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

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

00:00 Welcome & Casual Catch-Up
00:23 Tony’s Horse Racing Adventures
01:42 Investing Chat Begins: The Pitfalls of Selling Too Soon
02:37 The Puzzle of Investing in Loss-Making Companies
09:05 Deep Dive into ServCorp’s Business and Future Prospects


QAV 721 Club

[00:00:00] Cameron: Welcome to QAV episode 721. We’re recording this on the 21st of the 5th, funnily enough, and uh, sitting beside me in my living room in Brisbane, the great TK himself, all the way up from Shidney. How was the trip up from Shidney, Tony?

[00:00:25] Tony: Good, good. I, um, broke it up with a three nights in Scone, for the Scone Cup.

[00:00:31] Tony: Stayed at a Tunga stud, which was, um, was wonderfully hosted there. Checked out a few horses, um, went to a stallion parade at Yarraman, which was lovely. Um, had a singalong around a barbeque pit after the races, went to the Marquis Fiscone Cup with a thousand people in the Marquis. It’s kind of like the racing industry lets their hair down after the autumn carnival in Sydney, so that was good fun.

[00:00:56] Tony: Did you have a horse running in? No. Oh, okay. I’ve got a horse running this Saturday in Queensland. in Brisbane. Right. Yep. So I’ll stay. Which horse? Poifect. Poifect. And what’s it running in? The Roses. A group three race. 2, 000 metres in, uh, this Saturday in Brisbane. So yeah, that’s exciting. We’ll hang around to watch that.

[00:01:16] Tony: Um, Ruddy comes down tomorrow. He’s up on the north coast of the party and then we’ll drive back to Sydney and play golf. Nice.

[00:01:24] Cameron: Yeah. Which will be fun. Well, I’m sorry to, um, make you. Talk about investing on your holiday. Work on my holiday. Bussman’s holiday. It’s investing. It’s not work for you. This is what you do.

[00:01:38] Cameron: This is your purpose. This is fun. It is fun. Yeah. Well, you know, it’s not fun selling FND on a rule one. And then Gary pinging me and saying, glad I didn’t sell it because it bounced back up. Look at that. I sold it. And immediately after I sold it, it Oh wow. Well, not immediately. I don’t know what happened between the 17th and the 21st, but it’s, uh, jumped back up.

[00:02:04] Cameron: I had to rule one it. Look. Look at this. Boom! Wow. Boom! So, anyway. Someone’s probably looking at our sales and I’m sure it’s us. Yeah. Anyway, moving right along. Um, no, I know that’s Gary’s fault. Gary, when I sell something, don’t tell me that it bounces back up. You broke my heart, Gary. Um, speaking of, uh, selling stuff that’s, I segway into this.

[00:02:37] Cameron: Financial Review, Tony, loss making companies are surging on the ASX, baffling analysts. He’s baffled me for decades. Investors in the Australian share market are piling into unprofitable growth stocks this year, defying the threat posed by high for longer interest rates that have battered some companies on Wall Street.

[00:02:58] Cameron: So this story goes on to say that, uh, yeah, Australians are just, uh, Buying loss making stocks on the ASX. It’s a phenomenon which has perplexed analysts. The market’s infatuation with the cohort of unprofitable companies in Australia has baffled investment strategists for years, particularly given the poor returns they have consistently posted.

[00:03:23] Cameron: These companies typically possess cash flows that are expected to be generated in the distant future, which means they face larger headwinds from an increase in interest rates. So, my question for you as a seasoned investor is, what’s driving people to invest in, is it just, it’s punting, it’s just greed, the belief that these, but somebody’s got to be telling them to do it.

[00:03:51] Tony: Yeah, well, it’s, it’s been interesting for me because one of my friends is starting out investing and asked to like for recommendations on what to read and whatever. And so I started giving him, I, you know, he’s joined the ASA. I said, that’s a good place to start. And, um, I flinged him a, uh, a live wire email and said, have a look at this.

[00:04:11] Tony: And, uh, and then like, we’re chatting about it and he’s talking about this, um, listening of a silver miner in Colorado and it’s like he’s going how you know that sounds like a great story and I’m like no don’t even read those articles they’re just stories they just there’s there’s so much written about the next transaction yeah that you just need to ignore

[00:04:36] Cameron: but people yeah I mean I know there’s a lot of FinTech, things out there and, you know, TikToks and YouTubes and podcasts and whatever, telling people, get into this, get into that.

[00:04:50] Cameron: But if the analysts, according to the Fin are confused about it, like somebody’s got to be pushing these things, um, and telling people to get in. Stockbrokers, Stockbrokers, usually.

[00:05:04] Tony: Yeah. Right. Um, journalist analysts. Financial journalists, um, yeah, but, you know, it’s, it starts with the bankers who want you to list the company and then they can push it to that industry, they can push it to their customers, they can push it to the stock brokers who can push it to their customers.

[00:05:27] Tony: It’s all about them transacting so they get their fee. It’s almost irrelevant how good the company is to them. They’re going to underwrite it, they’ll get a fee for that, they’re going to, you know, arrange debt financing, they’ll get a fee for that, um, the stockbrokers are going to get people to transact, they’ll get a fee for that, so that’s the impetus for them to keep putting transactions in front of you, it’s up to you to work out the quality of those transactions, and I would have thought the starting point is, Are they making any money?

[00:05:57] Tony: Are they even getting any cash? I mean, you know, we’re now in the age of, well past dot coms, but, you know, startups that are doing work in the tech space. But for a long time it was always the speculative mining company was the That was the kind of grist for the mill for stockbrokers and analysts to push.

[00:06:16] Tony: You know, someone, someone has a tenement besides a successful mind and they’re really bullish about it. And here are some more samples and et cetera, et cetera. The classic one was a company called Cutico, which I can remember back from, I think, the nineties. Um, and it, it went up, oh, I’m going to say a hundred times.

[00:06:38] Tony: Like from being like a one set stock to being a dollar stock And it kept going to like a four dollar stock and it’s crashed all the way back down and gone broken being delisted But but that’s the classic. Someone’s got a story. They, you know, he’s found a He’s pegged out a tenement. He’s found a bit of gold on it um Sprooked it to people who then arranged the listing who then, you know, pushed it And it’s the greater fool, they’re selling their shares to somebody else.

[00:07:05] Tony: It’s people who don’t know what they’re doing and someone’s made money. So it’s survivor bias, but you never go back and say, Hey, that Cutico stock, did you sell out when it was 4? They probably didn’t.

[00:07:18] Cameron: They’ve got a graph on this thing of comparative performance from, looks like, I don’t know, September 23 or something like that.

[00:07:27] Cameron: Shows that they’ve got three lines on this chart. High growth with low or no profit, ASX 300 equal weighted, and high growth profitable. The high growth profitable stocks with the ASX 300 are both pretty much the same, 19 to 20 percent since the beginning of this chart. So as I said, like September, October 23.

[00:07:52] Cameron: What’s that? Six months, roughly. Whereas the high growth low or no profit is up 64 percent over the same period. So I’m wondering these high growth low or no profit stocks, how much are they going to be impacting? The All Ords or the STW versus, uh, you know, these ASX 300 high growth profitable stocks.

[00:08:14] Cameron: Like when we’re looking at the benchmark for us, the STW, is it being impacted largely by these sort of high growth, unprofitable stocks or is it limited?

[00:08:24] Tony: It’s limited. You can see it in the graph you just called out. The ASX 300 is up 20 percent over that nine month period.

[00:08:30] Cameron: Which is still crazy.

[00:08:32] Tony: Yeah, it’s, it’s good.

[00:08:33] Tony: It’s been a good year. Um, whereas the high growth. Low or no profits up 64 percent But that’s probably the answer to the whole question. Why are people buying low or no profit stocks? It’s because they’ve been going up recently And and there’s no reason for them to go up other than they’re just cycling between old investors and new investors,

[00:08:54] Cameron: right?

[00:08:54] Tony: Yeah

[00:08:57] Cameron: Well boggles my mind Moving along Similar, um, Financial Review, 10 Investment Tips to Ride Out the New Normal by Tom Richardson. Forecasts for interest rates and inflation to remain well above 3. 5 percent into financial year 2025 means savers and investors face big challenges to protect and grow their wealth into the future.

[00:09:22] Cameron: So. Oh, there was one thing I wanted to say in that last story. When you, when you looking at the high growth stocks in the US, when you’re looking at Nvidia or Apple or Meta or not Tesla, but some of the other ones, Amazon, these are now extremely profitable companies and Nvidia is just making money hands over fist.

