so much cash, I can’t find things to buy. I might dip my toe, but no, I think I, well, I’m, I’m concerned that when executives join a company and then resign quickly afterwards and they, they have good pedigree that there’s something, there’s a problem going on at Fortescue Metals Group. So it’s a red flag for me.

[00:06:43] Cameron: Yeah, I, I kinda feel twitchy about FMG, which is unfortunate because it’s typically been a good performer for us over the years.

[00:06:54] Tony: Yeah, although we haven’t owned it during this latest iteration of [00:07:00] Fortescue Future Industries and 10 percent of the profits going into investing in green hydrogen and putting having a special advanced hydrogen converter or some such. For hydrogen batteries, so, yeah, it’s a, I guess, it’s, I don’t know if it’s a materially different country and company and maybe the iron ore part of the business will trump everything else, but, um, it’s, he’s certainly not focusing on iron ore at the moment.

[00:07:27] Cameron: Mm,

[00:07:29] Tony: And, and key staff have left.

[00:07:31] Cameron: yeah, uh, well, glad to check in with you on that. Um, I guess I can just talk about our portfolio for a moment, the dummy portfolio, that is. Navexa have changed their website in the last few days and subsequently I’m struggling to get it to do things like a, an inception, uh, performance chart, um, the [00:08:00] custom range thing doesn’t seem to want to work for me, but I can say that for this financial year, Dummy Portfolio is up only 1.

[00:08:10] Cameron: 7%, uh, versus the STW which is down 3. 85%. Over the same period, so it’s doing okay. If I look in the last, let’s say, month, in the last month, W Portfolio is up 2. 45 percent versus the STW down 4. 05%. So again, it seems to be doing well. Uh, uh, from that perspective, I don’t know what else I can look at here. The last two years, uh, not doing too well down 0.

[00:08:50] Cameron: 46 percent versus the STW up 2%. So, over the last two [00:09:00] years it hasn’t had a great run, uh, but, uh, luckily it had a good run before that, so it’s still trading on that sort of 2019 2020, uh, run, bull run that the market had. The dummy portfolio went along for the ride with that as well. But, um, yeah, it’s just been, I don’t know, man, it’s just been a depressing time.

[00:09:25] Cameron: Try to navigate through these waters, seeing, you know, all the gnashing of teeth and our forums. Everyone’s feeling it. You’re feeling it. I’m feeling it. Everyone’s feeling it.

[00:09:36] Tony: Yes, it’s, it’s, yeah, it’s hard to, hard to go through. Uh, I guess a couple of points on the market. Um, I know, I noticed overnight, this was, we’re recording on Tuesday, so Monday night in the US, there was a, um, rise on Wall Street of like 1. 5 percent that hasn’t flowed through into the Australian market, um, today on the [00:10:00] ASX.

[00:10:00] Tony: I’m wondering, Um, anyway, whether it was a dead cat bounce on Wall Street, but, um, I, I think in Australia, people are spooked that the RBA is going to raise interest rates next Tuesday on Cup Day. Um, and they’re probably positioning for that, taking some money off the table in case they do get raised. And talking about the market in 2007 being slightly higher than the market now, it’s really been an era of, The share market being run by the RBA, by the central bankers, um, by raising a lot, by first of all, lowering interest rates almost to negative territory after the GFC, and being slow to raise them again, and then raising them all at once, and in killing, killing the party again in the last year or so.

[00:10:48] Tony: Yeah, so that’s it. I think that’s and, um, You know, they did that big review of the RBA, but no one looked into the fact it’s, it’s having a lot of control on the [00:11:00] share market and, and, um, what that exactly means and whether it’s a good or bad thing.

[00:11:06] Cameron: So the new management, uh, just like the old management by the sounds of it,

[00:11:11] Tony: I think you pointed out the new management has worked with at the RBA their whole career.

[00:11:16] Cameron: 30 odd years or

[00:11:17] Tony: Yeah.

[00:11:17] Cameron: like that.

[00:11:19] Tony: Hard to be different. Like maybe she’s nursed a grudge for the last 30 years and she’s gone, ah, now I’m in charge. I can do what I want. Things will be different.

[00:11:28] Cameron: I thought she might have Gorbachev’d it. And you know, she’s just been, you know, biding her time. Wow. Yeah. Well,

[00:11:39] Tony: we’ll see next Tuesday.

Alright, well, I don’t have any other news stories to talk about. Tony’s just, um, all depressing across the board for me this week. Nothing really that interesting or exciting.

[00:12:30] Tony: No, I’m the same.

[00:12:31] Cameron: you got nothing? You gonna do a pulled pork for us this week?

[00:12:35] Tony: I am going to do a pulled pork. Mmm. This is an interesting one and I, I dunno what order this is gonna come out, but I alluded it to it in the question before about a couple of interesting things. So the pulled pork today is on a company called Data three DTL, and it’s an interesting one.

[00:12:55] Tony: We don’t often get technology companies on the, on the buy list. Yeah. So [00:13:00]that’s one of the reasons why it caught my eye. But it is a, a large ADT stock. It’s a Brisbane based IT company that’s been around for a very long time. I think it was founded in 1977, listed on the ASX 20 years later in 1997, and it’s one of the larger homegrown IT companies.

[00:13:20] Tony: I mean, um, there’s a fair bit of the big accounting firms, the, um, the PWCs, et cetera, but, uh, this is a dedicated Large IT firm. Um, uh, it crosses the whole, um, waterfront on it. It’s, uh, it, um, offers cloud hosting. It, uh, helps out companies with IT security, and it does a lot of work on IT solutions. So consulting and sales transformation projects, uh, services, data analytics, et cetera, et cetera.

[00:13:54] Tony: Um, it’s a, it’s a large I-D-T-A-D-T stock, so trades about, um. Where’s [00:14:00] my numbers? 2. 49 million per day, so it’ll suit a lot of people. It’s not quite over its second buy line, so it’s a, it’s a technically a Josephine at the moment, but it’s getting close to a buy, um, and it’s way above its, uh, its buy. Uh, But it’s interesting, so I was kind of intrigued by it, um, I have a IT background, so it caught my attention, uh, really good numbers.

[00:14:27] Tony: When I went to do some analysis on this, the FY23 results saw that the revenue was up 17%, gross profit was up 15%, impact was up 22%, Um, there’s lots of recurring revenue. So 60, 65 percent of revenue was recurring. So that’s all really good. And looking back over the last sort of, I think they put six years in there in their, uh, uh, information in their pack, uh, the growth has been consistent for the last six years and the [00:15:00] company claims to have, uh, increased revenue by 15.

[00:15:04] Tony: 3 percent CAGR over the last six years. So it’s, it’s. It’s been a growth company, so it’s kind of surprising to see it on the buy list because we don’t normally get this kind of company on the buy list. Going through the numbers, it’s, uh, share price I did the analysis out of 6. 94, which is just slightly less than consensus target.

[00:15:28] Tony: If people are interested, the ROE on this company is 57%, so return on equity is very, very high, which suggests that it’s mainly a capital like business, as a lot of IT companies are. They’re oftentimes their biggest cost is people, and there’s some 1, 400 staff working for this company as well. Uh, now I… I was intrigued by the payout ratio on this company, which is, uh, 90, 91%, so most of the profits are being paid out in dividends.

[00:15:58] Tony: However, the yield is only a [00:16:00] little over 3%, so we can’t score it for beating the, the bank debt rate, um, or the mortgage rate on that basis. Uh, And I’ll come, I might circle back and come back to why that’s an interesting stat in itself. But it did, uh, did catch my eye. So I can’t score it for high yield, but I will talk about the payout ratio in a minute.

[00:16:20] Tony: Um, The PE is very high. It’s 29 times, which is, you know, way above what we normally see on the buy list. However, it is the lowest PE for this company in three years, so it scores for that. Um, Stock Doctor Financial Health is Satisfactory and Recovering. So it gets a… Um, points for those two things.

