In episode 719, we’re talking about highlights from the Berkshire Annual Meeting, and a pulled pork on Emeco Holdings (EHL), a mining equipment rental company in Australia. 00:00 Welcome to QAV Episode 719 00:15 Berkshire Annual Meeting Highlights 01:35 Buffett and Munger: A Legendary Partnership 03:46 Tributes to Charlie Munger 04:34 Warren Buffett’s Reflections and Insights 05:40 The Wisdom of Charlie Munger 07:04 A Poignant Moment at the AGM 08:48 Exploring the Impact of AI and Self-Driving Cars 10:35 Ralph Nader’s Influence and Investment Philosophies 14:11 Bitcoin: A Controversial Investment 16:06 Analysis of Emeco Holdings (EHL) This week we’re talking about the Berkshire Annual Meeting, China’s gold purchases, a pulled pork on EHL (Emeco Holdings), SXE profit guidance update, Regression testing Price < Cons, Activists vs Karoon Energy (KAR), Austal (ASB) backers want Hanwha Group in the race, TRS is a 3PTL Sell, Apollo sinks THL, Morningstar valuations, banks doing large buybacks. 00:00 Welcome to QAV Episode 719 02:08 Berkshire Annual Meeting Highlights and Munger’s Legacy 18:08 Exploring the U.S. Market: A New Venture for QAV 20:15 SXE profit guidance 21:40 Apollo sinks THL 24:23 Karoon vs activist investors 28:52 Austal update 39:37 Regression testing price < consensus 45:04 China's Gold Buying Spree: Preparing for Taiwan Conflict? 01:02:02 Morningstar's valuations 01:05:38 Banking Sector Dynamics: Buybacks and Capital Management 01:12:19 Exploring Emeco Holdings: A Mining Equipment Rental Success Story 01:19:37 TRS is a sell [/mepr-rule][/et_pb_text][et_pb_toggle title="Transcription" admin_label="Transcription" _builder_version="4.25.0" _module_preset="default" hover_enabled="0" global_colors_info="{}" sticky_enabled="0"]

QAV 719 Club

[00:00:00] Cameron: Welcome to QAV episode 719. It’s the 7th of May. Tony, how are you doing? I believe Poifect had another win. I know this

[00:00:20] Cameron: because One of our listeners emailed me and said that he won some money on Poifect over

[00:00:26] Tony: cool. That’s good. She did. She won the Adelaide Guineas. And that means that hopefully she’ll be racing up your way in a couple of weeks in the Queensland Carnival. But yeah, it was a good win. Very strong win. Strong, strong performance. She looks good.

[00:00:43] Tony: Looks like she’s got some potential.

[00:00:45] Cameron: So that’s two wins in a row.

[00:00:48] Tony: Mm hmm. It’s a streak.

[00:00:53] Cameron: so last week you said, I asked you if it was a big win, is like celebrating or like, that’s, it’s nice. This is the site. It doesn’t depend on the race and what the winnings are,

[00:01:02] Tony: Oh, absolutely. So Saturday, the first one was just a provincial. Brace. Um, so the prize money was probably double this time on Saturday, um, which was a listed brace. And if she looks like she’ll go up to Brisbane for a Group 3, which is sort of stepping up the ladder. And if she does well, then she may go to the Queensland Oaks, which is a Group 1.

[00:01:25] Tony: So we’re hoping to get her to a Group 1 this preparation, which is the pinnacle of racing in the highest prize money. So yeah. Looking forward to that. I mean, fingers crossed. You never count your chickens in this business. You might, um, step in a pothole tomorrow and not race for six months. So yeah, we’ll see.

[00:01:40] Tony: But yeah, it was a great win. Really, really pleased and proud of it. Good win.

[00:01:45] Cameron: Hmm. Oh, that’s good. Congratulations. Must be

[00:01:48] Tony: I did, I did think about, I scoped out airfares to jump on a plane for Saturday to fly to Adelaide and fly back that night. And I ummed In the end, I didn’t. Um, I didn’t want to jinx her, that’s how that worked, but um, yeah, hopefully I’ll see her in

[00:02:03] Tony: Brisbane.

[00:02:05] Cameron: Hmm. Oh, good. It’d be nice to have you up here.

[00:02:07] Tony: Yeah,

[00:02:08] Cameron: Well, Berkshire Annual Meeting this week, Tony, how much of the 7 and a half hours did you get through?

[00:02:16] Tony: well I’ve only got through about the first hour so far, but uh, love it, just so good. I actually found a podcast, I’m listening to the podcast and it’s, I think it’s made by someone who smuggles in a, Recording device, because I remember when I went there, they, they, they, lots of signs up saying no recording, no videos, et cetera, et cetera, because they, um, they always show a film at the start and it’s usually Hollywood stars and sporting stars and business stars have given their time for free and it’s on the basis that it gets shown at the AGM, but not rebroadcast.

[00:02:50] Tony: So, but this podcast actually, someone must’ve smuggled in a, an iPhone or something because you hear the, you know, you obviously can’t see it on the podcast, but you can hear the, the, um, uh, the tribute they put together for Charlie. So it’s probably 10 minutes of his story, famous sayings, great quotable quotes.

[00:03:09] Tony: And that, that so far has been the highlight of what I’ve heard and what I’ve read from the AGM. Some of his quotes are amazing.

[00:03:17] Cameron: Yeah,

[00:03:18] Tony: Yeah, I mean, I mean, so Buffett, it’s a pastiche of the last, whatever it is, 55 years or something of, 57 years of AGMs, but there’s some great quotes. Buffett, Buffett talks about how, um, When he was first starting out back in about 1957, he was talking to a doctor and his wife, who were neighbors of his parents in Omaha.

[00:03:41] Tony: And he said he was mostly speaking to the wife about investing in his partnership. And the doctor was sitting in the background, not saying much. And after about 20 minutes, the doctor goes, honey, give him a hundred grand. And that was a big deal back to Buffett. Back in the days when Buffett was starting out with his partnership, it was like 20 percent of the money he had, uh, invested.

[00:04:04] Tony: And, um, after they talk a bit further, Buffett asks the doctor, You’ve been sitting in the background not saying much, why? You know, what did I say that made you want to invest 100, 000 in my fund? And the doctor said, You sound like Charlie Munger.

[00:04:22] Tony: And Buffett said,

[00:04:23] Cameron: that’s

[00:04:25] Tony: And Buffett said, wow, I’d like to meet this guy. So that was back in 1957.

[00:04:30] Cameron: I think he quotes that story in, um, the Witten Wisdom, Charlie’s Almanac, it’s in there, I think, and one of the things that he wrote, yeah.

[00:04:37] Tony: Yeah. Oh, these are all,

[00:04:38] Cameron: heard about Charlie.

[00:04:40] Tony: Yeah. these are all,

[00:04:40] Cameron: oh, yeah, right.

[00:04:43] Tony: yeah, And then, uh, like he goes on from there talking about how, when Charlie and he finally caught up and, uh, Charlie’s wife asked Charlie after a while, how come you’re spending so much time with this Warren guy? He spends his whole day laughing all day and he never eats any vegetables. And Warren says they went away on a holiday once and their wives asked him to wear name tags so they could tell them apart.

[00:05:07] Tony: But some of,

[00:05:07] Cameron: AGM, oh,

[00:05:09] Tony: ahead.

[00:05:11] Cameron: in the AGM he said that Charlie was peaking at the age of 99. The world was beating down a door. To spend time with him, he never deliberately did a day of exercise in his entire life and ate whatever the hell he wanted. And at 99 he was peaking, people, you know, he’s like, just a long list to be, he said Elon Musk went and caught up with him before he died, everyone wanted to spend time with Charlie, at 99, so, that’s a, that’s an incredible life, isn’t it?

[00:05:39] Tony: It is, yeah, and there was lots of tributes. I mean, they played this, um, pastiche of Charlie’s quotes and stories and, and then Buffett made a quite a moving speech about how when they first met, the difference between Charlie and Warren was that, uh, Warren wanted, wanted to know the results and Charlie wanted to know how.

[00:05:57] Tony: The results happened and how, you know, Buffett uses the example that Buffett would turn a light bulb on and see the results that the room got bright, but Charlie would want to know the difference between AC and DC electrical currents. And Buffett took a, Buffett would, you know, Buffett wanted to buy a house, but Charlie was interested in the architecture.

[00:06:17] Tony: And he, Buffett then goes on to say, and that came through in their relationship because it was really Charlie who was the architect of Berkshire

[00:06:24] Tony: Hathaway.

[00:06:27] Cameron: And, in um, In his comments at the beginning of the annual meeting, Warren said that the most, actually, no, I think it might have been during the Q&amp; A. There was a kid, looked like he was about 13, who got up and asked a question. He said, if you had one more day with Charlie, what would you do? How would you spend it?

[00:06:48] Cameron: And Warren said, probably doing the same thing that we always did. But he said that the most fun that they ever had together was when something they did failed. Because then they had to work hard to get themselves out of it. He said, when you do, when something works, you know, it’s just, oh yeah, it works.

[00:07:08] Cameron: It’s not that exciting. It was when something went wrong that they actually needed to step up and figure it out. And he said, that was when they had a lot of fun. He just said that, yeah, same thing though, that they just laughed all the time. They just laughed. And, uh, whether it was playing golf or playing tennis or talking about business and investing, it was just, they just had a good time.

[00:07:30] Cameron: Always.

[00:07:31] Tony: That’s incredible, isn’t it? Some of the other, other quotes that came out of this video, um, you may have heard these before. And look, I should, I should say If anyone wants to read a good read, just type in Google Charlie Munger quotes and there’s hundreds of them listed on various websites that are great to read.

[00:07:51] Tony: Some of the ones

[00:07:51] Cameron: real.

[00:07:52] Tony: yes, some of the ones I like, back from the dot com days, Charlie’s talking about good internet companies and bad internet companies and he says if you mix raisins and turds, they’re still turds. Uh, he said, he said, uh, I’d rather throw a viper down my shirt than hire a compensation consultant.

[00:08:13] Cameron: Okay.

[00:08:13] Tony: there it, he was, no, this was at the time when, um, uh, CEO pay was a thing. That’s the context of it, and Charlie blamed the compensation consultants who get hired by boards of directors to basically say you’ve got to pay this guy a little bit more than what the other guy’s getting paid, otherwise you’ll lose him to that company or whatever, so yeah.

[00:08:33] Tony: He wasn’t a fan of compensation consultants. Uh, and the last one I thought was funny. He said, To say accounting for derivatives in America is a sewer is a disservice to sewers.

[00:08:48] Cameron: Uh, well, it was, there was some sort of sweet, uh, and, and, uh, poignant moments, I guess, in what I’ve seen of it. There was one moment where, Warren answers a long question about something, I can’t remember what, and then he, by reflex, he goes, Charlie? And then he goes, Oh, uh, yeah,

[00:09:10] Tony: Yeah,

[00:09:10] Cameron: said, Oh, sorry. He said, I, I, I promised myself I wasn’t going to do that today, but old habits die hard or something like that.

[00:09:18] Cameron: Yeah. And he got Greg to answer it. Yeah.

[00:09:20] Tony: yeah, And he got a got a round of applause for that. Got a, got a, got a, an ovation after the video tribute for Charlie and then Huffett comes on and goes, um, you know, don’t waste all those claps, we’re still

[00:09:32] Tony: here for later.

[00:09:33] Cameron: Yeah. Don’t waste them all on Charlie. Yeah. Like I, I thought he’d be a lot more, um. I don’t know, uh, sad, uh, than he was. He seemed to be, you know, his normal self and upbeat and chirpy, I guess, you know, he’s had some time to process it, whatever, but it was, I mean, I felt, I felt it was a big moment, like seeing Warren up there by himself was

[00:09:57] Tony: Mm.

[00:09:59] Cameron: I felt sad, you know.