[00:09:46] Cameron: That’s a different kettle of fish, you know, to these unprofitable companies that aren’t making any money.

[00:09:52] Tony: It is. Um, the argument would be that they started off being unprofitable.

[00:09:57] Cameron: Sure. As did all the ones that aren’t around anymore.

[00:10:00] Tony: Correct. Those five stocks have hit the jackpot, but there’s the other 500 which we don’t hear about anymore.

[00:10:09] Cameron: So anyway, this other article is talking about how interest rates are going to stay high and they’re talking to a bunch of, uh, investors, Anthony Selby from Financial Spectrum. They’re talking about, you know, people putting money in longer dated bonds and in sort of different cash accounts where they can get good saving rates.

[00:10:31] Cameron: Um, but then they’re also talking about. Buying U. S. tech stocks, Microsoft, Nvidia, those sorts of things, Netflix. Um, but I really wanted to talk to you about this idea of the new normal. This new normal being, uh, just, uh, I don’t know, what’s the, what’s the new normal here? How do you think about the new normal?

[00:10:55] Cameron: Is it the old normal? Is it this time it’s different? Yep, I was going to say,

[00:10:59] Tony: play the quote, this time it’s different. It’s not a new normal, nothing’s, economics hasn’t suddenly branched off and done something different. In the last hundred years, it’s still economics. Businesses still need cash. They still need, still got to manage their costs.

[00:11:14] Tony: They’ve still got to find their customers. At the moment, the, the, you know, the Magnificent Seven is doing really well in the US and it’s now up to like 30 percent of the index over there. Um, so you can say that’s the new normal, but But if you go back to 2000, it was tech stocks were still a big part of the US index.

[00:11:34] Tony: And if you go back before that, like the nifty 50 was a huge part of the US index and there was a lot of companies in there that didn’t make any money, like I think originally IBM and Hewlett Packard. Um, so it’s not the new normal. It’s normal. Yeah. It’s normal to have these bubbles growing in industries.

[00:11:52] Cameron: If you take a long enough time horizon. These sorts of things have happened before.

[00:11:57] Tony: Yeah. And invariably what’s also happened is if they’re so expensive that the share price can’t support itself, they’ll always crash back down to being, uh, the old normal, like a business, which is judged on its profit rather than on its, um, hype.

[00:12:14] Cameron: Yeah. All right.

[00:12:15] Cameron: What else have I got here? Oh, one of your favorites. AFIC. Australian Foundation Investment Company. I know that you’ve talked about AFIC quite a lot over the years. This article, Chanticleer says, While the LIC sector is under pressure, the 98 year old Australian Foundation Investment Company is staying patient and hunting for value.

[00:12:39] Cameron: They talk about that, uh, a couple of years ago, it was, uh, investors were paying as much as 1. 22 for a dollar’s worth of shares. And I think I remember you saying, talking about this at the time, uh, it’s reversed now for some reason it’s trading below its NTA. You can get, I think it’s a, yeah, 1 of assets.

[00:13:02] Cameron: For 90 cents. So how do you understand this? Like what’s going on with investments in listed investment companies?

[00:13:11] Tony: Uh, so there’s a whole range of different types of listed investment companies, but if we stick with AFIC, which is one of the biggest, It, it’s a quasi index, so it doesn’t quite match the Australian index because they can hold different weightings in, in shares as they choose, but it’s, it, for a long time it’s been a proxy for the Australian ASX index, um, it’s trading at a discount at the moment because, for, for two reasons I think, um, it’s dividend, or three, it’s dividend’s a bit lower than, uh, some of its competitors, And its main competitor these days is ETFs, so index ETFs like VAS, the Vanguard Index Fund, or ETF, which pays a slightly higher dividend and it has a slightly lower management fee.

[00:13:59] Tony: So ETFs have driven the cost of running funds down to very low numbers, sort of sub 0. 1% AFIC is still running, I think, at about 0. 15. So it’s still very, very cheap. And that number means it’s called the management expense ratio with an LIC. So it’s the cost of hiring someone to trade the stocks and run the company.

[00:14:22] Tony: But it’s very, very cheap, um, cheaply run. But ETF route these days, largely because it’s being pushed, um, Well, the financial planners towards people have heard that you should be in an index fund as a cornerstone investment, which is fine advice. Um, The question is, do you go into a Vanguard, VAS type, or an STW type of ETF, or do you go into an LIC?

[00:14:51] Tony: At the moment, the ETFs are slightly cheaper and have a better yield. Um, that isn’t always going to be the case. So that’s one of the reasons why this LIC, AFIC, trades below its NTA. Um, and then the NTA for an LIC is the value of all the stocks that it holds. Uh, The other thing is that there’s a lot of money flying out of Australia into U.

[00:15:14] Tony: S. stocks. They’re chasing that, the, the Magnificent Seven over there. And so that’s just money exiting LICs and ETFs and going into U. S. ETFs or investing in U. S. stocks directly. So that’s another reason. Um, but the good thing about the LIC space is that If the market turns down, they don’t have to sell a stock.

[00:15:38] Tony: They don’t have to, um, redeem any of the stocks for people who sell the share. They can just wait until they, they think it’s time to buy and deploy cash again. Excuse me, whereas an ETF is always trading. If BHP drops, they’ve got to sell BHP. Um, whereas if BHP’s in AFI and BHP shares dropped, they can decide to hold it for 20 years and not, not change their holding, which has traditionally been a, an, an advantage that they have over ETFs.

[00:16:07] Cameron: All

[00:16:09] Tony: right. That was a good article though, because I, I enjoy it. It was a good article, I enjoy reading about what they buy, and these days, it’s not just AFIC, but they have 3 or 4 associated funds that they’ve spun off over the years and still have some links to, like Mirabuka and, what’s the other one, United I think?

[00:16:38] Tony: But they generally, um, talk about all three. Jerry Warrer is another one. They talk about all three. And they all have their different, um, strategies. Um, whether it’s high yielding, or whether it’s focused on being an index, or whether it’s going after small caps or whatever. But they generally have a bit of a value bent to them as well, which is good.

[00:17:00] Cameron: Well, the next article is, uh, these stocks are prime for tectonic sized tailwinds. How big is a tectonic, Tony? Is it big?

[00:17:14] Tony: And how big’s the tailwind?

[00:17:15] Cameron: Aren’t tectonics like plates? Yeah, they are. What’s a tectonic? Okay, anyway. Markets are enamored with artificial intelligence and its implications. A confluence of factors led to AI going from a fringe investment idea into the mainstream in record time. ChatGPT, for instance, reached one million users in just five days.

[00:17:36] Cameron: However, AI is a broad investment theme with many. Opportunities. And this article is basically talking about how does Australia, uh, take advantage of the AI boom seeing as we don’t have really any chip manufacturers or major AI players in this country. And they talking about the amount of electricity that AI data centers are going to require, but then say, Oh, it’s mostly a regional operation.

[00:18:03] Cameron: Although I was thinking. You know, we do pull a lot of coal out of the ground in this country and uranium, which can be used to generate electricity. We may benefit from that, but, um, mostly it’s, uh, talking about the opportunity to, um, build sort of data centers and, uh, the, uh, the opportunity for Australia to host some data centers.

[00:18:30] Cameron: Thank you very much. Um, and the business opportunity there says Australia is already a top five global data center hub and is forecast to grow from one gigawatts today to more than two and a half gigawatts during this time, which is, uh, through to 2030, I think they say we expect to see more than 30 gigawatts of data center capacity requirement through to 2030 or over 15%.

[00:18:59] Cameron: We do have a question later on about, um, industries in Australia that might benefit from artificial intelligence as a potential investing opportunity. But, um, you know, I, I’ve been thinking a lot over the last year about, you know, how to, um, profit from the AI boom and where the opportunities are and, you know, how to play a role in the AI boom.

[00:19:25] Cameron: From an investing perspective. I know that you’re still a little bit sceptical about the role that AI is going to play, but you know, do you just treat this as a wait and see kind of thing as normal, you know, wait to see how the numbers roll out?

[00:19:41] Tony: Yeah, definitely. Um, I’m not sceptical about AI. It’s going to have an impact.

[00:19:45] Tony: It’s going to do good things. I’m just not buying into the hype yet on AI, because number one, every time I pick up a company report these days, it’s got AI in it. The second slide, it’s not going to work that way going forward. So it’s a lot of hype in the AI space, but this reminds me of the classic saying about buying picks and shovels during a gold rush.