[00:16:41] Tony: Recovering especially, I like. Uh, but the PropCaf, uh, sorry, the PropCaf for this company is 3. 69 times, which is a bit surprising given the PE’s 29 times, but, um, uh, certainly throwing off all the PropCaf, and I’ll come back to that one in a minute too. IV1 and IV2 are way below the [00:17:00] share price, so IV1’s 1.

[00:17:03] Tony: 22, IV2’s 2. 67, and the share price is 6. 94. Uh, And likewise, so is net equity per share. It’s, um, 44 cents, so it’s nowhere near the share price, so we can’t give it a score for that or for book plus 30 percent. Uh, earnings per share growth forecast is 13 percent, which I thought might be a bit conservative given the growth.

[00:17:24] Tony: The company’s been getting over the last five or six years, but that’s what the analysts are saying. Uh, but growth over P doesn’t meet our 1. 5 threshold, so we can’t score it for that because the P is too high. I did think this might be an owner founder company, but it’s not. However, directors hold 3%, which isn’t too bad.

[00:17:43] Tony: Interesting, um, interesting history. Looks like the founders are out. Um, they’re probably going back to 77 when they founded the company. Just as an aside, it’s the history of the company is it’s um, uh One of the original, I think, IBM resellers in Australia, and it [00:18:00] merged with a, I think, a typewriter vending company.

[00:18:04] Tony: So, perhaps an IBM typewriter vending company back in the 70s, and formed this company. And then they decided to, uh, jazz up the name, because I think it was called PCA originally, or PCA Partners originally. And they called it DataHash3. Because, uh, that was the year, when they changed the name, that was the year that IBM released personal computers that had a hash above the 3.

[00:18:28] Tony: So you pressed shift 3 and got a hash, and they thought that was the, a great, you know, great move forward in technology, and they’d show themselves to be, uh, on the cutting edge of trends in the IT industry, and so they called themselves Starter 3. Uh, yeah, interesting story. Anyway, um, In terms of manually entered data, it’s not a recent upturn, it’s been, been traveling quite nicely as you’d expect with that sort of growth pattern over the last five years.

[00:18:54] Tony: It gets a zero for consistently increasing equity, although it was pretty close to, [00:19:00] to six halves of increasing equity, just slightly missed out on one. Um, all in all, quality score is 10 over 15, so 67%, QAV score of 0. 18. However, let me just run through some of the interesting… I put this in the risk, uh, section.

[00:19:18] Tony: Uh, the dividend payout ratio is 91. 4 percent and I’m, it’s, it’s not on the checklist as a metric or it’s not a red flag, but it is a risk. I think when a company is paying out such a high. amount of profit as a dividend. Uh, I guess you can read it as a positive or negative. I, I tend to see it as a negative because if they have a downturn, if there is like a recession next year and, and the profits go down, the dividend goes down.

[00:19:45] Tony: And if people are holding the stock to obtain a dividend, then, uh, they’ll sell it, which will, um, depress the stock price even further. So I think it’s an issue when a company pays out that much of its profit as dividends. Uh, I [00:20:00] guess they’re doing it because they don’t need to invest that much in the business.

[00:20:03] Tony: Um, Sometimes companies in this situation keep more on their books, and then they looked for M& A acquisitions, so that’s something they perhaps could consider. But yeah, it’s a risk, and I’m reminded of the time many decades ago when Telstra was a blue chip company, or still is I suppose, but was a darling because it was paying an above market dividend yield.

[00:20:27] Tony: Fully Franked, and people were buying Telstra stock when they retired and living off the dividends for years and years, not really caring what happened to the share price or who was running the company or what it was getting into, but relying on that dividend. And eventually as Telstra’s profit became more challenged, the dividend payout ratio had to keep climbing because profits were decreasing a little bit.

[00:20:49] Tony: Payout ratio was increasing to attract people to keep the share price up. Uh, and eventually it got into the comical situation where Telstra was borrowing money to pay their [00:21:00]dividend. So the profit wasn’t covering the dividend. And obviously you can’t keep doing that forever. And eventually it all came to an unhappy end and a bit of a mess.

[00:21:09] Tony: So whenever I see a payout ratio so high, I’m a little bit skeptical and call it out as a risk. Um, the other interesting thing about this company, and I guess, you know, my brain was picked by the fact that it’s a high PE company. Thank you. Um, but it’s coming up as good price to operate in cashflow. Uh, and it’s, it’s failing on the other valuation metrics like IV1, IV2, and, and net equity per share.

[00:21:37] Tony: So something was going on there and I did a bit of digging. It looks like. In this case, operating cash flows is, uh, often affected quite a lot by supplier payments. So, this company, I think, does about 2. 5 billion worth of sales. Um, I’ve done some back of the envelope analysis on some numbers, so they may be out, but they’re sort of directionally right.

[00:21:59] Tony: It looks [00:22:00] like about 2 billion of that comes from hardware. So they’re, they’re buying equipment from IBM, et cetera, and then installing it and selling it to companies that they’re doing IT consulting work for or other it work for. And so they’re making a very thin margin on that. But depending on the trading terms, when they get the money from the, the client and to, and to how long it takes for them to have to pay IBM.

[00:22:24] Tony: Uh, that can come look like operating cash flow because it’s receipts from clients, but it hasn’t been paid out to a supplier and I think that’s inflating the operating cash flow this particular half because last, last half it was negative 22 million. So, um, some, I’m not sure this is a QAV stock. I’m not sure we can rely.

[00:22:44] Tony: I don’t think we can rely on operating cash flow in this case. Uh. I’m not saying it’s a bad company, or I’m not saying it shouldn’t be bored if people are interested in a growth company, it’s got a reasonable quality score, but I think the operating cash flow here is, is not what we [00:23:00]intend it to be, in other words, a good indication of how, how, um, you know, cash generative this business is, and digging down a little bit further, it’s kind of two businesses, and management do call this out in their presentations, and the business split is important, however, the accounting doesn’t.

[00:23:16] Tony: Split things into business units. It just operates at the company level. So, well, the statutory accounting does anyway, it looks like, uh, like, like I said before, about 2 billion of the 2. 5 billion in sales is IT hardware, and they’re making about, you know, sort of a 1 to 2%. Um, but the rest of the business, the other, uh, sort of 350 to 500 million in sales, maybe 350, I think was the number I pulled out of their figures.

[00:23:42] Tony: Uh, looks like it’s. The people business, so the sort of business that, um, we like to see with IT companies where, uh, there’s a low investment, low capital, um, high ROE and great margins. And so, you know, if you try and split that up and take the [00:24:00] PropCaf from the consulting business and the, and the Other parts of the business, which aren’t it sales, hardware sales, then the prop calf blows out to be more like the pe.

[00:24:11] Tony: So I, I, again, I haven’t done the detailed number crunching. I would guess it’s gonna be sort of in the 20 to 30 times ratio, um, sort of equivalent to what the PEs, which is 29.4. So. Look, I’m not going to say don’t buy this company. I’m not going to say buy it, which I never do anyway, but this is one case where the PropCaf isn’t giving us the whole picture.

[00:24:35] Tony: Looks like it’s a good company. It’s had at least six years of constant growth. You’d be happy to know, Cam, that they’ve highlighted AI as being a particular area of growth for them and that all of their clients are asking them how can they use AI in their business, uh, in every sort of aspect, security, um, uh, network.

[00:24:55] Tony: Routing, all sorts of different things. So, uh, transformation, [00:25:00] business, um, business process flow, all that kind of thing. So, uh, I’ve got no reason to think the growth won’t continue, but I’m just going to caution people to, um, do a, do some research themselves. I don’t think PropCaf is a good measure for this company.

[00:25:15] Cameron: Hmm. DTL.

[00:25:18] Tony: Yeah,

[00:25:19] Cameron: Thanks, Tony. An old friend of mine, an old business partner of mine, was like the marketing director there for quite a few years.

[00:25:28] Tony: okay.