[00:10:01] Tony: It was like in COVID when he was there by himself with Greg, cause I couldn’t, uh, actually have people present.

[00:10:08] Cameron: um, just felt like, I don’t know, Alex Van Halen when Eddie Van Halen died or something like that. Member, the member, key member of the band is gone, you know. Um,

[00:10:18] Tony: and look, Warren isn’t getting any younger too, he did say at some stage his eyes and his hearing was going, so, and you could tell he was an old man speaking. For the first time in a long time I’ve sort of really noticed that listening to

[00:10:29] Tony: the audio.

[00:10:32] Cameron: voice is very soft and croaky. Mind you, Greg’s isn’t that much better.

[00:10:36] Tony: Yeah.

[00:10:38] Cameron: Greg

[00:10:39] Cameron: sounds just like Warren, actually. A couple of other Things that I noted down here, um, somebody asked him about AI. He said, I don’t know anything about AI, but he did say the genie is halfway out of the bottle. He was comparing it to the development of nuclear weapons and, you know, we don’t know really what the result is going to be, but it seems to be happening anyway.

[00:11:02] Cameron: So we’ll just have to wait and see. He did say that somebody showed him just recently, a fake video of himself created by AI saying things. And he said it. looked and sounded just like him. He knows that he’d ever said those things, but he said, even his family wouldn’t be able to tell the difference. Um, and he said, I would, I would practically send money to myself if I saw that video asking for money.

[00:11:30] Cameron: Um,

[00:11:30] Tony: Yeah.

[00:11:31] Cameron: and the only other note I’ve got, he was, somebody asked him about. If self driving cars actually become the standard, as Elon and other people claim they will, Elon apparently has quoted internal Tesla statistics saying that accident rates from self driving cars are 50 percent lower than accident rates when humans are driving them.

[00:11:56] Cameron: What the impact of that will be on Geico’s insurance revenues and

[00:12:01] Tony: Mmm.

[00:12:03] Cameron: And Warren said something to the effect that lower car accidents would be good for society and good for society is what we’re looking for. Ralph Nader has done more for the American consumer than almost anyone. I thought that’s, that’s Warren, right?

[00:12:19] Cameron: It’s, it’s not about revenues and profits at the end of the day. It’s about what’s good for society. He’s a, he’s the real deal. Good

[00:12:27] Tony: yeah. I agree. And I mean, I agree Ralph Nader. I mean, I grew up a little bit after Ralph Nader when he became a thing, but it was, he was, I mean, he was running for president, I think, when I first became aware of him. But people should go back and watch that little clip on Unsafe At Any Speed. That was just an amazing revelation.

[00:12:46] Tony: That documentary about, uh, How one of the big auto companies in America worked out it was cheaper to, uh, pay compensation to the victims of the cars that failed because of an error in the manufacture than it was to get back and retrofit the cars and fix it. Yeah, a kind of highlight or lowlight of capitalism,

[00:13:08] Tony: really.

[00:13:09] Cameron: I know Chrissy voted for him and I think it was the, one of the presidential elect, I think it was the one when Bush Jr. was running against Al Gore and people like her that voted for Nader got criticized afterwards because they split the Democrat vote and allowed Bush to win, etc, etc. I’ve always called bullshit on that.

[00:13:34] Cameron: I mean, I think democracy means that you should vote for the person that you think is best for the job. And if you’re splitting the vote, so be it. If the

[00:13:42] Tony: Well, and it’s a democratic country.

[00:13:45] Cameron: not the right person,

[00:13:46] Tony: Correct. If they can’t attract someone who likes Ralph Nader, then they’ve got a lot of problems, haven’t they? They’re in the camp of the auto industry, who would rather pay compensation than for recalls. So, yeah. But I mean, that slogan has just stuck with me in investing terms as well, to turn it back into QAV parlance.

[00:14:05] Tony: But, you know, um, From memory, the title of that documentary comes from the fact that, uh, the automobile manufacturer worked out that the car would be safe up to a certain speed. And, you know, part of their mitigation is they put stickers in the car saying, you know, don’t drive this above whatever it was, 60 miles an hour or whatever the number was.

[00:14:27] Tony: And that’s, and that’s why Nader chose to call his documentary unsafe at any speed. Um, because the car would get speed wobbles and then flip. And, um, for a long time, and probably still even now, I still see articles that talk about the risk reward trade off and how, you know, if, if you, if something doesn’t pay you much, um, It might still be good for you because it’s a low risk investment or, or, or that there’s a kind of sliding scale where if you’re more aggressive, you can go after something which has a higher chance of not turning out for you, but it pays a better reward.

[00:15:04] Tony: Oftentimes these assessments are made on volatility, which is not a good way of measuring risk, I don’t think. But anybody who tells you to, So, you know, take a punt. This is going to recompense you for the risk of investing your hard earned in a particularly shaky investment. It should just be ignored.

[00:15:21] Tony: There’s, you know, that volatility or the chance of losing your money is unsafe at any speed, right? It’s if it’s a bad investment, it’s a bad investment. It doesn’t matter if it’s bad or good. Proposing to return you 10, 20, 30, 40, 50% per annum in cagr. If it’s a, it’s a fundamentally flawed investment. It’s unsafe at any speed.

[00:15:42] Tony: Um, and for a long time there was a sort of, you know, quasi theory in investment circles that you could put a bit of your portfolio into speculative investments because you know, the, if, if they, if they go under you don’t lose much. But if they win you, they’ll shoot the lights out for you. And that’s just rubbish.

[00:15:58] Tony: It’s like, why would you put a scent into something that could. Wipe out capital completely.

[00:16:04] Cameron: You know, I have to remind myself that though, every time I look at the Bitcoin price, you know, it’s very, um, uh, what’s the word, um, what’s the word when something’s, enticing, I guess, it’s very enticing, alluring, yeah, you see the amount of growth that it’s had in the last six months,

[00:16:27] Tony: Mm hmm.

[00:16:27] Cameron: you think, oh, could have been part of that, and I have to remind myself, it’s, well, it’s just like, okay, you’re either going to be a gambler, Or you’re not.

[00:16:37] Cameron: And that’s a line that you either cross or you don’t cross. And, you know, I, I don’t want to cross it because I think once it’s slippery slope, I say this a bit, you know, we do at my Kung Fu school, we have these two fitness classes. Wednesday nights and Saturday mornings that are just brutal. High intense, high intensity fitness classes that just kill me.

[00:17:00] Cameron: And I never want to go because I’m going to be sore for days afterwards like I am today. But I know if I don’t go to one, if I skip one because I’m like, ah, you know, it’s too hard. That’s it. I know myself well enough that if I make an excuse to opt out one time, it’s like an alcoholic having the first drink, right?

[00:17:22] Cameron: If I make an excuse one time, I’ll make an excuse a second time, and then I’ll make an excuse a third time, and I just can’t. I mean, I just, I can’t allow myself to step over that line because it’s a slippery slope.

[00:17:36] Tony: Yeah.

[00:17:37] Cameron: speaking of slippery slopes, RatPoisonSquared,

[00:17:40] Tony: Bitcoin, it’s, it wasn’t long, it wasn’t very long ago that, um, turds and raisins quote was made, but I think that was made about dot com stocks, but I think it equally applies to Bitcoin too.

[00:17:54] Cameron: he called Bitcoin, I think, didn’t he?

[00:17:55] Tony: Yeah,

[00:17:57] Cameron: Um. I want to talk about Michael Pascoe and China, but I know you’ve got a China story coming up, so we can save it for that. Um, just a couple of other quick news items though. Um, we did a poll a couple of days ago, or last week, about a US show. You know, we’ve been talking for years about one day doing a U.

[00:18:18] Cameron: S. show, um, uh, focusing on U. S. stocks. We’ve got a few listeners in the U. S. and in North America that have been asking us to do that. I started the Stockopedia U. S. portfolio six or seven months ago with a view of dipping a toe in the water with the U. S. market and seeing how the checklist performed. It seems to have been doing okay.

[00:18:41] Cameron: So we Did a poll last week to say, hey, what if we did a US show once a month? So one out of every four shows that we do, weekly shows, we focus on the US market. The overwhelming response so far to the poll has been positive, about 90 percent of the people that have responded to it. Said yes, they would like that.

[00:19:03] Cameron: So, uh, we’ll probably do that. Uh, we’ll see how it goes. Uh, I, you know, I think for us, it’s just testing the waters and getting a feel for the U. S. market and seeing what we can make of their, um, structure, their, their, their market, how the, how QAV works over there, looking at things like dividends and taxes and reporting periods and Some things that are going to be new for us, but I just wanted to flag that for people

[00:19:33] Tony: yeah,

[00:19:34] Cameron: the poll.

[00:19:35] Tony: yeah, good. That’ll be interesting. I mean, I have no experience in doing it, so, and no track record, but I think it’s worthwhile having a go, seeing, uh, seeing what we

[00:19:46] Tony: can discover. Mm hmm.

[00:19:48] Cameron: I did a new poll for this week’s newsletter, by the way, for the club newsletter that went out today. What kind of rule one rule are you following? 10%, 20 percent or not following it at all? I’m interested to see what people come back with. So far, there’s only been a few people that have responded to it this morning.

[00:20:06] Cameron: Most people have said that they’re doing 10 percent still, but I’m interested to see.

[00:20:15] Cameron: SXE, I wanted to mention. SXE, Southern Cross Electrical, uh, one of the stocks in our portfolio, one of our portfolios. announced yesterday that they want a new contract and it’s not really going to deliver anything this year in terms of profits but they put out a profit guidance update which as far as I can tell basically said yeah it’s still what we said it was going to be last time but the share price went up 21 percent anyway.

[00:20:45] Cameron: Yesterday. So, uh, that helped things a little bit. Um, cause we had the Atlas Pearls kerfuffle, uh, not that long ago, a week or so ago. But it was, it’s nice when one of the stocks does that. I haven’t checked to see what it’s doing today. Let me have a quick look, see if that held. Um, no, it didn’t. Okay. Well, bugger you.

[00:21:09] Cameron: Oh, no, it’s still pretty good. It’s, it’s come back a couple of cents or something, but it’s still up. So there you go. Jump from 1. 22. To a dollar 50 yesterday, currently trading at about a dollar 47. So, but really again, when I read the profit guidance, it said, look, we just got this new contract. It’s not really gonna cha have an impact on our, uh, profit this year, but it’s good for next year.

[00:21:34] Cameron: But, uh, and you know, we’re nearly the end of the financial year, I guess, but, um, yeah, it’s good.

[00:21:40] Tony: it’s good. Well, I’ve got a couple of news stories, too, I can go through. Um, I do have some more, And notes from the Berkshire AGM, but I can leave those until later, uh, because we’ve covered a few of them. Um, so, stocks in the news, and some of this is a bit apropos of nothing, but, um, I just thought I’d lead off with, uh, your old friend Apollo Tourism and Leisure.

[00:22:05] Cameron: Uh,

[00:22:05] Tony: now called THL. And it was in today’s paper. So I didn’t send you through an article before we jumped on the, on the podcast, but, um, headline is THL in 200 million wipeout as sales slump. So the curse of Apollo is alive and well. Um, the market capitalization of THL has been. It has fallen by more than a third, or 200 million, after the camper van and caravans group told investors it would miss its profit forecast.

[00:22:34] Tony: THL, which has a fleet of 7, 200 rental camper vans under brands including Brits, Maui and Apollo, and also a substantial business selling the vehicles, warned the profit for the year would be up to 31 percent lower than the forecast issued in February. So um, the curse continues

[00:22:53] Tony: with this business.

[00:22:55] Cameron: I’m

[00:22:55] Tony: Hasn’t been on the buy list for a long time.

[00:22:57] Tony: Check it history. It was

[00:22:58] Cameron: what I was going to ask. the

[00:22:59] Tony: the more recent listeners. Apollo was one of the first stocks we put into the dummy portfolio five years ago. The first,

[00:23:07] Cameron: Yes.