[00:20:05] Tony: So, yeah, so I think you’re right. Data centers are definitely an area to look at and energy production is definitely an area to look at, um, because we don’t have chip makers here. There are a couple of kind of stocks on the borders of AI, um, LTM, which is a Circuit board designer, I think, from memory, uh, and, um, UX, which I think is also some kind of large language model processor.

[00:20:34] Tony: But anyway, um, I don’t know much about them and they’re, they’re, they’re definitely low profit gross stocks that we talked about before. Um, so what are my thoughts? I, I don’t like thematic investments. So the fact that people are trying to jump onto the AI. Theme is interesting and nice, but it generally means that trades are going to become pretty crowded.

[00:21:00] Tony: And certainly the data center stocks like Goodman Group are pretty highly valued these days because they have grown a lot and they, uh, um, yeah, they’re attracting a lot of attention and a lot of people are buying into them. Now, whether the growth is going to slow down because they’ve already built a lot of data centers or whether it’s going to keep going, it’s, it’s harder.

[00:21:24] Tony: It’s harder to go from where they are to double their size, than it was to go. Three or four years ago from where they started to where they are now. And that’s always the case with thematic investors. You’re all by the time it reaches the paper and it reaches our ears. The themes are really crowded trades like lithium was last year, we talked about that and that that crashed.

[00:21:44] Tony: And um, so potentially data centers might too. Um, but the way that you just protect about that is you wait for the numbers to come out. At the moment, the numbers are telling us to buy coal stocks, you know, that’s the energy provider to power the data centres, um, and they’re on our buy list, so that would be the area I’d be focusing on if I was worrying about that.

[00:22:03] Tony: Thematics, but I’m not, I was gonna buy coal stocks regardless of ai. So , um, yeah, it’s on the numbers

[00:22:10] Cameron: by the way. Speaking of coal stocks, I want give a shout out to one of our new QAV light members. David, who called me this morning, he works on a mine site in, uh, far north Queensland that’s in its rehab phase.

[00:22:26] Cameron: And we were talking about the rehab and the amount of money and effort that’s spent rehabbing the land. Um, and it’s like a massive, massive project, basically taking all the dirt and putting it back in the hole and flattening it and growing trees and stuff on there and handing it back to the government, I think he said, but it’s an aspect of the coal mining life cycle that I’d never really heard much about before the whole rehab process.

[00:22:57] Cameron: The role that the mining companies play in that. So I found that really interesting. Okay. So opportunities for AI in Australia, just wait to see how the numbers play out. And we just play it by the numbers as usual, huh?

[00:23:13] Tony: That’s how I’m going to do it. Um, unless, unless someone out there is listening with very specific company knowledge or very specific industry knowledge, that’s all you can do.

[00:23:22] Cameron: Well, sort of somewhat related to that. Um, I was, noticed when Alex sent us the checklist yesterday that copper, Is a buy again, and I was trying to understand why I did a little bit of reading and, um, trying to get my head around the copper space, just because I’m curious. There’s a story here that says that, um, the Chilean Copper Commission, Co Chilco, which I like that, Co Chilco.

[00:23:58] Cameron: See, I would think that Chilean Copper Commission could be Chilcoco. Co Chilco. But no, it’s Cochilco. Barry and Stan did their work on that one. Now sees average copper prices this year at 4. 30 a pound from 3. 85 a pound before. For next year, Cochilco, it could be like a music festival. You’re going to Cochilco this year?

[00:24:21] Cameron: Estimates average copper prices around 4. 25 a pound, up from 3. 90 a pound before. Although the high price of copper discourages manufacturers from stocking up inventory, demand remains strong. Then it goes on to say that some of the reasons, uh, it, the stoppage of First Quantum’s copper mine in Panama, low production expectations in Chile and Peru, and expectations that demand will outpay supply.

[00:24:49] Cameron: I’ve got another story though that says three reasons why buying copper right now is the best trade one commodity expert has ever seen. This is a Markets Insider. The analysis that he gave was, it’s in the throes of an unprecedented supply demand imbalance. Balance. And there are three reasons why this won’t be a passing fad.

[00:25:13] Cameron: First, lower income groups have long been the biggest consumers of commodities. Therefore, policy that redistributes wealth to this cohort is a tailwind for materials such as copper. So he’s looking at the low unemployment rate and now the low income groups are the biggest benefactor of that. So I assume they’re, they have money, they’re going to go out and buy stuff and that stuff’s going to have copper in it.

[00:25:36] Cameron: So electronics, et cetera, it’s going to push that up through. Second, rising environmental policy has set off an industry wide race for copper. The metal which is used in everything from solar to EV batteries is playing a central part of the world’s greenification. And then third, de globalization has become a way greater theme than analysts ever imagined.

[00:25:56] Cameron: That’s translating into rising military spending with the U. S. decoating 95 billion on munitions. I don’t know what the word decoding means. You ever seen the word decoding? Where’s my dictionary? Look up decoating, uh, decoy, decoy, no, no. Deploying, deploying, maybe it was supposed to be. Uh, however, this is yet to precipitate into a supply side boom.

[00:26:26] Cameron: Thinning inventories have had no help from mining output, which is stalled out amid political and financial challenges. And he talks about Panama. Um, so I don’t know, got any thoughts on copper as an

[00:26:38] Tony: investment? I think it’s a good investment and it was a great investment last year or the year before when Samphire Resources, a copper miner, was about four bucks a share and it’s now more than double that.

[00:26:50] Tony: Um, but that was on our buy list. So, that’s the time to get into these things. I mean, again, of course, I made a lot of money out of a copper mine years ago when copper was 4, 000 a ton, and then it went up to 20, 000 a ton very quickly, um, and which sent the shares of Jubilee Mines through the roof. So, you can make a lot of money in copper, but again, it’s, um, are you late to the party at this stage?

[00:27:16] Tony: That’s the question I’ve got. Um, the thematic is pretty accurately outlined in that.

[00:27:25] Tony: With commodities, there are lots of people who are working out exactly what the supply and demand is likely to be and exactly what the storage levels are around the world. And that’s probably the biggest driver of commodity pricing. Um, but there are, but there are big themes in copper. I’ve been called Dr.

[00:27:44] Tony: Copper and has often been traded as a proxy for global growth because copper’s in all the wiring that goes into telcos or electricity companies and their grids and as we build more houses and, um, bring more people out of poverty then, um, The copper price tends to go up because it becomes constrained and that that was certainly the case in China when it was starting to grow It’ll happen again.

[00:28:13] Tony: It’s probably India goes through a similar sort of growth spurt De global, the whole idea of decoupling around the world will play into it if it ever gets to the stage where You know, governments won’t allow free trade of minerals across, across the globe. And also too, the EV theme is huge because, um, copper is used in all of those electrical appliances like solar, uh, and EV cars.

[00:28:41] Tony: So there’s a lot of, lot of things to drive copper at the moment. Um, whether that’s factored in the price already, or whether it’s got more to run, I don’t know. So,

[00:28:51] Cameron: yeah, we don’t, We don’t change anything if we see these things coming up, we just, it’s really boring not changing anything Tony, like, you’re just, you’re just Doctor

[00:29:06] Tony: No. You get to go to the races and you get to go play golf, yeah, that’s, yeah that’s the thing isn’t it? Like that. Investing isn’t meant to be like work, where you clock on at 9 o’clock and stay busy so the boss thinks you’re worthwhile to employ tomorrow, but it’s very different.

[00:29:24] Tony: A great time is just to sit and do nothing.

[00:29:27] Cameron: Makes it hard for me to come up with anything interesting to talk about though. You’re just like, no. Nothing changes. Platinum. Platinum was also a buy, although all the articles that I read say that Platinum suppliers dropped due to weak demand. Causing revenue losses and job cuts in South Africa, the largest producer.

[00:29:45] Cameron: What’s the outlook for global platinum mining industry? But I don’t, you know, there’s no point even talking about this. You’ll just go, no.

[00:29:53] Tony: I know, I noticed that Zimplats is back on our buy list, so people can focus on that. Yeah, ZIM, but otherwise I don’t take an interest. And, you know, I’m not an expert, so I’ve got no idea.

[00:30:04] Cameron: All right, moving right along then. You know, I chart our buys, sells and Josephines every week. I’ve noticed that the buys, everything was going up for a while there, but for the last four consecutive, well, no, the last three consecutive weeks, I guess, they’ve been declining. The number of buys on our buy list has been declining.

