QAV 714 — Tessellating Nonagons

QAV 714

[00:00:00] Cameron: Yeah, Wel­come to QAV Tony, episode 7 14 . The 2nd of April, 2024. Daniel Kah­ne­man passed

[00:00:22] Cameron: away. Tony.

[00:00:24] Tony: Yeah, I read that. Sad loss.

[00:00:27] Tony: I read about it over east­er, lots of trib­utes to him pour­ing in,

[00:00:30] Tony: and obvi­ous­ly, you know, we’re big fans of Think­ing Fast and Slow, the book they

[00:00:34] Tony: wrote, and what’s it called? The Undo­ing Project, I think it’s called? The Michael Lewis Project? biog­ra­phy of them. It’s good.

[00:00:41] Cameron: I nev­er read that. I actu­al­ly only heard about that when I read sort of his

[00:00:45] Cameron: obits and thought, Oh yeah, I should read that.

[00:00:47] Tony: Yeah, it’s a great book.

[00:00:48] Cameron: sounds good.

[00:00:49] Tony: Yeah.

[00:00:50] Cameron: So, um, for peo­ple who don’t know of Daniel Kah­ne­man and haven’t read Think­ing Fast and Slow, even though we kind of bang on about it all the time, uh, how would you

[00:01:00] Cameron: like sum­ma­rize

[00:01:02] Cameron: his

[00:01:02] Tony: is he received the Nobel Prize for eco­nom­ics,

[00:01:05] Tony: even though I think he’s real­ly a psy­chol­o­gist, but there’s no prize for psy­chol­o­gy. So he’s one of the pio­neers of behav­ioral eco­nom­ics.

[00:01:13] Tony: And when we talk about things like anchor­ing, um, uh, with

[00:01:18] Tony: prospect the­o­ry, we’re talk­ing about, you know, work pio­neered by Kah­ne­man and his pal Tver­sky.

[00:01:25] Tony: And, uh, yeah, so a lot of the con­cepts that they’ve come up with are very much embed­ded in the sci­ence of invest­ing, I guess. They kind of, um, you know, point out all the fal­li­bil­i­ty of the human mind. And then we, um, we kind of invent sys­tems to try and pro­tect our­selves from that when we invest, like hav­ing a check­list and a frame­work to

[00:01:46] Cameron: mm, mm, and also were some of the peo­ple to point out that, um, this idea of sort of, um,

[00:01:58] Cameron: ratio­nal behav­ior in eco­nom­ic mar­kets isn’t real­ly legit. You can’t take that seri­ous­ly because peo­ple act

[00:02:08] Cameron: irra­tional­ly.

[00:02:09] Tony: Cor­rect. Yeah, even peo­ple who are aware of the foibles of the human mind, so who’ve read the book, still act irra­tional­ly. And go off and buy Bit­coin or, you know, what­ev­er else they do.

[00:02:23] Cameron: And, and the thing that I took away, like I read Think­ing Fast is Slow many years ago for the first time. I’ve read it twice, I think over the years, but the thing I remem­ber tak­ing away from it the most the first time was that

[00:02:37] Cameron: our brains have been engi­neered by evo­lu­tion to think. Irra­tional­ly, uh, or to, to, to make snap judg­ments.

[00:02:47] Cameron: Let’s say that, like, it’s not a, it’s not a fail­ure. It’s a design. It’s a, it’s a design fea­ture

[00:02:52] Tony: Cor­rect.

[00:02:54] Cameron: that, that would have saved human lives for most of human his­to­ry. I think the exam­ple I always use with peo­ple is, you know, you’ve got, so he talks about sys­tem A and sys­tem B or sys­tem one and sys­tem two, sys­tem one or sys­tem A is, is the part of your brain that makes, Quick, fast deci­sions based on gut feel­ing, instinct,

[00:03:16] Tony: Mm hmm.

[00:03:16] Cameron: um, sys­tem, sys­tem two is the slow­er part of the brain where you care­ful­ly think through the log­ic and the rea­son and the facts and you make a slow, hard cal­cu­la­tion before you act.

[00:03:30] Cameron: And he, one of the exam­ples I think he used in the book is, You’re, you’re a prim­i­tive per­son in, in the bronze Age. You’re walk­ing through a, a jun­gle, got a spear in your hand. You hear some­thing that sounds like a twig snap behind you. Sys­tem two think­ing. If you rely on that, you’ll stop and won’t move.

[00:03:49] Cameron: And spend five min­utes think­ing through all the pos­si­ble things that could have made the sound of a twig snap before you act. Sys­tem one will get you to just swing around and jab with your spear just in case it hap­pens to be a tiger. That’s about to jump on you now. 99. 9 per­cent of the time, it’s prob­a­bly not going to be a tiger, you know, that 0.

[00:04:10] Cameron: 1 per­cent of the time when it is a tiger, the pay­off is there. Also, Sys­tem 1 think­ing requires less calo­ries, humans had calo­rie restrict­ed diets, so it actu­al­ly burns less calo­ries to make snap judg­ments rather than to sit and think. It’s hard, it’s exhaust­ing,

[00:04:29] Cameron: as any­one who does it all day, every day knows, to think hard and deep about things.

[00:04:34] Cameron: So. We’ve been, our brains have been engi­neered delib­er­ate­ly through evo­lu­tion­ary process­es

[00:04:40] Cameron: over a mil­lion years to make snap deci­sions, snap judg­ments. But of course in the mod­ern world, you

[00:04:49] Cameron: know, that often goes, uh, goes awry when peo­ple go, well, you know, uh,

[00:04:55] Cameron: COVID vac­cines are because Bill Gates wants to put chips in your

[00:04:58] Cameron: brain so he can track you And peo­ple go, yeah, that sounds rea­son­able, sure, that’ll do, I’ll just go with that. That sounds fun.

[00:05:05] Tony: Yeah, I mean, there’s been a long his­to­ry of peo­ple exploit­ing sys­tem A and sys­tem B think­ing for nefar­i­ous rea­sons and all these kinds of behav­ioral tics that we have. But you make a good point. I mean, the oth­er, the oth­er big thing about, um, that, that Kah­ne­man came up with is it’s, it’s peo­ple are more averse to suf­fer­ing a loss than they are elat­ed by a win.

[00:05:25] Tony: And again, that makes evo­lu­tion­ary sense, right? If you’ve got a 50 50 choice to make, um, and you’re not risk averse. If you don’t care, then half the pop­u­la­tion is going to die going down the wrong road. You know, they’re tak­ing unnec­es­sary risks. So, you know, we’ve evolved to be very risk averse. Um, and that plays out in the share mar­ket.

[00:05:46] Tony: You, you suf­fer a loss, you’re more like­ly to walk away from the share mar­ket than to to real­ize that the, some­thing, some­thing, um, you know, it’s the regres­sion to the mean will hap­pen and you’re more like­ly to regain your, uh, your loss­es if you stay in the mar­ket.

[00:06:01] Cameron: Yeah. Yeah. He said that 98 per­cent of our think­ing is done by fast think­ing

[00:06:07] Tony: Mm hmm.

[00:06:08] Cameron: and about 2 per­cent is slow, delib­er­ate think­ing. And, um, you know, it’s, it’s hard to fight that.

[00:06:15] Cameron: Now, very hard to fight it. Our brains are designed to push us in one way, which is why I’m grate­ful. I was, I was going to say Daniel Kah­ne­man was a genius up there with the cal­iber of a Tony Kynas­ton.

[00:06:28] Cameron: Like he

[00:06:29] Tony: Oh!

[00:06:31] Cameron: Stop it.

[00:06:31] Tony: That’s a damn­ing hymn with faint

[00:06:33] Tony: prose, that’s for sure.

[00:06:34] Cameron: The thing about, I say this all the time, but one of the things that I’m grate­ful for QAV for

[00:06:40] Cameron: as a sys­tem is it enables me to avoid all of the down­falls of fast think­ing. It

[00:06:47] Tony: Mm.

[00:06:49] Cameron: pro­vides guide rails, guardrails, uh, for

[00:06:53] Cameron: deci­sion mak­ing when it comes to invest­ing in

[00:06:55] Tony: Yeah, you think about the frame­work first and then all you, all you focus on is imple­ment­ing

[00:06:59] Tony: the frame­work, not think­ing of, you can think about it, but you don’t think about it on the fly, you, you regres­sion test and you.

[00:07:05] Tony: Test going for­ward on paper and then you imple­ment a change.

[00:07:08] Cameron: And it, it pre­vents you act­ing on gut feel­ing or instinct or fear or

[00:07:15] Tony: Mm hmm. Yeah,

[00:07:17] Cameron: All of the things that our brains have been designed to act on, which aren’t real­ly good moti­va­tions when it comes to long term suc­cess in any­thing

[00:07:29] Cameron: prob­a­bly, but in par­tic­u­lar invest­ing.

[00:07:31] Tony: mar­ket is a harsh tester of those things. Like it’s always going to throw you tests and curve­balls, you know, like I’ve just suf­fered a loss, what should I do? If you haven’t got the answer before the loss occurs, it’s going to be real­ly hard to work it out before the mar­ket opens and decide what to do.

[00:07:47] Tony: You’ve got to have the frame­work and the plan already in place. And all you’re doing is using your 98 per­cent of your brain to imple­ment it. with­out

[00:07:55] Cameron: Yeah.

[00:07:56] Tony: A bit like play­ing golf, right? You don’t, if you’re out in the course and you’re hav­ing a bad day, it’s pret­ty hard to think about your swing and re engi­neer it and get it right and then go back to sys­tem A think­ing for the rest of the round.

[00:08:07] Tony: You’ve got to go to the range, get a les­son, have some­one have a look at what you’re doing, think about it, grind it out, and then go to the golf course and turn your sys­tem B brain off and just play. Use mus­cle mem­o­ry to play golf. It’s the same sort of

[00:08:19] Cameron: Yeah. Yeah. Well, speak­ing of greed, fear and greed, Bit­coin, Tony, um, it’s, uh, gone through anoth­er big price surge, but there was a great arti­cle in Wired

[00:08:33] Cameron: Mag­a­zine that, uh,

[00:08:35] Cameron: Steve San­ti­no sent me. Actu­al­ly, we talked about it on futur­is­tic yes­ter­day. Uh, the title to this arti­cle is What’s Behind the Bit­coin Price?

[00:08:45] Cameron: Surge Vibes

[00:08:47] Cameron: Most­ly

[00:08:49] Tony: It’s the vibe.

[00:08:50] Cameron: It’s the vibe.

[00:08:51] Tony: old Den­nis Denudo.

[00:08:53] Cameron: yeah, that’s what, that’s what Steve was, uh, ref­er­enc­ing to. Well, it’s the vibe of it, Mabo, you know, the vibe. This arti­cle says, um, The price of Bit­coin has climbed to a new all time high, but assign­ing the cryp­tocur­ren­cy a val­ue is any­thing but triv­ial. How many times have we said on this show, tell me how to deter­mine the intrin­sic val­ue of a sin­gle Bit­coin, then we can talk about it as an invest­ment asset.

[00:09:25] Cameron: Until you can do that, we can’t have a con­ver­sa­tion. And that’s what this arti­cle basi­cal­ly says, and it’s also just talk­ing about the boom and bust cycle of cryp­to, and what’s dri­ving it, um, some of the the­o­ry behind it, but that’s it. Also, I like this, the clos­est thing Bit­coin has to fun­da­men­tals, char­ac­ter­is­tics that can be used to reach a sol­id val­u­a­tion, is the cost of pro­duc­ing new coins, says Dal Bian­co.

[00:09:55] Cameron: In the same way the price of gold is linked, to a degree, to the cost of claw­ing ore from the ground, the price of Bit­coin should at least loose­ly mir­ror the hard­ware and ener­gy costs asso­ci­at­ed with min­ing new Bit­coin. Yet, the design of the sys­tem means Bit­coin resists this method for val­u­a­tion too. To ensure new sup­ply is released at a steady rate, pro­duc­ing Bit­coin becomes more com­pu­ta­tion­al­ly inten­sive and there­fore more expen­sive as the lev­el of com­pe­ti­tion among min­ers increas­es and vice ver­sa.

[00:10:24] Cameron: If the price of Bit­coin ris­es, more

[00:10:26] Cameron: min­ers are drawn to par­tic­i­pate, increas­ing the cost for all. There­fore, as Satoshi wrote in a 2010 arti­cle, 10 forum post, the price of Bit­coin dic­tates the cost of pro­duc­tion more than the oth­er

[00:10:38] Cameron: way around.

[00:10:40] Tony: It’s a good point, isn’t it? That to me was a very good insight. If Bit­coin was worth a dol­lar, no one’s going to spend any time min­ing it.

[00:10:47] Cameron: right,

[00:10:48] Tony: it’s worth 70, 000, you’re going to draw more

[00:10:50] Tony: peo­ple in to mine it. yeah,

[00:10:51] Cameron: yeah, and um, I like the, the, the end of this arti­cle says, um, the influ­ence of evan­ge­lism on the price of Bit­coin lim­its the oppor­tu­ni­ty for good faith Debate about the prospects of the Bit­coin sys­tem. Once you drink the Kool Aid, you have a pow­er­ful finan­cial incen­tive to preach to the world that Bit­coin is the most won­der­ful thing.

[00:11:12] Cameron: If there was a Nobel Prize in mar­ket­ing, it should be giv­en to Satoshi Nakamo­to. Bit­coin’s biggest boost­ers embrace that dynam­ic as well. Bit­coin price appre­ci­a­tion is

[00:11:21] Cameron: an adver­tise­ment. Investors buy in on the

[00:11:24] Cameron: prospect of rich­es and then fall down the rab­bit hole them­selves cre­at­ing a new gen­er­a­tion of believ­ers to spread the Bit­coin.

[00:11:32] Cameron: Coin Gospel. It does often strike

[00:11:35] Cameron: me as a reli­gion, very

[00:11:38] Tony: very cultish. Absolute­ly. Absolute­ly. Yeah,

[00:11:42] Cameron: try and talk to some­body like, like Torsten, um, our

[00:11:45] Cameron: film pro­duc­er friend, um, about, okay, he’s a huge advo­cate. you go, okay,

[00:11:51] Cameron: Well, explain to me, How to cal­cu­late the val­ue. He’s like, oh, you don’t under­stand. You’re just an idiot if you’re not get­ting on board.

[00:11:57] Cameron: Look at it. It’s got to go to a mil­lion dol­lars. Yeah. Okay. But

[00:12:00] Cameron: let’s,

[00:12:01] Tony: 000. Is it? How do you val­ue it at 500, 000? Well, it keeps halv­ing every five years or what­ev­er it is, and yeah.

[00:12:09] Cameron: The oth­er point that this

[00:12:10] Cameron: arti­cle made was the fixed. So that’s one of the things I always come back to Bit­coin evan­ge­lists is there’s only a lim­it­ed sup­ply of these things ever going to be made. But one of these guys in the arti­cle says the fixed sup­ply of Bit­coin

[00:12:22] Cameron: was priced in long ago. If you know that, it should be priced in, so,

[00:12:28] Tony: Yeah,

[00:12:28] Cameron: and they’ve known that for years, well, for­ev­er real­ly, since it was

[00:12:32] Cameron: invent­ed, so, has­n’t that already been

[00:12:35] Cameron: priced in?