[00:25:29] Cameron: Yeah, there are, there are, I think, because I think they’re based up here, based in

[00:25:33] Tony: They are based in Toowong. Yeah.

[00:25:35] Cameron: Hmm. Good stuff. Yeah, well, I think, um, AI is going to have a dramatic impact on IT businesses and how clients use IT in particular in the next few years.

[00:25:49] Cameron: Already starting to see that flow through. There was an article. In the financial review last week that I referenced in my futuristic podcast on Friday, [00:26:00] basically saying that it’s, uh, that AI and the impact of AI is one of the top three concerns in every boardroom in Australia right now. It’s what every CEO is thinking about and talking about.

[00:26:14] Cameron: How do they navigate this? What this, what is the impact going to be on their business, et cetera, et cetera.

[00:26:20] Tony: Yeah. I think that’s important, but I take it with a grain of salt as well, because every year they publish that kind of survey and what are the top three things that CEOs are thinking about and, you know, one year it’s ESG, one year it’s Internet of Things, one year it’s after pay, it’s like buy now, pay later.

[00:26:35] Tony: There’s always some kind of fad they’re focused on. I’m not, not saying AI won’t be important, but that’s not perhaps the best indicator of how important it will be.

[00:26:45] Cameron: What is a good indicator?

[00:26:48] Tony: Yeah, I don’t know. I guess we won’t know until after the fact, usually. I mean, there’s always a lot of hype and bubble around these kinds of

[00:26:57] Cameron: Yeah, that’s

[00:26:57] Tony: I suspect, I [00:27:00] suspect the next thing we’ll see will be job losses. Which is what, you know, going back to the sort of 80s when I started working and IT was becoming more and more of a thing.

[00:27:09] Tony: Moving from the mainframe to smaller computers and, um, the applications were easier to code and maintain and things. And we started to see less clerical staff, for example. That was a, you know, kind of a, I guess an indicator that it was actually having an impact on business.

[00:27:26] Cameron: Yeah. One of the things that everyone, uh, is predicting as Being one of the first casualties will actually be developers. The ability for ChatGPT and BARD to write code now is pretty impressive. It can write massive chunks of code and, you know, I’ve spent a lot of time getting it to write code for me over the last couple of months.

[00:27:49] Cameron: Um, it’s not perfect, uh, and there’s a lot of debugging to be done and that kind of stuff, but I think it’s going to get better. At those sorts of things, I think its ability to [00:28:00] replace, uh, a lot of the work that coders do, whether or not it replaces coders, is another story, you know.

[00:28:08] Tony: Yeah. Yeah, I think that’s, it’s going to be a great productivity tool if nothing else, I think.

[00:28:13] Cameron: Mmm, mmm. Alright, thank you for that pulled pork. Let’s get into, we’ve only got a couple of questions, welcome, Alex. How are you?

[00:28:24] Alex: Um, Good. Thank you. How are you?

[00:28:26] Cameron: Good. What have you been doing since you got back to Melbourne and settled back into your regular life? What are you doing with yourself these days? Now that your master’s is done, your holiday’s done, what are you up to?

[00:28:38] Alex: Job applications?

[00:28:41] Cameron: For Famous Painter? Is that where you just apply for Famous Painter jobs? Mm

[00:28:45] Alex: uh, no, Christmas casual work.

[00:28:48] Cameron: hmm.

[00:28:49] Cameron: As a Famous

[00:28:50] Tony: how much you, how much are you charging to paint a house these days, El?

[00:28:55] Alex: Who knows? I do have a meeting

[00:28:58] Alex: with the gallery next week though, so [00:29:00] that’s

[00:29:00] Alex: exciting, but that’s for a, probably more for like a secretarial role than

[00:29:05] Tony: Wow,

[00:29:06] Alex: artist, but it’ll be good.

[00:29:09] Cameron: So how does

[00:29:09] Cameron: the, uh, Masters in Fine Art, uh, help you out?

[00:29:13] Cameron: Uh,

[00:29:13] Alex: You know what? Before you ask that question, it applies well to everything. okay.

[00:29:18] Cameron: sure. Okay, good. Congratulations on that

[00:29:22] Alex: Thank you. It’s my highly adaptable degree. Thank you.

[00:29:26] Cameron: Yes, yeah, yeah, yeah, you’ve demonstrated that you can finish

[00:29:31] Cameron: something and that you’re

[00:29:33] Cameron: clever.

[00:29:34] Alex: Okay. Thank

[00:29:35] Cameron: of value in the marketplace. Do you have a question from one of our listeners to read out to us today, Alex?

[00:29:41] Alex: I have another Alex

[00:29:44] Alex: and I’m going to ask his second question. So he says, Hey Cameron, can TK please walk us through what he looks for and when, for, and where when he does a pulled pork? He often finds and surfaces insights in companies and it would be helpful to know how he does it. [00:30:00]

[00:30:01] Cameron: Hmm, I

[00:30:03] Tony: The short answer is experience, really.

[00:30:06] Cameron: thought it was Google.

[00:30:06] Tony: it for a long time. Yeah. Google. Yeah. That’s right. Chat GPT gives me everything I know.

[00:30:12] Cameron: Yeah,

[00:30:16] Tony: No, no. Um, well, I guess you mean, how do I find information about the company to talk about, but I guess one step before that in case you meant, how do I pick which stock to analyze? I’m just looking for a high ADT stock on the buy list that we haven’t spoken about before, especially if it’s new to the buy list.

[00:30:36] Tony: Um, but, um. And I’ll try and check their sentiment to see that it’s a buy, so it’s worth talking about. Uh, but once I’ve picked one, um, yeah, I do use Google. Um, and I start with the analysts or, sorry, not with the analysts, with the investor briefings and annual reports. So I get a sense for the company, um, looking at their [00:31:00] history, looking at who’s running it, um, looking at how their performance has been.

[00:31:05] Tony: Uh, So I get, get all that information, just kind of glance through it. Um, I’m looking for ownership. So I’ll look at who owns it, whether it’s an owner founder, is there a story there about, you know, is there an Anthony Scali who’s been in the company for a long time? Is that something that’s important? Uh, and then just go through their, their, um, their presentations or their annual reports or both.

[00:31:30] Tony: And really it’s experience, Alex. Um, I can’t really pinpoint one particular thing to look for, but oftentimes something will catch my eye, either on what the company has said, or it’s in their, uh, financial statements, but normally I don’t have to go much further than the latest, uh, investor briefing that Thank you.

[00:31:51] Tony: Bye bye. Usually a company’s a half result or a full year result, or occasionally perhaps the CEO’s address in the annual report. [00:32:00] Um, and to give you an example, today I’m going to talk about a company called Data3. Um, or maybe I already have, depending on how this podcast is edited. But, um, When I was going through preparing the pulled pork for Data 3, I noticed that, uh, and they called out, that they have a dividend payout ratio of 91%, and that’s not part of our checklist, it’s not part of something I focus on, but it is something which, you know, immediately flagged my attention, so it was a salient point, and, and, I guess I just ask myself questions.

[00:32:36] Tony: Is that good or bad for the company? They’ve highlighted it when they talk about the company. Um, I think it’s a risk and I guess I’ll go into it in more detail, uh, in the pulled pork section, but it’s just things like that, uh, that, that catch my eye when they’re, they’re talking about it. Um, again, in data threes.

[00:32:55] Tony: Pulled pork. I came across a, um, a statement which said that their cash [00:33:00]flows were often swayed by supplier payments. So again, the question is, was that good or that bad? And I dug into it and found out that, uh, it did materially affect their operating cash flow, which is important to QAV. So, I think that’s, um, that’s…

[00:33:16] Tony: I guess the level of research I do, looking for salient points, asking questions if it’s good or bad, maybe doing some deep, deep dive on that. And then I go through the QAV numbers and, and, uh, look at those and decide whether, I guess, the numbers gel with the story that was in the investor briefing or that I’ve read about the company and its history or, um, and the analysis I’ve done.