[00:30:24] Cameron: Uh, I’m not smart enough to figure out if that’s important. Is there, should we read anything? Should we have a three point trend line for the number of buys on our buy list. Is it telling us anything about the market that’s important? No. All right, move it

[00:30:43] Tony: right along. Dr. No? I don’t, I don’t know. Um, it’s the first time I’ve ever looked at it like this.

[00:30:49] Tony: I saw the graph you made, which was good, uh, and was trying to, I mean, if I see a graph like this and try and extrapolate from the data, I look at the low points and the high points and the dates of those. So, um, I think we need to look at all of those things and try and work out whether there was some correlation between a low point in the market or a high point in the market.

[00:31:07] Tony: And I can’t really see one on this graph, so insufficient data I think is the answer. Um, it could mean, if we have less buys on the buy list now, it could mean that the quality of the stocks is going down, so like, you know, maybe we’re economically being challenged and the companies aren’t making as much money.

[00:31:26] Tony: Money, um, but it could also mean that a lot of companies are doing well and they’re coming off our buy list because their share price is going up.

[00:31:34] Cameron: Well, the share price is going up. Whether or not they’re doing well, they could be unprofitable. No, they won’t make it on our buy list if they’re unprofitable anyway.

[00:31:42] Cameron: So yeah, the share prices are going up, so they’re Um, getting filtered out on our PropCaf, um, metric. And so, yeah, no people, I, I, I don’t exactly remember why I started charting this, but somebody asked us if we could provide some numbers around it and we’ve been doing it, but no one’s ever told me that it’s useful or interesting.

[00:32:05] Cameron: And, uh, yeah. So if anyone has any, uh, uh, justifications for why I’m spending time doing this chart each week, Remind me what it is, because, um, it’s one less thing I have to do if it’s not useful. Well that’s all of the, uh, stories or ideas I had, apart from some questions. What have you got to talk about, TK?

[00:32:29] Cameron: I have a pulled pork on a

[00:32:30] Tony: company called ServCorp, which I can do now. So ServCorp is SRV, that’s the code. It’s a company that provides, well, historically serviced offices. It now provides shared office accommodation and virtual offices as well. I’ll highlight at the start, this is a low ADT stock. It only has 56, 000 traded on average per day, even though it has a market cap of around 400 million.

[00:33:02] Tony: Um, the reason why It doesn’t trade much is because probably a little bit over half of the stock is owned by the founder, a guy called Alf Mouffrage, if I pronounced that right, Mouffrage. And he’s been the, he’s owned half the stock now for 40 odd years, for a long time. It was founded, the company was founded in 1978 in Sydney.

[00:33:30] Tony: It’s very quickly went to expand overseas, listed on the ASX, they pioneered the virtual office concept, and I’ll just read a quote from their own website about how it all began. So, in 1976, the Entrepreneurial Mr Alf Muffridge was about to embark on a new venture. First he acquired an office space, receptionist and secretarial support.

[00:33:55] Tony: Soon he realised these costs were eating into his profits and the team and space were not used 100%. So he looked to share these to reduce his overheads. In 1978 from a corner office in the MLC Centre, Sydney, Australia, Mr Alf Muffridge took a piece of chalk and divided up the space and ServCorp was born.

[00:34:13] Tony: The idea took hold and eventually, sorry, and evolved organically. And in just 12 months, a full two floors within the MLC center were occupied, along with one location in Melbourne. Growth steadily continued, pioneering the virtual office concept in 1980. And expansion into other countries and ServCorp was publicly listed on the ASX in 1999.

[00:34:36] Tony: Yeah. So interesting thing along the way, uh, they, uh, they, uh, It really was a shared service office concept. And then companies like WeWork came along, which was all about the bro, co, working, share a beer and ping pong while you’re at work, sort of serviced office spaces. And they, and that was a bit different to what ServCorp did and people were forecasting the demise of ServCorp, but they’re still here and WeWork isn’t.

[00:35:05] Tony: And they certainly adopted some of the ideas from WeWork. And there was another, another, um, round of. Competition from other startups. Um, I think it was called one in particular was called vicinity. I think from memory but again They that company is an administration and serve corpse still here. So they’ve adapted and survived for a long time one of the things that they provided and pioneered was Not just providing you the space, but also providing you secretarial support, IT support, a voicemail messaging system you could log into.

[00:35:42] Tony: So you could go and rent the office space from them, but you also had the ability to push star one on your phone and get IT help with whatever you needed, um, from, from that office. So there was a, and there was a fair bit of, support they put into there. Their coworking spaces, which wasn’t there with some of their competitors.

[00:36:02] Tony: So that was something they worked out pretty early on. Has and has worked well for them. The shares are up a lot, um, this year. And I think that’s for two reasons, so they had a good year profit wise, and their profit was up something like 25 percent and a half, so that’s good year on year, but they also released what the headline calls a Middle East update.

[00:36:26] Tony: So, I’ll read from their announcement on that. Following our previous update to the market on the 17th of November, 2023, the restructuring of the Middle East operations continues. And sorry, I shouldn’t drop that and say that they now operate around the globe in 22 countries. 44 cities and 150 locations.

[00:36:45] Tony: So it’s, it’s a global company these days. Uh, getting back to what they’re saying. We confirmed that the Middle East reorganization was completed prior to 31 December, 2023, including the incorporation of a new holding company for this region called NewCo. ServCorp has been Granted the regional headquarter license issued by the Saudi Ministry of Investment, the first foreign corporation in the shared workspace sector to obtain this.

[00:37:13] Tony: This ensures ServCorp receives full support in its international endeavors controlled by its Saudi entity and receives support from the Ministry of Investment in Saudi. This achieves two of the key requirements for ServCorp to continue with the planned listing of its Middle Eastern European operations in the first or second quarter of calendar year.

[00:37:32] Tony: 2025 Servcorp Limited intends to hold our Europe and Middle Eastern operations in NewCo with Servcorp Limited retaining a 55% holding in the listed entity. Profit projections and revenue for the calendar year 2024 for these operations are being comfortably met. And four new locations are being built in the area to meet strong demand.

[00:37:53] Tony: Based on current multiples being achieved in the Saudi market for growth businesses, we could expect to see a significant value uplift for our shareholders should the transaction be successfully completed. ServCorp, in addition to owning 55 percent of NewCo, will retain 100 percent ownership of its locations in Australia, New Zealand, South East Asia, North Asia, and Australia.

[00:38:12] Tony: United Kingdom, USA plus some Middle Eastern operations incorporating over 80 business centres. A substantial cash injection should flow into ServCorp and our viewers profits will remain constant. So this is a small company without much coverage from the analysts because it’s a low ADT stock. I wasn’t able to find much in the financial press about Newco and what’s going on, but it does look like they’re either listing their Middle East business and European operations in Saudi Arabia and receiving a cash injection from the listing, or potentially the government’s taking a stake in it.

[00:38:52] Tony: But either way, there’s a lot of cash flowing in and a lot of. Tailwinds for this business in the Middle East section of their business. So the share price has gone from 2. 87 up to 4. 11 where it sits today in the last few months because of that. So the numbers for share, uh, for ServCorp, it scores quite well on our buy list.

[00:39:15] Tony: It’s up quite high. Um, doing the analysis, uh, at a share price of 4. 11. which is nearly 25 percent below its consensus target, um, and around about its IV2 of 443. IV1 is 162, so it’s not a deep value at this price, but it’s fairly valued in my opinion. Uh, company yields 5. 84%, um, so not quite enough to score on yield, but certainly a decent yield.

[00:39:44] Tony: Stock Doctor financial health and trend are strong and steady, so it scores well for those. If anyone’s interested, the ROE is 15%, which isn’t bad. PropCaf is 2. 5 times, so we’re buying this company, which sounds like it’s going to Go through a growth spurt in the Middle East for 2. 5 times its existing cash flows, which is very cheap.

[00:40:06] Tony: Net equity per share is 1. 99, so it’s roughly twice its book value, so it’s not going to score for us on that metric. Forecast earnings per share growth is currently 45%, which is quite high, and its PE is only 12 times, so Growth over P. E. is nearly 3. 5 times and we, you know, our threshold is 1. 5 before we score it.

[00:40:30] Tony: So it’s getting a very good score of 2 in our checklist for being so high, uh, and forecasting growth. Um, directors hold 53 percent of the, of the company and Alf Mufrage is still around and he’s an owner founder, so it scores for that. It’s only in the last month or two it’s become a 3 point trendline buy for us, so it’s um, scoring as a new upturn.