[00:12:37] Tony: I think the cur­rent run up, it has, you’re right, exact­ly, um, and there’s got to be some­one out there wait­ing to dump, the smart, the smart peo­ple in Bit­coin are wait­ing to dump, I think, but they’re still rub­bing their hands going, this is

[00:12:50] Tony: great, because all these ETFs have come into the mar­ket since Jan­u­ary, uh, and now we’re tak­ing mon­ey from Wall Streeters as well, and fund man­agers, and, you know, peo­ple who invest in funds because they don’t want to, they don’t know how to use a, Um, how to buy a token on an exchange, all that kind of stuff.

[00:13:07] Tony: So it’s, it’s a clas­sic pump and dump again.

[00:13:10] Cameron: yeah.

[00:13:11] Tony: It reminds me of sneak­ers or NFTs or, or wine or art or any­thing that has a lim­it­ed sup­ply, and then there’s a crowd of self appoint­ed peo­ple who val­ue things and say, which ones are worth more than the oth­ers. And then they just put that out in the mar­ket and the crowd just beats it up.

[00:13:31] Tony: It’s the same sort of thing. So Bit­coins are col­lectible in my, my point of view. And, but worse than that, I like, you know, Buf­fet­t’s take on it. It’s rat poi­son squared. It’s, it’s only real users to hide. What were cash trans­ac­tions from author­i­ties. And so it’s used a lot by nefar­i­ous peo­ple. They’re the ones who are also laugh­ing all the way to the bank.

[00:13:52] Tony: And that’s, that’s got to be a prob­lem, I think, for soci­ety.

[00:13:56] Cameron: You know who’s not laugh­ing all the way to the bank

[00:13:58] Cameron: is Sam Bankman Freed, who just got 25 years.

[00:14:01] Tony: And you see, the irony of that is that the, he, I’ve read the book. And so, you know, he bought all these par­tic­u­lar tokens in some, you know, coin, which have now shot up and they’ve cov­ered all the loss­es

[00:14:13] Tony: that hap­pened in his port­fo­lio. So all these investors are being made good

[00:14:18] Cameron: Yeah.

[00:14:19] Tony: It’s incred­i­ble.

[00:14:20] Cameron: Yeah, yeah, that’s what the,

[00:14:22] Cameron: uh, his defense attor­neys were try­ing

[00:14:24] Tony: Well, and he always argued that he said, I’ve always got, I’ve got this coin token mar­ket cor­nered, and that’s always going to bail me out. But it’s just the tim­ing, he was for you a sen­tence before it did.

[00:14:36] Cameron: mm,

[00:14:37] Tony: Hmm.

[00:14:37] Cameron: but there was,

[00:14:38] Cameron: also a lot of fraud

[00:14:39] Cameron: hap­pen­ing behind the scenes, right?

[00:14:41] Tony: Well, I guess that yes, he was

[00:14:44] Cameron: and spend­ing it on stuff. So the fact that he thought he could pay it back lat­er on is beside the point. You can’t steal some­thing even if you

[00:14:51] Cameron: think you’ll be able to pay it back.

[00:14:53] Tony: true. So again, Michael Lewis goes, goes into that side of things. And

[00:14:58] Tony: yes, they were tak­ing mon­ey from the fund and putting it into the,

[00:15:03] Tony: uh, you know, the bank or their invest­ment side of things.

[00:15:06] Tony: Their PE fund. And that was wrong. But in terms of enrich­ing them­selves, yeah, they bought, they went to the Bahamas or what­ev­er, and they bought this beach com­pound and they built offices and apart­ments for them to live in.

[00:15:21] Tony: Was­n’t that much fraud going on from my read­ing of it. Like you com­pare it to Sil­i­con Val­ley and, you know, Google build­ing a gold­en donut for its work­ers and all that kind of shit that goes on there. It was minus­cule in com­par­i­son. So yes, they broke the law. They took mon­ey from one fund and used in their own invest­ment fund.

[00:15:39] Tony: Um, argu­ment, Bankman Freed’s argu­ment was so he could make the mon­ey he’d lost in the orig­i­nal invest­ment fund and pay it back, which has now turned out to be true, but, um, he’s got 12 years for it. Very inter­est­ing. Oh, 25, is it? Okay. Very inter­est­ing case.

[00:15:58] Tony: Very inter­est­ing case.

[00:16:00] Cameron: Well, mov­ing right along, Tony, we haven’t done a Mor­gan House­hold for a while. I pulled out a Mor­gan House­hold because we have no ques­tions today and I was try­ing to fig­ure out how to stuff this

[00:16:09] Cameron: stock­ing full of gifts. Um, The two that I’m going to use today. One is the one we all know, Pare­to Prin­ci­ple.

[00:16:17] Cameron: The major­i­ty of out­comes are dri­ven by a minor­i­ty of events, but the inverse,

[00:16:23] Cameron: you know, you love Char­lie Munger, always,

[00:16:25] Cameron: invert, always always be invert­ing, as opposed to Alec Bald­win in Glenn Gary, Glenn

[00:16:31] Cameron: Ross, ABC always be clos­ing.

[00:16:36] Cameron: We’ll always be invert­ing. Stur­geon’s Law, 90 per­cent of every­thing is crap.

[00:16:41] Cameron: Which is

[00:16:41] Cameron: the

[00:16:42] Tony: Theodore Stur­geon, the sci fi writer.

[00:16:45] Cameron: Was it?

[00:16:45] Tony: Yeah. Yep. Ted Stur­geon. Yep.

[00:16:49] Cameron: 90% He was talk­ing

[00:16:50] Cameron: about sci fi, was­n’t he, at the time?

[00:16:52] Tony: A lot of sci fi writ­ers, writ­ers I used to read when I was a kid, they were great com­men­ta­tors on soci­ety. Okay, they dressed them up as, you know, inter­plan­e­tary trav­el­ers or what­ev­er, and founders of new colonies, but they were

[00:17:05] Tony: fan­tas­tic. Observers of our soci­ety. Yeah,

[00:17:11] Cameron: Law, or Stur­geon’s Rev­e­la­tion, is an adage stat­ing 90 per­cent of every­thing is crap. It was coined by Theodore Stur­geon, an Amer­i­can sci­ence fic­tion author and crit­ic, and was inspired by his obser­va­tion that while sci­ence fic­tion was often derid­ed for its low qual­i­ty by crit­ics, Most work in oth­er fields was low qual­i­ty too.

[00:17:29] Cameron: And so sci­ence fic­tion was thus no dif­fer­ent.

[00:17:36] Cameron: And,

[00:17:37] Cameron: you know, we, we say the same thing about

[00:17:39] Cameron: stocks right? 90 per­cent of the stocks out there as an invest­ment are crap. Like QAV is designed to weed out the crap. And then we just focus on what’s left.

[00:17:50] Cameron: Crap by our def­i­n­i­tion of what

[00:17:52] Tony: but no, but they are crap. I mean, some­thing like three quar­ters of the stocks on the stock mar­ket don’t make a

[00:17:56] Tony: prof­it, right? So if you’re buy­ing an ETF, I’m always sur­prised at how

[00:18:01] Tony: well index invest­ing is done, giv­en there’s so much crap out there you’re

[00:18:04] Tony: buy­ing when you buy a bas­ket of

[00:18:06] Tony: stocks. Luck­i­ly, they’re usu­al­ly mar­ket weight­ed, so you’re get­ting the ones that are mak­ing mon­ey and have large mar­ket caps, but you still pick up a lot of crap in there.

[00:18:16] Cameron: Daniel Den­nett, the philoso­pher who I want to punch in the face, what­ev­er I lis­tened to him talk about com­pat­i­bilist free will. But that’s anoth­er point. He once said 90 per­cent of every­thing is crap. That is true. Whether you’re talk­ing about physics, chem­istry, evo­lu­tion­ary psy­chol­o­gy, soci­ol­o­gy, med­i­cine, you name it, rock music, coun­try, West­ern, 90 per­cent of every­thing is crap.

[00:18:39] Cameron: Um, and I think about this in terms of AI too, like peo­ple are get­ting up in arms about the qual­i­ty of AI. Art or AI writ­ing or AI music, which is still very ear­ly days. And, but even as it gets bet­ter and bet­ter and peo­ple are using it as a tool,

[00:18:56] Cameron: I say, Yeah. 90 per­cent of it is going to be crap. 90 per­cent

[00:18:59] Cameron: of art music today that’s gen­er­at­ed is crap.

[00:19:03] Cameron: That’s just, I’d nev­er heard it. Well, I had, but I’d for­got­ten that it was actu­al­ly Stur­geon’s law, but yeah, that’s

[00:19:09] Cameron: true. 90 per­cent of every­thing is crap.

[00:19:11] Tony: Yeah. And Pare­to. Oh, the sto­ry about Pare­to, how he came up with Pare­to’s law. Um, and he, uh, from mem­o­ry, I could have this

[00:19:20] Tony: wrong, uh, he, he looked at the tax returns of,

[00:19:24] Tony: oh, what­ev­er coun­try he did it on, I think it was Ger­many or maybe Italy, and, and worked out that, you know, um, 80 per­cent or 90 per­cent was, of the tax income was being paid by 10 per­cent of the peo­ple.

[00:19:35] Tony: And then he Applied that to every­thing. He went and got the heights of peo­ple in the coun­try and the same thing hap­pened that, you know, that there’s a bell curve and it’s, it’s actu­al­ly the, um, Fravo’s law is the inverse of the bell curve, right? It’s telling you that most of the stuff is going to be in the mid­dle of the bell curve, most of the con­tri­bu­tions to any­thing, but the, the tails, the, par­tic­u­lar­ly the tail on the high end of the bell curve is going to pro­vide all the, all of the heavy lift­ing.

[00:20:02] Tony: If you, if you, if you lay out a bell curve in a dif­fer­ent way, then, um, you always get the Pare­to Prin­ci­ple hap­pen­ing. It’s, uh, it’s 80 20. 80 per­cent of the effort or 90 per­cent of the effort comes from 10 or 20 per­cent of the peo­ple. It’s heights, it’s tax pays, it’s all sorts of dif­fer­ent things.

[00:20:21] Cameron: Well, accord­ing to Wikipedia, in 1941, man­age­ment con­sul­tant Joseph Duran, the founder of Duran Duran, devel­oped the con­cept in the con­text of qual­i­ty con­trol and improve­ment after read­ing the works of Ital­ian soci­ol­o­gist and econ­o­mist Vil­fre­do Pare­to, who wrote in 1906 about the 80 20 con­nec­tion while teach­ing at the Uni­ver­si­ty of Lau­sanne.

[00:20:44] Cameron: In his first work, Que D’E­conomie Poli­tique, Pavar­i­to showed that approx­i­mate­ly 80 per­cent of the land in the King­dom of Italy was owned by 20 per­cent of the pop­u­la­tion. Math­e­mat­i­cal­ly, the 80 20 rule is rough­ly described by a pow­er law dis­tri­b­u­tion, also known as a Pare­to dis­tri­b­u­tion, for a par­tic­u­lar set of para­me­ters.

[00:21:05] Cameron: Joseph Duran, a Roman­ian born Amer­i­can engi­neer, Uh, applied the obser­va­tion that 80 per­cent of an issue is caused by 20 per­cent of the caus­es to qual­i­ty issues. Lat­er dur­ing his career, Duran pre­ferred to describe this as the vital few and the use­ful many. To high­light that the con­tri­bu­tion of the remain­ing 80 per­cent should not be dis­card­ed entire­ly.

[00:21:28] Cameron: And I think about it in terms of even, you know, QAV, uh, like the, the, uh, Things that we mea­sure in QAV you’ve iden­ti­fied as being prin­ci­ples or, or, or mea­sure­ments that can con­tribute to the, uh, long term suc­cess of a stock. But even with­in that, you know, we, we feel that there’s

[00:21:50] Cameron: prob­a­bly two or three things that car­ry most of the weight,

[00:21:54] Cameron: like Prop­Caf, right?

[00:21:55] Tony: Yeah, we think there is. Yeah,

[00:21:58] Tony: def­i­nite­ly.

[00:21:59] Cameron: the thing that we’re hop­ing to get out of the regres­sion test­ing that I’ve been work­ing with Matt Walk­er on is to

[00:22:05] Cameron: test a lot of those things.

[00:22:07] Tony: Well, to re weight the

[00:22:07] Tony: check­list, exact­ly. I mean, cur­rent­ly most things are a 1 or occa­sion­al­ly a 2 or a minus 1,

[00:22:12] Tony: but that does­n’t reflect the weight­ings of each

[00:22:14] Tony: thing and its con­tri­bu­tion to the check­list. There will be an 80 20 rule

[00:22:19] Tony: applic­a­ble to the check­list for sure.

[00:22:21] Cameron: mm

[00:22:22] Tony: The oth­er, I mean, I came across Pare­to, I mean, I came across Pare­to twice.

[00:22:26] Tony: First of all, in a book called, um, A His­to­ry of Risk Against the Gods. Where it kind of starts off with Pare­to. It’s an excel­lent book, but the sec­ond thing was, you know, I did a lot of work

[00:22:38] Tony: with cus­tomer data, set­ting up cus­tomer data­bas­es with both Shell and Coles Mey­er back in the day, back in the sort of 90s, and it was a One of the tenets of cus­tomer mar­ket­ing was if you don’t have a view of your cus­tomer, every trans­ac­tion is a sep­a­rate trans­ac­tion.

[00:22:56] Tony: You don’t know who your best cus­tomer is. So how do you know how to mar­ket your store, lay out the store to appeal to more good cus­tomers? Often­times the local store man­ag­er would know. Rough­ly who that was. But a lot of times it was just an absence of data. And so the first thing I do, once we col­lect­ed data and did our analy­sis and worked out who the best cus­tomers was, is I’d go into a pre­sen­ta­tion with the big wig and I’d say, you know, who do you think the best cus­tomer is for Shell, for exam­ple?

[00:23:25] Tony: Oh, well, it’s this and that. And invari­ably the CEO would think the best cus­tomer looked like them. You know, they dri­ve a big Euro­pean car and they live in the East­ern sub­urbs and they, you know, fill up because it’s got a big tank and blah, blah, blah. And I’m like, no. In Shel­l’s case, the best cus­tomer actu­al­ly was, um, was a, a truck­ing com­pa­ny because they, like, had, had a shell car that went up and down the east­ern seaboard and all their dri­vers filled up on that.

[00:23:51] Tony: And I said, so, you know, are we going to, we’re going to do any­thing for this com­pa­ny? Oh, well, it’s just an out­lier. So you go, okay, who’s the next best cus­tomer? Well, it’s some­one who buys all their tires from Kmart Tire and Auto. Are we going to, are we going to do some­thing for them or for, from Auto­Care, sor­ry in Shel­l’s case?

[00:24:06] Tony: No, no, no, no, no. And so you, you. You know, the same thing hap­pened in Myer. I pre­sent­ed to the Myer MD and I said, Who’s your best cus­tomer? Well, it’s a young, fash­ion­able 20 year old, you know, who wants to be fash­ion for­ward. And I said, actu­al­ly, it’s a 50 year old office work­er, female office work­er. No, no, that can’t be right.