[00:33:39] Tony: Uh, so things like, um, How is op, how is operating cashflow affected in the numbers, given that most of it is money and money out to supplies for, for hardware purchases? In the case of data three, uh, yeah, and the numbers might also throw up something which is worth looking at, like, for example, future growth projections, [00:34:00] um, uh, high ROE, that kind of thing, which might be worth a bit of.

[00:34:05] Tony: Um, digging down on. So that’s, that’s about it. It’s, it’s, Yeah,

[00:34:09] Tony: just the process of, of reading what they say, um, what they call out as being interesting, deciding if that needs further research, and then going through the numbers. But it’s, it’s all

[00:34:19] Tony: based on experience. You’ve got to, you know, read something and think to yourself, Oh, that’s interesting.

[00:34:25] Tony: Why are they saying

[00:34:25] Tony: that? Or what does that? mean for the company when they say they have a high

[00:34:28] Tony: dividend payout ratio, for example? Is that clear, Al?

[00:34:33] Alex: And, um, I guess more broadly too, we were just talking about, was it Charlie Munger and Lattice, his book.

[00:34:41] Tony: Yeah. So Alex and I have been talking offline about investing. And I mentioned that, uh, both Buffett and Munger always promote lifelong learning and not just in the financial press or the financial industry, but, uh, particularly Charlie always talks about how everything. [00:35:00] Informs everything else and that you should read widely about science and read widely about psychology and art and all sorts of different things because they will have applications in the investing, in the investing world.

[00:35:13] Tony: And he uses the example of knowing about, um, human psychology when it comes to thinking about how to value a, um, like a casino type company or a, uh, A slot machine company. And he talks about how, you know, human psychology is used against us when we’re, when we go into a casino and gamble on the slot machines, because they’re, they ring loud, they ring loud bells and they have bright flashing lights, which are trying to attract us to, uh, play the slots.

[00:35:42] Tony: Um, but yeah, he said, if you are, um, going to play the slots, find a quiet machine at the back to play, cause it’s probably the one they don’t want you to go to, um, but yeah, so he, he’s always talking. They’re talking about continuous learning, not just looking at the [00:36:00] financial books and financial press, but

[00:36:02] Tony: to try and read widely and then have that inform your

[00:36:06] Tony: analysis of different companies.

[00:36:10] Alex: Oh,

[00:36:10] Cameron: cross pollination of ideas too.

[00:36:13] Tony: Yeah, or Lattice as Charlie calls it. There’s a good book out there that

[00:36:16] Tony: he, I don’t know if he wrote it or

[00:36:18] Tony: he had something to do with it, but it has

[00:36:21] Tony: different chapters on his readings in different areas. It’s really, really interesting.

[00:36:25] Cameron: Is the name of the book Ladders, as in something you climb up, or a Lattice, as in frame,

[00:36:34] Tony: Lattice as in a frame

[00:36:36] Cameron: with T’s? Okay.

[00:36:37] Tony: with T’s. Yes,

[00:36:39] Cameron: Yeah, and you know, it reminds me of, um, you reading the

[00:36:43] Cameron: Checklist Manifesto, and uh, the guy who came up with that, looking at airplanes and applying it to hospitals, and then you

[00:36:52] Cameron: read about it, applied it to investing, and yeah,

[00:36:56] Cameron: ideas

[00:36:57] Tony: Yeah, no.

[00:36:58] Cameron: carry over from different [00:37:00] domains.

[00:37:01] Tony: Yeah, and yeah, I mean, after hours, I’ll talk about a book I’m reading at the moment on, the life of a sports gambler in the US. And interestingly enough, he said at some stage that, uh, he’d adopted a principle of not having more than

[00:37:16] Tony: 5 percent on a particular bet because that was good risk management.

[00:37:20] Tony: And straight away I said, well, that’s the 20 stock portfolio rule, right? That’s 5 percent of each investment. So it’s interesting how these kinds of ideas cross pollinate into different areas.

[00:37:32] Cameron: Yeah, And you know, I just

[00:37:35] Cameron: finished on, uh, on our

[00:37:36] Cameron: Renaissance show, we just finished our Da Vinci series,

[00:37:39] Cameron: which took us

[00:37:41] Cameron: three years to tell the story of the life and career of Leonardo Da

[00:37:45] Cameron: Vinci. And, but he’s like the classic example of somebody who just studied everything he could get his hands on and he saw parallels between, veins in plants and trees and the veins inside the [00:38:00] human body and then waterways in mountains and rivers.

[00:38:02] Cameron: And, you know, sometimes successfully, sometimes unsuccessfully, but he was always trying to look at the micro world and the macro world and see where the overlaps were and making the assumptions that if something worked in one domain, if, you know, um, if, if the way, the way that water moved around a plant, uh, was important to how it.

[00:38:25] Cameron: grew and survived, then the same was possibly true with how blood moved around the human body. And in his day, these were deep insights

[00:38:35] Tony: Mmm, yeah,

[00:38:37] Cameron: blood moving around the body was actually an important thing and not just a thing that carried the, uh, the breath or the, the anima.

[00:38:47] Tony: yes, that’s right, all that came out of your body when you cut yourself.

[00:38:51] Cameron: And if it’s one thing that I got out of this deep dive on Da Vinci is really that passion that

[00:38:56] Cameron: he had for overlapping [00:39:00] magisteria and looking for patterns right across everything that he could turn his eye to. Looking for

[00:39:06] Cameron: patterns. He was a big believer that there were patterns in there. The curls of hair and the swirls of water and things like that, you know, that they were all driven by similar forces.

[00:39:20] Cameron: Anyway. Thanks for

[00:39:21] Tony: it kind of makes sense. But we, you talked a bit last week about the book you read about, um, a new kind of science and I’ve got the chap’s name, um, Hurwitz, Hurwitz, no,

[00:39:30] Cameron: Wolfram.

[00:39:31] Tony: Wolfram. Thank you. Uh, and how Everything comes from an initial state

[00:39:36] Tony: and there are first conditions and then there’s a code and everything propagates from there

[00:39:41] Tony: under a set of rules. of course, there’s going to be patterns,

[00:39:44] Tony: right? Cause everything’s starting from the same thing and then replicating. It’s going to, patterns are going to

[00:39:50] Tony: repeat All

[00:39:51] Tony: over the place, really. Given that.

[00:39:54] Cameron: Everything runs by the same set of physical laws.

[00:39:57] Tony: Mmm.

[00:39:58] Cameron: All right. [00:40:00] Back to, uh, job applications for you, Alex.

[00:40:05] Alex: Okay. Thank you

[00:40:06] Tony: Hey, duck, duck your head Alex and show Cameron how you, what you’re up to on his painting.

[00:40:10] Alex: Okay.

[00:40:12] Cameron: Oh, that looks like

[00:40:14] Cameron: me.

[00:40:17] Alex: guy in white T-shirt.

[00:40:19] Cameron: yeah, you

[00:40:20] Cameron: got to take 20 kilos off and, uh, make me look more like Brad Pitt for the final version.

[00:40:26] Alex: That’s not done yet. There’s still some

[00:40:27] Alex: wiggle room, you know?

[00:40:28] Cameron: Okay. Yeah. Good.

[00:40:29] Tony: Yeah.

[00:40:30] Tony: that costs more.

[00:40:31] Alex: Yeah. Mm-Hmm.

[00:40:33] Cameron: The Brad

[00:40:34] Cameron: Pittification. Yeah,

[00:40:35] Tony: Yeah, yeah, cosmetic surgery. Yeah.

[00:40:39] Cameron: Thank you, Alex. Have a good

[00:40:40] Cameron: week.

[00:40:41] Tony: ya, Al. Thanks, hun. Bye.

[00:40:46] Cameron: All right, the only other question we got is also from the other Alex.

[00:40:51] Cameron: Can TK please explain how share incentive plans work for directors and managers?