[00:40:51] Tony: Uh, not scoring on, um, having a low PE, it’s not the lowest in the last, uh, three years, and it’s not scoring on consistently increasing equity, so, uh, can’t score it on those. Overall though, quality score is 12 out of 15, or 80%, and the QAV score is 0. 31, which is quite high up. A bit of an, bit of analysis, uh, what are my thoughts on it, um, the pros are very much the fact that it’s, uh, the owner, uh, The founder still is an owner.

[00:41:21] Tony: Um, but the, I guess on the con side of the table is he’s getting pretty old now. He’s in his mid seventies. So what happens to succession is, I think I read in one of the, uh, Articles I was reading that he had two sons who were working in the business, but I think they both exited. So succession, uh, unless I’ve missed something, doesn’t, isn’t quite clear at the moment.

[00:41:46] Tony: Um, but that’s something I’m sure they’ll manage. Uh, the Back to the pros, they weathered the WeWorks competition and the Victory Officers competition and came out on top. So they’re certainly well experienced in this market and can adapt. They’ve adopted some of the WeWork innovations like what’s called Colo in the industry, co located shared workspaces.

[00:42:11] Tony: And I think the infrastructure seems good. There were numbers in there. in their analysis that they have about three times the support staff for IT and secretarial support involved with each co located workspace and each serviced office that they lease compared to their competitors. So they’re certainly providing good services to people.

[00:42:36] Tony: So yeah, so ServCorp scores well, doesn’t have a high ADT, But, and, and it’s going to have some kind of, uh, likely tailwind through this Middle East NewCo listing. Um, so people can have a look for that.

[00:42:51] Cameron: I wonder what, uh, how they survived COVID. Yeah. I’m just looking up some stories, uh, from around about that time.

[00:42:58] Cameron: But, um, that must have been tough for businesses like this. The, um, with the, the Middle East expansion and the support from the Saudis, do you think it’s because Transcribed They just need more places to chop up bodies, um, bathtubs, and is that part of the service provision? I don’t think so. No? No,

[00:43:21] Tony: I don’t think so.

[00:43:22] Tony: Yeah, um, yeah. You can

[00:43:23] Cameron: never have enough places to chop up bodies of journalists. That’s what I’ve always said. No, no, I don’t think it’s that at all. Oh, it’s just me then. Um, I’m looking at their 1H24 presentation and the choice of the, the, um, art that they’ve got for this. I looked it up, like this, uh, stock shot of some girl dreamily, Dancing in a cornfield or something.

[00:43:55] Cameron: Yeah. Like what? What’s that got to do with office rental spaces? It’s a bizarre choice. Anyway, it sounds like a good business. Sounds like they’re doing well. Thanks for that. We do hold them in a light portfolio and the dummy portfolio bought them on the 19th of April. And they’re up once 1 percent since then.

[00:44:17] Cameron: So not a. Not a huge, uh, performance in the last couple of months, but, uh, hopefully things go, continue to go well. All right. Anything else? We’ll get into questions. A couple of questions this week. Thank you to everyone who sent in questions. Nick, many industries are going to benefit greatly in a number of ways with AI.

[00:44:39] Cameron: Medical testing and diagnostics are a clear standout. The market has rewarded the chip makers and data centers, but hasn’t yet moved to the next order of benefactors. Now is probably a great time to preemptively buy into some of these companies, even in a small way. Is there a way QAV could identify or weed out some potential candidates?

[00:45:00] Cameron: I said to him, Yeah, I think I know what Tony’s going to say. Uh, that was even before the Dr. No episode. Then he said, maybe an expert in addition to yourself could help or persuade our Tony, anyone out there you think might come on for a chat. I think these are exciting times and agree with you that it is going to move faster than a lot of people anticipate.

[00:45:20] Cameron: And I said, yeah, the problem is finding anyone who can predict the future. Like we, if we’ve learned anything from not just the tech industry, but investing Over the years, it’s that no one really can predict shit. That’s why we have a retrospective view on investing, right?

[00:45:38] Tony: Yeah. Yeah, no, exactly. I mean, that’s, that’s.

[00:45:42] Tony: That’s, yeah, well said, um, maybe AI will help us with that and can predict the future better than we can. That would be a great boon to investment, but, uh, yeah, trying to identify next year’s winners is really hard to do. Better off having a framework and trying to look at companies which are good now, which will get better.

[00:46:05] Cameron: Yeah, well, I was talking, I caught up with, um, one of our listeners for a coffee, uh, last week and just, just, just, you Talking about the quality of management, you know, I think looking at, um, uh, consistently increasing equity. One of the things that we look at, like to me, what that is telling me when I, when I find a company with consistently increasing equity, it’s that the management are competent.

[00:46:36] Cameron: It’s competent management. They know how to grow their business year or period after period. We’re only looking at three years, but in recent times, they’ve been able to handle the swings and roundabouts of the marketplace and grow their business. And if, if any business is going to manage this transition into an AI future, well, it’s possibly going to be one of the businesses that, uh, has demonstrated that they’re competent.

[00:47:04] Cameron: Cause we know that. The vast majority of publicly listed companies aren’t competent. They don’t, we were talking, we did a story on this a little while ago, right? They’re not very well run. Um, but that said, handling the transition to any major technological disruption history has shown us Is inherently difficult.

[00:47:33] Cameron: Like just looking at the way that the internet disrupted companies, uh, over the last 20 years, there were a lot of the world’s leading, most successful profit, I think about journalism, uh, you know, media companies, a lot of media companies at 20, 25 years ago, you would have said were very well run. Had a good track record, you know, knew what they were doing.

[00:47:55] Cameron: Technology, the internet came along and just disrupted their business model. And very few of them survived. Most of them, uh, if they’re surviving at all today, it’s on handouts from Facebook and Google who, you know, Governments have forced to pay these companies money because they’re running their stories and they’ve been, you know, basically forced into it.

[00:48:17] Cameron: Like the Australian government has been forcing big tech companies to give media companies a lifeline handout because they’re not making money anymore because people go to the technology, go to, go to Facebook and Google to get their news and all of the advertising disappeared and went to realestate.

[00:48:35] Cameron: com. au or, Seek. com. au and all that kind of stuff. So even well run businesses, uh, can really, really struggle to handle disruptive technology and, and how you identify in advance the ones that are going to survive that trend. And this transition, I believe is going to be. The biggest and most disruptive transition we’ve ever seen.

[00:48:59] Cameron: And Nick, I agree with Nick, like in medicine is going to be phenomenal. The impact that AI is going to have in the next decade, when we have AI systems that can analyze, not only analyze all of the research that’s being done, but can also run up virtual millions and millions of virtual experiments that Uh, to see how they play out and then have the equivalent intelligence of millions of, uh, research PhDs that can analyze those results and then spit out a short list to human researchers to test in the lab.

[00:49:38] Cameron: Here’s the combination of factors that you really want to be looking at to cure cancer or to cure Alzheimer’s or to do life extension to telomere extension, whatever it is. Um, and then, uh, Uh, it’s going to be an incredibly fascinating time to live, but there will be companies that don’t exist today that will be the Modena, um, 10 years from now that’ll come up with MRNA vaccine technology and find an opportunity to exploit it.

[00:50:06] Cameron: Anyway, I’m rambling, but I just don’t think there’s any way of, of being able to forecast who’s going to survive this and who’s going to profit from it and who isn’t.

[00:50:15] Tony: Yeah, look, I, I agree. I think, um, I was trying to think, apart from what we spoke about before, about going into energy stocks to power AI, to power the data centres that AI runs on, or data centre companies, but that tends to be a crowded trade these days.

[00:50:32] Tony: I mean, I, uh, I would think lawyers. Um, health, uh, like, uh, medical imaging companies or pathology companies, companies that have lots of data that is currently processed manually, um, will get sped up. I don’t know if that’s, I was trying to think, is that a good thing for those companies or is it a disruptive thing for those companies?

[00:50:55] Tony: lawyers? Yeah.

[00:50:56] Cameron: Lawyers are going to be out of business.

[00:50:57] Tony: Well, there you go, but, but if the lawyers, but, but will a legal company know that and take up AI and put their lawyers out of business and survive or will it just be disrupted away? Who knows?

[00:51:10] Cameron: Yeah. So it’s hard. It’s hard. My guess is that lawyers are, uh, dead.

