QAV 725 — Mr Lazy & Mr Dumb

QAV 725 Club

[00:00:00] Tony: One, two, three.

[00:00:05] Cameron: Wel­come back to QAV.

[00:00:07] Cameron: This is, uh,

[00:00:09] Tony: One, two, three.

[00:00:12] Cameron: you’re right there. This is, uh

[00:00:15] Tony: Yeah, yeah, we were talk­ing about the Blues Broth­ers before. I just thought I’d give you a one, two,

[00:00:18] Tony: three.

[00:00:20] Cameron: You don’t have to go home, but you can’t stay here. This is episode 725. We’re record­ing this on the 18th of June, 2024. How are you, Tony?

[00:00:35] Tony: Very well, thank you, Cam. Just had a love­ly long week­end with Alex up

[00:00:40] Tony: in Syd­ney doing lots of art gallery things, which was love­ly.

[00:00:44] Cameron: She had such a love­ly week­end. She for­got to send me the buy list yes­ter­day.

[00:00:48] Tony: Oh, I got

[00:00:49] Tony: one

[00:00:49] Cameron: Yeah, you go one. I sent her a text at

[00:00:52] Cameron: like five 30 going. Are

[00:00:54] Cameron: you going to send

[00:00:55] Tony: Oh, no, I did­n’t even notice you weren’t

[00:00:56] Tony: on the,

[00:00:57] Cameron: She said, Oh,

[00:00:58] Tony: I did­n’t even notice you weren’t on . Weren’t on the

[00:01:01] Tony: email. Sor­ry.

[00:01:02] Cameron: quick­ly I

[00:01:02] Tony: No, I did­n’t

[00:01:03] Tony: notice. Yeah.

[00:01:04] Cameron: Um,

[00:01:06] Tony: Yeah, she was work­ing in work­ing on it at my place

[00:01:09] Tony: too,

[00:01:10] Cameron: well, there you

[00:01:11] Tony: so I knew she did

[00:01:12] Tony: it. Yeah.

[00:01:13] Cameron: The mar­ket is up today. It

[00:01:15] Cameron: has been falling for the last, uh, three or four days. Went up on the 13th, morn­ing of the 13th and then declined all the way down to this morn­ing. It’s back up over 8, 000 this morn­ing. Um, I don’t know why, don’t know what changed. Is it the RBA? Uh, deci­sion that’s sup­posed to come down today, peo­ple are pre empt­ing that,

[00:01:38] Cameron: maybe?

[00:01:38] Tony: I think so. Yeah, I think so. And obvi­ous­ly, you know, riff­ing off what’s com­ing in the us they’re about to release there. Equiv­a­lent of CPI num­bers this week. So peo­ple are prob­a­bly pre­dict­ing that as well. Good luck to them.

[00:01:53] Cameron: Mm

[00:01:54] Tony: Isn’t it fun­ny? It’s like, I’m so con so con­vinced. I know what’s going to hap­pen in two days time.

[00:01:58] Tony: I’m going to place my bits now. I guess just kind of the oppo­site way of invest­ing real­ly. Isn’t it? If you think

[00:02:04] Tony: about it,

[00:02:05] Tony: how you should

[00:02:05] Tony: invest.

[00:02:06] Cameron: Well, we’ve, we’ve talked about this before, but, and it, it, I’m just con­tin­u­al­ly amazed at, um, how flighty the mar­ket is. You know,

[00:02:17] Tony: Ooh,

[00:02:18] Cameron: noth­ing, you know, it’s just up and down. No one can decide what’s going on. It’s up one day, down the next, up the next, down the next, uh, any­way, I’m glad that. I just get to ignore it, most­ly.

[00:02:31] Cameron: Um, peo­ple, since our last show, Tony, when we talked about the US, I’ve had a few peo­ple email­ing me ask­ing me to send them the US buy list. Um, uh, I don’t real­ly have one. So the last one that I did was about a month ago, but I am going to have to do one in the next 24 hours because I have a stock I have to sell in the U.

[00:02:56] Cameron: S. today unless it goes back up against its three point trend line before I get around to it. MFG, I think it’s one of the finance com­pa­nies that I hold. So what I’ve been

[00:03:07] Tony: Okay. That’s an Aus­tralian

[00:03:09] Tony: com­pa­ny as well. Mag­el­lan

[00:03:10] Tony: Finan­cial.

[00:03:11] Cameron: Yeah, this is, a dif­fer­ent one. Um, what I have been telling peo­ple is look, when I do one, I will make it avail­able and you can have a look at it. Uh, the cur­rent ver­sion of it too, is real­ly messy cause I did­n’t design it for pub­lic con­sump­tion. Uh, so I’ll try and clean it up a lit­tle bit and give you a look at it.