[00:23:08] Tony: what happened to it? I think it

[00:23:09] Cameron: We had to sell it.

[00:23:11] Cameron: And then we had to buy it back again, and then we sold it again, and I said never again, and then we did buy it again, and we sold it again at some point, but,

[00:23:20] Tony: And along the way, it’s had a, it’s had a, an audit red flag for us. Um, went through a big upturn when it, because it had a stake in a company called Camplify, which is, um, some kind of camper van sharing app. like Airbnb and then during COVID it hit the skids because of no one being able to travel and then it’s merged with a New Zealand company to form THL and now that they’re blaming the cost of living increases and inflation for not being able to sell as many vans that they normally would during this time of the year and that’s impacted their forecast for

[00:23:58] Tony: profitability.

[00:24:00] Cameron: uh, well I can’t, I can’t see THL on our buy list at all, looking at the buy list history. Right, well that’s a good thing. I have to set a little alert for that to make sure I never buy it by mistake if it comes on. THL,

[00:24:16] Tony: yeah, but also too a good thing we got out of it whenever we did in our dummy portfolio a long time ago.

[00:24:22] Cameron: hmm.

[00:24:23] Tony: Curse of the Pulled Pork. I’m heavy on curses this week. Apollo and now the Curse of the Pulled Pork. So a company called Karoon Energy, which I did the Pulled Pork on a month or so ago, has been, I guess, attacked.

[00:24:39] Tony: Or questioned by a company called Sand Capital and another company called Samuel Terry Asset Management. Um, there’s been a couple of articles in the last week about these, uh, two activist invest investors. Um, I, I kind of calling this one out because, um, if anyone did buy Karun, it wasn’t the buy list for a while, it’s now a sell.

[00:25:01] Tony: And that sometimes happens when these activists investors take stakes in a company and then have a high price. high visibility campaign attacking the company, guess what happens, the share price drops. People just don’t know what to believe, um, or assume the worst case that the activist investor is right.

[00:25:21] Tony: Um, whether they are or not, I guess I’ll leave it up to, to, um, listeners to do their own due diligence, but they should have sold out by now cause it’s, it’s gone through a 3PTL sell line. Um, what they’re, what they’re saying in a nutshell is that, uh, these two activist firms want the board to return capital to shareholders via dividends or buybacks, um, and they’re rallying against recent acquisitions such as Houdat.

[00:25:45] Tony: and the capital raises to fund them. So they’re also taking aim at, uh, at the, uh, way management is incentivized. They claim that Karoon is paying management to, uh, acquire new assets. And that involves, um, raising of funds, which they seem to be against. But I, I haven’t dug deeply into this, but I seem to recall the reason why Houdat was bought was to diversify away from Buana, which was the Brazilian oil field that Karoon owned.

[00:26:17] Tony: And, um, I think both from a sort of geography sort of risk and, but also I think Berwana didn’t have the sort of, uh, a life of asset that they were after, so they had to buy something else. So I’m not sure that they’ve done the wrong thing with purchasing this oil field, um, but someone thinks they has. they

[00:26:37] Tony: have.

[00:26:39] Cameron: What do you think the chances are that these activists are also shorting the stock or, you know, using options to buy in when it comes down or whatever?

[00:26:51] Tony: yeah, that’s, that’s the old playbook, isn’t it? So I’d say it’s reasonably high.

[00:26:55] Tony: I’m just going to

[00:26:56] Cameron: there,

[00:26:56] Cameron: there’s

[00:26:56] Tony: the,

[00:26:56] Tony: I

[00:26:58] Cameron: wrong with that, like, legally, right? To, you know, criticize a company and drive down its share price when you’ve got options to buy it at a lower price?

[00:27:09] Tony: don’t think so. I mean, there probably are some rules around it, but none spring to mind. Just looking at in Stock Doctor, the percentage shortage on Karoons has gone down generally over the last year or so, but has ticked up a little bit in the last couple of months. So the last two months, but not by much.

[00:27:29] Tony: So yeah, they could be shorting it. Um, but you know, Karoon have been fairly silent. on, um, on their response. So that’s always the best offensive. They disagree with what, you know, what Sandon is saying. They should come out and say why.

[00:27:45] Cameron: Yeah, well, there you go. We did sell it. I had to rule 1 it about a month ago, 11th of April. Um, and I think it was at 2. 05. It’s now below two bucks. So, glad I rule 1’d it when I did.

[00:28:03] Tony: Yeah, good. Uh, and then, um, one more, two more, some good news this time, or potentially good news. Talking about austel. They’ve been in the news again this week. The ship builder from Perth Headline used in the A FR was no concerns with South Korean takeover. Bid for Austel says Miles. The defense minister, um, Korean defense giant is growing more confident.

[00:28:30] Tony: The FIRB will back its quest for Perth Shipbuilder Austel as defense minister Richard Miles said the Albanese government had no concerns with the bid. So the. The bid was lobbed at 282. 50, the shares for Austell have never traded at that price. Largely because people didn’t think the bid would go ahead.

[00:28:52] Tony: Largely because they need both Australian government and US government approval to change from an Australian owned company to a Korean owned company. However, that’s looking, you know, a little bit more likely because Australia’s kind of waving it through and saying that, um, they have no problems. Um, but a follow up article a little bit after that, Australia, Austal backers won Hanwha Group in the race, so at the moment the board of Austal have not allowed Hanwha to do any sort of due diligence on the company, so Hanwha are basing them.

[00:29:28] Tony: Thank you. Their offers so far on what they can see in the public domain, but if they do get due diligence, Hanwha have said that they will increase their bid, providing due diligence works out for them. Seoul headquartered Hanwha is pressuring the Austal board to allow it to carry out due diligence and is willing to mount a revised offer of about 1.

[00:29:49] Tony: 5 billion dollars. So that’s pretty much it. 50 percent higher than the billion dollar offer they’ve made so far at 2. 825. So, um, there’s potentially some upside here. One of the analysts following this, uh, uh, the company is called Chester, and the person is called Anthony Kavanagh. He says it was clear that Clear multiple parties were stalking Austell.

[00:30:13] Tony: The market is acting like there is nothing to see here. My genuine belief is the offer goes up to 3. 00 to 4. 00, 3. 50 to 4. 00. So a fair bit of, um, a bit of upside in, uh, potentially in this takeover battle. Still a few hurdles to get, to overcome. One is the, um, the, uh, U. S. government approval, but also too the founder of Austell still has about 9 percent and Twiggy Forrest has, uh, in his.

[00:30:40] Tony: One of these companies called Tatarang has a fair, a fair slice of the company too. Um, but you know, if it gets up, if it kind of doubles from where the share price is now, that might be become more attractive to them

[00:30:51] Tony: to, uh, consider selling.

[00:30:54] Cameron: So the share price is currently 2. 44, Tony, and you’re saying that the offer that was rejected was 2. 82 or 2. 85 or

[00:31:05] Tony: 2. 82.

[00:31:06] Tony: and a half.

[00:31:07] Cameron: 2. 82

[00:31:08] Cameron: Right. And they’re increasing their offer from there, so why aren’t the shares trading up at, you know, a little bit less than that,

[00:31:16] Tony: Well, they haven’t increased, they haven’t increased their offer yet. They’re saying, if you give us due diligence, we’ll increase our offer. And they’re indicating it could go up by 50 percent depending on due diligence as a way of trying to get

[00:31:28] Tony: the company to engage with them.

[00:31:30] Cameron: But why aren’t the shares trading closer to 2. 82 if that’s already the offer?

[00:31:34] Tony: Well, that’s what I’m saying. So the market is saying, well, you’ve got to get Catering to vote, to, to, to, to, to be taken over or to accept the offer. You’ve got to get the founder to accept the offer and you’ve still got to get U. S. regulatory approval as a defense contractor to accept the offer. The first domino I guess has fallen though because the Australian government says we have no problems with Hanwha owning this company and it really is an important deal for Australia.

[00:31:59] Tony: ASB would be probably the biggest defense contractor that’s locally owned I would think. Big ship builder. So yeah, so, uh, I think you’re right. I think this analyst, uh, Kavanagh, is saying that, um, people are undervaluing the potential for this, and, uh, I guess

[00:32:18] Tony: we watch the space.

[00:32:21] Cameron: Well, I’m glad because after I added it to my super portfolio last week, Ed Nixon, one of our members, emailed me and said, what are you buying that for? Like it’s under an acquisition offer. And I said, well, two very good reasons. Number one, um, I forgot it was under an acquisition offer and two,

[00:32:43] Cameron: two, It hasn’t settled yet, so who knows what could happen, you know, the price could go up, and it has gone up, so suck it, Ed, it’s gone up 5 percent already since I bought it.

[00:32:54] Tony: Ed may,

[00:32:55] Cameron: But if it goes,

[00:32:55] Tony: now. Ha ha ha ha Ha

[00:32:59] Cameron: well, if it goes up to 3. 50 or 4. 00, as Mr. Kavanagh is saying, then it’ll be happy days. But, um, I was wondering, after Ed reminded me that you just, you know, Talked about it and that it was under an offer. I was like, well, I should have , I should go back and listen to the podcast again. Uh, ’cause as soon as,

[00:33:16] Tony: you were

[00:33:17] Cameron: I edit the pod

[00:33:18] Tony: Ha ha ha ha ha

[00:33:19] Cameron: as soon as I edit the podcast, I, you know, it’s gone.

[00:33:23] Cameron: It’s gone from my ram. As soon as I edit it, it’s completely gone.

[00:33:27] Tony: Well, we’ll get a RAM upgrade. Ha ha ha

[00:33:30] Cameron: I don’t, trust me. I wish I could. Um, but, uh,

[00:33:36] Tony: to go back and listen to the interview I did with Phil Muscatello on Shares for Beginners, because, um, again, this is just a rule of thumb, it’s a heuristic, but I, I do sell out reasonably early in takeover battles, but not until the board makes a recommendation to accept. Until the board actually capitulates, it’s, it’s

[00:33:57] Tony: fair game.

[00:33:59] Cameron: well,

[00:34:00] Tony: also, there’s also the risk that Hanwha goes away because the board just won’t engage.

[00:34:04] Tony: So. You can go either way.

[00:34:07] Cameron: yeah. And I, I mean, the, the, so the, when I went back and looked at it, number one, I was like, well, why isn’t it closer to the 2. 80 price? Cause you’d think that anything slightly less than that is a good price to buy in at if it’s gonna close at 2. 82, if you know, 5 percent less than that, you can still get your 5 percent CZ money.

[00:34:26] Cameron: But my concern with it is that, uh, Um, the advisory firm working for Hanwha is Christopher Pyne, uh, Pyne and Partners, the uh, the something poodle. What was his, what did they call him? The,

[00:34:37] Tony: Yeah.

[00:34:38] Cameron: was it Keating who called

[00:34:39] Cameron: him a

[00:34:39] Tony: no, it was Gillard.

[00:34:41] Cameron: Or was it Gillard?

[00:34:42] Tony: Yeah. Some kind of poodle.

[00:34:45] Cameron: never been a big admirer of Christopher Pyne, so I was like, uh, he’s advising,

[00:34:50] Tony: he’s, worked his magic because these, the, Richard Miles has rolled over and said he’s happy to approve a change of ownership in this company, so. He, he did fix it.

[00:35:02] Cameron: Yeah, okay. We’ll see. It’s not done yet. We’ll see.

[00:35:05] Tony: No,

[00:35:07] Cameron: All right. What else you got?

[00:35:08] Tony: I got, I got some other bad news, uh, on GrainCorp came out today with a, um, a cut to their guidance and the share price dropped three or four percent.

[00:35:17] Tony: Um, I own it, so it’s a bit of a bummer for me, but I just make people aware of that. It’s not quite a, a rule one or a 3PTL, but, um, if it keeps trending down, it will be. So GrainCorp faces questions over its ability to live up to its earnings target after slashing guidance for the financial year. 2024 as grain handling margins tumble and Western Australia suffered drier conditions.