[00:24:22] Tony: Yeah, it is. You know, they’re shop­ping in the lunch hour and they like to buy a cheap hand­bag and stock­ings. No, that can’t be right. So like the whole stores, um, the whole strat­e­gy for Myer was to be fash­ion for­ward, but real­ly it should have been pro­vid­ing cheap hand­bags and stock­ings to mid­dle aged women.

[00:24:39] Tony: So, um, yeah, there was just such a, it was, it was such a eye open­ing expe­ri­ence to be able to do the Pare­to analy­sis on cus­tomers. Um, and it was such a hard thing to get man­age­ment to buy into. When you showed it to them.

[00:24:54] Cameron: 80% of the man­agers are,

[00:24:57] Cameron: 90% of the man­agers are crap

[00:24:59] Tony: Yeah.

[00:24:59] Cameron: said Stur­geon’s

[00:25:00] Cameron: law applied to

[00:25:01] Tony: It’s cer­tain­ly when some of the places I worked, worked at, yes, def­i­nite­ly. Yeah,

[00:25:07] Cameron: Well, it has to be true

[00:25:09] Tony: it does. of, every­thing.

[00:25:11] Cameron: of every­thing, of employ­ees. Um, I know it, uh, in my Microsoft days, we used to talk about it in terms of fix­ing bugs. Like, 20 per­cent of the bugs would solve 80 per­cent of the cus­tomer, uh, com­plaints. And also for writ­ing code, I know that, 80 per­cent of the code took about 20 per­cent of the time that you allo­cat­ed to writ­ing a pro­gram, but the oth­er 20 per­cent of the code

[00:25:35] Cameron: took 80 per­cent of the time.

[00:25:37] Cameron: And, you know, peo­ple would always get it wrong when they were try­ing

[00:25:40] Cameron: to fig­ure out a bud­get for time and costs for build­ing code by think­ing that the, you know, the 80 per­cent actu­al­ly was going to reflect the 100

[00:25:49] Cameron: per­cent of the time it would take and

[00:25:51] Tony: That’s why IT projects always, you know, take longer than peo­ple think and cost more because they do an aver­age on the bug fix­es or what­ev­er they’re doing on the build rather than, you know, wor­ry­ing about the Pare­to

[00:26:01] Tony: prin­ci­ple.

[00:26:02] Cameron: It’s that last 20 per­cent that gets you, get­ting that last bit right. Yeah, it’s a fas­ci­nat­ing, it’s, you know, a fas­ci­nat­ing prin­ci­ple that just does seem to apply in every area, both of them,

[00:26:15] Cameron: Pare­to and Stur­geon.

[00:26:17] Tony: yeah, but I always flip it over too and think of the Pra­do prin­ci­ple as anoth­er way of express­ing a bell curve. And so,

[00:26:23] Tony: you know, it’s also the case, and the bell curve always reminds me of the Dun­ning Kruger

[00:26:28] Tony: effect. If you ask a room full of peo­ple if they’re good dri­vers, they’ll all say yes. But they’ve got to, on aver­age, be aver­age dri­vers,

[00:26:36] Tony: right?

[00:26:37] Cameron: they can’t all be right.

[00:26:39] Tony: Yeah, yeah, exact­ly.

[00:26:41] Cameron: Well, I’ve got some regres­sion test­ing news. Before we get into that, I just want­ed to point out that as you pre­dict­ed, or I pre­dict­ed, one of us pre­dict­ed last week, Coke and coal is a sell, uh, as of, uh, the buy list this week, which means I had to sell SMR across the board today. And I did get out of it at like a 40 50 per­cent prof­it over, I think it was about 18 months we held SMR.

[00:27:05] Cameron: And I think famous­ly back then, I bought it when Coke and Coal was a Josephine, acci­den­tal­ly.

[00:27:12] Cameron: So screw the rules, Tony. This is what I’m say­ing. Screw the rules. I broke the

[00:27:17] Cameron: rules And I

[00:27:18] Cameron: won.

[00:27:20] Tony: I fought the law. Um, yeah, well, I mean it’s, that’s, that’s true. Uh, you know, break­ing the rule is a hap­pen­stance to lucky hap­pen­stance. But you know, the rules, are good enough that we, they can cov­er for our errors too. You, at least you applied the rules to get

[00:27:33] Tony: out. and

[00:27:34] Tony: that’s what I like to do is if I do make a mis­take and mis­ap­ply the rules, I’ll apply the rules to get out.

[00:27:38] Tony: I won’t just knee jerk react­ing. Reac­tion to sell straight away

[00:27:43] Cameron: per­cent of the time you apply the rules,

[00:27:46] Cameron: gives you 20 per­cent of the result.

[00:27:48] Cameron: But the oth­er 20 That’s right. Yeah. the rules gives you 80 per­cent of the result.

[00:27:54] Tony: Yeah, You just nev­er know. But if you, if you base your think­ing about the rules on one instance, uh, I broke the rules and I won. Then you, you know, not think­ing it through deeply enough.

[00:28:08] Cameron: So bye bye SMR, thanks for all the fish, um, that was a good run, until next time. Uh, so Matt Walk­er gave me a new, um, ver­sion of the regres­sion test­ing sys­tem this morn­ing, and, um, it was work­ing well for me last week, and then it start­ed crash­ing as I tried to extend the time hori­zon from eight years to a longer peri­od, so we, he fixed a bug on it, uh, over the week­end.

[00:28:32] Cameron: I ran two this morn­ing. That I thought I’d just talk you through. Um, their time­line for these is from Jan­u­ary 2006 to the end of Novem­ber 2023. Uh,

[00:28:49] Cameron: so, what, how many years is that? 19, rough­ly,

[00:28:56] Cameron: so 6, 17, 17, yeah, 6 and, 6 and 3 is not 4.

[00:29:03] Cameron: Um, any­way, so I did

[00:29:05] Cameron: a 10%, You got that 80 per­cent

[00:29:07] Tony: right. That’s okay. 80

[00:29:08] Cameron: per­cent of the time,

[00:29:09] Tony: real one.

[00:29:12] Cameron: his line in Anchor­man?

[00:29:14] Paul Rudd: It’s called Sex Pan­ther by Odeon. It’s ille­gal in nine coun­tries. Yep. It’s made with bits of real pan­ther. So you know it’s good. It’s quite pun­gent. Oh, yeah.

[00:29:28] Paul Rudd: Ooh, it’s a for­mi­da­ble scent. Stings the nos­trils. In a good way. Yeah. Bri­an, I’m gonna be hon­est with you, that smells like pure gaso­line. They’ve done stud­ies, you know. Six­ty per­cent of the time, it works every time. That does­n’t make sense. Ugh. Let’s go see if we can make this lit­tle kit­ty purr.

[00:29:53] Cameron: uh, so the first mod­el that I ran over that time­frame was a usu­al, all the, all the stan­dard met­rics with a 10 per­cent rule one. It deliv­ered a CAGR of 12.

[00:30:05] Cameron: 8%. I ran it over the same time frame with a 99 per­cent rule 1,

[00:30:12] Cameron: effec­tive­ly no rule 1, and it returned a CAGR of 14. 4%.

[00:30:22] Tony: inter­est­ing.

[00:30:23] Cameron: I checked the CAGR on the STW over the same peri­od.

[00:30:26] Cameron: Do you want to guess what it was?

[00:30:29] Tony: Why did­n’t we look at this? I thought it was like 8 per­cent or 6

[00:30:33] Cameron: Well, dif­fer­ent time peri­od from

[00:30:34] Cameron: the one we ran it on last

[00:30:35] Tony: Oh, was

[00:30:36] Cameron: Yeah, it

[00:30:36] Cameron: was, uh, two per­cent.

[00:30:39] Tony: Only two. Oh, because of the GFC.

[00:30:41] Cameron: Uh,

[00:30:42] Tony: The mar­ket would have been high in 2006 lead­ing into GFC. yeah.

[00:30:46] Cameron: So, uh, yeah, 12. 8 and 14. 4 with no rule one. Now, there’s a kind of, there’s an inter­est­ing, uh, caveat to this that Matt point­ed out to me over the week­end. There’s a sur­vivor­ship bias in this because the way the script works, it is look­ing at stocks that are on the exchange today and then going back­wards look­ing at those stocks.

[00:31:09] Cameron: So it’s not tak­ing into account any merg­ers and acqui­si­tions of stocks that we may have bought, which I know the QAV sys­tem does well out of stocks like that from time to time. Um, but they’re going to be ignored and he’s try­ing to work out a way of

[00:31:26] Cameron: using delist­ed stocks. in this and tak­ing into account M& A’s that hap­pened, try­ing to fig­ure out how to code that.

[00:31:34] Cameron: So that, that’s going to change

[00:31:36] Cameron: things, but I’m not sure to what extent that

[00:31:39] Cameron: would affect the results.

[00:31:43] Tony: So I thought, I thought Matt had tak­en data from what was in Stock Doc­tor now.

[00:31:49] Cameron: Yes,

[00:31:50] Tony: Okay, Okay, well, you can edit that out. Um, Stock Doc­tor includes, the data source that we use includes delist­ed stocks. Like I could go into that data provider now and type in a delist­ed stock name and it would give me, it would still give me data for that stock up until it was delist­ed.

[00:32:09] Cameron: yes,

[00:32:11] Cameron: but that’s not,

[00:32:12] Tony: So, can Matt not do that?

[00:32:13] Cameron: you prob­a­bly can, but that’s not the way it’s been designed

[00:32:16] Cameron: yet.

[00:32:17] Tony: Okay. All

[00:32:18] Cameron: So it’s, it’s

[00:32:19] Tony: Well, then, then it’s a, it’s a piece of work on all the stocks that have been delist­ed since 2006 to see on bal­ance, whether they’ve gone up or down and whether they would have been QAV or not Cause some delist­ed stocks are going to be stocks which have gone bank­rupt and some delist­ed stocks are going to be stocks which have tak­en, been tak­en over, which will have had a nice price bump towards the end

[00:32:39] Cameron: unlike­ly that QAV would have bought any of the ones that end­ed

[00:32:43] Cameron: up becom­ing bank­rupt or would have been hold­ing them when they were, became bank­rupt because we would have sen­ti­ment­ed them out or rule one them out at some point if we did buy them and we prob­a­bly would­n’t have bought them because their cash flow his­to­ry would­n’t have been great, you know, um, unless some­thing

[00:32:57] Cameron: shock­ing hap­pened at some point.

[00:33:00] Tony: Well, the oth­er way to do it Cam is

[00:33:02] Tony: start in 2006. We know that we don’t

[00:33:05] Tony: have Delist­ed stocks in the 2006 data set.

[00:33:12] Tony: So then we’ve got­ta look at

[00:33:13] Tony: stocks that have been delist­ed, but were still list­ed in 2006 and I guess see if they were going to be QAB stocks or not going for­ward.

[00:33:25] Cameron: Well, you know, we’ll work that, we’ll

[00:33:28] Cameron: try and work

[00:33:28] Cameron: some­thing out so we can include

[00:33:30] Tony: Yeah, it’s a good point. Got­ta be care­ful that we haven’t cre­at­ed some kind of bias to the STW because we’ve exclud­ed them. Yeah,

[00:33:37] Cameron: Um,

[00:33:39] Tony: my first thought was just sim­ply to try and find out on bal­ance whether delist­ed stocks were

[00:33:44] Tony: a net gain or a net L

[00:33:45] Tony: let loss.

[00:33:46] Cameron: yes,

[00:33:48] Cameron: we can try and fig­ure that out. But I think what these num­bers tell us, and I think this is valid, leav­ing aside the com­par­i­son to the STW and leav­ing aside the actu­al CAGAs is the CAGA dif­fer­en­tial

[00:34:02] Cameron: between

[00:34:02] Tony: Yes,

[00:34:03] Cameron: A 10 per­cent rule one and no rule one is that the no rule one

[00:34:07] Tony: Mm

[00:34:08] Cameron: slight­ly out­per­forms the rule one

[00:34:11] Cameron: I mean 12, 12. 8 to 14. 4. So over a, what did you say it was, a 17

[00:34:18] Cameron: year time frame. It’s, it’s a

[00:34:22] Cameron: lit­tle bit bet­ter, but not mas­sive­ly.

[00:34:25] Tony: includ­ed the GFC, which is impor­tant, I think, too, so you have a

[00:34:27] Tony: down­turn

[00:34:28] Cameron: Start­ing cash for both of

[00:34:29] Tony: which prob­a­bly would have, sor­ry, a down­turn like the GFC prob­a­bly would have trig­gered lots of rule

[00:34:35] Tony: ones.

[00:34:37] Cameron: Yeah. So the start­ing cash for both of them was 20, 000 start­ing cap­i­tal. The final val­ue

[00:34:43] Cameron: of the 10 per­cent rule one was 173, 000. The final val­ue of the no rule one was 223,

[00:34:50] Cameron: 000. So a

[00:34:52] Cameron: 50, 000

[00:34:53] Tony: Yeah, big dif­fer­ence Yeah.

[00:34:55] Cameron: Yeah. it’s just sig­nif­i­cant.

[00:34:58] Tony: it’s mate­r­i­al, yeah. So, um, I think you said before that the data can go back past, before 2006, so Is it pos­si­ble to rerun it? with a longer time peri­od? Mm hmm.

[00:35:08] Cameron: I know, I think that’s about as far back as

[00:35:13] Tony: Is it?

[00:35:13] Cameron: go with

[00:35:14] Cameron: this data

[00:35:15] Tony: Okay.

[00:35:16] Cameron: Um,

[00:35:17] Tony: Yeah, so the, I mean, ini­tial, ini­tial dates mean a lot when you’re doing this kind of regres­sion test­ing, so my only com­ment would be, before we made a change to take rule 1s out, is to

[00:35:26] Tony: run it with a cou­ple of oth­er start dates. Um, you know, just pick some ran­dom­ly. I

[00:35:34] Tony: guess three or four at

[00:35:35] Cameron: The next one I’m going to run this after­noon is a

[00:35:36] Cameron: 20 per­cent rule one over the same time

[00:35:38] Cameron: frame And see what that gives us. And then, yeah, then I can start with some dif­fer­ent start dates and end dates and, um,

[00:35:47] Cameron: get a, get a heat map going, get a scat­ter graph going

[00:35:50] Cameron: and see what it shows us.

[00:35:54] Tony: Yeah, good. That’s great. And we’re con­fi­dent that the regres­sion test is work­ing prop­er­ly

[00:35:59] Cameron: Yeah, well, I haven’t done a deep dive analy­sis on the ones that I ran today, but I did do it on the ver­sion that he wrote last week, which is basi­cal­ly the same code, but

[00:36:11] Cameron: fix­ing the thing that was caus­ing it to

[00:36:13] Cameron: crash, which was

[00:36:15] Tony: Right. Yep.

[00:36:16] Cameron: stock actu­al­ly that was, uh, some­thing had hap­pened to it. I think it had been delist­ed or some­thing and it was caus­ing the whole thing to fall over.