[00:51:14] Cameron: I mean, some, some will survive, right? You still want somebody in court arguing your case, et cetera, et cetera. But. Um, the, the background work that needs to be done to prepare for a case, or just day to day legal stuff, there will be just AI lawyers out of the box, your AI lawyer, I guarantee you, ChatGPT probably has a better handle on most Australian law today than most lawyers.

[00:51:41] Cameron: It will have, you know, the, the versions of it that we will have in the next year or two will have read, All of the case work, all of the law, inside and out, and we’ll be able to provide free Uh, excellent legal advice for people and businesses. Not today, there’s still too many hallucination type issues where you wouldn’t, you wouldn’t trust it today, but you know, if you believe Sam Altman and people like that, those, all those problems are going to go away in the next version of ChatGPT based on where they’re at today.

[00:52:17] Tony: Yeah. Well, if you look at the history of disruption and it’s not, Not just relating to AI, but, uh, businesses and industries go through the sigmoid curve. So they, it’s like, if you think of an S on its side, so they grow, um, the value is created, the share price goes up and then they get disrupted and then they come down and they come down to a point where their value again, And so they might be investable at that stage on the, on the way up.

[00:52:45] Tony: Um, and that’s been the case all, all the way through history. So like we have, you’re talking about media stocks, but we have media stocks on our buy list now because, you know, 20 years ago, these stocks were very, very expensive because they were household names and now they’re very, very cheap, but they’re still in business.

[00:53:03] Tony: So it, and the classic example of that is Berkshire Hathaway. Um, So the company Berkshire Hathaway, um, before it became a holding company for Warren’s investments, was a cotton mill in the northeast of the U. S. And it was a classic cigar butt investment because cotton mills were shutting down. And Warren could buy it cheaply, and then Charlie tried to talk him out of it, but Warren went ahead and bought it cheaply because cotton milling in the U.

[00:53:33] Tony: S. was being disrupted. Um, but it’s how, it’s how management addresses that, so Warren was able to say, well it’s still throwing off cash, and I can invest that better outside of putting it back into supporting the cotton mill. And those investments paid off. Then became the core business. So it’s, it’s how nimble and adaptive management is.

[00:53:53] Tony: That’s important as well. Not just the industry they’re in.

[00:53:56] Cameron: Anyway, the bottom line, Nick is, yeah, like it’s a fascinating area and I’d love to get someone on to talk it through. Maybe somebody who is in the, um, medical analysis, uh, field and we can talk about what they see coming down the pipeline. But, uh, yeah, again, my.

[00:54:16] Cameron: Having spent 30 years in and on the fringes of the technology industry, I just know from experience that no one has any idea what’s going on, you know.

[00:54:27] Tony: Yeah, I think, um, medical imaging is the one, is probably the area that’s being identified at the moment, which is going to have a big benefit from being able to process data, uh, quickly.

[00:54:38] Tony: Quicker, um, to pick up problems quicker and to make the life of radiologists, for example, better and more, and more productive. Um, and I guess the analogy is a company like ProMedicus, um, which isn’t an AI company, although they probably are. They probably have somewhere in their slide decks that they are, but anyway, and that’s an anti QAV stock, it trades on like a hundred times operating cash flow.

[00:55:01] Tony: But it’s done very, very well as an investment, um, growing a lot. Uh, and the analogy is that, you know, it’s, it’s all about, um, medical imaging and getting, um, higher quality resolution medical imaging, um, to medical staff in a, in a quicker way, enabling them to, um, To, uh, process remotely and to process more data than they have been able to traditionally.

[00:55:25] Tony: And that’s been a huge boon to surgeons and to medical staff. And that same sort of a thing is going to happen when AI can, you know, um, go through, uh, a million breast cancer x rays and mammograms and screen for breast cancer. Breast cancer quicker than it’s done now and to be able to catch that cancer in a timelier way than it’s done now.

[00:55:46] Tony: So yeah, I think medical imaging is a huge area for AI.

[00:55:51] Cameron: I covered this story on Futuristic last week with Steve. Google’s Gemini models have been Uh, they’ve got a, they’ve got a version of it called MedGemini. And basically what they’ve been doing is working with doctors, um, to use this to do exactly that.

[00:56:15] Cameron: Basically using it to help doctors get faster and better analysis of people’s results.

[00:56:27] Cameron: There’s a bunch of examples here where they take a photo of a skin lesion, a lump, and the, it says, The model asked appropriate follow up questions and correctly diagnosed the rare lesion, recommending what the user should do next. There was another example, MedGemini was asked to interpret a chest x ray for a physician while they were waiting for a formal radiologist’s report and formulate a plain English version of the report that could be provided to the patient.

[00:56:56] Cameron: basically it had knockout results, looking at scans, looking at feedback.

[00:57:01] Cameron: Photos being able to, um, provide analysis for the doctors. So like, I’m guessing we are not far away from, you know, you’ll just, you, you have, you’ll, you’ll go for an X-ray and it’ll just, you know, the X-ray company will just feed. Your x ray through an AI, and it’ll give you the results. And that’ll be it for the, for the majority of things.

[00:57:30] Cameron: Um, it’ll, it’ll do the analysis. You might then go and see your GP for recommendations for further treatment if it’s required, but the AI will be doing the analysis. The vast majority of the background work for the GP, which is good. It means it takes a load off GPs. GPs can see more people. A lot of people won’t need to see a GP because the AI will be your GP.

[00:57:52] Cameron: You’ll only need to see a human in, you know, specific cases where there’s something that requires human intervention.

[00:57:59] Tony: And unless there’s a particular medical AI company that you can invest in, it’s, you’re going to have to largely invest in the things we’ve talked about, the Magnificent Seven and who’s providing that.

[00:58:11] Tony: General AI. I suspect that there might be a specialist AI for medical imaging and that might be a company that launches that you can invest in. But if that’s the case, just as it’s the case now with the Magnificent Seven, I don’t think they’ll ever appear on our buy list as a value investment at all.

[00:58:30] Cameron: The way I think it’s going to play out, and this is, you know, speculative and I’m pulling this out of my arse obviously, but I think you will have your AI assistant that’ll be on your phone, probably provided by Apple in collaboration with Google or GPT or whoever. The dominant company is in the future and if it needs specific, um, expertise, AI expertise, it’ll call out like an API call to MedGemini.

[00:59:02] Cameron: And it’ll tell you, look, I need to, I need to, I’ve got your scan from the x ray company. I need to run this through a special AI. It’s going to cost. Five bucks for me to make that API call. Are you happy to approve that? Yep. It’ll send the data to the specialized AI system, which will do the analysis and then feed that back to your agent.

[00:59:22] Cameron: So you’ll have your agent on your phone. That’ll be your personal. AI assistant that knows everything about you and your preferences and you trust it to manage your affairs for you. And then it’ll, it’ll do a whole bunch of stuff in the background on your behalf, call out to different systems and do your shopping and do your banking and your investing and whatever on your behalf.

[00:59:44] Cameron: Um, so there’ll be a whole bunch of, uh, different modular systems out there that it’ll be able to call upon, but there won’t be that many really. It’ll be, Google’s will run some and Meta will run some and Apple will run some and, you know, and there might be some smaller ones, but the amount of compute. I was listening to an interview this morning with Yann LeCun, who’s the head of AI at Meta.

[01:00:10] Cameron: And they’ve, based on the number of NVIDIA GPUs they now have running their stuff, the guy who was interviewing them estimated that they’ve spent 30 billion on building their AI data center to run all of the stuff in the background, because they’ve got like a million NVIDIA GPUs. I heard Zuckerberg say a while ago they’d have a million by the end of this year.

[01:00:35] Cameron: I mean, it’s just an insane amount of money. They’re like 250, 000 a pop. So unless they’re getting some sort of special deal, and I don’t think NVIDIA’s given special deals because, you know, their product line is sold like two, three years in advance right now. Um, It’s like, there’s not that many companies that can spend 30 billion on building AI data centers.

[01:00:57] Cameron: You know, crazy.

[01:01:00] Tony: It is. But again, it’s, it’s really hard to identify where to invest, whether we can invest, whether you invest in Apple, whether you invest in Google, all those kinds of things right now. Yeah.

[01:01:11] Cameron: All right. Moving right along, Matt, uh, potential question. Uh, I’ve been listening to a bit from Aswath Damodaran, And he believes that a good valuation should be the combination of a story and the numbers.