[00:35:42] Tony: So GrainCorp is the grain handling business, um, been around forever in Australia. Um, but yeah, it, it, uh, I think, I won’t, I won’t read out the rest of the article on today’s Fin Review, but, um, GrainCorp paints the picture of the, yes, it’s a seasonal commodity handler, But they use a term called look through earnings, so they try and use average earnings to, um, to talk about how well the business is going.

[00:36:09] Tony: Um, analysts are now saying with this downgrade, the, it’s going to fall below the look through earnings on average, and it’s going to be a problem. The problem is also complicated a bit because they have a, Some kind of deal with, um, with, uh, an insurer, Aon, um, and they have a crop insurance policy, which is designed to even out its financial performance, but the way the insurance policy works, um, is that they give money to the insurer, um, if they I’m trying to work out the deal here.

[00:36:42] Tony: I’ll read the quote. Government forecaster ABARES estimates farmers in Queensland, NSW and Victoria produced a 2023 24 crop of 23. 1 million tonnes, above the 10 year average of 21. 6 million tonnes. Based on the ABARES numbers, GrainCorp faces a fourth consecutive payout to its insurer AON under a crop insurance policy designed to even out its financial performance.

[00:37:08] Tony: So this is one of those crazy times when it’s, um, it’s had a downgrade, but it’s still doing better than it, um, it forecasts in this insurance policy. So even though it’s not the best of times for it, it’s going to have to pay AI insurance, some kind of, uh, payment, uh, which it takes out as insurance, um, against having a really bad year. And I think I’ve talked about this in the past, and I don’t know Grancourt well enough to know whether it’s a good deal that they’ve got, but the same sort of deal gets, um, you Looked at by miners. So, um, they can control, you know, a floor, for example, on what they get as the price of gold or iron ore or whatever, because they know that below that cost, I’ll start to lose money.

[00:37:52] Tony: Um, and, you know, it’s, they sometimes work, they sometimes don’t. It’s a, it’s a tricky situation because the insurer is trying to make money and the miner’s trying to make money. So, um, someone has to lose out in that tussle. Um, and, uh, uh, You know, I’ve seen some spectacular failures over the years on those kinds of insurance deals.

[00:38:11] Tony: And a lot of, a lot of miners now don’t enter into them, they just, um, take an unhedged position and take it on the chin when, uh, when the commodity price falls too low for

[00:38:21] Tony: them.

[00:38:22] Cameron: Looks like GrainCorp’s taken a real beating over the last week or so. Dropped from 8. 60 on the 30th of April down to 7. 88 today. Yikes. That’s

[00:38:35] Cameron: horrible.

[00:38:37] Tony: Yeah.

[00:38:38] Cameron: well, Speaking, speaking of bad numbers, I just wanted to flag, uh, for club members running their own checklist. I already mentioned this in the newsletter and Facebook, et cetera.

[00:38:48] Cameron: But just in case anyone missed that, um, Stock Doctor still having some issues with some data integrity. Uh, when we did the buy list yesterday, I noted that ACR and RMD. Numbers looked wonky. ACR was at the top of our buy list, but when I, and I’d never heard of it before. And it’s funny now, it’s a sure sign that

[00:39:12] Tony: Ha ha. Yeah.

[00:39:13] Cameron: probably dodgy when

[00:39:15] Cameron: they’re flagged as it’s their first time on the buy list.

[00:39:18] Cameron: And I’m like, Hmm. So yes, uh, the shares outstanding numbers for ACR and RMD look wonky on Stock Doctor. They fixed up some of the ones that we. Alerted them about last week, but, um, sort of a bit of a cat and mouse game. I don’t know why they’re not going through and checking all of them. Um, they’re just letting me do their due diligence for them, apparently.

[00:39:37] Cameron: So I should ask for a salary from Stock Doctor on that. So be careful. Um, before we do another news story, Tony, I wanted to ask you about regression testing. I, um, after the show last week, we did talk about regression testing. Price less than consensus, which I ran during the show, forgot to update you before the end of the show, but did send you a text afterwards.

[00:39:59] Cameron: The result of price less than consensus as an isolated metric was 14. 1%, which brings it into the top 10 of the isolated, well, all of the regression testings that I’ve run. Um, but, uh, not at the top, but still a Pretty good score. 14. 1. Um, have you had a chance, I sent you the code, did you have a chance to do anything this week?

[00:40:24] Tony: No, I haven’t. I’m still playing with it, having a look at it. Um, just back on that price to consensus, I, I, the thought crossed my mind after I got your text is that the majority of the stocks on the buy list, they’re less than their consensus. And so maybe we’re getting close to a sort of average QAV response by filtering on that metric.

[00:40:44] Cameron: The majority, well, first of all, I don’t think the majority have a consensus, because they’re too small to have analysts looking at them. So they probably don’t have a consensus.

[00:40:55] Tony: No, no,

[00:40:55] Tony: I

[00:40:55] Cameron: used to be the Stock Doctor consensus. You think most of them have a consensus?

[00:41:00] Tony: I would think so. Let me just call up my spreadsheet and have a look. Yeah,

[00:41:03] Cameron: we can do that, can’t we?

[00:41:05] Tony: yeah. Certainly the small ones don’t. I actually think there’s more benefit in looking at ones that don’t have a consensus because I think that’s where you have a bit of an edge because we’re finding those companies before the analysts are. And that’s, I want to run some work

[00:41:17] Tony: on that once I get this up and running.

[00:41:20] Cameron: They’re also probably gonna have a low A DT though, right?

[00:41:23] Tony: Yeah, that’s right. That’s going to be the issue. For sure. Um, but still, I mean, that’s, if that’s something worth exploring, a portfolio of outperforming low ADT stocks might still be worth looking at. Um, okay. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14. Yeah, I think the majority of stocks, I’d say just a rough quick calculation, 60 to 70 percent of stocks have a consensus forecast and the majority, maybe 80 or 90 percent of those are below the consensus forecast.

[00:41:58] Cameron: Oh,

[00:41:58] Tony: Just looking at it quickly.

[00:42:01] Cameron: Yeah.

[00:42:02] Tony: Yeah, so that was my first thought, but here I need to do some further analysis on that.

[00:42:07] Cameron: Right.

[00:42:08] Tony: did, I did have a question during the week about what the regression test was, so I guess we’ve been throwing that term around. A lot, but maybe we should just explain ourselves here. Um, when we talk about regression testing, we’re talking about going back in time, in this case to 2016, and starting to then use data from then to run QAV forward and see how a portfolio would have performed following the rules or as many of the rules as we can apply, given limitations on data.

[00:42:38] Cameron: Mm

[00:42:38] Tony: So that’s what we meant. Someone, someone had it in mind that regression meant like you regress back to childhood or you regress to old age or you get poorer in performance and they wondered if we were doing work on stocks that didn’t meet the QAV numbers. But yeah, anyway, just to clarify we are using QAV on historical data and seeing if we can tweak the checklist to get better performance.

[00:43:06] Cameron: I’m actually, uh, going to therapy and going back to my child, you know, under hypnosis and going back to my childhood state and looking at the stocks I would’ve invested in if I was a child. Um, and seeing how that plays out if I’m any richer, uh, today than I actually am.

[00:43:25] Tony: What would those stocks be? Mattel?

[00:43:27] Tony: Um, haha, Lego. Haha,

[00:43:31] Tony: yeah.

[00:43:32] Cameron: According to ChatGPT, regression testing is a software testing practice aimed at verifying that previously developed and tested software still works after a change. Okay, well that’s not very helpful. What about regarding investments?

[00:43:50] Tony: Well that’s, yeah, that’s pretty close to what we were doing. So I know what that, that’s referring to just debugging code. Right, you’ve made a change to the code and you’re testing it um, on prior data to make sure the bug, or the change to the code hasn’t introduced a bug. So it’s a similar sort of

[00:44:04] Tony: concept.

[00:44:05] Cameron: Investment analysts may run regression analyses on historical market data to identify trends and correlations between different economic indicators and asset prices. Predictive models. By understanding the relationship between variables, analysts build predictive models to forecast future price movements.

[00:44:24] Cameron: All returns based on changes in related factors like interest rates, GDP growth, or inflation. Portfolio testing. Investors might use regression analysis to simulate how a particular change, such as an interest rate increase, would affect a portfolio. This allows them to test their portfolio against hypothetical future market conditions and refine their investment strategies.

[00:44:47] Cameron: So, we’ll sort of round about what we’re doing.

[00:44:50] Tony: Yeah, yeah, testing it, that’s, backtesting it, yeah.

[00:44:56] Cameron: Yeah. backtesting

[00:44:57] Cameron: What do we, what do you, what do you want to do? Blah, blah, blah, blah. Uh, do you want to talk about your China story?

[00:45:04] Tony: Yeah, I just came across a story, um, in the AFR last week, I found it quite chilling. And it, first of all, like, it grabbed my attention. Um, it, the headline is, China’s Gold Buying Spree Raises Fears It Is Preparing For Taiwan War. So, um, it goes on. Uh, China has built up a 170 billion stockpile of gold, that’s US dollars, after a record buying spree in a move that has raised fears Beijing is preparing its economy for a possible conflict over Taiwan.

[00:45:35] Tony: The People’s Bank of China bought 27 tons of gold in the first three months of the year, taking its reserves to a record of 2, 262 tons. China has been buying gold steadily since October 2022, making its longest build up of the precious metal since at least 2000. Experts, I love this, experts, like unsourced experts, said China’s stockpiling was likely to be an effort to guard its economy against Western sanctions in the event of a conflict over Taiwan.

[00:46:09] Tony: They do have an expert here. Jonathan Eel, Associate Professor at the Royal United Services Institute.

[00:46:16] Cameron: Associate

[00:46:16] Tony: Don’t know if, yeah, don’t know, I’ve never heard of the RUSI, but anyway, he says the relentless purchases and the sheer quantity are clear signs that this is a political project which is prioritised by the leadership in Beijing because of what they see as a looming confrontation with the United States.

[00:46:35] Tony: Sir Ian Duncan Smith, co UK’s Inter Parliamentary Alliance on China, says Set of the gold stockpiling. If they get much closer to bullying Taiwan and countries start to move their investments out of China, it will give them a bit of padding to be able to ride through some of the difficulties. China’s central bank began buying shortly after Western nations froze Russian’s currency.

[00:46:57] Tony: So the implication is that China has learnt from watching Russia invade Ukraine. that they’ll need to protect their currency by buying gold in the case of potential sanctions or the shut off of trade with China. So I thought about that for a while, like that is a plausible explanation for why China is buying gold.

[00:47:19] Tony: But I also thought that there is a, you know, long standing policy or I guess a strategy of decoupling. in the world and that, um, a lot of the trade is done in U. S. dollars and that by buying gold, um, as a reserve, China’s kind of shoring up that the U. S. dollar might drop and that they might trade more off their own books in their own currency.

[00:47:42] Tony: Um, but the third, third thing I thought of after reading this article was we did see some ructions in the share market after Russia invaded Ukraine. If China does try and take back Taiwan, if there’ll be a similar sort of play out in the market. But generally, if the share market sees something happen again, they’re not as scared of it as if, as when it happens the first time.

[00:48:07] Tony: And we’ve seen that with the Middle East, you know, the war in Gaza and Israel, that the share market has certainly been affected by it. The oil price went up and the gold price went up, but it hasn’t been sort of an end of worlds catastrophe that some. People forecast when conflicts happen. So I thought it was quite chilling.

[00:48:26] Tony: It’s the first time I’d seen that argument that the buying of gold by China could be in preparation for a take back of Taiwan. But then I kind of settled down and thought, well, if it is, we don’t know how it’s going to play out and we’ll just keep doing what we do with our QAV

[00:48:41] Tony: checklist. Do you have any thoughts,

[00:48:44] Cameron: there’s, oh, well, I have the New York Times thoughts and the South China Morning Post’s thoughts.