[00:03:30] Cameron: But, um,

[00:03:31] Cameron: I’m not going to be doing

[00:03:32] Tony: I think

[00:03:33] Tony: there’s,

[00:03:33] Cameron: Any more often than I have to? That’s right. I was going to say, I’m not going to be doing them week­ly at this stage.

[00:03:38] Tony: sor­ry.

[00:03:38] Tony: I did­n’t mean to cut across you there. Yeah. So, I mean, it’s real­ly impor­tant to note that this is a, we’re still tri­al­ing this. We haven’t got the check­list but­toned down yet. So I think if any­one takes that buy list for the US stocks and wants to make an invest­ment deci­sion, real­ly do your own research and real­ly look at the, look at your own analy­sis of those com­pa­nies first, because we’re still.

[00:04:03] Tony: tri­al­ing a US ver­sion. And the oth­er ques­tion I’ve got is, um, have you spo­ken to Stock­o­pe­dia? Are they okay with

[00:04:10] Tony: shar­ing it at the moment? Because we’re using Stock­o­pe­dia as a data

[00:04:13] Tony: source.

[00:04:14] Cameron: Well, I’m just going to

[00:04:15] Tony: And I think you’ve got some of their rank­ings and

[00:04:17] Tony: things like that in the in

[00:04:19] Tony: the check­list.

[00:04:20] Cameron: Good point. I’ll check with Elio about that. I mean, I could, pro­vid­ing the buy list is dif­fer­ent from pro­vid­ing the check­list. So

[00:04:28] Cameron: I’ll maybe clean up the buy list and it’ll just be a scor­ing and that kind of stuff.

[00:04:36] Tony: Yeah.

[00:04:36] Tony: Okay.

[00:04:37] Cameron: The Lindy effect. Tony, have you ever heard of the Lindy

[00:04:40] Cameron: effect?

[00:04:42] Tony: I haven’t, but I read the link you sent me and I thought it was a great arti­cle.

[00:04:46] Tony: Near and dear to me, that kind

[00:04:47] Tony: of

[00:04:47] Tony: think­ing.

[00:04:48] Cameron: This is some­thing I picked up. Uh, in the last few days in Morn­ingstar by James Gru­ber, dis­tant rela­tion to Hans Gru­ber, I believe, who sad­ly was, uh, mur­dered by an, uh, Amer­i­can ter­ror­ist, uh, in the Nakato­mi build­ing. Some decades ago. Um,

[00:05:10] Tony: Day or Christ­mas Eve. White­field.

[00:05:15] Cameron: to James Gru­ber. He says there’s a term called the Lindy Effect. The the­o­ry is that how long an idea or tech­nol­o­gy may last is cor­re­lat­ed with how long it has already last­ed. Put a dif­fer­ent way, old things have bet­ter odds of get­ting old­er still than new­er things. Get­ting old­er still than new­er things.

[00:05:37] Cameron: He’s talk­ing about, um, tech­nolo­gies that have stood the test of time, etc. The term was first invent­ed by a media colum­nist before being tak­en on by sta­tis­ti­cians, includ­ing Nas­sim Taleb, who pop­u­lar­ized it in his book Anti Frag­ile, Anti Frag­ile. Taleb said of the Lindy effect, If a book has been in print for 40 years, I can expect it to be in print for anoth­er 40 years.

[00:06:02] Cameron: But, and that is the main dif­fer­ence, if it sur­vives anoth­er decade, then it will be expect­ed to be in print anoth­er 50 years. This sim­ply, as a rule, tells you why things that have been around for a long time are not aging like per­sons, but aging in reverse. Every year that pass­es with­out extinc­tion dou­bles the addi­tion­al life expectan­cy.

[00:06:21] Cameron: This is an indi­ca­tor of some robust­ness. The robust­ness of an item is pro­por­tion­al to its life. Taleb elab­o­rat­ed fur­ther in his lat­er book, Skin in the Game, where he linked the Lindy effect to fragili­ty. For Taleb, time is equiv­a­lent to dis­or­der and resis­tance to the rav­ages of time, that is, what we glo­ri­ous­ly call sur­vival.

[00:06:43] Cameron: is the abil­i­ty to han­dle dis­or­der and things that have sur­vived are hint­ing to us, ex post, that they have some robust­ness. And then, um, Hans Gru­ber Jr. goes on to talk about some of the old­est com­pa­nies on the ASX. AGL, which I just added to my super this week because it’s on the buy list. Um, Wash­ing­ton H.

[00:07:04] Cameron: Sol Pat­ter­son, been around since 1872. AGL, by the way, has been around since 1837. ANZ, been around since 1835. Aus­tralian Foun­da­tion Invest­ment Com­pa­ny, been around since 1928, West­pac 1817, BHP 1885, Equi­ty Trustees, does­n’t say, Whit­field, um, been around since, White­field, sor­ry, since the 1920s, and Rio, which we talked about not too long ago, 1873.