[01:01:26] Cameron: For Tony, how often is he making purchases, or not making purchases, based on factors outside the numbers? Well, I think we all know the answer to this question, particularly after today’s episode, but, uh, I’ll Let Tony give the answer.

[01:01:42] Tony: Well, the answer is very rarely. I mean, we have some red flags, which is outside the numbers.

[01:01:47] Tony: But, um, but no, very rarely. That’s been beaten out of me. I mean, I have from time to time over 25 or 30 years been swayed by a particular story and been to a presentation and thought that was fantastic and bought the stock only to watch it crash. So, um, yeah, I, I hate CEO stories. Very rarely go along to any sort of presentations anymore, um, they’re always good, they’re always upbeat, they’re always going to change the world, um, and they never do, very rarely do, so, no, I stick to the numbers.

[01:02:18] Tony: Look, that doesn’t mean I don’t play around with things like, um, well we talked about Licks trading below their NTAs before and how, you know, I had invested in, in that, um, way back at the start of my investing career, and that’s a legitimate part of it. Um, thing to do. Um, and I’m always trialling new ideas like the anti QAV stocks.

[01:02:38] Tony: Um, see how that goes. Um, playing with regression testing to see if we can improve QAV, all those kinds of things. So from time to time I will buy a stock that interests me after all that kind of testing. But, um, yeah, I’ve had, I’ve had I’ve had, through bitter experience, um, buying shares on stories beaten out of me.

[01:02:59] Cameron: And I’ve, I’ve looked at, uh, Damodaran’s stuff before, he’s got a huge online following. He’s, uh, professor at Stern School of Business in New York, professor of finance, teaches corporate finance and equity valuation. Um, and I, I looked a little bit of this video that Matt sent through and he’s got a checklist and a spreadsheet, um, not dissimilar to yours.

[01:03:25] Cameron: And then he takes, from what I gathered, the quick look I had, he listens to the narrative or the story that the business has and then he tries to justify it with numbers. You know, he tries to work out. Can I make sense of this looking at the numbers or not? Do the numbers back up this story or not? But, um, you don’t even listen to stories most of the time, right?

[01:03:49] Cameron: You just let the numbers tell you the story that you want to hear, which is this company’s making money and it’s undervalued.

[01:03:56] Tony: Yeah, that’s, that, that’s the only story I want to read about. Um, and look, I understand, uh, what, uh, I’m not that familiar with this person, but I understand what they’re doing, Aswath Damodaran.

[01:04:09] Tony: Um, but yeah, I mean, it’s, it’s, there are all different ways to value companies. And, uh, from the sort of link that I was sent, it looks like he’s just looking at longer term trends. in the numbers, like how are sales going and how’s profit going over a longer period of time and you know, there are people who take what the CEO said over the last five years and see if that’s if that’s actually happened as a way of judging the quality of management.

[01:04:38] Tony: There are people who well even Warren Buffett and Charlie Munger talk about the numbers only being part of the The whole valuation, they look, try and look forward as well. How long is this business going to continue to be profitable and, and, you know, pay, pay us back for our investments? Uh, so there’s an element of that, but I’ve just found that all of that stuff is, unless I’m an insider in the industry, it’s, it’s becomes, um, forecasting, which is really hard to do.

[01:05:08] Tony: Uh, crystal ball gazing. The only thing we can rely on is what the companies. Put into its numbers that we can build a model about its quality and its value.

[01:05:19] Cameron: And we’ve talked about this before, like Charlie and Warren did spend all day, every day, you know, going deep and developing a really deep understanding of a business or the sector that the business was in so they moat it had.

[01:05:37] Cameron: And, you know, they, that’s what they loved. That was their passion. They dedicated decades. To being very, very competent. Warren would talk about his circle of competence and he would, uh, develop very deep comp, competence in understanding a business in the sector it was in and the numbers behind it and all that kind of stuff.

[01:05:56] Cameron: That’s how he got his kicks. And if that’s what people want to do, if they want to dedicate and they can afford the time to dedicate their lives to having a deep, understanding of an industry or a sector, then they could probably, you know, profit well from that, but that’s not how you want to spend your life, right?

[01:06:16] Tony: No, it’s, it’s not. And, um, You know, it’s profitable for them, so it drew them in to doing that. But, yeah, you’ve made a good point. They do base their calculations on numbers. But, you know, famously, Warren lives in Omaha, because he didn’t want to be swayed by the stories of Wall Street. And even though, you know, There’s a certain amount of truth in that story, but on the other hand, he did spend a lot of time networking with, um, famous people to understand their industries, like Bill Gates or, um, uh, what’s his name, Kathy Graham, who ran the Washington Post.

[01:06:56] Tony: So he did gain knowledge about those industries through, through them. He, he liked the fact that he could pick up an annual report and read about the company and the numbers there, and not be swayed by what Wall Street thought about those companies. Hmm.

[01:07:09] Cameron: Alright, last question is from our old mate Kane.

[01:07:13] Cameron: Uh, Kane says the CFO of PRN just resigned, but it is stated he is left to take a job as CFO at Perth Airport. Does Tony think this would still count as a sell or as a resignation with reason fair? I had a look, uh, so the announcement came out at the beginning of the day yesterday. And the share price went up considerably over the course of the day, which I always think must be depressing.

[01:07:42] Cameron: It came back a little bit today, but, uh, is still quite a ways above where it was at the beginning of the market yesterday. I think it, it opened, um, Uh, yesterday, I don’t know, I ran about 98 and a half cents by the looks of it, went up to over a dollar one, came back down to sort of round about 99 and a half cents, close to a buck today.

[01:08:06] Cameron: Um, I read, uh, The company statement, it says, Parenti advises the Chief Financial Chief Financial Officer, Mr. Peter Bryant, has resigned to accept the CFO position at Perth Airport. Mr. Bryant will continue to serve a CFO during a six month notice period and will assist in the search and transition process to a new CFO.

[01:08:30] Cameron: Now, red flags for us are normally. Uh, sudden resignations, uh, yeah, uh, Stalin esque purges of people. He’s been taken out to a labor camp somewhere and shot suddenly. Um, this does seem to be a legitimate, uh, transition with a transition period and a good excuse. I don’t see any reason for panic. Do you?

[01:08:58] Tony: No, not at all.

[01:08:58] Tony: Um, I think the fact that he’s hanging around to help people The transition’s good. Uh, and, um, yeah, look, red flags are really just, as you said, Cameron, if someone resigns unexpectedly and doesn’t give a reason, it usually Family issues. Family issues. Health issues. Yes, spending more time with my family, that kind of thing.

[01:09:19] Tony: That’s the red flag for me, especially a CFO. No, this is, this all looks fine. Parenti is, um, back on the buy list, and it’s a recent 3. 2. Trendline Upturn. So I think it’s all fine. All

[01:09:31] Cameron: right. Well, that is the show for today. Apart from After Hours, Tony, unless you’ve got anything else. All right. After Hours.

[01:09:41] Cameron: Wow. I went to a gig. We went to a gig Friday night. One of the rare times we actually are allowed to leave the house. I went to see Slater Kinney, who we last saw about eight years ago. Old girl. Punk band from Seattle, Portland, Pacific Northwest. Um, they’re in their mid forties now, the girls that sort of broke in the mid nineties, um, sort of part of the riot girl movement, which was the angry all girl punk movement out of the Pacific Northwest.

[01:10:17] Cameron: And they rocked hard. It was fantastic. And the opening act was an all girl punk band from Sydney called Body Type. And, uh, we loved it. It was just, it was a little, little club in the city, the Triffid. And, um, not that many people, couple of hundred people, maybe, but yeah, both bands just rocked really hard.

[01:10:37] Cameron: And there’s something about girls playing Punk, angry Punk, that, uh, I just love and the, the. Particularly the girls at Slater Kinney, Carrie and Corin, they dress like they’re, um, executives in a corporation, like they don’t dress like punks, they just have nice frocks on, and then they get up there and they just scream and play loud guitar and, you know, It’s just, it’s really, I don’t know, I just dig it.

[01:11:08] Cameron: I loved it. We, we had a really great night. It was a really fun gig. Anyway, that was sort of the highlight of our week.

[01:11:17] Tony: That sounds good.

[01:11:18] Cameron: It was great. Yeah.

[01:11:20] Tony: Yeah. So, well, you’ve already talked about my trip to the Scone Cup, which was brilliant. Um, and the races there and staying on the farm, which was lovely.