[00:40:56] Cameron: How do these relate to the different

[00:40:58] Cameron: transaction types?[00:41:00]

[00:41:01] Tony: Yeah, of course, and I can draw on my own experience being employed in big companies and getting, uh, incentive plans. So, so, uh, Generally, there’s, I’m hoping I’m not being too basic here, but generally executives are remunerated both in their base pay, but also with what’s called STI, short term incentives and LTI, long term incentives.

[00:41:22] Tony: So think about the STI as being an annual bonus and the LTI is normally over a three year period. It could be five years, but normally over a three year period, um, historically. They were the, uh, the, well, sorry, I should step back from that. STI is often paid in cash. So it’s a bonus at the end of the year.

[00:41:43] Tony: Sometimes it’s in share compensation, but often in cash. LTI is mostly paid less in cash and more in share issuance. And I’ll use the word issuance because there’s different ways of doing the share issuance. But I think issuance is an [00:42:00] important word because, uh, you know, Buffett and Munger used to bang on about this in the dot com boom that corporations wouldn’t call out how much shares they were issuing, new shares they were issuing, to pay their tech staff, um, incentive payments, but, uh, as if it was free because it wasn’t hitting the, um, hitting the bottom line.

[00:42:18] Tony: And I think back then accounting standards were that you didn’t have to report share issuance in the P& L. It was a counterforce in some other way. Uh, and so there was a lot of it and, um, people would say,

[00:42:31] Tony: uh, they’d use numbers like EBITDA rather

[00:42:33] Tony: than talking about the bottom line so they could avoid saying how much

[00:42:36] Tony: was being issued and what it was actually costing the company. But of course it does

[00:42:39] Tony: cost the company because new shares have to be issued, um, which affects, which, which dilutes all the other shareholders. So, so generally share compensation plans are now

[00:42:49] Tony: put together in a, in a very careful way to avoid too

[00:42:53] Tony: much. Dilution and, um, when we’re talking big companies, you, you can, you can pay a, decent LTI to [00:43:00] someone without diluting the big company too much, like Commonwealth Bank, for example. Um,

[00:43:05] Tony: what kinds of ways do they issue the shares and how do they

[00:43:08] Tony: work? Well, it’s annual. Meeting, annual general meeting season at the moment, AGM season. So, um, people are being asked to vote on compensation, uh, packages

[00:43:19] Tony: and there’s all sorts of different

[00:43:21] Tony: ones. Um, they, these days they try and get a blend

[00:43:24] Tony: of soft and hard targets. So you know, back in the

[00:43:28] Tony: days when, when I was being, Um, given these kinds of incentives, say 15 years ago, you would, uh, You would be remunerated mainly on meeting your targets, your P& L targets,

[00:43:39] Tony: and there’d be a split between

[00:43:40] Tony: my section or my division or my company, um, versus the overall company, and there’d be maybe a, you know, 10 percent for things like, um, no injuries at work or,

[00:43:52] Tony: uh, you know, I think I remember once

[00:43:54] Tony: there was a um, a requirement I had to, have, uh, you

[00:43:59] Tony: Three potential [00:44:00] successors nominated and in the

[00:44:01] Tony: system, ready to take over if I got moved or

[00:44:05] Tony: left. So

[00:44:07] Tony: that’s, that’s there.

[00:44:08] Tony: I think these days, if you look at some of the packages, they seem to have a higher

[00:44:12] Tony: soft component. And that’s been an issue

[00:44:16] Tony: that organizations like the ASA and

[00:44:18] Tony: Proxy Advisors haven’t taken all that

[00:44:21] Tony: Um, keenly to, uh, although you do need some soft

[00:44:25] Tony: incentives in there, um, corporate responsibility, a little bit of ESG there,

[00:44:30] Tony: um, seem to be important to a large number of investors.

[00:44:34] Tony: So they’re probably in there a bit, um, these days more than they

[00:44:37] Tony: were in the past, but anyway, so there’s a makeup of targets

[00:44:41] Tony: and hurdles that the executive has to,

[00:44:43] Tony: meet to um, receive their They’re full bonus compensation, and I’m talking

[00:44:51] Tony: particularly LTIs here. Uh, and then

[00:44:55] Tony: usually… They’re issued in a couple of different ways.

[00:44:58] Tony: So

[00:44:58] Tony: there’s, in terms of the [00:45:00] shared types,

[00:45:01] Tony: uh, back when I was working corporate, they were mainly

[00:45:04] Tony: options. Um, that’s less and less the case these days, because mainly because accounting treatment has

[00:45:09] Tony: changed and in the past they were taxed beneficially, um, used to be able to, uh, elect to pay the tax when the option was issued and then.

[00:45:18] Tony: Uh, if you happen to make

[00:45:19] Tony: a decent windfall gain in three years time, because the

[00:45:22] Tony: share price had risen above what it looked like three years before, when the option was

[00:45:26] Tony: issued, you didn’t have to pay additional tax. So there

[00:45:29] Tony: was a, that was a good look. Um, I think that loophole has been closed now. So it tends to be

[00:45:35] Tony: that management get issued what’s called deferred shares.

[00:45:38] Tony: So, um, Uh, if you meet your, your incentives or your hurdles, uh, they will put shares aside for you and then

[00:45:46] Tony: give them to you in three years time. So,

[00:45:48] Tony: you may have had some capital gain if you, if you met your hurdles in the first year or second year and,

[00:45:53] Tony: um, progressively got more deferred shares issued

[00:45:55] Tony: to you.

[00:45:56] Tony: Um, but you’ll be paying tax,

[00:45:57] Tony: capital gains tax on that, on that [00:46:00] appreciation when you finally came around to sell them. But that’s probably the main way of doing it. Um,

[00:46:06] Tony: that’s, that’s by share grant. So they have to

[00:46:09] Tony: actually, um, I guess mint new

[00:46:12] Tony: shares and issue them much the

[00:46:13] Tony: same way they have to do if there’s a dividend reinvestment program.

[00:46:16] Tony: They have

[00:46:16] Tony: to actually issue new shares on the market to

[00:46:19] Tony: give to people who’ve opted to buy them in the DRP in lieu of a dividend

[00:46:24] Tony: or in this case to take them as part of their incentive package. And I guess the last point

[00:46:30] Tony: to mention is that more and more these

[00:46:32] Tony: days, these kinds of long term incentives have a clawback provision.

[00:46:35] Tony: So Uh, that wasn’t the case back when I was working corporate,

[00:46:39] Tony: but, uh, these days, uh, it’s not unusual to see that even though you’ve been given the shares three years after the, the

[00:46:46] Tony: year that, you know, you started the long term incentive program, uh, the company can take them

[00:46:51] Tony: back off you in certain circumstances, like you’ve left the company and then the company’s done badly, or, um, there’s been some

[00:46:58] Tony: malfeasance uncovered, [00:47:00] um, after the fact, after the shares have been

[00:47:01] Tony: issued, they can be clawed back. So I hope that answers your question, Alex. Thanks. Pretty much it

[00:47:05] Tony: in a nutshell as to what

[00:47:08] Tony: LTI compensation is.

[00:47:11] Cameron: Hmm. Thank you, Tony. Well, that’s all the questions for this week,

[00:47:18] Cameron: Tony. People are too miserable to send

[00:47:21] Tony: Licking their wounds. Yeah.

[00:47:23] Cameron: Yeah. After hours, what have you done for fun in the last week, Tony?

[00:47:31] Tony: I went to the Sir Paul McCartney concert on Friday night in Sydney. that

[00:47:34] Tony: was a lot of fun.

[00:47:36] Tony: Um, yeah, it was good. I mean, it’s great. The guy’s 81 or whatever he

[00:47:40] Tony: is, still bopping along.