[00:48:50] Tony: They’re, reputed commentators on China.

[00:48:55] Cameron: well, no, and

[00:48:56] Tony: Experts, as the big review

[00:48:58] Tony: calls them.

[00:49:01] Cameron: Times, I expected them to reflect the same sort of analysis as the one you just read out, but they didn’t. Um, New York Times says, China is buying gold like there’s no tomorrow. The global price of gold has reached its highest levels as Chinese investors and consumers, wary of real estate and stocks, buy the metal at a record pace.

[00:49:26] Cameron: So basically the analysis in the New York Times is that, uh, consumers in China are putting their money in gold because they’re not confident about, you know, real estate as an investment, real estate and stocks. Um, but then it also says that the central banks, uh, buying gold, again, basically what you said, because of their diversifying away from U.

[00:49:55] Cameron: S. treasury bonds, uh, partly because of the tensions between them and the U. S. and trade wars and all the other tensions that are going on, uh, partly, I assume, to put some pressure on on the US economy. If China’s not buying their treasury bonds, it could send a signal to the market. Says here, Beijing is buying up gold to diversify its reserve funds and reduce its dependence on the US dollar, long considered the most important currency to hold in reserve.

[00:50:26] Cameron: China has been reducing its US treasury holdings for more than a decade. As of March, China had about 775 billion worth of US debt, down from about 1. 1 trillion in 2021. When China increased its gold holdings in the past, it bought domestically using Renminbi, said Guan Tao, Global Chief Economist at BOC International in Beijing.

[00:50:51] Cameron: But this time, he said the bank is using foreign currencies to buy gold, effectively reducing its exposure to the US dollar. and other currencies. Many central banks, including China, started acquiring gold after the U. S. Treasury Department took the rare step of freezing Russia’s dollar holdings under sanctions imposed on Moscow.

[00:51:09] Cameron: Other American allies imposed similar restrictions for their currencies. Mr. Guan said the sanctions had shaken the foundation of trust for the current international monetary system and forced central banks to protect their reserves with more diverse holdings. So basically they’re saying we can’t trust the U.

[00:51:27] Cameron: S., not, uh Freeze our, uh, assets for just whatever reason they want. And, uh, we need to, you know, diversify where we’re storing our funds. And I suspect there, you know, there is some play here in terms of. Um, you know, I’ve, I’ve read a lot of stories recently about BRICS and how BRICS are trying to move away, uh, from the U.

[00:51:57] Cameron: S. dollar as the global reserve currency. and it’s a delicate balance, but they’re trying to, you know, um, rely less on U. S. treasuries and U. S. dollar as the reserve, and that could have a big impact. I’ve been re reading Michael Hudson’s Superimperialism book, um, in the last couple of weeks. And, you know, I don’t know if we’ve talked about that before, I know I’ve talked about it on one of my shows, but, you know, he wrote that, he was a U.

[00:52:28] Cameron: S. economist who, I think the first edition came out in 72, and he’s revised it several times since then. He now works in China, um, but his basic theory back then was that the U. S. was using the U. S. dollar as a reserve currency to finance their wars for free. Um, they were getting a huge benefit out of the fact that every, every foreign country basically had no option but to take all of the U.

[00:52:58] Cameron: S. dollars that they had and use them to buy U. S. treasuries. And then the U. S. government would just take that money and use it to build up their military. And then they would issue more treasuries, which those countries would have to buy. And it just kept re, you know, he calls it petrodollar recycling, right?

[00:53:15] Cameron: They would just, Keep recycling those funds back into, uh, U. S. military hegemony, 800 military bases around the world and using their influence over the World Bank and the IMF to threaten countries with different levels of sanctions if they didn’t, uh, you know, run their economy the way the U. S. saw fit.

[00:53:37] Cameron: So anyway, that was interesting. I also South China Morning Post has a slant on this talking about gold represents the only safe asset for Chinese consumers to protect their wealth against inflation, asset price declines and geopolitical risks. But again, that’s consumers buying the gold, not necessarily central banks buying the gold.

[00:54:00] Cameron: Um, but it has a, um, Similar take from the New York Times. China’s central bank bought 160, 000 ounces of gold bullion in March as it aims to diversify holdings away from US bonds amid strained bilateral relations. So, none of that’s a, you know, none of these sources are talking about, you know, Uh, Potential Invasion of Taiwan, and by the way, Boosie, you mentioned before, where Jonathan Eyal is from, I am aware of the Royal United Services Institute, it’s been around 193 years,

[00:54:35] Tony: Yep.

[00:54:36] Cameron: and it’s a defense and security think tank headquartered in London, founded in 1831 by my old friend, the Duke of Wellington, Arthur Wellesley, the, uh, Napoleon’s archenemy,

[00:54:49] Tony: yeah.

[00:54:50] Cameron: who, If you believe Ridley Scott’s film, they had a lovely breakfast together after Napoleon had surrendered to the British.

[00:55:01] Cameron: Uh, which never happened, never happened,

[00:55:04] Tony: I still haven’t seen that movie. I just can’t bring myself to watch it after listening to your reviews.

[00:55:10] Cameron: yeah. Yeah. Don’t it’s, it was, I’m

[00:55:12] Tony: Yeah, but getting back to this China story, I mean, I thought that was a really interesting take on the purchase of gold by central banks. Could be right, may not be right. I remember 10 years ago when China started buying lots of US treasuries, there were similar sorts of articles out there saying, Oh, China’s doing this as a form of economic warfare against the US.

[00:55:34] Tony: They’re going to buy all these treasury bonds and then try and triple, triple the US by selling them all quickly or doing various machinations with them. And At the same time, I thought, well, China’s a big trading partner of the US, why would they do that? So, um, yeah, I have, I have a similar sort of skepticism about this.

[00:55:53] Tony: Not that they may well take back Taiwan, um, and may do it next year, which is what this article was suggesting, um, but again, from an investment point of view, is it going to make a difference to us?

[00:56:05] Cameron: yeah, well, you know, maybe it will, maybe it won’t, we

[00:56:10] Tony: Yeah. It’s noise, isn’t

[00:56:11] Tony: it.

[00:56:12] Tony: Mm

[00:56:13] Cameron: With the Taiwan thing, you know, I’ve been reading this biography on Deng Xiaoping and there was this interesting line I read last week, uh, it’s, it’s talking about 1979, where Deng was going through the process of normalizing relations with, uh, The U.

[00:56:29] Cameron: S. and he flew to Washington and met with Jimmy Carter and met with Nixon, um, even though he’s out of power, but it says in the book, uh, that in late 1979, the U. S. ambassador to China, a guy called Woodcock says he was in conversations about Taiwan. with Dong. Because part of the deal was, uh, one of the challenges that Dong had at the time was, the US was selling weapons to Taiwan, and, you know, China didn’t like that, and this is around about the period where, you know, China’s, um, trying to normalize its relationship with the US for economic reasons, and they’re also trying to ally with them against the Soviets, and they’re taking Taiwan’s place in the United Nations, and all this kind of stuff.

[00:57:14] Cameron: But they convinced Dong that he should just Turn a blind eye to the fact that they’re selling weapons to Taiwan and it says in the book Woodcock responded that he thought that after normalization with the passage of time the American people would accept that Taiwan was part of China and they would support unification which at the time many American officials as well as Chinese officials expected would occur within several years. So it’s like, just like, let’s just do the normalization. People will get used to the idea. And in a couple of years, you’ll be able to unify with Taiwan. Here we are, whatever, 40 odd years later, and it’s still this major flashpoint red line. And of course, you know, with, with what’s happening with, um, Semiconductors,

[00:58:05] Tony: Mm hmm. Mm

[00:58:06] Cameron: NVIDIA, nearly all of NVIDIA’s chips, nearly all of AI on the, uh, you know, certainly in the Western world today is running on NVIDIA’s chips, uh, NVIDIA’s chips are nearly all built by TMSC in Taiwan, uh, TMSC builds the vast majority of the world’s advanced semiconductors, the US are increasingly trying to stop China from being able to buy NVIDIA’s Taiwanese semiconductors.

[00:58:32] Cameron: So, uh, you know, it is becoming, um, you know, a pretty critical issue if China can’t buy semiconductors out of Taiwan at

[00:58:40] Tony: Yeah, that’s, I agree, that’s an economic dimension that most people aren’t aware of. But yeah, you’re right, at some point it becomes attractive for China just to take it over and get their hand on the

[00:58:51] Tony: semiconductors.

[00:58:54] Cameron: So I saw this article by Michael Pascoe. It was on, uh, Pearls and Irritations, uh, John Menedu’s, uh, website. And I thought this was interesting coming from Michael Pascoe, who we’re normally used to talking about economics and finance.

[00:59:10] Tony: Yep.

[00:59:11] Cameron: It’s called, uh, Our Biggest China Lie. Three things. China is winning from Gaza.

[00:59:16] Cameron: China growing at 5 percent now is better than China growing at 7 percent a decade ago. And Australia’s biggest China lie is that we’re spending half a trillion dollars on boats to protect our sea lanes. Um, and, you know, the Gaza stuff I’ll skip over, but I like his analysis, and I think you’ve said similar things in the past, but he talks about the fact that As he says in the intro, I guess, 5 percent at a certain level is better than 10 percent at a lower level.

[00:59:50] Cameron: He says, I’ve been watching China for long enough to remember when the country’s GDP growth falling below 10 percent was called a disaster, when of course growth had to slow as the economy grew bigger. In very simplistic terms, 7% of 200 is 40% bigger than 10% of 100. It’s happening again now with China’s GDP growth of about 5% down from 7% a decade ago.

[01:00:13] Cameron: In 2013, the recorded GDP growth of 7.7% for a US $9.57 trillion economy meant an extra US $737 billion. In 2023, 5. 2 percent growth for a U. S. 17. 52 trillion economy means an extra U. S. 911 billion, 1. 4 trillion in our money. Yes, China’s statistics have a rubbery quality and GDP doesn’t tell you everything, but that sort of growth is still enough to underwrite much of Australia’s economy.

[01:00:48] Cameron: By way of comparison, U. S. Real GDP grew by a strong 2. 5 percent last year, delivering current dollar growth of U. S. 1. 61 trillion. About a trillion U. S. dollars less than the rise in American government debt to U. S. 34 trillion. China isn’t the only country with challenges. So anyway, I thought that was, uh, a good analysis.

[01:01:12] Cameron: By the way, this is republished from the New Daily, it says, which I used to read, but I don’t anymore, but there you go. It’s part of Michael Pascoe’s analysis, which I thought was good, good reading.

[01:01:24] Tony: Yeah, I think, I think any Western country would, um, would give a lot to be able to grow by 5 percent in a mature, mature economy. It’s, uh, it’s huge growth.

[01:01:32] Tony: Yeah.

[01:01:35] Cameron: Yeah. But what we get in our media usually here is China’s heading for a disaster and they’re going to invade Taiwan,

[01:01:43] Tony: We get stories of apartment, like whole rows of apartment buildings that have been built that no one’s in, freeways to nowhere, China’s going to invade Taiwan, which it may do. Um,

[01:01:52] Cameron: which it may do,

[01:01:53] Tony: yeah.

[01:01:54] Cameron: who knows.

[01:01:55] Tony: yeah.

[01:01:56] Cameron: Questions. We have two, Tony. Did you get my late one?

[01:02:00] Tony: I did. It was a good one,

[01:02:02] Cameron: First one’s from, yeah, first one’s from Matt. Question, uh, is how Morningstar and others like them determine their ratings? I bought FND from the buy list in January and it’s done very well and I noticed that Morningstar I noticed that Morningstar repeatedly upped its valuation as the stock rose, seemingly for no reason other than the price was higher.