[00:36:24] Cameron: He fixed that bug. Uh, I don’t think any­thing else mate­ri­al­ly has changed. And when, so what I, what I did last week when I ran my analy­ses is I just, you know, sort of ran­dom looked at the buys and the sells, um, plug the dates of the buys and the sells into the bread lat­er. And, uh, just made sure that they passed all those tests, which they, which they did, um, made sure that when it said at rule one some­thing, it looked

[00:36:54] Cameron: like the price drop

[00:36:56] Cameron: was right. And, um, that the 3P8, the 3PTL lines checked out, et cetera, et cetera. He’s built it in, built Josephines in now check­ing with the Josephines

[00:37:07] Cameron: So yeah, I, I, all of the analy­sis that I’ve done on it so far says It’s good. I mean, the oth­er thing that’s miss­ing is, you know, is, um, com­mod­i­ty cells. We haven’t fig­ured that out,

[00:37:19] Cameron: how to fac­tor that in yet.

[00:37:20] Tony: But as you say, even if we don’t work that out, we’re still get­ting rel­a­tive per­for­mance, which is a

[00:37:25] Tony: good way to, good enough, well, it’s a good way to ana­lyze

[00:37:29] Tony: what works and what does­n’t

[00:37:30] Cameron: Yeah. So, you know, we, uh, Yeah, if we just use it as com­par­a­tive per­for­mance, then We can start to play with, Okay, what if we weight Prop­Caf, um, a 3 instead of

[00:37:40] Cameron: a 2? And what if we rate these things a

[00:37:42] Cameron: dif­fer­ent, you know, 0?

[00:37:44] Tony: I think the way to do it is, I don’t know how the regres­sion tester works, but if you can iso­late each vari­able, so run a 2006 port­fo­lio with

[00:37:52] Tony: just Prop­Caf greater than 7,

[00:37:54] Tony: less than 7 is the only vari­able. And if that return is 20 per­cent ver­sus 14 per­cent for every­thing else, then Prop­Caf’s got to have a greater

[00:38:03] Cameron: Yeah. I can. It’s got a user inter­face where I

[00:38:06] Cameron: can set the scor­ing of all the stan­dard met­rics to what­ev­er I want. So I’ll start to iso­late them

[00:38:13] Cameron: and, um, see what hap­pens. But yeah,

[00:38:15] Cameron: so thanks again to

[00:38:16] Tony: Yeah. That’s

[00:38:17] Tony: great. Yes. Thank you, Matt.

[00:38:19] Tony: That’s a

[00:38:19] Cameron: his great work.

[00:38:20] Tony: huge boost to our invest­ing. Yeah. All

[00:38:23] Tony: right. A

[00:38:25] Cameron: Uh, that’s all I’ve got on my talkie

[00:38:27] Cameron: list. Tony, what have you got?

[00:38:31] Tony: cou­ple of things. I was toss­ing up whether to leave this for after hours, but I’ll men­tion it now because it’s, um, of gen­er­al inter­est to invest in. Uh, have you come across sub­stacks in gen­er­al and the

[00:38:43] Tony: Alche­my sub­stack in par­tic­u­lar?

[00:38:44] Cameron: know Sub­stack, but not Alche­my. Sub­stack­’s a pub­lish­ing plat­forms, like a col­lab­o­ra­tive blog where peo­ple have their own lit­tle, um,

[00:38:53] Cameron: page on it.

[00:38:55] Tony: Yeah, so, um, I spent a fair bit of time over East­er read­ing through a lot of stuff that’s been post­ed on the Alche­my sub stack.

[00:39:02] Tony: So, an investor has gath­ered a lot of, um, arti­cles

[00:39:07] Tony: and, and, uh, I guess has post­ed some com­men­tary on famous investors, includ­ing War­ren Buf­fett. So there’s a lot of inter­est­ing arti­cles on Buf­fett, on George Soros, on Paul Tudor Jones, etc, etc.

[00:39:20] Tony: So, if I know our lis­ten­ers are inter­est­ed in read­ing up on invest­ing, but that was a good, a good con­cen­trat­ed start­ing point. And I’ll talk about one arti­cle which I found inter­est­ing and have done a fair bit of think­ing on over the week­end, and it was head­ed, um, The Read­ing Obses­sion. So it was an arti­cle about War­ren Buf­fet­t’s and Char­lie Munger’s pen­chant to read.

[00:39:43] Tony: And, but the arti­cle goes on to say that may not be the whole. Secret source to War­ren Buf­fet­t’s suc­cess. So it starts off talk­ing about Buf­fet­t’s, you know, sit­ting around the office and read­ing. And he’s always said that was a secret to his suc­cess and, um, being away from the noise and liv­ing in Oma­ha.

[00:40:01] Tony: And a, and a quote, there’s a quote from Todd Coombs, who looks like the per­son who will take over the invest­ing side of, uh, Berk­shire Hath­away. Um, and Todd Coombs, was quot­ed as say­ing that he reads 500 pages per day, which seems like a heck of a lot, but not insur­mount­able, I guess. Um, but then the, the arti­cle goes on and real­ly talks about not just, um, Buf­fet­t’s read­ing, but is there anoth­er rea­son why Buf­fett was suc­cess­ful?

[00:40:31] Tony: And I’m just going to try and look it up, um, a few of the quotes, but it talks about Buf­fet­t’s net­work­ing, and, um, how much Oh, I’ve lost the page now. It looks like it has­n’t, um, here we go. Yeah, the head­line from the arti­cle called The Read­ing Obses­sion says I just sit in my office and read all day.

[00:40:53] Tony: War­ren Buf­fett. But then this per­son goes down and they ref­er­ence anoth­er arti­cle, a piece of research that was done. It was done in 2005 by a doc­tor­al stu­dent who went through the effort of cat­a­logu­ing Buf­fet­t’s social ties in a dis­ser­ta­tion with a cum­ber­some title, How Can Strate­gic Peo­ple Net­works Be Suc­cess­ful? An inquiry into the caus­es and nature of social net­works striv­ing towards a mutu­al goal. And the link In the arti­cle takes you to an appen­dix which con­tains an over­whelm­ing col­lec­tions of snip­pets show­ing Buf­fett with his friends, neigh­bors, investors, fel­low board mem­bers, CEOs, golf, bridge play­ers, and politi­cians.

[00:41:34] Tony: You get the impres­sion that all he did all day was chat, play bridge, and vis­it the White House. And obvi­ous­ly that’s not the case either, so, um, There are, there are, This per­son who wrote the arti­cle talks about a cou­ple of quotes, main­ly from The Snow­ball, and anoth­er book on Buf­fett called Of Per­ma­nent Val­ue, the sto­ry of War­ren Buf­fett.

[00:41:54] Tony: And a cou­ple of quotes which took my inter­est. Buf­fet­t’s huge net­work of knowl­edge­able and influ­en­tial friends also has been a help along the way. Buf­fett has been an orig­i­nal thinker, but it can­not have hurt to dis­cuss prospects for a tele­vi­sion sta­tion with Tom Mur­phy, chat about a com­mon invest­ment with Lawrence Tish, or talk with Jack Byrne about insur­ance.

[00:42:13] Tony: His net­work of minds has been very impor­tant. And then anoth­er one. He talks about, um, just try­ing to find the right quote here. He devel­oped a net­work of peo­ple who, for the sake of his friend­ship as well as his chasti­ty, not only helped him but also stayed out of his way when he want­ed them to. In hard times or easy, he nev­er stopped think­ing about ways to make mon­ey.

[00:42:38] Tony: Since child­hood, he read every biog­ra­phy he could find of peo­ple he admired, look­ing for the lessons he could learn from their lives. He attached him­self to every­one who could help him and coat­tailed any­one who You could find that was smart and then there’s a arti­cle about Buf­fett going to the GEICO offices, GEICO, I think is, or GECO, I think they pro­nounce it, as a young investor and hit­ting up the the head of Gecko who told him all about the insur­ance indus­try and he says that he went on one Sat­ur­day, Buf­fett board­ed a train to Wash­ing­ton DC to vis­it the com­pa­ny, which is Gecko.

[00:43:18] Tony: He asked the guard if there was any­one who could explain the busi­ness to him and was led to Geck­o’s finan­cial vice pres­i­dent, Lau­ra David­son. The quote is, My name is War­ren Buf­fett. I’m a stu­dent at Colum­bia. Ben Gra­ham is going to be prob­a­bly my pro­fes­sor. I read his book and I think it’s won­der­ful. And I noticed that he is the chair­man of the Gov­ern­ment Employ­ees Insur­ance Com­pa­ny.

[00:43:37] Tony: I don’t know any­thing about it, but I want­ed to come here and learn. I just kept ask­ing ques­tions about insur­ance and Gecko. He did­n’t go to lunch that day. He just sat there and talked to me for four hours, like I was the most impor­tant per­son in the world. When he opened that door to me, he opened the door to the insur­ance world. And then the last quote I’ll talk about is Buf­fet­t’s trav­el sched­ule. So, uh, there’s quite a long quote here, I’m try­ing to para­phrase it. So it starts off, Until 1958 his straight­for­ward route was to buy a stock and wait for the cig­ar butt to light. The days when War­ren sim­ply sat in his study at home pick­ing stocks out of the secu­ri­ty analy­sis or the Moody’s man­u­als were gone.

[00:44:17] Tony: Increas­ing­ly, he began to work on a large scale, lucra­tive project that required time and plan­ning to exe­cute. Between duties at FMC, Vor­na­do, Blue Chip, and WESCO, and reg­u­lar trips to New York, Buf­fett was now trav­el­ing much of the time. Buf­fett grabbed a burn at his wife Dorothy, and imme­di­ate­ly pulled them into his cir­cle of friends.

[00:44:39] Tony: Now between Gecko, Wash­ing­ton Post meet­ings, Pinker­ton’s board meet­ings, West Coast trips for Blue Chip and West Coast, busi­ness trips to New York, board meet­ings for the Mun­z­ing­ware, a board that he joined in 1974, and Kay par­ties, he was trav­el­ing much of the time. So, I thought that was real­ly inter­est­ing, and I found this over my time read­ing about War­ren Buf­fett and fol­low­ing War­ren Buf­fett.

[00:45:03] Tony: He often puts the answer in plain sight, and I guess the ques­tion is, what’s his secret source? But he, but he, he just leaves it there and then goes on to oth­er things. So, if you, if you did a sort of cur­so­ry analy­sis of War­ren Buf­fett, you would think that his secret source was Being in Oma­ha, being away from the noise, being able to read all the time, spend­ing his day locked in an office and read­ing.

[00:45:25] Tony: But this arti­cle sort of posits the fact that that’s true. But when you, when you com­bine that with this incred­i­ble net­work of busi­ness minds, um, then he real­ly does have a, um, an edge. And if you think about. The gecko sto­ry, he did­n’t nec­es­sar­i­ly come about with the idea to buy an insur­ance com­pa­ny from read­ing the, um, the, the papers on the insur­ance com­pa­nies.

[00:45:52] Tony: He went to a com­pa­ny where his, his pro­fes­sor, um, uh, Ben Gra­ham was the chair­man and asked the CEO lots of ques­tions and got, you know, an inter­est in insur­ance from that. Which is prob­a­bly equal­ly as impor­tant as, um, you know, sit­ting around and read­ing all day. So it’s an inter­est­ing take on War­ren Buf­fett.

[00:46:12] Tony: And I think the East­er egg that’s always been in plain sight with War­ren is he’s often said the secret to his suc­cess or that his life changed after he did a DALE. Carnegie course on how to win friends and influ­ence peo­ple. He says, before that I was a nerd, I was a book nerd, and I could­n’t, I, you know, I could­n’t stand in front of peo­ple and talk about my invest­ing ideas, but after that I was able to.

[00:46:35] Tony: And so he’s always said that, but it’s kind of like a throw­away line and Peo­ple don’t pay much atten­tion to it, but you cou­ple that with the arti­cle I’ve just quot­ed from, and it’s, it’s real­ly inter­est­ing that, you know, he’s not just about, um, cig­ar butt invest­ing and find­ing val­ue on the pages of the movies man­u­al, he’s equal­ly about get­ting out there and cre­at­ing a net­work of peo­ple who can inform how he invests and what he invests in and who he can test his invest­ing ideas with.

[00:47:01] Tony: That’s not to say that one or the oth­er is, you can’t do a syl­lo­gism on this. You can’t say that if I have a good net­work of. Busi­ness names, I’m going to be a good investor. I have friends. You have great net­works of busi­ness peo­ple and they’re not great investors. It’s kind of the reverse. Um, so it’s like, I think War­ren’s spe­cial because he has the com­bi­na­tion of both, I guess.

[00:47:23] Tony: And the arti­cle does go on to point out that, um, if you’re in a con­ver­sa­tion with War­ren, he’s always send­ing met­al traps to test you. Before he starts to engage with you and buy into the friend­ship. And, uh, you know, so there’s that, but there’s also the steel track mind where if you’re try­ing to pitch him a sto­ry about a stock he should be invest­ing in, he knows all about it before­hand.

[00:47:44] Tony: And if he does­n’t, he can ring up Char­lie or he can ring up, you know, um, in the past, Tom Mur­phy or who­ev­er, and get their take on that par­tic­u­lar stock as well. So I thought that was inter­est­ing.

[00:47:56] Cameron: In the past, Char­lie too, sad­ly. But Yeah. like it makes sense though, right? It’s a com­bi­na­tion of read­ing and talk­ing to peo­ple.

[00:48:07] Tony: Yeah. Yeah. And, and meld­ing both of those two things togeth­er. It’s still all the things that we’ve talked about. It’s still hav­ing a

[00:48:15] Tony: frame­work. It’s still try­ing to buy

[00:48:17] Tony: a bas­ket of goods that are worth a dol­lar for 50 cents, all that kind of

[00:48:21] Tony: stuff. But he’s also, you know, net­worked to bug­gery. Seems, it seems like from the arti­cle that dur­ing the six­ties and sev­en­ties, he hard­ly spent any time in Oma­ha.

[00:48:30] Tony: He was on the plane to New York or to LA a lot.

[00:48:34] Cameron: Well, what, one of the things I remem­ber from the Snow­ball book is, you know, him going and knock­ing on doors and express­ing an inter­est in the, how the com­pa­ny was run and CEOs sit­ting down and talk­ing with him for hours, because that was unusu­al. In the 50s, for some­one to sit down and want to talk about the ins and

[00:48:56] Cameron: outs of your finan­cials and your assets and your lia­bil­i­ties and prof­it

[00:49:00] Cameron: lines and all that kind of stuff.

[00:49:03] Tony: Yeah, and your busi­ness.

[00:49:05] Cameron: In the days before,

[00:49:06] Tony: it’s an inter­est­ing arti­cle. Any­way, but Alche­my Sub­stack is out there if peo­ple want to have a look at it. It does have a sub­scrip­tion ser­vice, but there’s plen­ty of free stuff there to go

[00:49:15] Cameron: alche­my. sub­stack. com, if peo­ple want to go look­ing for that

[00:49:21] Cameron: What’s next?

[00:49:23] Tony: Collin Street Invest­ment Funds. So our old friend Michael Gold­berg, it was in the news. One of his stocks was in the news last week. And, uh, We should per­haps get them back in to talk to us about this. So I had read in the, I think when we talked to Michael last, he was set­ting up a par­tic­u­lar spe­cial­ist fund to invest in, uh, what do you call them?