[00:47:42] Tony: Gotta say he missed a couple of high notes, I

[00:47:44] Tony: think. Um,

[00:47:46] Tony: but I’d forgive him that given how… You know, you put on a three hour show, you kind of

[00:47:50] Tony: forgive an 81 year old for

[00:47:52] Tony: doing that. and it’s still lots of fun. I mean, particularly the, I particularly like the sort of harder rock

[00:47:57] Tony: numbers, You know, the [00:48:00] Helter Skelters and things like, that, which were really good, done really well, Um, the interesting thing was, I saw him in Canada about seven years ago, and it was

[00:48:11] Tony: substantially the same show as it was then, this time. The only difference was the Get

[00:48:16] Tony: back. Uh, portion where

[00:48:18] Tony: he plays, um, along with John Lennon

[00:48:22] Tony: from the Get Back Disney, um, channel videos that Peter

[00:48:26] Tony: Jackson put together. So they sing, John Lennon’s on the rooftop of, Um, the studio and, and Paul’s singing along with him. So it was a

[00:48:36] Tony: really That was a really good touch. But otherwise the show was fairly similar. So he’s,

[00:48:40] Tony: uh, he’s been doing the same stuff for a long time now. I said to Jenny, it must be like doing

[00:48:45] Tony: a gym, three hour gym

[00:48:46] Tony: workout where you just go, you know, you do your 10 reps, do your 10 reps, do your 10

[00:48:50] Tony: reps, and then get off and go home.

[00:48:52] Tony: It’s, you know, a similar sort of thing, but it was good fun.

[00:48:55] Tony: I enjoyed it. um, great show.

[00:48:58] Tony: Uh, otherwise, um, [00:49:00] been watching some slow racehorses run. We had three racing on Saturday and they all did

[00:49:04] Tony: poorly.

[00:49:05] Cameron: no.

[00:49:05] Tony: And they’re all, all going for a spell. However,

[00:49:08] Tony: I was redeemed just before we came on air. Cause I had a um, a horse called I Never Dreamed, which won by five lengths at Swan Hill this morning. And it’s only race one at Swan Hill on a Tuesday, but gee, it was Good to see a horse win. So that was great.

[00:49:24] Cameron: Good to see anything win at this

[00:49:26] Tony: Yeah, exactly.

[00:49:28] Cameron: Stocks or horses.

[00:49:29] Tony: Yeah. and uh, as I said before. I’m reading a book called, um, Gambler, Secrets from a Life of Risk, a Life at Risk, sorry,

[00:49:37] Tony: by Billy Walters, um, which I, you know, I like those kinds of books and, uh,

[00:49:44] Tony: being a being a bit of a gambler at heart, I suppose.

[00:49:47] Tony: Uh, it’s a great story.

[00:49:48] Tony: I mean, you know, the guy pioneered sports betting in the U. S., um, but just that point of crossover where he was talking about his risk management

[00:49:56] Tony: strategies and

[00:49:57] Tony: how he never puts more than 5

[00:49:59] Tony: percent of his. [00:50:00] He’s a bankroll on a bet, which just sounded

[00:50:03] Tony: like people constructing a portfolio of 20

[00:50:05] Tony: stocks, which is 5

[00:50:06] Tony: percent per stock.

[00:50:09] Tony: So that

[00:50:09] Tony: was interesting. Um, yeah, interesting story. I don’t

[00:50:12] Tony: know if people are interested, but he was, um,

[00:50:14] Tony: sent to jail a couple of times. Um,

[00:50:16] Tony: Possibly wrongly, he claims, um, and was involved with Phil Mickelson, who was a noted

[00:50:24] Tony: addictive gambler, betting tens of

[00:50:26] Tony: hundreds of millions of dollars over his career, um, and it.

[00:50:31] Tony: was alleged

[00:50:32] Tony: that, uh, Billy Walters had passed

[00:50:34] Tony: on insider information about shares that Phil Mickelson then bought, and, uh, So Billy Walters went to jail and is bitter that Phil Mickelson didn’t stand up for him in court and

[00:50:47] Tony: tell the true story or back up his story anyway.

[00:50:49] Tony: So

[00:50:50] Cameron: Shares. I thought he was a sports gambler.

[00:50:53] Tony: Yes, he was, but, he became very rich And then just sort of invested in all sorts of different things. Golf courses at some stage, um, did a lot of [00:51:00] charity work, uh, was one of the sort of non

[00:51:03] Tony: casino owning big wheel, big wheels in Las Vegas there for a while. Probably still

[00:51:08] Tony: is. Yeah.

[00:51:10] Cameron: Hmm. Interesting. You say invented sports betting. By

[00:51:15] Tony: he didn’t invent

[00:51:16] Cameron: sort of online thing.

[00:51:18] Tony: He pioneered it. No, he, um, so

[00:51:21] Tony: back in when I,

[00:51:22] Tony: guess he started a long time ago, the, the casinos

[00:51:26] Tony: in Vegas were the only places legally

[00:51:27] Tony: able to

[00:51:28] Tony: take a bet on sports and it wasn’t their main game,

[00:51:32] Tony: uh, because they were more interested in the better

[00:51:35] Tony: margins on the craps tables and the roulette tables and things.

[00:51:39] Tony: So they used to have the sports bet section in a dingy bar at the back of the casino or in the basement or something. And, uh, yeah, he,

[00:51:48] Tony: he, he. He’s had a lot of

[00:51:52] Tony: acquaintances in his life. He was a,

[00:51:54] Tony: um, a kid who,

[00:51:56] Tony: uh, uh, started off just gambling from a [00:52:00] very young age as a,

[00:52:00] Tony: pool hustler and card player, all that kind of stuff from, I think, Kentucky from memory, and, um, then became like Very entrepreneurial and very

[00:52:11] Tony: action oriented.

[00:52:12] Tony: He became one of the biggest car dealers in the area because he was that good at sales. He would, you know, he said he walked in to buy his

[00:52:18] Tony: first car and the dealers were all sitting around reading the paper. Um, and they only worked when someone

[00:52:24] Tony: walked onto the yard and came and talked to them. So, um, he said, I can do a better job

[00:52:29] Tony: than that. When he had downtime he was going through the phone

[00:52:32] Tony: book, he was ringing people on the same street as the, last sale he’d made to say, hey, have you seen the car I sold your neighbor? I can do a deal for you. Just never

[00:52:41] Tony: stopped and eventually, you know, came

[00:52:43] Tony: to dominate the car sales in whatever town he was in in Kentucky

[00:52:47] Tony: and then went from there.

[00:52:48] Tony: But all the time was, he would often go out all

[00:52:50] Tony: night and play high stakes poker and, um, would bet on anything. Pitching

[00:52:55] Tony: pennies, all sorts of different things. Um, and, uh, [00:53:00] and, and

[00:53:00] Tony: at the racetrack, uh, and yeah, I had

[00:53:03] Tony: this kind of almost like a ADHD personality that just

[00:53:08] Tony: kept wanting to take action all the time.

[00:53:10] Tony: Um, almost like had these ups and downs,

[00:53:13] Tony: um, was. bankrupted a couple of times, had a couple of marriages,

[00:53:17] Tony: uh, and then met up with a guy

[00:53:19] Tony: who was a computer geek who had one of the first algorithms on how to

[00:53:24] Tony: bet on NFL football and college football, which is big in the U. S., and had a, had, he was actually,

[00:53:30] Tony: I think working on, um, like a, uh, uh, a nuclear reactor

[00:53:37] Tony: somewhere for one of the manufacturers of nuclear reactors. and he was doing, you know, math into radium decay and things like, that. And, uh, and then thought I can use this kind

[00:53:47] Tony: of, uh, modeling in some other ways. And he started to try and gather all the

[00:53:53] Tony: data they could on, on, um, Football teams, and he built a model for that and he put together a couple of

[00:53:59] Tony: people [00:54:00] called the Computer Gang, and uh, this guy Billy Walters, um, said, hey, uh, you know, That’s a great idea, I can get us out of action, and started to set up this whole, um, pyramid of, of, uh, People with pages running betts

[00:54:14] Tony: across, uh, different bookmakers in,

[00:54:17] Tony: in, uh, Vegas

[00:54:18] Tony: to put all these different, uh, um, betts on the

[00:54:21] Tony: college football and NFL that this computer guy had worked out. and then they fell out. He, he was raided by the FBI, they thought he was money laundering.