[01:02:22] Cameron: They seem to always say it’s undervalued. In my day job, I also had a meeting recently with a guy who does stock recommendations for an investment bank, and offhand he commented that the consensus estimate for any stock tends to be undervalued as, quote, consensus wants people to buy, end quote. We would be interested in hearing Tony’s thoughts.

[01:02:43] Tony: Yeah, well, a couple of things. Um, I’m not an expert on Morningstar’s valuation. Um, I used to subscribe to their user about 20 years ago. Uh, or even longer. It used to be called Your Money Weekly. A guy called Ian Huntley used to put it out weekly on a podcast. Printed sheet before pre internet, um, and then it was bought out by Morningstar and changed a bit and I sort of see subscribing at that stage.

[01:03:06] Tony: But, you know, back in, back then when I was looking at it, they basically used a form of discounted cashflow. They were making projections of how much cash the company was going to throw off in the future. And then they would do an analysis about how dependable they thought that forecast was. If they had a high degree of.

[01:03:25] Tony: If they had a high degree of certainty, they could forecast the cash flows, then, um, they would give that an extra sort of tweak in their ratings. And they call that a high moat stock. They also, they use that the term, the moat rating after Buffett. Um, the company, companies with good moats tend to be, um, better and can, um, uh, survive longer in downturns without having to lower their prices.

[01:03:51] Tony: Uh, so yeah, so they had a discounted cash flow and a moat rating. The moat rating was all about how confident they were in their future projections of cash flows. Um, and they came up with a score based on that. So, it’s not a bad exercise. Um, again, it’s forward looking and you’re trying to project what cash flows are into the future, which is always better.

[01:04:10] Tony: Difficult to do. Um, but, but yeah, that’s how they do it. Um, second part of the question was, uh, Consensus forecasts, and, and I think what, um, the person that Matt was speaking to, the investment banker, was saying is that, um, most stocks, uh, trade below their consensus valuation, which is what we talked about before, uh, largely because the consensus valuation is put together by stock brokers or investment bankers who are hoping to, if they don’t already have, business from the stocks that they’re So, you know, it’s pretty hard to go and pitch for some M&amp; A work or a capital raising with a stock that, um, the other part of your business has just downgraded to a sell.

[01:04:57] Tony: Um, so, you know, stockbrokers, um, RF Nothing, self interested, so they generally will make sure that their analysts are rating most stocks as a buy or at least a hold or below their consensus valuation. So they stay in the good books of the boards that they’re pitching the

[01:05:18] Tony: other business to.

[01:05:19] Cameron: Well, congratulations to Matt. Depending on where he got in at January, he probably got in around about a buck and it’s trading at three bucks an

[01:05:26] Tony: Yeah.

[01:05:27] Cameron: it’s pretty good. Been on an absolute tear. I don’t own it in any of my portfolio, sadly. I wish I did.

[01:05:33] Tony: Well, done, Matt.

[01:05:35] Cameron: yeah, well done. Uh, only other question we’ve got this week is from Phil. What does TK think about several banks now doing large buybacks? How does he account for this in the scorecard?

[01:05:48] Tony: Uh, well, I don’t. I don’t account for buybacks. I think it might actually become a thing at some stage, but, um, we don’t have that at the moment. I think what’s going on with, um, with banks at the moment is interesting, but in general terms, I take the view that higher interest rate environments are good for banks.

[01:06:07] Tony: Um, you know, if you have a higher margin, you’re making more money. And that can hide, that can hide a whole heap of ills. Um, I did pick up an article today in, in, um, today’s AFR about Westpac, who are, uh, giving, um, 1. 5 billion dollars back to shareholders via dividends. Um, surprise as this article talks about and the supersized buyback.

[01:06:38] Tony: Um, so, uh, Westpac are going to give back $500 million as a special dividend and pop puppets share buyback scheme by a billion dollars. And the shares are up today based on that. Um. What’s, what’s happening, I think is, uh, is good for the banks, um, a couple of things. I like to focus on their bad and doubtful debt provisions, and even though Westpac didn’t increase their bad and doubtful debt provisions a little bit in this latest result, and the result was a decrease in profit compared to last year, um, it’s generally being seen as a bit of a good thing because, uh, Um, the provisioning wasn’t increasing at what the analysts thought it might need to increase.

[01:07:21] Tony: So, if that makes sense. So, bad and doubtful debts are what the banks hold on their balance sheets for a rainy day because they think that the number of customers who can’t repay their mortgages and default or go into arrears will, um, will affect them. And then they can write back to you. from that provision to, to account for that in their profits.

[01:07:43] Tony: Um, which means that if you increase the bad and doubtful debt provision because of double entry bookkeeping, your profits are less than the year you increase the provision. And if you write it back, so if you say we don’t need that provision, you can write it back to profit. It’s a boost to profit. So the fact that Westpac have said, even though interest rates are high, we had to take, we did increase our Bad and doubtful debt provision, but not as much as analysts are thinking, that’s seen as a good thing because it’s less of a hidden profit.

[01:08:10] Tony: Um, the other thing that’s happening is, uh, that banks are really well capitalized these days because of government regulation. Um, sort of the too big to fail, um, regulation, which is called, um, holding provisions to be unquestionably strong. So banks have had, have a lot of, um, extra capital and, and there’s, without going into that in too much detail, they hold, um, what’s called tier one capital, which gives cash or cash equivalents, um, to a high degree than they have in the past.

[01:08:42] Tony: Um, and. that’s giving them, um, two things. In the case of Westpac, they were holding even more capital than they were required to under the unquestionably strong provisions, and so they’re giving back some of that capital by special dividend now, which is, um, nice, but also, too, I picked up in this article that, uh, Because of Westpac’s problems in the past with, uh, the a PR, um, uh, and their money laundering, money laundering problem that they had a few years ago, which cost the CEO and the chair their jobs because of, um, the fact that they, uh, people could money launder through their ATM machines by making cash deposits, which weren’t picked up properly.

[01:09:28] Tony: Um, APRA have asked them to hold. Um, an extra amount of capital until they got their systems in place, and it now looks like that they’ve picked the box on fixing up their systems. The AFR report says Westpac reached a milestone in repairing its risk management, announcing the completion of its Customer Outcomes and Risk Excellence program, the core program.

[01:09:52] Tony: It released a report yesterday by a consultant’s promontory on the resolution of the work. This raised the prospect of the Australian Prudential Regulation Authority removing a 1 billion capital overlay that followed its money laundering scandal and would provide a further tailwind to regulatory capital levels.

[01:10:10] Tony: APRA removed a similar 500 million penalty on NAB in March. And so Westpac are talking about having a conversation with APRA to have that 1 billion in cash or cash equivalents freed up as well. So, you know, basically. Westpac did bad things in the past. It’s in the cleanup phase of that. They were required to hold more capital because of that, and they’re hoping to write that back.

[01:10:36] Tony: So the banks are, even though they’re heavily regulated, they’ve got plenty of cash, and it may be time that they start giving some of that back to shareholders. So I think that’s what’s going on in the banking market at

[01:10:48] Tony: the moment.

[01:10:49] Cameron: So, we don’t account for that, but generally buybacks are seen as a good thing by Buffett, right?

[01:10:57] Tony: Oh yeah, I mean we’ve had this discussion before. Generally it is because it increases the earnings per share, um, to the remainder of the shareholders that didn’t sell into the buyback. So it’s kind of a free kick for getting more of the, your share of the profits, which is a good thing. Um, but there is also the counter argument which says that management only Buy back shares when it can’t find much else to do with the capital, so

[01:11:23] Cameron: to do.

[01:11:24] Tony: yeah, so it generally is a sign that there’s not much growth, um, in the industry, and they can’t find something else to spend the money on, but I subscribe to Buffett, so buy back is a good thing, um, yeah, and I’d like to do some analysis on that, haven’t got around to doing it, but, um, Um, I will try and separate, now we have the regression tester, companies which are buying back shares from, from the rest and see how they perform.

[01:11:49] Cameron: Good question, Phil, and thanks for that, Tony. And that is the question, uh, part of the show for this week. Uh, after hours, Tony?

[01:11:59] Tony: Oh, hang on, you’re, you’re jump, you’re jumping the gun here. I’ve still got some more

[01:12:03] Tony: to talk about the Berkshire AGM,

[01:12:06] Cameron: Oh, well, that’s after

[01:12:07] Tony: got a pulled pork to do.

[01:12:09] Cameron: Oh, pulled pork. Right. You didn’t have that in your notes. You didn’t say you pulled pork in your notes.

[01:12:15] Tony: Didn’t know, I’m sorry.

[01:12:16] Cameron: No, no. Who, what pulled pork are you doing?

[01:12:19] Tony: I’m holding one over from last week to do this week, because we talked a lot about regression testing last week, but I’m doing one on Emeco holdings. Their code is EHL. And funnily enough, the share price hasn’t changed from last week, so I can actually just regurgitate the notes I prepared last week, which is easy on the workload today as

[01:12:41] Tony: I was preparing for the show.

[01:12:43] Cameron: Well, hold on. I own EHL, so I’m just going to go sell that while you do your pulled pork. So off you go.

[01:12:50] Tony: all right, so EHL stands for Emeco. It’s a mining equipment rental business based in WA. They are Australia’s largest mining equipment renter, and they operate nationally. They have over 860 trucks and graders and the like out on lease. Um, they service both open cut and underground mine in Australia.

[01:13:14] Tony: Um, they also operate a series of nine workshops where they do lots of maintenance on graders and trucks and, and refix on, uh, on those, uh, they rebuild mining equipment under a company brand called the Force Brand. It’s a company they acquired, but um, they operate the workshops. Um, for Emeco, or as part of Emeco, uh, they also operate a labour hire division and perform in field equipment servicing.

[01:13:41] Tony: Company goes back to 1972 and began life as the Earth Moving Equipment Company in WA, which is where you get Emeco from. They expanded across Australia over the next 20 years and was eventually acquired by a company called DARR Equipment Company, D A R R, in 1997. DAR expanded the brand overseas to the US and the Netherlands, but in 2005, Emeco was bought back by management in the buyout.

[01:14:10] Tony: in, uh, in cahoots with Pacific Equity Partners and Archer Capital. EHL was then relisted in 2006 on the ASX and continued expanding, acquiring other equipment rental companies in Australia and overseas. And in 2017, they acquired the Force Maintenance Business. And in 2020, acquired a company called Pit and Portal, which is a mining contractor company.

[01:14:38] Tony: In 2021, they also acquired another. Borex, a line boring company, but over the last 4 or 5 years their share price has been steadily declining. Until recently, when they announced the sale of the Pit and Portal business to another friend of ours from the buy list, McMahon. Click to learn more in the next episode.

[01:14:59] Tony: McMahon Holdings, MAH. EHL said, um, when they decided to, uh, to sell Pitt Portal, that they were pleased to announce that they have entered into binding agreements with McMahon Holdings, under which it will exit underground contract mining, which and enter a five year agreement under which Emeco will become McMahon’s preferred equipment rental provider for both surface and underground.

[01:15:24] Tony: So that was an interesting deal, I thought. They’re getting out of, um, the contract mining work, um, selling it to McMahon, who is a provider of contracts, mining services, um, but also having a nice, uh, sweetener in the tail there that Emeco gets a five year deal with McMahon to provide, uh, them with equipment rentals.

[01:15:42] Tony: So kind of a win win there. And since then Um, Emeco share price has turned up and it’s uh, it’s a buy in the uh, Bredalator, but also McMahon has been doing strongly, that’s also a buy, that both companies are now doing well in terms of their share price. Um, so, you know, looks like they’re turning around the decline in their share price, they’ve divested this part of the business.

[01:16:05] Tony: Which, um, the markets received well. In terms of the numbers, um, the share price, uh, I’m doing my analysis at is 72. 5 cents. The company has an ADT of 223, 000, so it’s not, um, not too bad. Uh, for, for people, um, to include in their portfolios. Um, not overly large, but, um, not, not a, uh, a micro cap. Uh, 72. 5 cents is below consensus target.