[00:49:46] Tony: Ura­ni­um min­ers. I was going to say nuclear mines, but that’s wrong. Ura­ni­um min­ers. Um, he, he’d worked out that there was a, um, a mis­match in the pric­ing of ura­ni­um and it was about to go for a run and that did real­ly well for them. And appar­ent­ly, uh, recent­ly they did, they set up anoth­er one to, uh, uh, invest in.

[00:50:02] Tony: Uh, off­shore marine ser­vic­ing com­pa­nies. And in an arti­cle I read in the Fin Review a lit­tle while ago, the, um, the stock that they liked the best was one called MMA Off­shore. Um, and they were, had a big hold­ing in that. And it’s, it looks like it’s come good for them because, um, uh, this is an arti­cle from the Fin.

[00:50:21] Tony: It says on Mon­day last week, MMA Off­shore. Board agreed to sell the busi­ness for 2. 60 a share, or 1. 03 bil­lion plus debt, in a deal with Siam Renew­ables, a port­fo­lio com­pa­ny of Sin­ga­pore based pri­vate equi­ty out­fit, Soraya Part­ners. The pric­ing was a skin­ny 11 per­cent pre­mi­um to the pre­vi­ous close, hence major share­hold­er Pan­do­ra’s come out and slammed the board, agree­ing to an absolute steal.

[00:50:46] Tony: So, Um, yeah, anoth­er exam­ple of I think how he’s got it right in, in find­ing an under­val­ued stock. So I thought that was inter­est­ing. Good on them.

[00:50:55] Cameron: reach out to them. and

[00:50:57] Cameron: see if they want to come back on.

[00:50:58] Tony: And the oth­er one I thought might be worth get­ting in, I know we, we, um, um, had an okay to come on the show and we’re just fix­ing a date was, um, I think it’s Daniel Smed­ley from Fin­di. But I recent­ly saw Fin­di appear on the, um,

[00:51:11] Tony: the 12 month high lists in the Fin Review and they’re well above the price that, um, they were when we did a pulled pork on them.

[00:51:19] Tony: A few months ago, so it might be worth­while get­ting Daniel on to talk about that stock.

[00:51:22] Cameron: will. Remind him to, yeah, I think He was, going to India and

[00:51:27] Cameron: he was going to con­tact me

[00:51:28] Tony: he was, yeah, which I think was around now, I think it was either April or May he was com­ing back.

[00:51:35] Cameron: I will make a note.

[00:51:35] Tony: So that would be inter­est­ing. Yeah. And then the last one is just to fol­low up on our nev­er end­ing saga of fun with Aussie Broad­band,

[00:51:42] Tony: the stock that was on our buy list, um, and, uh, we spoke about it last week because the, uh,

[00:51:50] Tony: Even though they had Gold­man Sachs in their cor­ner and they were try­ing to take over Super­loop, one of their com­peti­tors, they fell foul of Super­loop and its con­sti­tu­tion which says that no stock­hold­er could hold more than 12%, which was a require­ment of the Sin­ga­pore gov­ern­ment because they had busi­ness in Sin­ga­pore.

[00:52:09] Tony: And there was an arti­cle in today’s Fin Review say­ing that Uh, Small Cap Fund Man­ag­er, Small Cap Fund Man­agers had a small inter­rup­tion to their East­er long week­end yes­ter­day as Aussie Broad­band began cor­ralling buy­ers for a cir­ca 50 mil­lion sell down in its M& A tar­get Super­loop after last week’s court­room dra­ma.

[00:52:27] Tony: So basi­cal­ly, uh, Aussie Broad­band had tried to get an injunc­tion, um, Super­loop was try­ing to force them to sell down from 19. 5 per­cent to 12%. Looks like they lost the injunc­tion towards the end of last week and had to hasti­ly find a buy­er for the sur­plus stock they had to get it down to 12 per­cent over East­er because Sin­ga­pore was open on East­er Mon­day and they did­n’t want to fall foul of the Sin­ga­pore gov­ern­ment.

[00:52:52] Tony: So the, um, the con­tin­u­ing saga of Aussie and Super­loop con­tin­ues.

[00:52:57] Cameron: We still hold them too. We’re still up 1 per­cent on our ABB. Bought them in. August 2023 at 3. 50. Uh, they shot up to 4. 63

[00:53:15] Cameron: by the 5th of March. I was like, you beau­ty. And now they’re basi­cal­ly back down to the buy price again.

[00:53:24] Cameron: Ah, damn it.

[00:53:27] Tony: Uh, yeah.

[00:53:28] Cameron: go.

[00:53:29] Cameron: Can’t win them all.

[00:53:31] Tony: Alright, and the last thing I want­ed to talk about before we move on to a pulled pork. Uh, this is in today’s LiveWire, uh, and it’s a bit of research I came across on founder led com­pa­nies. It was done by Bain Com­pa­ny and it was for 15 years end­ing in 2016 where they found that founder led com­pa­nies list­ed on the S& P 500 per­formed 3.

[00:53:56] Tony: 1 times bet­ter than their peers over a 15 year peri­od. So it’s one of the items in our check­list and I’d be inter­est­ed to see whether we get a sim­i­lar result when you do some regres­sion test­ing on the val­ue of Own­er Founder, which is in our check­list. They out­line three rea­sons, Bain said, because founders pos­sess these three traits.

[00:54:16] Tony: One, busi­ness insur­gency, so they have a unique fea­ture or capa­bil­i­ty that gives a busi­ness pur­pose, wag­ing war on indus­try norms on behalf of its clients. Point two, they have a front­line obses­sion, a focus on the details at the front­line and cul­ture. And point three, they have an own­er’s mind­set, pos­sess­ing the speed to act quick­ly and tak­ing per­son­al respon­si­bil­i­ty for risk and cost.

[00:54:42] Tony: I thought that was inter­est­ing.

[00:54:43] Cameron: alright.

[00:54:44] Tony: Yeah, and we often, we focus on own­er founders in our check­list.

[00:54:48] Cameron: we don’t

[00:54:49] Cameron: often find them, but when we do find them,

[00:54:51] Cameron: they get a

[00:54:52] Tony: No, because I think also too, a lot of, a lot of, a lot of the invest­ing com­mu­ni­ty look for own­er founders and they tend to have very high PEs. So the likes of, um, I mean Fortes­cue Met­als, it’s been on our buy list, that’s an own­er founder com­pa­ny. Um, but the likes of WiseTech, Lifestyle Com­mu­ni­ties, they’re all anti QAV stocks almost, yep, almost, um, and, uh, large­ly because of the, of the, the own­er founder effect.

[00:55:19] Cameron: Alright, ASB, Tony. We don’t, We

[00:55:23] Tony: I have.

[00:55:23] Cameron: so do your

[00:55:24] Cameron: best.

[00:55:26] Tony: All right. Well, ASB is on the buy list. Austell Lim­it­ed is the com­pa­ny, and it was a request from some­one from last week, and it’s a good com­pa­ny to look at. If any­one does­n’t know who they are, they’re a West­ern Aus­tralian ship­builder,

[00:55:41] Tony: and now with large mil­i­tary con­tracts. So, I first came across Austell in the ear­ly 90s when I took trips from Shute Har­bour to White to, um Ear­ly, not ear­ly, uh, with, with Sun­day Islands any­way, um, and the fer­ry ride was, uh, Hamil­ton Island was the island I was think­ing of, sor­ry, and the fer­ry ride was mod­ern and smooth, and it was a, that was a big game chang­er back then.

[00:56:04] Tony: I don’t know if you ever took a fer­ry before the large cata­ma­rans came into being, but it could be rough, you know, it could be tossed about, um, by, by the seas, uh, but this one was incred­i­bly smooth, and so I paid atten­tion to it. Um, was a bit of a rev­o­lu­tion in design back then. I’ve owned the stock on and off, over the last 20 or 30 years and it’s back on the buy list now.

[00:56:26] Tony: I don’t own it now and I found it to be fair­ly volatile and use dri­ven and it’s, it’s, because it’s a man­u­fac­tur­er of boats, it can, its for­tunes can rise and fall depend­ing on the ten­der winds it gets and so you often see, um, Large move­ments in this oper­at­ing cash flow because they have to, if they win a ten­der, it’s great news, the stock price goes up.

[00:56:51] Tony: Then they’ve got to invest in expand­ing the facil­i­ties to pro­duce, you know, nine or ten ships for this ten­der. And then the oper­at­ing cash flow takes a nose dive and then when they get sold and even­tu­al­ly deliv­ered, the oper­at­ing cash flow is gone. Great again. So it does go up and down. And it reminds me a bit of, um, uh, the pulled pork I did on a com­pa­ny called Extech a lit­tle while ago, last year or two.

[00:57:14] Tony: That com­pa­ny is now called HiCom, if any­one wants to look it up. But, um, Extech is a provider of, um, Per­son­al body armor and hel­mets to police forces and mil­i­tary, um, uh, appli­ca­tions and armies and secu­ri­ty com­pa­nies. And it, again, as it being a com­pa­ny with, um, large swings in its cash flow, but also large swings in its share price dri­ven by ten­der news.

[00:57:38] Tony: So if they win a ten­der to sup­ply, um, per­son­al armor to, um, a police force or an army, The share price goes up. Uh, same thing hap­pens a lit­tle bit with um, ASB. Uh, hav­ing said that, it’s been pret­ty suc­cess­ful, um, over the years. And it orig­i­nal­ly, you know, back in the, uh, ear­ly 90s, it pio­neered alu­mini­um ship­build­ing and large cata­ma­ran designs.

[00:58:02] Tony: And, um, it’s only recent­ly they’re get­ting into steel ship­build­ing, which, um, will be a new growth for them, I guess. But for more than 30 years, they have. Deliv­ered 340 ves­sels in, to oper­a­tors in 59 coun­tries. A water­shed for the com­pa­ny was win­ning the con­tract to sup­ply the U. S. Navy with what they call Lit­toral Ves­sels, L I T T O R A L, which basi­cal­ly means, I think means ves­sels which oper­ate with­in the con­ti­nen­tal shelf, so close to shore.

[00:58:32] Tony: And, and, you know, you’ve prob­a­bly seen pho­tographs or in movies of the sort of large cata­ma­ran, Uh, patrol boats that the U. S. Navy uses. A lot of those are sup­plied by Austal. They are cur­rent­ly man­u­fac­tur­ing 21 ves­sels for the Aus­tralian Navy. for their Pacif­ic patrol boat replace­ment project and that work is being per­formed in WA.

[00:58:54] Tony: How­ev­er, Austal has sev­en ship­yards in five coun­tries, includ­ing in Mobile, Alaba­ma, which sup­ports the U. S. Navy require­ments. And For exam­ple, recent­ly, Austal Viet­nam deliv­ered a 94 meter high speed cata­ma­ran to Trinidad and Toba­go. So, a lot of effort was put in by the com­pa­ny to diver­si­fy man­u­fac­tur­ing around the world, and a lot was put into build­ing the Mobile Alaba­ma plant to sat­is­fy the U.

[00:59:24] Tony: S. Navy’s require­ments for local man­u­fac­tur­ing and pro­duc­tion. So, quite an inter­est­ing his­to­ry to the com­pa­ny. Uh, The flip side of hav­ing these mil­i­tary con­tracts is that it has not­ed ben­e­fit of mak­ing it hard­er for ASB to be tak­en over, as a new own­er must be vet­ted by both the US and Aus­tralian mil­i­tary and gov­ern­ments.

[00:59:48] Tony: And this is kind of time­ly because a com­pa­ny called Han­wha, H A N W H A, a South Kore­an ship­builder for­mer­ly known as Dae­woo, has lobbed a bid. And so today, um, the share price, uh, has, has gone up, but not quite to the offer price of 2. 82, um, and ASB man­age­ment released a, um, a state­ment today that they are wary of open­ing their books to a com­peti­tor until Han­wha can prove that they are like­ly to obtain for­eign review, for­eign review, For­eign Invest­ment Review Board approval in Aus­tralia.

[01:00:28] Tony: ADF and US gov­ern­ment approvals. And that’s where it’s sit­ting. So the mar­ket has gone up for the share today, but not to the bid price because there is this ques­tion mark about whether the bid will go ahead. And it’s con­di­tion­al on due dili­gence and, and ASB is quite right­ly say­ing, well, hang on, you’re a com­pet­i­tive house.

[01:00:46] Tony: We’re not going to give you access to our books and unless you can prove that this has a chance of actu­al­ly being con­sum­mat­ed as a deal. Um, so yeah, so. It’s a time­ly time to do a Pulled Pork on this com­pa­ny. It’s an inter­est­ing com­pa­ny and the num­bers are good. So let me go through some num­bers. Uh, share price I’m doing it at is 220, which is pre bid.

[01:01:08] Tony: Um, and the share price is up today to 240 some­thing, so peo­ple will need to do their own, own research on this. Uh, but 220 was less than the con­sen­sus tar­get. Um, But great­ly above IB1 and IB2, which is 8 cents and 86 cents. Large­ly, I think, because the PE on this com­pa­ny is 148 at the moment, which we score as a minus one, because it’s its high­est in the last three years.

[01:01:33] Tony: But again, that reflects the fact that they’ve been invest­ing to pro­duce new boats. And when those boats start to get deliv­ered and the income starts com­ing in, they get their pay­backs for it. So. Yes, we’ll score a neg­a­tive one for a high P. E. but the P. E. won’t always be that high. And in fact, the fore­cast earn­ings per share is 497 per­cent high­er than the cur­rent earn­ings per share.

[01:02:00] Tony: So we score it as a 2 for that because growth over P. E. in this case is 3. 36 and we’re look­ing for 1. 5. So Reflects the nature of this busi­ness that, you know, they’ve done the invest­ment and I’ll get the earn­ings as the sales, as the boats roll out and the sales come in. Stock Doc­tor, finan­cial health and trend is sat­is­fac­to­ry and recov­er­ing.

[01:02:22] Tony: Um, and I sus­pect, sus­pect recov­er­ing reflects again, this cash­flow bounc­ing around a bit, but I like recov­er­ing stocks. We give it a two for recov­er­ing and a one for sat­is­fac­to­ry in our score, um, card. The yield is only 1. 36%. And so we can’t score it for that. Uh, Prop­Caf is 6. 2 times, so it gets a, it’s on our list for that, gets a score.

[01:02:43] Tony: Net equi­ty per share is inter­est­ing, 2. 58, um, which is slight­ly high­er than the share price, and per­haps one of the rea­sons why the SPID’s com­ing from Han­wha, or Dae­woo as it used to be called. So it scores both on the book val­ue, um, price ver­sus price, and of course book val­ue, it is less than book val­ue plus 30, so it scores for that too.

[01:03:04] Tony: Uh, Direc­tors hold 9 per­cent of the com­pa­ny, so it’s a bit of a bug­ger we can’t score it for Own­er Founder, because it does have an Own­er Founder, but it’s not quite the 10 per­cent thresh­old we look for, but if any­one wants to fudge that one, I’d be in agree­ment with it, real­ly. A chap by the name of John Roth­well has been in the alu­mini­um ship­build­ing busi­ness for a long time.

[01:03:22] Tony: Busi­ness for 50 years, and he still sits as the chair­man on this com­pa­ny on the board and has 9 per­cent him­self. The oth­er inter­est­ing thing I found out when I was look­ing at the share reg­istry is that Tatarang has 19. 34%. Do you know who Tatarang is, Cam?