[00:54:30] Tony: He,

[00:54:31] Tony: uh, he, I think he beat one rep for that, but then got put in jail another time for

[00:54:35] Tony: it. And, uh, eventually broke up with The computer

[00:54:39] Tony: gang, but then did his own sort of similar thing where. He used to do things like um, back before the internet, went to the head of the Teamsters

[00:54:47] Tony: at, um, at the Las Vegas

[00:54:49] Tony: airport and said, I’m going to do a deal with you, I want every time a plane

[00:54:53] Tony: lands, if there’s any newspapers

[00:54:55] Tony: left in the plane, bring them to me, and he, he Pay them for a [00:55:00] service because he had teams of people reading the sports pages, picking up

[00:55:04] Tony: information

[00:55:05] Tony: about the local football team that just wasn’t widely known out of the circulation area for the

[00:55:10] Tony: local paper and was putting all this into a computer program and coming up with the spread that he wanted to bet.

[00:55:16] Tony: And then, um, so

[00:55:17] Tony: the bookies wouldn’t know it was him. He’d have hundreds of people with pages,

[00:55:21] Tony: putting the bets on for him in tiny amounts. It was, yeah,

[00:55:24] Tony: quite the empire he built.

[00:55:27] Cameron: I can see Leonardo DiCaprio in that role, directed by Scorsese, after Flower of the Killer Moon, or Killer of the Flower Moon, or

[00:55:36] Tony: it does really feel that

[00:55:37] Cameron: whatever it is.

[00:55:38] Tony: Yeah,

[00:55:41] Cameron: good stuff, sounds like a good read.

[00:55:42] Tony: Mmm.

[00:55:45] Cameron: Well, I’m gonna plug a couple of things, Public Image Limited’s new album, if you’re into a little bit of angry post punk, uh, John Lydon, Johnny Rotten, their first album in many, many years, came out this weekend.

[00:55:58] Cameron: It’s pretty good [00:56:00] stuff. I mean, I’m a, I just, I’m a big fan of Johnny Rotten. I love his, always loved his snarly delivery. Just something about the tonality of his voice that I like. I like public, the whole Public Image Limited. I’ve been a big fan of their stuff and his sort of the, I don’t know, droney music with his angry whiny voice over the top of it just works for me.

[00:56:24] Cameron: So yeah, I give that

[00:56:24] Cameron: a plug. It’s pretty good. Um, we’ve been watching an interesting TV show called Alphonse, don’t know if I’ve talked about that before, Yeah. I think I talked about that when Alex was on last week, Jean Dujardin, the

[00:56:38] Tony: yes you do.

[00:56:39] Cameron: we talked about OSS

[00:56:41] Cameron: 117, so this is his new TV show, um, French TV show, basically the setup is, he’s a bit of a, bit of a loser, middle aged guy.

[00:56:55] Cameron: Married to, in an abusive marriage. Uh, his wife doesn’t [00:57:00] really love him. She just beats up on him psychologically all the time. Uh, and then his, he loses his job down on his luck

[00:57:11] Cameron: and his father, who he hasn’t spoken to, he’s estranged from his father, has a heart attack, he goes to the hospital. Long story short, finds out that his father’s actually a gigolo.

[00:57:22] Cameron: He’s like.

[00:57:23] Tony: Ha ha ha

[00:57:23] Cameron: 70s, early 80s, he’s been a gigolo for decades.

[00:57:28] Cameron: And he can’t do it anymore because he had a heart attack and he’s in a wheelchair. So his son, who needs money, and his father tells him he’s making like 20 euro, 20, 000 euro a month from this. His son picks up his clients and he’s training his son on how to be a gigolo.

[00:57:44] Cameron: But all of his clients are women in their… 70s, rich women in their 70s, um, with all sorts of different crazy fantasies, and now his son is learning the roles of being a gigolo to rich French women, rich Parisian women. It’s, [00:58:00] it’s the sort of thing you’d only get out of France, and uh, it’s fun, it’s just fun to see Jean Dujardin not playing the smooth OSS 117 role for a change, and this one he’s sort of a bit of a, bit of a, Doofus, uh, you know, says the wrong thing, does the wrong thing, and his father’s having to coach him into being smooth and charming, so it’s kind of fun.

[00:58:25] Cameron: And then I’ve been reading Robert Sapolsky’s new book. You know Robert Sapolsky? Ever come across him?

[00:58:31] Tony: I have not.

[00:58:33] Cameron: Written quite a few books, um, Professor of Biology, Neurology, Neurosurgery at Stanford University. He’s done a lot of work with great apes and things over the decades. He’s got a new book called Determined, where he’s… Yet again, another person ripping off my work. Uh, he’s making the case, the scientific case for how free will, free will doesn’t [00:59:00] exist, can’t possibly exist, has never existed.

[00:59:03] Cameron: And if you think you have free will, you’re kidding yourself. And. Why it’s important for happiness and also for the justice system, uh, and society in general that we get over this illusion, this myth that people are responsible for their actions and we accept, as he says, what you’re doing is you’re looking at the last three minutes of the tape.

[00:59:27] Cameron: Oh, well, he pulled the trigger. So therefore he’s responsible and you’re ignoring the 45 years of things that led to the three minutes where he pulled the trigger. All of the, you know, from gestation, the genetics, the conditioning, um, all of those things.

[00:59:46] Tony: That’s not a free will argument. That’s a social justice argument.

[00:59:50] Cameron: Well, it comes back to free will at the end of the day. The way that we treat people in the justice system is different already today. I mean, if, if [01:00:00] we determined that somebody was not in control of their actions at the time because they were on medication or they were having a psychiatric episode or something like that, they get treated differently.

[01:00:14] Cameron: They get… put through the justice system differently than if we decide that, no, they were in full control of their impulses at the time, it was premeditated, etc, etc. Whereas he and I make the argument that no one’s ever in control of anything that they do, and it’s, we shouldn’t be thinking about it as punishment, we should be thinking about it as, well, trying to, A, rehabilitate them if possible, B, try and understand what went wrong in their brain.

[01:00:45] Cameron: To see if we can fix it, but also so we can prevent it from happening to other people. And then, then going and shooting up 80 people in a shopping mall or whatever it is. You know, we, we still are stuck in this [01:01:00] middle ages, uh, you know, he says at one point, something like, well, you know, we have, we have made some progress when a hurricane happens.

[01:01:08] Cameron: Now we don’t blame the. Old lady living in a ramshackle house with no teeth and say that she cast a spell and brought it upon us. But we’re not far removed from that, really. We still have this other woo woo mythology that says people are in control through magic, the magic of free will. Um, anyway, it’s just good to see, you know, I wrote my book on it 2011, so it’s, it’s good to see increasingly physicists and scientists and neurosurgeons and people like that writing books that People actually read and take seriously, as opposed to my book, um, pushing the same argument.

[01:01:53] Cameron: Seems to be a bit of a trend at the moment for, um, scientists, credible scientists, [01:02:00] um, getting on board the no free will. It’s just been me and Sam Harris for the last 10 years, so it’s good to see other people getting on board. Anyway, so

[01:02:07] Tony: There has, there has been other scientists, I’ve heard of other people, I’ve heard the research of scientists, like, uh, the person who, uh, did the exercise where they measured the impulse in the foot and the impulse in the brain, uh, during a braking incident in a car. And the foot moves before the brain moves.

[01:02:25] Tony: So it’s a reflex rather than being a, oh, I thought I saw the kid run out in the road and I told my foot to, to stop. No, the foot stopped. It’s before. Before you, um, determined to do it.