[01:16:33] Tony: It’s just above IV1 at 70 cents, but below IV2 at 1. 24. Um, it’s net equity per share is 1. 16, so this company is trading at below it’s book value, and therefore below it’s book value plus 30%, which is 1. 51, so it scores for those two things. It did cross my mind that if they have sold part of the business, that will affect NetEquity, but um, until, until I can see some numbers which will get reported I guess in six months time I can’t do that calculation easily.

[01:17:05] Tony: Stock Doctor financial health is both strong and steady so we score it for that. Yield is 1. 72 percent so it is, Paying a dividend but not high enough, uh, for it to score on our checklist. One thing we do score it down for is earnings per share forecast is minus 7%. Um, I’m not sure what is driving that, but potentially when they’ve offloaded this business, uh, they, they have less of, uh, less, uh, earnings per share coming through.

[01:17:33] Tony: Um, But we do score it down for that. Uh, PropCaf on this business is only one and a half times. So it’s, you know, a really good buy from the operating cashflow point of view. Uh, PE is 5. 29, which is its lowest in the last three years. So that also scores well for us. Um, we don’t have an owner founder, and I guess that makes sense given that the company has been bought and sold a couple of times.

[01:17:58] Tony: Bought by an overseas company, bought back by management and private equity, and then re listed, so the owner founder hasn’t stuck around. It’s a new 3 point trendline uptrend since the announcement of the Pit and Portal sale, so we give it an extra boost for that on our checklist. Uh, it almost has Six halves of consistently increasing equity, but just missed out in one of those.

[01:18:25] Tony: So it’s close, but we can’t score it for that. So all in all, the quality on this company is 12 out of 17 or 71%. And it has a good QAV score of 0. 47, so quite high up on our, on our buy list. Um, pros and cons for this one, um, it’s a mining sector company, so they can be volatile, but at the moment, the tailwinds are in the mining sector.

[01:18:48] Tony: So for now, that’s a pro, um, That will face problems if the mining sector turns down in the future, of course, something to watch if people are interested in doing some analysis on this company is their utilization rates. So because they’re an equipment rental company, they don’t want assets sitting around.

[01:19:07] Tony: Utilization rate is currently 92 percent which is quite good, um, that, that is something to watch going forward. Uh, it does, and the other pro I could list is that it does seem to be received well, that they’re exiting out of their contract mining business called Pit and Portal, um, and there’s the deal to supply MAH with five years worth of equipment rentals is also supporting their business, so that’s a good thing too.

[01:19:30] Tony: So, Emeco Holdings, um, turning around and doesn’t look too bad on our buy

[01:19:36] Tony: list.

[01:19:37] Cameron: Thank you, Tony. Uh, we do hold them, as I said before, in one of our portfolios, and they’ve been doing okay. So, uh, let’s hope the pulled pork curse doesn’t, uh, hit them, like a brick, TRS. Uh, I had to sell TRS today at my old friend’s, the reject shop.

[01:19:58] Tony: I haven’t done a pull pork on those in years though. How long does the curse last?

[01:20:03] Cameron: Ha ha ha! I don’t know, but I’ve held them in the dummy portfolio and one of the light portfolios since the 11th of July 2022, but sadly they’ve now crossed their three point sell line.

[01:20:20] Cameron: Still, we made 11 percent on them over nearly two years, so not spectacular, not knocking the lights out there, but, um, I remember they did very well for us during COVID

[01:20:32] Cameron: TRS.

[01:20:33] Tony: yeah, as you’d expect if the people were predicting a decline in the economy until there was a cash flash and therefore companies like TRS generally do well because people shop less in Coles and Woolworths and

[01:20:48] Tony: more in the reject shop.

[01:20:51] Cameron: made all their money out of selling toilet paper during those first few weeks of COVID when people went nuts. Speaking of people going nuts, I saw an article, uh, earlier. Apparently a bunch of anti vaxxers set up some sort of clean farming investment group, um, over the last couple of years where they were buying up farmland in Northern New South Wales and Queensland and put together some sort of an investment trust or an investment fund to spend a hundred million dollars buying farmland for clean farming and food security and it’s just gone bust.

[01:21:35] Tony: Yeah, there is a reason why farmers spray chemicals on crops, not just to pollute the grain,

[01:21:41] Tony: they need to for economic reasons.

[01:21:43] Cameron: I don’t think it was that. I think there was just like 150 people that ended up owning these farms and none of them could agree on how it was being run and what they should do. And there were no real professional farmers involved in the whole deal. And they had one initially who quit, I think. And so, yeah, everyone’s now trying to get out of this fund and sell their shares and the share prices are plummeting and

[01:22:06] Tony: was it, was it Easy Rider, the movie, when they have that scene where they start off with the hippies throwing seeds on the ground, they’ve, they’ve decided to get outta the city and become farmers and they’ve got no idea how to hoe the, to, to, um, furrow the ground to put the seeds in. And they do a drum circle to chant for the seeds to grow

[01:22:28] Tony: I think that’s how

[01:22:29] Tony: Easy Rider starts. I think so. I could have my movies confused, but I think that’s when Peter Fonda goes and buys some drugs off them and then

[01:22:35] Tony: sets off across the USA with The with

[01:22:38] Cameron: The only thing I really remember about that is just

[01:22:41] Cameron: Jack Nicholson’s performance in it, which was just

[01:22:44] Tony: Breakout. Yeah.

[01:22:45] Cameron: yeah, yeah, yeah. I watched it quite a few years ago,

[01:22:49] Cameron: um, but, uh, yeah, I just remember seeing Jack and going, yeah, just, like, superstar, written all over him in that film, right? And it wasn’t one of his first films, he’d been around for a long time, I think, at that point, but he just really leapt off the screen.

[01:23:08] Tony: had to drink on the back of the motorcycle. Yeah. Yeah. That, that and, uh, five easy pieces. That was the other breakout for Jack. Yeah, playing the piano on the back of the lorry as they were driving along. Had this kind of crazy personality and, and, um, it just slipped off the screen.

[01:23:30] Cameron: mmm, mmmmm!

[01:23:33] Tony: Yeah. So, uh, what else do I have to talk

[01:23:36] Tony: about? Uh, just, there was, I had more notes on Berkshire. Um, I don’t know if it’s worth going through there. They were reported pretty widely, but people can have a look. Um, but there’s one quote I wanted to end on, which I think is maybe the one that. Warren ended on, um, he says, uh, I not only hope you come next year, I hope I come next year.

[01:24:01] Tony: Uh, his, his wit is so

[01:24:03] Tony: good.

[01:24:04] Cameron: Yeah, you gotta love it. I wonder who writes his material.

[01:24:08] Tony: Yeah. I think he does.

[01:24:09] Tony: But who knows?

[01:24:12] Cameron: I’m sure he does. He’s always, he’s always Been like this, right? You go

[01:24:16] Cameron: back and

[01:24:17] Tony: Oh, yeah.

[01:24:17] Cameron: read his, his letters

[01:24:19] Cameron: from 40, 50 years ago. It’s, he’s always had that dry wit in there.

[01:24:25] Tony: All right. Oh, one last thing. No, one last thing. RBA. So I just looked them up on the It’s Tuesday afternoon, first Tuesday in May, so the RBA has met on interest rates. ABC News reports, live updates, RBA keeps interest rates on the hold at 4. 35%, but warns progress against inflation is slowing, ASX pushes higher.

[01:24:49] Tony: So thank you to Michelle Bullock

[01:24:50] Tony: for the pay rise.

[01:24:53] Cameron: I thought you said they were meeting last Tuesday.

[01:24:56] Tony: No, no, this Tuesday. Did I?

[01:24:59] Tony: Okay, well, it’s this Tuesday, definitely this Tuesday. Just

[01:25:01] Cameron: When I edited, when I edited last week’s show, I picked up that you said they were meeting and then I, I realized that we hadn’t checked to see what they’d said by the end of the show. But, uh, maybe you said they were meeting this week

[01:25:14] Tony: this week, yeah, perhaps, yeah.

[01:25:16] Cameron: Okay.

[01:25:17] Tony: So rates are on hold, which is good. Um, yeah. Oh, and it’s the start of the month, so people should update their alerts too, for, like I do in Stock Doctor. Um, the three point trend line sells. Which I register in Stock Doctor as alerts, will change from month to month as we get extra points on our

[01:25:37] Tony: graph.

[01:25:38] Cameron: Mm hmm. Which is why TRS has crossed its three point trend line.

[01:25:43] Tony: Yeah, okay.

[01:25:45] Cameron: Alright, Tony. Is that it? Are we into After Hours now?

[01:25:49] Tony: Yeah, I can talk for another hour on Berkshire Hathaway if you like, but no, we’ll go on. People can do their own Googling it’s well worth

[01:25:56] Tony: it. Yep, after hours.

[01:25:59] Cameron: Well, I got

[01:25:59] Cameron: nothing for after

[01:26:00] Cameron: Hours. I haven’t watched anything. Yeah, not really. But what about you?

[01:26:04] Tony: um, yeah, well, Poifect did really well, um, we spoke about that before. The only other thing I’d mention is, um, I’ve been listening to a lot of

[01:26:11] Tony: Nick Drake. Have you come across Nick Drake before?

[01:26:14] Cameron: Oh yeah, love Nick

[01:26:15] Tony: Ah, good, okay. I only, I only came across him a couple of weeks ago, and just, um, love the album Peak Moon, been listening to that endlessly. Yeah,

[01:26:24] Cameron: that’s his classic, I think. Pink, uh, Pink Moon.

[01:26:28] Tony: Yeah,

[01:26:28] Cameron: Yeah, died very young, tragically.

[01:26:31] Tony: Yeah, which is maybe why I haven’t heard of him before, but he’s a very sort of gentle acoustic

[01:26:36] Tony: player, but really enjoying it.

[01:26:39] Cameron: Yeah, lovely songwriter, had a really sort of sweet, lovely,

[01:26:43] Cameron: uh, feel about him. And, uh, yeah, I think he took his own life, I think, um, an overdose. Yeah, he overdosed.

[01:26:56] Tony: Reminds me a bit of Jeff Buckley, who also died tragically young. That’s the same sort of style of musicianship.

[01:27:04] Cameron: from drowning though, not from making his own life. Yeah. I think he was on a tour bus, right? They were touring and he, um, went for a swim, late night swim or something and didn’t surface.

[01:27:17] Tony: And didn’t Jeff Buckley’s father also drown as well?

[01:27:20] Tony: There’s some kind of

[01:27:22] Cameron: Yeah, I think you might be right. Something about, you know,

[01:27:25] Tony: tragedy in that story. Yeah. Mmm.

[01:27:27] Cameron: Bruce Lee and Jason Lee, his son, dying young. Dying at the same age, I think.

[01:27:35] Tony: Yeah, right.

[01:27:36] Cameron: Um, well, apart from the Dong Xiao Ping book, I’ve I’ve been reading a book, there’s this guy, there was this guy called FitzRoy McLean who crops up from time to time in our Cold War shows. He was a Scottish, um, well, soldier slash spy slash politician diplomat sort of thing that was apparently one of the guys that Ian Fleming based James Bond on.

[01:28:04] Cameron: They knew each other, you know, during World War II. And, um, we, we talked about him back in our Tito shows when we were doing Yugoslavia and, uh, Partisans, et cetera, because he was sent by Churchill to go and befriend Tito and the Partisans during World War II and help them fight the Nazis. And he ended up becoming really good friends with Tito.

[01:28:29] Cameron: Um, and I think later in life, McLean, He wanted to buy a villa and retire to Yugoslavia, but they had a law against foreigners being able to buy property at this juncture. But this particular town that he wanted to, it was like a coastal village y kind of thing, he wanted to buy a villa in that. Tito changed the laws for this town for one day and made it a free town where anyone could buy real estate for one day, and then Fitzroy McLean bought his villa, then they changed the laws back again.