[01:03:38] Cameron: not.

[01:03:40] Tony: Cook­ie For­rest is Uh, Pri­vate Office and Invest­ment Vehi­cle, uh, and so inter­est­ing, he does take stakes in oth­er WA com­pa­nies, the lights, and it’s just below the takeover thresh­old, but often­times when an investor sits with 19.

[01:03:55] Tony: 5 per­cent or there­abouts, they’re think­ing about a takeover of the com­pa­ny. So there could be a bat­tle. If this, if this Day­wood bid or Han­wha bid con­tin­ues, there is anoth­er stake­hold­er there with a large stake­hold­ing as well. And that could be a block­ing stake if Boo­gie decides that he’s not going to sell, that could block the takeover as well, so it cuts both ways.

[01:04:16] Tony: It’s a recent three point trend line buy, so we score it for that. So, all in all, on a qual­i­ty basis, 12 out of 17, or 71%, And Prop­Caf is get­ting up there at 6. 2 times, so QAV score is 0. 11. So it’s on the bot­tom of our buy list, but it’s on the buy list. Pros and cons for this com­pa­ny. One of the pros I think is it has real­ly been a pio­neer of advance­ments in ship­build­ing, both from the cata­ma­ran design and the alu­mini­um con­struc­tion of the com­pa­ny.

[01:04:47] Tony: Hav­ing the own­er founder who’s lived through all that as a chair is a good thing. And Like a lot of com­pa­nies on our buy list that we’re find­ing, um, more and more these days, it’s, it’s attract­ing takeover inter­est from oth­er par­ties. So at, at the kind of price it is, it’s trad­ing at below book val­ue or about book val­ue, uh, it’s attract­ing inter­est as well.

[01:05:05] Tony: Um, on the con side, as I’ve out­lined, the cash­flow for this com­pa­ny is lumpy. So it comes on and off the buy list. So I think that’s pret­ty much it for me. Thanks for lis­ten­ing. I’ll see you next time. Impact­ed by invest­ment, um, like for exam­ple, hav­ing to build a fac­to­ry in the States to sat­is­fy the U. S.

[01:05:35] Tony: Navy ten­der reg­u­la­tions. Um, and then the oth­er, oth­er con is if some­one does take it up, uh, take it over, it does need all these approvals from gov­ern­ments and defense depart­ments to make it hap­pen, which does make it hard­er to take over. So you don’t see a takeover pre­mi­um built into the share price of this com­pa­ny.

[01:05:52] Cameron: Did you read about their, um, ASIC and ATO

[01:05:57] Cameron: prob­lems?

[01:05:59] Tony: No. Enlight­en me.

[01:06:02] Cameron: Uh, I’ve got an arti­cle from Jan­u­ary in Mar­ket Index. A sink­ing ship, Citi down­grades Austel­l’s price tar­get by 45%. Price tar­get bumped down to 2. 32 from 3. 70 by Citi. And it says, um, The down­grade comes on the back of Austel­l’s lat­est earn­ings update, pub­lished last Tues­day, which saw the ship­builder esti­mate FY23 earn­ings of 58 mil­lion down from a pre­vi­ous­ly fore­cast 100 mil­lion.

[01:06:37] Cameron: And it goes on to talk about Austel­l’s expect­ed 42 mil­lion loss in ques­tion relates to a 2021 U. S. Navy con­tract val­ued at U. S. 198 mil­lion, which the com­pa­ny won to build two tow­ing, sal­vage and res­cue ships. One point of pos­si­ble uncer­tain­ty, Austell cit­ed an earn­ings down­grade to 58 mil­lion from 100 mil­lion in Aus­tralian dol­lars, but also ref­er­ences a loss of 41.

[01:07:04] Cameron: 2 mil­lion in its lat­est earn­ings update. Two years on from the con­trac­t’s exe­cu­tion, a revised fore­cast of costs for the 2021 ship­build­ing pro­gram has left Austell admit­ting it will cop off U. S. 41. 2 mil­lion loss from the con­tracts. This comes after ASIC took Austal to the fed­er­al court in June 2021 over the con­tract, giv­en that Austal failed to dis­close to investors it was going to make a loss on the con­tract.

[01:07:35] Cameron: Austal land­ed in hot water even ear­li­er in 2018 when it failed to dis­close to share­hold­ers the out­come of an ATO assess­ment, which chal­lenged the rosier out­comes of an Ernst Young audit. Uh, Pre­sum­ably Austel­l’s man­age­ment team per­ceived the rela­tion­ship val­ue of the con­tract with the world’s largest Navy forces to be of greater inter­est to the com­pa­ny than mate­r­i­al gains.

[01:07:58] Cameron: But appar­ent­ly for­got to tell investors that. Um, yeah, so, um, oth­er issues too, qual­i­ty issues. A 2022 report from Mar­itime Exec­u­tive alleges the Inde­pen­dence class Lit­toral Com­bat Ship, Austale’s pre­mier com­bat ves­sel for the U. S. Navy, had cracked hulls in near­ly half of the exist­ing fleet. Last year, the U.

[01:08:26] Cameron: S. Navy decom­mis­sioned Oztail’s USS Coro­n­a­do after less than a decade. The ship once spon­ta­neous­ly caught fire on the ocean in 2013. Hard to spon­ta­neous­ly catch fire when you’re in a large body of water, but it can be done.

[01:08:45] Tony: Just ask, I’ll

[01:08:46] Cameron: So, they have some ASIC and ATO issues in this. So, and their price was pushed down by, well, the fore­cast was pushed down by Citi. And I assume, um, that’s, Well, their price had dropped from 2. 80 in July, dropped down to 2. 20 in August and then down to 1. 66 in Octo­ber. It was creep­ing back up in Jan­u­ary, it looks like this down­grade by Citi did­n’t real­ly hurt its share price.

[01:09:20] Cameron: It was trad­ing around 1. 90 at the time and kept going up to 2. 20 and then dropped down in Feb­ru­ary. But any­way, I assume some of these prob­lems of, um, why it’s been deval­ued from 2. 20 80 in the mid­dle of last year and

[01:09:37] Cameron: why it’s

[01:09:38] Cameron: an acqui­si­tion tar­get now.

[01:09:41] Tony: Could be. I could­n’t say. I don’t know the com­pa­ny that

[01:09:44] Tony: well. Um, and it could also be that they were gear­ing up to,

[01:09:48] Tony: uh, invest in mak­ing these, um, naval boats in Aus­tralia. What was it they say? It was 20, 29

[01:09:55] Tony: ves­sels for the Pacif­ic replace­ment, Pacif­ic feet

[01:09:58] Cameron: I

[01:09:58] Cameron: won­der if they’re plan­ning on mak­ing

[01:10:00] Tony: or any­thing else.

[01:10:01] Cameron: one or it’s going to make a loss out of

[01:10:02] Cameron: it, isn’t it? Yeah,

[01:10:05] Tony: uh, one they made a loss out of with the US Navy was pay­back. It’s like, uh, we’ve cracked our hulls, this, uh, this sal­vage boat, uh, you bet­ter trim your price on that one for us. Make us good.

[01:10:16] Cameron: could be, but it’s, the arti­cle sug­gest­ed that um, they sort of uh, costs had gone up, Right.

[01:10:26] Cameron: Um,

[01:10:28] Tony: Right.

[01:10:29] Cameron: Well,

[01:10:29] Cameron: that’s what I read into

[01:10:31] Cameron: that, that they’d won the,

[01:10:32] Tony: Well, the cost going up would prob­a­bly be tak­ing a pro­vi­sion on the loss

[01:10:36] Tony: for the um, con­tract.

[01:10:39] Cameron: Any­way, Austell ASB, it’s on the

[01:10:41] Cameron: buy list.

[01:10:42] Cameron: So, um,

[01:10:43] Tony: Yeah. And some­body else likes it because it’s under

[01:10:46] Cameron: yeah. And the fact that it’s recov­er­ing, as you said before, you know, we like that com­pa­ny that’s had some prob­lems, but is dig­ging their way out of it is often, um, good on a QAV list. Thank you, TK.

[01:11:01] Cameron: What did you say? What’s the, um, ADT on

[01:11:04] Cameron: it?

[01:11:04] Tony: A mil­lion bucks. Mm.

[01:11:07] Cameron: Okay. So it’s just on the, On the, um,

[01:11:12] Cameron: line for us to be a high

[01:11:13] Cameron: ADT stock.

[01:11:17] Tony: Yeah, it’s, it’s, it’s pret­ty large. It will suit most peo­ple who are lis­ten­ing.

[01:11:21] Cameron: Well, no ques­tions this week. Mar­ket’s crank­ing along. Peo­ple are like,

[01:11:27] Cameron: they need to ask

[01:11:28] Tony: Yeah.

[01:11:30] Cameron: All mar­kets just in a

[01:11:34] Cameron: ter­rif­ic mood late­ly.

[01:11:37] Cameron: What are we at today? 8131. It’s come back a bit this morn­ing. It was up a bit high­er, 167 this morn­ing. It’s dropped back a lit­tle bit, rough­ly where it was begin­ning of yes­ter­day,

[01:11:48] Cameron: 8130.

[01:11:50] Cameron: But yeah, mar­kets, like I saw the RBA in the Fin this morn­ing say­ing they did­n’t fore­cast any inter­est rate cuts this year, but mar­ket does­n’t seem to

[01:12:02] Cameron: be fussed by that a great deal.

[01:12:06] Tony: Well, the arti­cles also said that most

[01:12:08] Tony: econ­o­mists thought that the cut would hap­pen in Novem­ber. So, and I think the arti­cle head­line was Aus­tralia, the Aus­tralian RBA will be the

[01:12:15] Tony: last to cut around the world.

[01:12:17] Tony: So it’s almost like.

[01:12:20] Tony: The LBA comes out and says, no, we’re not cut­ting, and then the mar­ket goes, come on, real­ly?

[01:12:25] Tony: Yes, you are. And con­structs an argu­ment about how it can still cut towards the end of the year. Yeah.

[01:12:32] Tony: fair­ly

[01:12:33] Cameron: gonna cut.

[01:12:35] Tony: Yeah, come on.

[01:12:37] Cameron: Well, the mar­ket’s still at a record high, give

[01:12:40] Cameron: or take, you know, up around the record high. So,

[01:12:44] Cameron: yeah, it’s all froth and bub­ble out there at the moment. Speak­ing of froth and bub­ble, free body

[01:12:50] Cameron: prob­lem Tony.

[01:12:51] Tony: We’re into after hours now, are we?

[01:12:53] Cameron: hours, yeah.

[01:12:54] Cameron: I’ve watched

[01:12:55] Tony: and did y’all,

[01:12:58] Tony: okay, isn’t the end­ing of episode two fan­tas­tic? Do, like, I’m a paci­fist on my plan­et, do not send any more sig­nals here, we will cut.

[01:13:06] Cameron: Yeah,

[01:13:07] Cameron: yeah, yeah. I could­n’t remem­ber where it end­ed. Yeah, although I’m feel­ing, um, I know there’s some uproar in Chi­na about it. I am feel­ing the, uh, Angli­ciza­tion of this. It’s kind of

[01:13:18] Cameron: piss­ing me off a lit­tle bit. The fact that it’s been angli­cized so much and even Dashi is like, A British Chi­nese cop who’s inves­ti­gat­ing him, not a, not a Chi­nese Chi­nese

[01:13:33] Cameron: cop, who’s

[01:13:34] Tony: yeah, yeah,

[01:13:35] Cameron: in Chi­na.

[01:13:36] Tony: he’s a good char­ac­ter though, great

[01:13:38] Cameron: Yeah.

[01:13:38] Cameron: I think the char­ac­ter in the book was a lot more, um, unlik­able, like they basi­cal­ly set him up as very unlik­able, piss­ing off gen­er­als and every­one just does not give two flicks about any­one’s views on any­thing, very, very unlik­able. Very, um, aggres­sive, unlik­able char­ac­ter who just keeps dri­ving to get to the truth of things and does­n’t play

[01:14:05] Cameron: pol­i­tics.

[01:14:06] Cameron: This guy’s a lit­tle bit soft­er. But, um, yeah, no, I’m enjoy­ing it. I’m look­ing for­ward to see­ing how they han­dle. It’s mov­ing quick­ly though, like they’re belt­ing along, um,

[01:14:16] Tony: Mm hmm.

[01:14:17] Cameron: to get to where they are

[01:14:19] Cameron: in two episodes.

[01:14:22] Tony: Speak­ing of belt­ing along, I was dri­ving down the free­way in Syd­ney on Sat­ur­day and there’s a bill­board and it just says, You Are Bugs.

[01:14:29] Cameron: Oh, right, yeah, yeah,

[01:14:34] Tony: Caught my

[01:14:34] Tony: atten­tion.

[01:14:35] Cameron: I, um, apart from that,

[01:14:39] Cameron: I watched a, re watched an episode of, um, the first sea­son of Black Mir­ror.

[01:14:45] Cameron: You, you watch Black

[01:14:46] Tony: hmm. Oh, just the odd episode. Not, not

[01:14:50] Cameron: Did you ever see the one with the, uh, mem­o­ry chips,

[01:14:53] Cameron: um, from the first sea­son? Mmm, it’s pret­ty good. It’s basi­cal­ly, uh, uh, set in a future where every­one has a lit­tle implant. Neu­ralink style behind their ear and it records 24 frames a sec­ond audio video of every­thing you expe­ri­enced dur­ing the day and peo­ple have a lit­tle remote con­trol where they can scan their mem­o­ries back­wards and for­wards and play them and you can play them back on your reti­na Um, what­ev­er it is, like a lit­tle screen on your reti­na, or you can, you can throw them like air­drop, uh, not air­drop.

[01:15:24] Cameron: What do they call it? It’s air, what­ev­er it is on Apple devices now, to you, to a, to a screen. So oth­er peo­ple can watch them. And some guy thinks that his wife, who’s played by Jodie Whit­tak­er, is hav­ing an affair and he’s like, Becomes para­noid, is replay­ing things that she said over and over and over and over again and get­ting real­ly obses­sive about it and et cetera, et cetera.

[01:15:47] Cameron: But it’s inter­est­ing, uh, cause this is prob­a­bly 10 years old, this

[01:15:51] Cameron: episode and see­ing, I don’t know if you saw this, but Neu­ralink’s

[01:15:55] Cameron: first patient was demon­strat­ed. There was video of him play­ing. Chest with his mind last week,

[01:16:01] Tony: Mm

[01:16:02] Cameron: or the week before. Like we now

[01:16:05] Cameron: have brain implants that can enable peo­ple to do stuff with their mind 10 years lat­er.

[01:16:10] Cameron: Like it’s

[01:16:11] Tony: Yeah, we don’t need, uh, we don’t need COVID vac­ci­na­tions to put 5G in our

[01:16:17] Cameron: Eons was­n’t Bill Gates who was gonna put chips in our brains? It was Eon .

[01:16:21] Cameron: Yeah.

[01:16:22] Tony: Yeah.

[01:16:22] Tony: wrong bil­lion­aire.

[01:16:26] Cameron: Um, I’ve also been read­ing a biog­ra­phy on Dong Xing. Um, for the last week, which has been fas­ci­nat­ing. Um, real­ly inter­est­ing to get his life sto­ry. Um, I’m where I’m up to. He’s still in exile dur­ing the cul­tur­al rev­o­lu­tion and, um, some trag­ic stuff hap­pened, like when he and his wife were sent into exile.