[01:11:30] Tony: Checking out my horses there. Uh, and then. Coming up here, I’ll be here probably until Sunday because Poyfect will run on Saturday and then I’ll work my way down the east coast back to Sydney playing some golf which will be great. Nice. Yeah.

[01:11:46] Cameron: Have you watched anything good? Oh, I’ve Except for horse races, I haven’t watched the thing.

[01:11:52] Cameron: I made it about half an hour into Oppenheimer and then I gave up. I was just so bored. I mean, it was beautifully shot, um, parts of it. Like there’s all this sort of, I don’t know, you see lots of atoms and like, very lynchy kind of interstitial things when Oppenheimer’s thinking about physics. You see swirly things and that’s all lovely, whatever.

[01:12:16] Cameron: And I think, you know, the cast did a great job. It was more about, at least the half hour, you know, it’s more about who he’s sleeping with and his different wives and his, you know, involvement in the communist party and that kind of stuff. And I just, I just got bored really quickly with it. I was like, eh, I’m not going to bother.

[01:12:34] Cameron: It’s another two hours to go on this. I can’t, but I, what I did watch and really enjoyed was the last season of Seinfeld. Again, I rewatched season nine of Seinfeld. And I hadn’t watched season nine since it came out, like in whatever that was, 2000 and something. And, uh, 99, 2000. I’m not sure. So it’s been 20 odd years since I saw it.

[01:12:58] Cameron: And some of the episodes were really good. Like some of the best episodes were in that last season. I was surprised. The finale wasn’t as bad as I remembered it, but still kind of fell flat. Did you watch the Curb Your Enthusiasm finale? No. Have we talked about it? No. Oh, man. The Seinfeld remake? No, well, they, no, no, well, kind of, yes.

[01:13:25] Cameron: So he, famously, everyone hated the final episode of Seinfeld, which Larry came back to write. Which was bad. And it wasn’t great, and everyone’s criticized it for 20 years. And so, For the finale episode of Curb Your Enthusiasm, he pretty much did the exact same thing. And it was, the episode was called like, um, Nothing Learned or something like that.

[01:13:53] Cameron: He basically, it’s the same thing, similar, similar, but different. In the Seinfeld finale, they, they get arrested and they go to trial and all of the people that they’ve offended over the course of the series are brought in as witnesses. Well, Larry did the same thing. He’s on trial, All of the people that he’s offended over the course of his show came on to bear witness.

[01:14:13] Cameron: And it was, and Jerry, Jerry was in it as well. And, um, so Jerry, so like in the Seinfeld episode, Larry, I’m going to spoil it for you. So spoiler alert for anyone, Larry loses the court case. He goes to jail. He’s sitting in the jail cell, just like the Seinfeld crew. And the way the Seinfeld episode finished is Jerry and George started talking about whether or not you do up the top button of your shirt, which was the first Scene from the first episode of Seinfeld, Larry starts talking with another prisoner about his pants tent, which was a callback to the very first episode of Curb Your Enthusiasm.

[01:14:54] Cameron: So he did exactly the same thing, but then Jerry comes in and goes, you’re free. And Jerry had found a loophole and got him out. And they’re walking out of the jail cell and Jerry’s going, you know what? We should have done this in the last episode of Seinfeld. We should have, and he goes, Oh, why didn’t I think of that?

[01:15:14] Cameron: That would have saved the whole thing. So anyway, I just love the fact that. Larry, like it’s the, it’s the perfect sort of fuck you from Larry. The thing that people have criticized for the last 25 years. He just did it again, followed the same thing and called the episode Nothing Learned or something like that.

[01:15:31] Cameron: Time of your life playing in the background. No, no, but, uh, it was great anyway. So anyway, Seinfeld. Yeah, that was good. I just really enjoyed watching it. It was, uh, really fun, really good. But that’s it. I’m still reading the Fitzroy McLean book and he’s, the chapter that I’m reading at the moment is all about the purges, Stalin’s purges.

[01:15:54] Cameron: He was in the courtroom for the whole, uh, not for all the purges, but for some of the big ones like Bukhar and Yugoda, the guy who was the former head of the NKVD, who had been running the purges. And then he got purged himself and it’s fascinating to get a firsthand account by, uh. Scotsman sitting through all these court cases about how these people were acting and how the whole thing played out.

[01:16:21] Cameron: Um, yeah, really, really interesting to try and figure out the mechanics, um, of Stalin’s purges and why he was doing it and who he was doing it to and all that kind of stuff. That’s it anyway. Yeah. Good. Yeah. Got nothing. Dr. No has nothing. All right. It’s a good book. Good movie. Uh, yeah. Yeah. It holds up. Yeah.

[01:16:46] Cameron: It’s like kind of quaint. We talked about that last week. Connery. Oh, bye. Connery. Yeah. Good looking, but not that good looking. Uh, you know, spit, but charismatic.

[01:17:00] Tony: Yeah. Very charismatic. Oh,

[01:17:03] Cameron: did you watch the last couple of Doctor Who episodes?

[01:17:05] Tony: No, I’m still on Space Babies.

[01:17:07] Cameron: Oh, man. The Beatles one, is it good?

[01:17:09] Cameron: The next one, the Beatles one, is the most bonkers episode of Doctor Who I think I’ve ever seen. Okay. Not necessarily saying it’s good, but completely bonkers. And I watched it twice, once with Fox and then once with Chrissy. They both loved it. I think I loved it, but it’s completely. bonkers next level completely bonkers and then the next one was not too bad too it was written by Steven Moffat the next one he came back and wrote this the fourth one yeah anyway I heard that yeah yeah has Alex watched them no no no dr.

[01:17:48] Cameron: no dr. no dr. no wasn’t Christopher Lee dr. no was

[01:17:54] Tony: he dr. no

[01:17:56] Cameron: Yes, yes. No, no. He was, uh, the man with the golden gun.

[01:18:00] Tony: Oh, that’s right.

[01:18:01] Cameron: Scar. Who was Dr. No, db.

[01:18:03] Tony: Yeah, it

[01:18:06] Cameron: was res, it

[01:18:07] Tony: was no , but that was the classic scene. And the I really, Joseph

[01:18:12] Cameron: Wiseman.

[01:18:13] Tony: Oh, okay. I really enjoyed the, um, I really enjoyed the book, Dr. Nye, because I remember reading it and. What’s the offsider’s name? Correll, I think it is, the black guy. So Bond goes to an island in the Caribbean, which is where Ursula Andress comes out of the water, and he’s got a friend there, Correll, who’s helped him before.

[01:18:34] Tony: Not Felix, not Felix. No, no, no, this is like a local guy. Right. Um, but the book goes into their training regime, how, you know, Bond is feeling a bit flabby and out of shape, and Correll and him go running on the beach and get back into shape before the mission, which I thought was really cool. Really good because like, we watch all these action movies and no one ever goes to a gym or goes for a walk.

[01:18:56] Tony: They just have amazing bodies. Yeah, that’s right. Yeah, yeah.

[01:18:59] Cameron: It was the first, was it the first one, Doctor No, the first novel?

[01:19:02] Tony: First book. No, Casino Royale was the first. Sorry, Doctor No was the first movie. The movie. Casino Royale was the first book. Yeah, that’s right. Yeah.

[01:19:11] Tony: Love the James Bond books. They were so well written.

[01:19:14] Cameron: Yes. I read them all like, I don’t know, 30 years ago and really enjoyed them. Yeah.

[01:19:21] Tony: Yeah. I bought them all secondhand from a secondhand bookshop in Carlton and just devoured them. They were so good.

[01:19:28] Cameron: Yeah, I think I bought them from the same bookstore in Carlton.

[01:19:32] Cameron: Yeah, really? Yeah, I used to go to that bookstore if it’s what I’m thinking of. Yeah, the Paragon Cafe. Yes. Yes. Yeah, I used to go there all the time. I lived around the corner of it.

[01:19:40] Tony: Oh, nice. Yeah. Yeah, it was a great bookstore. So you went through all the Flemings, the Vonneguts, the Hemingways. And I just had them all there.

[01:19:50] Tony: It was great.

[01:19:50] Cameron: Yeah. I think I’ve got a couple downstairs in my bookshelf. Oh, really? They’re probably, yeah. Oh, wow. Yeah, they were good. Great books. I think I also bought, um, The Selfish Gene there as well. Oh, one of my favorites. I think it’s an early, um, uh, print of that. Mm hmm. Um, yeah. Yeah. Great book. Major book.

[01:20:13] Cameron: Yeah. Yeah. Alright, thank you Doctor No.


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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