[01:02:36] Cameron: yeah, you’re talking about Libet. Libet did some work on that, you know, in the, I think the 80s, 70s, 80s, and, you know, that’s had a certain amount of influence. Yeah, but it’s increasingly people coming at it from a hard science perspective, like I do, which is to say everything’s governed by atoms. It’s all physics and chemistry, and there’s no, there’s no wiggle room in [01:03:00]physics and chemistry to say that Something could have happened differently if, but then else.

[01:03:05] Cameron: No, the, the physics and the chemistry of the brain at that particular point in time were the only way that they could be based on their antecedents. And that action was the result of the chemistry of the brain at the time. There’s no, there’s no wiggle room in it. It’s just, it’s got to take a hard scientific view.

[01:03:25] Cameron: And you know,

[01:03:26] Tony: all the way down, so you never had an element of control over any of it.

[01:03:30] Cameron: yeah, that’s right. All the way back. Your upbringing, all the things that have happened to you, your genetics, your epigenetics, you know, that’s, we’re learning more and more about epigenetics, um, these days,

[01:03:44] Tony: Well, for me, the, I mean, we used to talk about this many years ago when you were writing your book, and it took me a while to cotton on to your concept, but, um, And you convinced me, but the, the light bulb moment for me was Einstein. I mean, if you think about space time relativity, all of space and [01:04:00] time exists at the same time in the same point and have always done that and will always do that.

[01:04:05] Tony: It’s already written out there on a map. Um, as soon as you realize that and accept that, how do you change it?

[01:04:13] Cameron: yeah.

[01:04:14] Tony: Byrne, as David Byrne says, everything that happened, happened today. Yeah.

[01:04:19] Cameron: Yeah. And for people who don’t understand what you just said, I, I’m glad that. You, you articulated it so well, you know, the prevailing cosmological theory in science is what’s called the block universe. It’s, and it plays out of, falls out of Einstein’s special theory of relativity. That is that, you know, we, we talk about space time since Einstein, we, we, we talk about space and time as being the one thing.

[01:04:45] Cameron: We have three dimensions of space, one dimension of time, and they are. The fabric of the universe, the fabric of the cosmos, as Brian Greene refers to it. So the block theory of the universe is, you can think of the universe as like a, uh, Brian [01:05:00] Greene uses the analogy of a loaf of bread. It’s like a loaf of bread, three dimensions, height, width, depth, and the time is the direction that we’re traveling through it.

[01:05:12] Cameron: Stephen Wolfram talks about similar things in his new book on computational theory, but Just as you said, just as like Melbourne and Sydney coexist. Melbourne doesn’t suddenly exist when you fly from Sydney to Melbourne, it co exists. You know, New York and Melbourne co exist, the Earth and Mars and the Earth and, you know, distant planets all co exist at the, you know, at the same time.

[01:05:38] Cameron: They co exist, and if space and time are the same thing, and all points in space co exist, therefore all points in time must co exist. And if, like Einstein famously wrote to the widow of a colleague of his, Something to the effect of… As hard as it is to accept, um, everything that [01:06:00]has ever happened, all points of, all points in the past and the future are happening right now, basically.

[01:06:06] Cameron: Everything that’s ever going to happen is already happening in space and time. We’re just catching up to it, and the way that Wolfram explains that in his new book is the, you know, where… The, the algorithm is playing out and we’re sort of part of the algorithm paying out, but how the algorithm is going to play out has already been determined by where the algorithm is at, you know.

[01:06:28] Cameron: So when you fully accept that, I think that’s the hard point I’ve found with people over 30 years, is people will say, well, I can’t argue with that from a scientific basis, however,

[01:06:38] Tony: Yeah. Or they say, Oh, so I can go and kill you now and get away with it. It’s like, no,

[01:06:46] Cameron: or

[01:06:46] Tony: were always going to kill me and you didn’t get away with it. We already know that.

[01:06:51] Cameron: Or they will say, well, that means, you know, I can’t learn or I can’t develop. No, you will still learn [01:07:00] things. You’ve learned things up until this point and there was no free will. just the way brains work, right? It’s the chemistry of brains. We learn and yeah. Your actions are going to be what your actions are going to be.

[01:07:12] Cameron: Anyway, so they have been reading that and listening to some podcasts that he’s been on and he’s good. I like Sapolsky. He does, he takes no prisoners. I was listening to an interview, a psychologist interviewing him on a podcast this morning, and he was trying to find some wiggle room and Sapolsky just kept shutting him down.

[01:07:28] Cameron: No, well, you can say that you can believe that if you like, but it’s just not true.

[01:07:35] Tony: is almost, I know there’s a religious element to it, but it is almost like religion, isn’t it? The idea of free will. It’s like, I can’t prove it. Now I think about it. I’ve got no argument for it. However, I believe it.

[01:07:47] Cameron: I choose to believe it anyway. And it’s a similar thing too in that, you know, if you go back 100 years ago, um, people, general consensus was that if you didn’t [01:08:00] believe in God, you would, there’d be no meaning to life, you wouldn’t be able to function, or you know, there would be no rules, there’d be no guidelines.

[01:08:09] Cameron: If you took that away, there would be nothing, you know, no Morals, no ethics. And of course, as the world has increasingly become filled with atheists, we realized, well, that’s not true. It’s the same with free will. I found over the last 30 years talking to people about it, they seem to think that if they stop believing in free will, their life’s going to collapse.

[01:08:29] Cameron: There’ll be no meaning. They’ll be depressed. They’ll feel like they won’t be able to change anything. And that’s simply not true. It’s just, you know, you just accept, okay, well, everything that happens is determined by physics. So

[01:08:43] Tony: The physics was there while you were believing in free will. The physics is going to be there after you stop believing in free will. The physics doesn’t change.

[01:08:52] Cameron: physics, science doesn’t care is what I

[01:08:54] Tony: Yeah, exactly.

[01:08:56] Cameron: Yeah, but also, like, for me anyway, it didn’t make my [01:09:00] life worse when I stopped believing in free will, it made my life better, because as I was explaining, the things that fuck most people up, psychologically and emotionally, fear, regret, guilt. Anxiety, anger are all predicated on the idea that either you or someone else has free will. It’s very hard to stay angry at someone when you accept that they don’t have any control over their actions. They did what they had to do based on the way their brain was at that particular moment. It’s very hard to feel guilt.

[01:09:32] Cameron: If you go, well, I did what I had to do based on the way my brain was at that particular point in time, it couldn’t have been any other way. It’s also very difficult, you know, like you just said about if, you know, the time has already happened. The future’s already happened to worry about it. You go, well, it’s going to happen how it’s going to happen.

[01:09:49] Cameron: And I’m going to do what I’m going to do. So why worry about it? Just get on with it and see what happens. You

[01:09:57] Tony: Yeah, live in the moment.

[01:09:58] Cameron: by moment, day by day. [01:10:00] It’s actually, it’s liberating. It’s freeing, but most people think it’s terrifying because they haven’t thought about it very deeply. Well, speaking of terrifying, that’s the end of the show back to the markets.

[01:10:12] Cameron: Tony, happy share market to you, Tony.

[01:10:15] Tony: Happy ASX cam.



QAV 721 – Dr No

In 721 we discuss the pain of FND, why Aussie investors keep investing in unprofitable companies, and TK does a Pulled Pork on SRV.

In the club edition only: the myth of the ‘new normal’, why LIC AFIC is selling below its NTA, how Aussie investors can benefit from the AI boom, what we should do about copper prices being up, how to interpret the number of buys going down, how often is TK is making purchases based on factors outside the numbers, and how to interpret the resignation of the PRN CFO.

QAV 720 – Boom!

The Budget cometh, Lessons in Kindness from Buffett, and a Deep Dive into Boom Logistics.

Also in the Club edition: Reflections on Jim Simons and Quant Investing, Navigating Market Fluctuations: FND and FPR Updates, Exploring VYS’s Surge, Elon Musk’s Suggestion to Warren Buffett, Marcus has a question about applying quality score to existing holdings, Jim asks about Life 360, Stock Doctor Data Integrity Issues, Nick asks about Josephine rules, Trent asks about AGL and LNG


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