[01:16:53] Cameron: Because there was a guy, there was a high rank­ing guy that crit­i­cized the way that Mao had han­dled the Great Leap For­ward and, um, Dong was close to this guy. He was also close to Mao, like he had known Mao since the very begin­ning more or less. But, um, you know, basi­cal­ly Mao sent him into exile with his wife.

[01:17:16] Cameron: But while he was in exile, doing like menial labor work­ing in a fac­to­ry in north­ern Chi­na. Um, his eldest child, his son, who he was close, very close with. was being hound­ed by the Red Guards and fell out of a build­ing and broke his spine and the hos­pi­tals would­n’t oper­ate on him because he was Dong’s son and Dong was in the shit­house with Mao and so no one want­ed to oper­ate on the son because of the polit­i­cal con­se­quences of oper­at­ing on his son.

[01:17:52] Cameron: They kept him alive but they did­n’t do surgery on him so he end­ed up as a quad­ri­pleg­ic. Um, and then was sent To where Dong was liv­ing in the coun­try. So Dong and

[01:18:02] Cameron: his wife could, Mrs. Dong, uh, could, uh, care for him.

[01:18:11] Cameron: And, uh, yeah, I mean, and obvi­ous­ly Dong was not very hap­py with that, but you know, a lot of, a lot of talk

[01:18:18] Cameron: about.

[01:18:20] Tony: So Chi­nese doc­tors don’t take the Hip­po­crat­ic Oath?

[01:18:23] Cameron: Well, they were,

[01:18:25] Cameron: they took the Hip­po­crat­ic Oath,

[01:18:27] Cameron: um, after the

[01:18:28] Tony: Yeah,

[01:18:28] Cameron: Oath,

[01:18:30] Cameron: they took them both, lit­tle bit of A, lit­tle bit of col­umn

[01:18:33] Cameron: B, um, yeah, look, it was a dif­fi­cult peri­od, um, where you, could be um, you know, you could lose, you could lose your liveli­hood, you’d lose every­thing if you were per­ceived to be an ene­my of the rev­o­lu­tion,

[01:18:48] Cameron: a counter rev­o­lu­tion­ary.

[01:18:50] Cameron: So any­way,

[01:18:51] Tony: Did you, um,

[01:18:51] Tony: did you read the, did you read the, arti­cle in the

[01:18:53] Tony: Fin Today uh, about a book writ­ten by Hugh Mack­ay, H U W

[01:18:57] Cameron: I don’t know Hugh Mack­ay, yeah.

[01:19:00] Tony: Okay. Um, prob­a­bly not the one you’re think­ing of, H U G H Mack­ay,

[01:19:03] Tony: the econ­o­mist. This is the

[01:19:05] Tony: chief econ­o­mist for, uh,

[01:19:08] Cameron: yeah, I knew him back

[01:19:09] Cameron: in the 90s, actu­al­ly knew him, knew him,

[01:19:11] Tony: Oh, you did?

[01:19:12] Cameron: He was involved with some of the com­pa­nies, I think at Par­ma­corp where I worked, I think

[01:19:15] Cameron: we were doing some work with him, and yeah. Any­way, what’s his new book?

[01:19:18] Tony: A Palmer Corp? Any rela­tion to Clive Palmer?

[01:19:22] Cameron: no, no, no, no.

[01:19:24] Cameron: Run by

[01:19:25] Tony: no.

[01:19:25] Tony: the sto­ry is he’s

[01:19:26] Cameron: real estate, uh,

[01:19:28] Cameron: devel­op­ers in Mel­bourne who I think are both in jail now or were in jail.

[01:19:34] Cameron: Uh, it’s, Uh,

[01:19:35] Cameron: escapes my

[01:19:36] Cameron: mem­o­ry.

[01:19:37] Tony: You dodged You dodged Dodged the bul­let.

[01:19:39] Cameron: Any­way, Hugh McK­ay. Yeah.

[01:19:41] Tony: Here’s a guy, you know, he’s writ­ten a book, I would­n’t mind get­ting a hold of it. it’s, an assess­ment of the long term, uh,

[01:19:49] Tony: eco­nom­ic via­bil­i­ty of Chi­na. And he kind of, he’s got a fair bit of expe­ri­ence giv­en that

[01:19:56] Tony: Chi­na’s a big part of BHP’s busi­ness. But he points to, uh, the echo cham­ber around Xi Jin­ping about what you’re talk­ing about, the polit­i­cal inter­fer­ence in SEOs and how that, um, will prob­a­bly ham­per the Chi­nese econ­o­my going for­ward.

[01:20:13] Cameron: Oh, I haven’t heard of that, but I did start with, there was that web­site you put me onto,

[01:20:17] Cameron: Glob­al

[01:20:19] Tony: Yeah, Glob­al uh, glob­al invest­ing is it?

[01:20:23] Cameron: no,

[01:20:24] Cameron: Glob­al Econ­o­my some­thing.

[01:20:27] Tony: Yes, you’re

[01:20:28] Cameron: watch­ing a video they’ve got with three econ­o­mists talk­ing about Chi­na, and one of them is Michael

[01:20:36] Cameron: Hud­son, whose book, Super­impe­ri­al­ism, I read not that long ago.

[01:20:45] Cameron: Um, and they have a com­plete­ly oppo­site view of all of this. Uh, you know, they believe they’re very

[01:20:50] Cameron: bull­ish about Chi­na’s

[01:20:52] Cameron: eco­nom­ic.

[01:20:54] Tony: No, I know. And, and here, the arti­cle was about how Hugh Mack­ay was being sort of counter

[01:20:59] Tony: to the gen­er­al con­sen­sus about Chi­na, and inter­est­ing­ly enough, was crit­i­cal of Chi­na, and he was BHP’s biggest cus­tomer, and he’s the chief econ­o­mist for BHP. So I think he’s maybe Dug him. I, if, if his sung got ill, I would­n’t want to, uh, have the med­ical bill paid for my BHP

[01:21:20] Cameron: Yeah.

[01:21:22] Cameron: Um, yeah, but any­way, the, the book on Deng Xiaop­ing is inter­est­ing and, uh, you know, obvi­ous­ly, uh, he gets cred­it, deserves cred­it for being the guy that turned Chi­na around in the ear­ly 80s after he took pow­er in 79 and, you know, they’re enjoy­ing the lega­cy of

[01:21:41] Cameron: his. Um, vision, uh,

[01:21:45] Cameron: today, he was the guy that put them on the path

[01:21:48] Cameron: that, um, they’re still fol­low­ing.

[01:21:52] Tony: What was his clas­sic quote about cats?

[01:21:53] Cameron: mat­ter what col­or the cat is, as long as it drinks milk,

[01:21:57] Tony: Yeah. As long as it catch­es the mouse

[01:21:59] Cameron: or that one. Yeah. He had a lot of them.

[01:22:02] Cameron: Yeah.

[01:22:02] Tony: Yeah, but when he was say­ing, are you real­ly a cap­i­tal­ist, he says, I don’t care what colour the cat is, as long as it works.

[01:22:09] Cameron: Yeah. Um, but at the same time, like the mod­el was and is, we will allow a mea­sure of cap­i­tal­ism, but it’s con­trolled by the

[01:22:19] Cameron: par­ty for the good of the coun­try and for the good of the peo­ple.

[01:22:23] Cameron: And if you step out of line, we will pull the rug out from under­neath you. So, uh, that’s sup­pos­ed­ly how

[01:22:32] Cameron: it works.

[01:22:35] Tony: Maybe we could get some CCP peo­ple down here to run ASIC for us. Get that pumpin

[01:22:41] Cameron: Yeah, well Chi­na was slow­ly buy­ing Aus­tralia bit by bit, you know, like just to give it anoth­er 10 years. And I also found a book on math­e­mat­ics after a con­ver­sa­tion last week. I found it’s called Math­e­mat­ics, A Com­plete Intro­duc­tion, The Easy Way to Learn Maths by Hugh Neal and Trevor

[01:23:00] Cameron: John­son. Starts with addi­tion.

[01:23:03] Cameron: And then works its way up to prob­a­bil­i­ty and trigonom­e­try and what­ev­er, but very, very sim­ple, basic stuff. Um, and I’ve been hav­ing an absolute blast,

[01:23:16] Cameron: par­tic­u­lar­ly I was doing poly­gons. And hav­ing to work out the inte­ri­or and exte­ri­or angles of poly­gons and tes­sel­la­tion and what poly­gons 15 20 min­utes of it a day on my iPad.

[01:23:33] Cameron: And I’ve also been doing my AFSL,

[01:23:36] Cameron: um, work

[01:23:38] Cameron: in the last week. Tak­ing your advice. I’m doing it with a pen­cil but on my iPad. Slow­ly writ­ing every­thing out. But doing that with the math­e­mat­ics book too, writ­ing things down, doing the tests and the exam­ples and draw­ing the poly­gons and the angles

[01:23:52] Cameron: and I got­ta tell you, I’ve been enjoy­ing the AFSL stuff by doing that because it’s now a chal­lenge for me.

[01:23:58] Cameron: Like, can I learn this? That’s

[01:23:59] Cameron: the chal­lenge. How do I struc­ture this in a way that my brain does­n’t fiz­zle? But with the math stuff, it’s acti­vat­ing a part of my brain that has­n’t been used for 35 years. And I’m get­ting like dopamine hits out of it. Like so much joy out of hav­ing to sit down and solve math prob­lems.

[01:24:18] Cameron: And then if I don’t under­stand, if I get an answer wrong and I don’t under­stand why, I go to GPT and I say, this is the ques­tion. How do you solve it? Walk me through it

[01:24:28] Cameron: step by step, show me how this works. Like, why can’t you tes­sel­late a nonagon? And it had to explain to

[01:24:34] Cameron: me, you know, why you can’t tes­sel­late a nonagon.

[01:24:38] Cameron: Which is also the title of my next album, Tes­sel­lat­ing Nonagons.

[01:24:42] Cameron: By Cameron Reil­ly. Um,

[01:24:45] Tony: Well, that’s the, that’s the title of our episode, this

[01:24:47] Cameron: to, how to, tes­sel­late a nonagon.

[01:24:50] Cameron: Yeah.

[01:24:52] Tony: Aster­isk, it can’t be done.

[01:24:54] Cameron: Um, any­way, so hav­ing GPT is, uh, as a maths tutor has been fan­tas­tic as well. It’s, it said to me when I asked him why you can’t tes­sel­late a nonagon, it explained it in terms of angles. And then it said, it’s like, Like try­ing to fit cats into a

[01:25:10] Cameron: box. You know, they’re not, they’re not going to fit nice­ly.

[01:25:15] Cameron: There’s always going to be a space. One’s always

[01:25:16] Cameron: going to try and crawl out. You just can’t stuff cats into a box or some­thing. That’s like, all right, thank you. That’s very help­ful.

[01:25:24] Cameron: Very, very help­ful.

[01:25:26] Cameron: Any­way, with

[01:25:28] Tony: We used to have a tes­sel­lat­ed veran­da when we lived in. to Armadale in Mel­bourne.

[01:25:33] Tony: And notwith­stand­ing, I don’t know,

[01:25:35] Tony: but You just remind­ed me of the mass that must have gone into putting that veran­da togeth­er with lit­tle

[01:25:40] Tony: mosa­ic

[01:25:40] Cameron: Well, of course the Mus­lims like, uh, their tes­sel­lat­ed, um,

[01:25:46] Tony: Moops.

[01:25:50] Cameron: They like their, uh,

[01:25:52] Cameron: tes­sel­la­tions. Yeah.

[01:25:53] Cameron: Mm hmm.

[01:25:55] Tony: Yeah, I’d be love going to Lis­bon in

[01:25:57] Tony: Por­tu­gal and look­ing at the influ­ence of the Moors with all the tile work on the

[01:26:01] Tony: out­side of build­ings there.

[01:26:03] Cameron: And, you know, Ray and I, in the, um, Renais­sance show, have just done a series of eight episodes or some­thing on the Islam­ic Gold­en Age and the House of Wis­dom in Bagh­dad. Devel­oped in the ear­ly 800s and, um, by the caliphs there and then all of the great sci­en­tists, but includ­ing the math­e­mati­cians like al Khwariz­mi that invent­ed, um, alge­bra and algo­rithms

[01:26:33] Cameron: and so much mod­ern math­e­mat­ics came out of Bagh­dad in the ear­ly 2000s.

[01:26:38] Cameron: 9th cen­tu­ry,

[01:26:39] Cameron: 10th cen­tu­ry, you know, they, they love their math­e­mat­ics, the Mus­lims in the ear­ly days and the sci­ence and geog­ra­phy and astron­o­my and

[01:26:47] Cameron: every­thing.

[01:26:48] Tony: Oh yeah. Well, does­n’t liv­er zero or the num­ber zero come from that area of the world

[01:26:53] Cameron: I think the

[01:26:54] Cameron: Indi­ans,

[01:26:55] Tony: and alge­bra. Alge­bra comes from

[01:26:58] Cameron: well, alge­bra, yeah, came from a book by Al Khwariz­mi. Al Khwarizmi’s name is where we get algo­rithm from, it was from his name, but he had a book called Al Jab­bar, uh, J A B R. And that was, you know, it was the, birth of alge­bra, he invent­ed alge­bra and um, you know, hard to imag­ine any field of sci­ence today with­out alge­bra and algo­rithms and yeah, it’s fas­ci­nat­ing to read about, you know, one of the things we point­ed out in the show is that the rela­tion­ship between Islam and sci­ence in that par­tic­u­lar era was 180 degrees to the rela­tion­ship of Chris­tian­i­ty and sci­ence.

[01:27:41] Cameron: The, the Islam­ic view was that God cre­at­ed sci­ence, God cre­at­ed the uni­verse and sci­ence, math­e­mat­ics, was dis­cov­er­ing how God had cre­at­ed things. So the bet­ter you under­stood sci­ence and how the world worked, the bet­ter you under­stood math­e­mat­ics, you were actu­al­ly doing God’s work by fig­ur­ing out, uncov­er­ing how God made things work.

[01:28:06] Cameron: gen­er­al­ly speak­ing, saw it as being anti­thet­i­cal to Chris­tian­i­ty and it was the oppo­site. So, you know, and then, and then, you know, Ray and I had just done, we’ve just did like 120 episodes on Da Vin­ci before that. A large part of Da Vin­ci’s knowl­edge of sci­ence and math­e­mat­ics, he got from books that were being dis­cov­ered.

[01:28:33] Cameron: Dur­ing the, you know, the, the incur­sions of the Euro­peans as they were doing the, the Recon­quista, which is kind of actu­al­ly what we’re sup­posed to be talk­ing about in this series, but I had to go back and talk about the Gold­en Age, when the Chris­tians went and recon­quered The Holy Lands did the Recon­quista and they found all these books and start­ed bring­ing them back to Europe and rein­tro­duced sci­ence and the human­i­ties, um, uh, to Flo­rence in par­tic­u­lar, at that par­tic­u­lar point in Europe. They went and recon­quered the Holy

[01:29:09] Cameron: Lands, and by doing so, rein­tro­duced sci­ence and math­e­mat­ics to Europe, which end­ed up desta­bi­liz­ing reli­gion’s hold, Chris­tian­i­ty’s hold on the minds of Europe, so it was iron­ic, but any­way, yeah. What about you,

[01:29:22] Cameron: Tony? How are the hors­es going?