[01:29:00] Cameron: That’s how good a friend of Tito’s he was, but we were talking about him recently on the, on our Cold War show because before that, the year before that in 1942, he was, he was sent to Iran to, uh, basically arrest the top general in Iran, who the British had heard was, uh, doing a deal with the Nazis. And, uh, they’d already, uh, got rid of the Shah, replaced him with his son, and this guy, General Zahedi, who ended up ten years later being part of the CIA’s coup against Mossadegh.

[01:29:42] Cameron: But they, so they sent Fitzroy McLean in, basically said, You know, do take him alive, but you know, basically you can do whatever you want to arrest this guy. And he came up with this plot of, uh, of how to arrest the Top general in Iran. And it was, it was like this amazing story where he, he just basically, uh, sends a message to him that one of the top brigadier British brigadier, who was based in Baghdad, wanted to have a quiet word with him.

[01:30:11] Cameron: So they rock up. And Fitzroy McLean is with an actual brigadier. They, the British wouldn’t let him, uh, impersonate a brigadier. He was only a captain at the time. So they rock up for this meeting with the general and the general walks into the room and Fitzroy McLean’s just holding a gun on him and says, um, Surrender now, old chap, do us all a favor, and then march him out to a truck and they.

[01:30:35] Cameron: Keep him in an internment camp for the rest of the war. Just, you know, walk out with a gun behind his back. Past all of his troops. He’s, they’re saluting. He’s saluting. He’s literally, you know, they’re marching him, frog marching him out with a gun behind his back. Anyway, this guy wrote a couple of great books.

[01:30:49] Cameron: One’s called Eastern Approaches, which I’ve been reading. Basically, his stories of all of this period. World War II. And he’s basically this Scottish lad who just wanted adventure. So he just signed up and he would go to the most remote places, like he spent the late 30s in Russia, just because he thought it sounded, um, exotic.

[01:31:15] Cameron: He was there when Stalin was purging all of the generals, he had some sort of diplomatic career. He said that it was easy to get an assignment there because he was the first person in the history of the British diplomatic service who was actually volunteering to go to Russia. No. But yeah, it’s just reading his memoirs is like reading James Bond’s memoirs, like he just had this insane sort of life,

[01:31:41] Cameron: uh, pulling off all of these stunts, etc.

[01:31:44] Cameron: So, anyway, I’ve been reading a bit of that, which has been

[01:31:45] Cameron: fun. Eastern Approaches, just, it’s just like classic, so what, British, well, Scottish in this case, but, Just, uh, traipsing around the world, having adventures, you know, getting into scrapes, you know, pulling off assassinations and arrests and befriending rebel leaders and, you know, yeah, et cetera, et

[01:32:12] Tony: Wow.

[01:32:13] Tony: It’s a very Errol Flynn

[01:32:14] Tony: type story.

[01:32:16] Cameron: Mmm. If Errol Flynn was not just an actor.

[01:32:20] Tony: Yeah.

[01:32:20] Cameron: Anywho.

[01:32:21] Tony: We watched the movie last night called Page 8. Have you ever seen that?

[01:32:25] Cameron: No. Mmm.

[01:32:27] Tony: It’s, um, it’s quite old. It’s quite old. Back 2011, I think. Um, I hadn’t come across it before, but it just popped up in my Netflix, Netflix feed and quite liked it. Um, British sort of quiet movie, Billy Nye, Michael Gambon, uh, Judy Davis about, you know, the intrigue at the top of the British, um, secret service.

[01:32:49] Tony: It

[01:32:49] Tony: was quite good. I thought.

[01:32:52] Cameron: I like Bill Nye.

[01:32:53] Tony: not action packed, but yeah. Interesting. Um, and we finished Fallout, which I really enjoyed.

[01:32:59] Tony: The Fallout

[01:33:00] Cameron: Mmm.

[01:33:01] Tony: Yeah, it’s worth

[01:33:01] Cameron: I’ve been meaning to start that.

[01:33:03] Tony: Pretty gruesome,

[01:33:04] Cameron: have watched. Mmm. Oh yeah, we watched a couple of episodes of, um, this documentary, uh, Sons of Our, Sins of Our Mother.

[01:33:16] Tony: Hmm. Okay.

[01:33:17] Cameron: It’s a contemporary, currently running case in Idaho about a couple of Mormons who killed their spouse. Their spouses are then hooked up and then killed her kids, two of her kids, because they believe they were possessed by demons and all sorts of wackadoodle shit.

[01:33:38] Cameron: Chrissy’s been obsessed with this case, one of these true crime things that’s, she gets, she’s been really deeply obsessed with, you know, Mormon true crime stories for the last couple of years, because there’s been a few of them that have been big headlines over there. Um, Turns out that, uh, if you run a cult where people are told to believe crazy things, they believe crazy things and then do crazy shit as a result of that,

[01:34:06] Tony: Yeah.

[01:34:06] Cameron: uh, to their children sometimes, as well as their spouses.

[01:34:10] Cameron: Anyway, so we watched a couple of episodes of that. Yeah, it’s really bonkers crazy. But, uh, yeah, Chris, that’s, that’s been our television watching for the last week is true crime documentaries, which I’m not into at all. At all. Could

[01:34:25] Cameron: not,

[01:34:26] Tony: Yeah.

[01:34:27] Cameron: could not care less. Like history, I can’t even watch history stuff really, but I read it.

[01:34:33] Cameron: But, um, yeah, the whole true crime thing, um, uh, it’s

[01:34:39] Tony: No, it’s kind of a chick thing too. I think from what I can tell from the stats, you see that apparently women are right into

[01:34:47] Tony: it for some reason.

[01:34:48] Cameron: yeah. I, I’ve asked Chrissy about that, tried to figure it out and she’s like, well, it’s because it teaches us what to watch out for with men and

[01:34:58] Tony: Yeah. That’s what I thought. Yeah. Yeah. We don’t have the same sort of. I guess senses or sensitivity towards what could hurt us because we’re on the aggressive side normally in these domestic situations, domestic violence situations. But women, different. Yeah, Jenny, Jenny isn’t a fan. Well, I don’t think Jenny’s a fan of true crime, but she just reads endless crime thrillers all the time.

[01:35:24] Tony: Yeah.

[01:35:25] Tony: So,

[01:35:25] Cameron: Hmm. Okay.

[01:35:26] Tony: interesting, isn’t it? It’s a female thing.

[01:35:29] Cameron: Yeah. It’s a chick thing. That’s not, I think there’s a lot of men that are big fans of true crime, uh, stuff to, you know,

[01:35:39] Tony: Maybe they’re taking notes. Yeah,

[01:35:47] Tony: I just don’t, I don’t, I mean, I, you know, I, I get the attraction, but I just don’t need to see the, the worst side of humanity,

[01:35:55] Tony: you know, as entertainment.

[01:35:58] Cameron: Well, that’s, that’s how I feel about it. I just, I just feel icky about the whole thing. Like, oh, it’s just sad. And like, these are broken people doing horrible things to their loved ones. It’s just, it’s just tragic and sad stuff. I, but you know, a lot of, I know a lot of people, like my kids, Hunter and Taylor feel the same about my interest in history.

[01:36:18] Cameron: Like, why do you care? Who cares what happened 2, 000 years ago? Who cares what happened 100 years ago? What, how, what relevance does that have to your ability to make money and run a business today if you’re wasting your time? Thinking, well, I find it interesting.

[01:36:34] Tony: Well, not just that, you, you’ve learned things. You don’t want to make the same mistakes. You can take shortcuts because someone’s already done it. You can work out what to do. You don’t have to, like history didn’t start yesterday and you don’t have to invent the wheel again. You

[01:36:47] Tony: get, you get the benefits of knowing history.

[01:36:50] Cameron: when I finally become the dictator, I will make sure I don’t make the same mistakes that Caesar and Alexander Napoleon did.

[01:36:59] Tony: Well, when you’re a dictator, I’m going to run the treasury.

[01:37:04] Cameron: Yeah, absolutely. Yeah. Yeah. Empty the treasury. That’s what

[01:37:07] Tony: Empty the treasury.

[01:37:08] Cameron: they don’t run the treasury. They empty the

[01:37:10] Tony: good point, yeah.

[01:37:12] Cameron: TK. Well, that’s it. I

[01:37:17] Tony: Alright,

[01:37:18] Cameron: should probably get a move on. Thank you for chatting. Good fun as always.

[01:37:23] Tony: a pleasure, yeah.

[01:37:24] Cameron: Which one of you, I can’t, are you Buffett or Munger in our relationship?

[01:37:28] Cameron: I’m never quite sure.

[01:37:30] Tony: Neither am I. I think you’re more Charlie. I’m more, um, no, I think I’m more Charlie. You’re more Warren.

[01:37:35] Tony: You’re the showman. You’re the salesman.

[01:37:37] Cameron: which one of them was the poor

[01:37:38] Cameron: one?

[01:37:39] Tony: the poor one, Charlie ha ha. ha

[01:37:42] Cameron: Oh,

[01:37:42] Cameron: okay.

[01:37:42] Tony: poorer. Neither were poor, but, but Warren was worth a lot more because he kept all these Berkshire Hathaway shares. Charlie would sell them.

[01:37:50] Cameron: Right. All right. Thank you,

[01:37:53] Tony: All right. Have a good week. Oh, before I go, don’t forget people, if you’re in Brisbane, Alex is up there. My Alex is up there.

[01:38:00] Cameron: mm.

[01:38:00] Tony: Selling her artwork in the Affordable Art Fair at the exhibition ground.

[01:38:04] Tony: So, if you get a chance, go and have a look.

[01:38:07] Cameron: We will be there on Sunday

[01:38:11] Tony: Nice.

[01:38:11] Cameron: with her and Sean on Saturday, but then we’re gonna go on Sunday and check out hers and all the other painters. Looking forward to it. She’ll be great.

[01:38:18] Tony: Yeah, good. So that’s, that’s

[01:38:20] Tony: Sunday week, isn’t it? I think

[01:38:23] Cameron: No, this Sunday?

[01:38:24] Tony: this, Oh, that’s right. She’s flying up this week. Sorry. So that’s

[01:38:27] Cameron: Yeah,

[01:38:27] Tony: 12th, 12th of May.

[01:38:29] Cameron: I think it’s running Thursday through Sunday this week.

[01:38:33] Tony: Yeah. Okay.

[01:38:34] Tony: Good. I’ll get along

[01:38:37] Cameron: All right.

[01:38:38] Tony: All right.

[01:38:39] Tony: Have a good week.

[01:38:40] Cameron: Have a good week.

[01:38:41] Tony: Bye.



QAV 725 – Mr Lazy & Mr Dumb

In this episode of QAV, Cameron and Tony dive into recent market activities, the RBA’s decisions, the Lindy Effect, substantial shareholder announcements, and GrainCorp’s prospects, along with a detailed analysis of Embark Early Education (EVO). Member questions about living off a share portfolio during down years and the differences between value and quality investing are addressed. Additionally, Tony clarifies the calculation of shares on issue for Rio Tinto, emphasizing global figures for earnings per share. In after hours, the duo also covers Mario Puzo’s ‘The Godfather’, Alphonse Mucha, and the Archibald Prize, and discuss the potential and risks of AI, drawing references from science fiction. They wrap up with thoughts on films and books, including ‘Klara and the Sun’.

QAV 724 – Our First U.S. Episode

In this episode of QAV, Cam and Tony explore the U.S. market for the first time, with a brief introduction of Tony and his QAV system of value investing, a discussion of value v growth investing, a discussion of the performance of our U.S. dummy portfolio, a deep dive or ‘Pulled Pork’ segment on Reinsurance Group of America (RGA), and a review of the FY survey results we’ve received so far from club members.


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