[01:29:26] Tony: we had

[01:29:26] Tony: a cou­ple run­ning over the week­end. Uh, one came fourth, I Nev­er Dreamed, on Thurs­day, and

[01:29:31] Cameron: Who’s on first? One came fourth is like, who’s on

[01:29:34] Tony: sec­ond. Yeah, it is. And Poi­fect ran sec­ond

[01:29:39] Tony: yes­ter­day, which was a good run. It was her first start, this prep, so she

[01:29:43] Cameron: That was­n’t quite Poi­fect. Poi­fect was­n’t, Poi­fect was­n’t quite Poi­fect.

[01:29:48] Tony: yeah,

[01:29:49] Cameron: You’re

[01:29:49] Cameron: going to change the name of the horse now to

[01:29:50] Tony: but yeah, no, no, she’ll be Poi­fect in time.

[01:29:55] Tony: She’ll,

[01:29:55] Cameron: come good.

[01:29:57] Tony: in the sec­ond or sec­ond or third start. Yeah, no, she’ll do well.

[01:30:01] Cameron: And I nev­er dreamed ran Yeah, per­fect ran sec­ond, I nev­er dreamed ran fourth. That real­ly is like an Abbott and Costel­lo, uh, rou­tine You’re

[01:30:09] Cameron: going with here, isn’t it?

[01:30:12] Tony: Yeah, well, a bit dis­ap­point­ed with I Nev­er Dream’s run. I thought she’d win, uh, cause she was down in grade. Um,

[01:30:18] Tony: but Yeah, you got­ta for­give a horse one bad run.

[01:30:21] Cameron: She was

[01:30:21] Cameron: what? Down in grade?

[01:30:25] Tony: Yeah. So, um, Hand­i­cap­ping, all hors­es are hand­i­capped after a num­ber of, after I’ve raced enough to be hand­i­capped and then they get put in the same grade. So they’re rough­ly of the same abil­i­ty as the

[01:30:38] Tony: hors­es they’re rac­ing against. And then to sort of even it out even fur­ther, they give, they give Get dif­fer­ent weights as hand­i­caps to the hors­es in a par­tic­u­lar race to try and even it out to make it as even as pos­si­ble so there’s not one horse dom­i­nat­ing, which would kind of kill things because then it’d be unback­able in every race.

[01:30:58] Tony: So they try and even it out, give every horse a chance. It’s real­ly woke. Horse rac­ing’s woke.

[01:31:03] Cameron: ha ha

[01:31:05] Tony: Every horse gets a chance to

[01:31:06] Cameron: ha ha ha ha ha ha ha ha ha ha ha

[01:31:09] Cameron: they get a prize just for show­ing

[01:31:10] Cameron: up. Um, I don’t under­stand

[01:31:12] Cameron: han­di How does hand­i­cap­ping work?

[01:31:15] Tony: Uh, yeah, so, um, it, it, it, As you race a num­ber of times, they, the Chief Hand­i­cap­per will

[01:31:24] Tony: say if you won this race, and it was a,

[01:31:26] Tony: They have bench­marks, so they start off

[01:31:28] Tony: at a very low bench­mark, like a bench­mark 56, if you win that race you go up to a bench­mark 60, I think it was about 4, 4 or 5, Gaps for a win, you jump four or five.

[01:31:40] Tony: Bench­marks for a win. So, I Nev­er Dreamed went up and raced above her grade, the race before last, she raced in the BM, a bench­mark 70 race, and then she dropped back to a 64, might be six points between her, for a win, I’m not sure. Any­way, so they, they try and keep, um, the hors­es in the same, of the same abil­i­ty in the same class­es.

[01:32:02] Tony: And if you go up into a high­er class, you car­ry a very low weight against all the oth­er class­es, oth­er hors­es, but she went down in grade, so she car­ried the top weight, which prob­a­bly account­ed for why she ran fourth and not first. So that’s hand­i­cap­ping. And the secret to punt­ing is to try and work out where the hand­i­cap­per’s got it wrong.

[01:32:20] Cameron: So, I did­n’t under­stand any of that. The hand­i­cap,

[01:32:25] Cameron: the grade is they’re try­ing to The grade is they’re try­ing to get hors­es of

[01:32:29] Cameron: sim­i­lar abil­i­ties to run in the same race. And the hand­i­cap is Just the, the num­ber that you’re giv­en that deter­mines what grade you’re in, or does it. affect how

[01:32:42] Cameron: you actu­al­ly run in the race?

[01:32:45] Tony: two, two parts to it. It does deter­mine the grade you run in. So if you win a race in a low grade, you go

[01:32:50] Tony: up in the in the grade rat­ing, the hand­i­cap rat­ing, the bench­mark

[01:32:54] Tony: rat­ing it’s called. So you’ll race against bet­ter

[01:32:57] Tony: hors­es. Peo­ple will want to

[01:32:58] Tony: race as well. And then with­in that race, depend­ing on how, like if you won it by, if you won your race close­ly and the hors­es in that race haven’t gone on to win oth­er races, then even though you’ve gone up in the bench­mark, you may not car­ry the top weight in the race.

[01:33:16] Tony: So with­in the race, the hors­es you’re rac­ing against, they’re also hand­i­capped by car­ry­ing more weight in their sad­dle­bags.

[01:33:22] Cameron: lit­er­al weight in sad­dle­bags.

[01:33:25] Tony: lead in The

[01:33:25] Tony: sad­dle­bag, that’s where it

[01:33:26] Cameron: Real­ly? They

[01:33:27] Cameron: put

[01:33:28] Cameron: lead

[01:33:29] Tony: so the jock­ey. The jock­ey has to get, the jock­ey car­ries their sad­dle, gets weighed on the way out, and then on the way back before they go any­where, they get off the horse, and they take the sad­dle off

[01:33:39] Tony: the horse, and they get weighed, the first thing that hap­pens by the stew­ards, because the hand­i­cap is the total of

[01:33:44] Tony: the jock­ey and the lead

[01:33:45] Tony: in the sad­dle­bag’s weight.

[01:33:46] Tony: So, for exam­ple, the, what’s seen as, by the hand­i­cap­per, as being the best horse in the race, so even though it’s the same bench­mark as the oth­er ones, it may have won by four lengths in its last start, so it will be giv­en the top weight. And it will car­ry 60 kilo­grams in, in both, which is a com­bi­na­tion of the weight of the jock­ey, the sad­dle, and if that comes in low­er than 60 kilo­grams, lead they put in the sad­dle to, um, to get it up to 60 kilo­grams.

[01:34:13] Tony: But then the jock­ey who’s on the horse that, you know, um, won, um, less con­vinc­ing­ly. They might actu­al­ly have to get down to 54 kilo­grams, which means you are lim­it­ed in which jock­eys can ride it because 54 kilo­grams for a ful­ly grown human adult is not very, not very much. So often­times a lady will ride a horse at 54 kilo­grams or

[01:34:34] Cameron: that’s about what

[01:34:34] Cameron: Chris­sy weighs. She

[01:34:35] Cameron: should become a jock­ey.

[01:34:37] Tony: yeah, exact­ly. Yeah, same with Jen­ny. So she can go on to be a jock­ey as

[01:34:40] Cameron: Send our wives out to become jock­eys.

[01:34:43] Cameron: Wow, I had no idea they put weights in

[01:34:45] Cameron: the sad­dle­bags to slow the hors­es down.

[01:34:47] Tony: cor­rect. Yep, to hand­i­cap them.

[01:34:50] Cameron: I mean, it’s like, just let the hors­es go and run and

[01:34:52] Cameron: see who wins.

[01:34:54] Tony: Yeah, because then the whole idea is that you, you have, as a bet­ting mar­ket, you have an

[01:34:58] Tony: even chance of a horse win­ning. And it’s up to the punter to work

[01:35:01] Tony: out. Is the hand­i­cap­ping right? Because the top weight might still win, because it’s such a good horse,

[01:35:08] Tony: it can car­ry 60 kilos of weight and still win. So you’ve got to try and assess that.

[01:35:14] Tony: Often times peo­ple do what’s called, um, speed map­ping, so they’ll work out the horse that won pre­vi­ous­ly by, you know, what was its sec­tion­al times? How much did it win by? What sort of time did it set when it won? Was it still run­ning on at the end? Does it have room to improve? All that kind of stuff. But a lot goes on in between the races, whether the horse is trained on or not or all that kind of stuff goes into it as well.

[01:35:39] Tony: Whether the horse is just like any ath­lete has a good day or a bad day goes into it as well. But yeah, it’s all, it’s all very reg­i­ment­ed. And in the last sort of prob­a­bly decade, it’s become Um, much more rules based. When I first got into the horse busi­ness, it was very much the hand­i­cap­per, chief hand­i­cap­per would make almost arbi­trary assign­ments of grades and weights based on, they’d watch a race and they’d look at the aver­age horse in the field and they’d say OK, you beat the aver­age horse by it.

[01:36:09] Tony: 10 links, there­fore we think you should car­ry this weight. And over time, I mean that was even eas­i­er to find the hand­i­cap­ping mis­takes, um, but over time it became a rules based thing. But there are still hand­i­cap­ping mis­takes because the rules, you know, the rules are one size fits all, but if there’s a very good horse that can break the rules, they gen­er­al­ly win.

[01:36:30] Cameron: per­cent of every­thing is crap.

[01:36:31] Tony: Yep, exact­ly. So you’re look­ing for the 20 per­cent that wins all the races.

[01:36:38] Cameron: Wow.

[01:36:39] Tony: And again, you look for val­ue. You know, you’re like, you know, there are obvi­ous hors­es, which are in that 20 per­cent camp, like your Black Caviars but they, they run around at 1. 05. It’s not real­ly worth tak­ing the risk to bet on them hav­ing a good day that day.

[01:36:54] Tony: And that hap­pens a lot that you see hors­es run around at odds on, and they go down because they real­ly weren’t an odds on prospect. So you’ve got to try and work out the horse that will beat it.

[01:37:04] Cameron: So I was 53 years old when I found out that they actu­al­ly put lead in sad­dle­bags of hors­es and that’s what the hand­i­cap is. Wow. The shit that I don’t know. There’s scream­ing going on

[01:37:18] Cameron: down­stairs in my house. I bet­ter go find out what

[01:37:20] Cameron: it is. Sounds like hap­py

[01:37:22] Tony: And it also under­lines just what fan­tas­tic ath­letes jock­eys are, because they you know, they waste and they exer­cise to make a par­tic­u­lar weight. If they want to get a top ride,

[01:37:31] Tony: they may have to lose weight on that day and they don’t eat before­hand. And that fac­tors into things too. If the jock­ey

[01:37:37] Tony: has wast­ed to make that par­tic­u­lar weight, Wait, um, may not be a good bet.

[01:37:42] Tony: The jock­ey’s not going to have much mus­cle and, and be on the ball to guide the horse in a tight sit­u­a­tion if they’re think­ing about get­ting a McDon­ald’s when they jump off.

[01:37:51] Cameron: Speak­ing of which, you had break­fast with my son Tay­lor the oth­er day and he said, Tony’s look­ing real­ly

[01:37:56] Cameron: skin­ny and healthy.

[01:37:59] Tony: Oh, he’s so nice. It’s not, it’s not

[01:38:01] Cameron: he thinks it is. He said you were look­ing good.

[01:38:04] Tony: good. That’s Good.

[01:38:05] Tony: Good. Yeah.

[01:38:07] Tony: Yeah. Well, hard work pays

[01:38:08] Cameron: and what

[01:38:11] Cameron: else are you doing? Still off the booze?

[01:38:13] Tony: Still off the booze. Um, uh,

[01:38:15] Tony: 18 months.

[01:38:18] Cameron: time.

[01:38:18] Cameron: A lot of calo­ries.

[01:38:20] Tony: Yeah, yeah, although I haven’t real­ly lost weight, so it’s more that it’s

[01:38:24] Tony: shift­ed around. I think I’ve been doing gym work every day. The phys­io’s

[01:38:27] Tony: put me onto a plan to try and keep my back hold play­ing golf into old age, so I think that’s helped. And, um, I’ve seen the PT prob­a­bly three times because, again, the physio said once you’ve done the same thing for two months, go and see a PT and get them to

[01:38:44] Tony: upgrade it for you.

[01:38:45] Tony: So I’ve seen PT about three times, but yeah, it’s hav­ing an

[01:38:49] Cameron: good, Good to hear. You’ll be with

[01:38:51] Tony: good, yeah.

[01:38:52] Cameron: You’re going to out­do Char­lie Munger. You’ll be with us into your

[01:38:54] Cameron: 90s. Yeah.

[01:38:57] Tony: Hope so. Think of the com­pound, think of the com­pound growth.

[01:39:01] Cameron: yeah,

[01:39:03] Cameron: ignor­ing the last

[01:39:03] Cameron: cou­ple of years,

[01:39:04] Cameron: ignor­ing the last cou­ple

[01:39:05] Tony: I can make up for the

[01:39:06] Tony: last cou­ple of

[01:39:07] Tony: years.

[01:39:07] Tony: Yeah, exact­ly.

[01:39:08] Cameron: By the way, uh, the light port­fo­lios have been doing real­ly well late­ly. Um, you

[01:39:14] Cameron: know, com­pared to the STW, real­ly catch­ing up a lot over the

[01:39:19] Cameron: last, uh, few months. So, yeah, it’s inter­est­ing when the mar­ket gets over its jit­ters and these things have got some sta­bil­i­ty under them.

[01:39:26] Cameron: Yeah. Doing Well, gun­ning along.

[01:39:30] Cameron: So hope­ful­ly they will look as good as the

[01:39:33] Cameron: dum­my port­fo­lio does a

[01:39:35] Cameron: year from now.

[01:39:36] Tony: Well, that’s what I was going to say too. If you’re doing regres­sion test­ing, is it pos­si­ble to do it

[01:39:40] Tony: to match the dum­my

[01:39:41] Cameron: I did that,

[01:39:42] Cameron: um, last time.

[01:39:43] Cameron: Yeah,

[01:39:43] Tony: You did? Okay. And it matched?

[01:39:46] Cameron: Yeah,

[01:39:47] Tony: Yeah.

[01:39:47] Cameron: I haven’t done that for a while, but the last, I think the last round of the round before I did, I, I did those dates and

[01:39:53] Cameron: yeah, it did

[01:39:54] Cameron: match,

[01:39:56] Tony: Yeah. Good.

[01:39:57] Cameron: you

[01:39:57] Cameron: know, just say­ing that it was ter­ri­ble.

[01:40:00] Tony: Ha ha. But it gives us faith that the regres­sion test­ing is match­ing real­i­ty.

[01:40:04] Cameron: that’s

[01:40:04] Cameron: right. All right. I bet­ter go see what’s going on down­stairs. TK, thanks for the chat.

[01:40:10] Tony: All right.

[01:40:10] Cameron: Uh, QAV, QAV a good week.

[01:40:14] Tony: All right. Hap­py ASX.