[00:07:39] Tony: I think prob­a­bly half that list has been a pulled pork at some stage

[00:07:42] Tony: too.

[00:07:42] Cameron: At least, yeah.

[00:07:44] Tony: Yeah.

[00:07:45] Cameron: you know, it obvi­ous­ly does tie in well with QAV because we are often look­ing for com­pa­nies that have a good track record of, does­n’t nec­es­sar­i­ly need to be 150 years old, but a good track record of, um, run­ning a healthy busi­ness, or turn­ing around a bad­ly run busi­ness, or a busi­ness that’s had some bad years, could be that way too.

[00:08:08] Tony: Well, yeah, they know what they’re doing, don’t

[00:08:09] Tony: they? They’ve got a lot of expe­ri­ence.

[00:08:13] Cameron: So I don’t, I did­n’t fig­ure out why it’s called the Lindy effect though, Tony, did you fig­ure that out?

[00:08:19] Tony: Oh, I assume it relates to Charles Lind­bergh, but I don’t know why it would be called Lindy

[00:08:23] Tony: Effect.

[00:08:25] Cameron: Let me

[00:08:25] Tony: Uh, oh, yeah, don’t know. Yeah, I did like the, um, I did like the quote, uh, uh, where is it now? Or some­thing about that if it’s, if you’ve been around for a long time, you’ve got a robust fore­cast for how long you’ll sur­vive, which is kind of how I approach life.

[00:08:46] Tony: Been around for 61 years, and I’m

[00:08:48] Tony: def­i­nite­ly fore­cast­ing anoth­er 61

[00:08:50] Cameron: At

[00:08:50] Cameron: least.

[00:08:51] Tony: Not true. Not,

[00:08:52] Tony: yeah.

[00:08:54] Cameron: its name from Lindy’s, a famous

[00:08:56] Cameron: del­i­catessen in New York

[00:08:57] Cameron: City.

[00:08:59] Tony: Ah, there you go,

[00:08:59] Tony: I was wrong.

[00:09:00] Cameron: The term was

[00:09:00] Cameron: first coined in the 1960s by Albert

[00:09:03] Cameron: Gold­man, and lat­er pop­u­lar­ized by Benoit Man­del­brot and Nas­sim Nicholas Taleb. The orig­i­nal idea was based on the obser­va­tion of come­di­ans dis­cussing the longevi­ty of their tele­vi­sion appear­ances at Lindy’s.

[00:09:16] Cameron: They not­ed that the longer a show had been run­ning, the longer it was like­ly to con­tin­ue. This con­cept was then gen­er­al­ized to apply to var­i­ous non per­ish­able enti­ties, lead­ing to what is now known as the Lindy Effect. The name stuck because it encap­su­lat­ed the infor­mal wis­dom shared among prac­ti­tion­ers in an every­day set­ting, empha­siz­ing prac­ti­cal longevi­ty over the­o­ret­i­cal pre­dic­tions.

[00:09:39] Cameron: I like that. I

[00:09:41] Tony: Yeah, that’s

[00:09:42] Cameron: won­der if Lindy’s is, uh, still around.

[00:09:45] Tony: ha! Yeah.

[00:09:50] Cameron: I’m ask­ing GPT. Uh, search­ing. Lindy’s, the famous del­i­catessen, blah blah blah, is no longer in oper­a­tion. The orig­i­nal Lindy’s closed in 1969. A new restau­rant using the Lindy’s name opened in 1979, but ulti­mate­ly closed its last loca­tion in Feb­ru­ary 2018. There you go. Well, it does­n’t last for­ev­er. Last a long time.

[00:10:15] Cameron: Well, I’ll tell you who did­n’t last a long time was MMS’s CFO, Tony. The, uh, MMS CFO resigned rather sud­den­ly, it seems, in March. It’s on our buy list, but, um, I not­ed the oth­er day when I was doing the Lite, uh, Port­fo­lio, uh, report, that it’s dropped a lot since the CFO resigned. And, uh, there’s been no new appoint­ment since then, from what I can tell.

[00:10:49] Cameron: Uh, there’s no noti­fi­ca­tion in, uh, Stock Doc­tor or in their announce­ments page about a new appoint­ment any­way. So I’m think­ing it should have been a bad news sell, maybe, when the CFO sud­den­ly resigned. I did­n’t pick it up at the time, and the mar­ket has­n’t respond­ed well to it. There might be oth­er things going on with MMS, but noth­ing that I could see.

[00:11:09] Cameron: We own two parcels of it. It has turned around in recent weeks, but, um, I don’t know, man, I’m won­der­ing, should I dump it, um, or is it too late now? Has the ship sailed, and I should hold on to it until it breach­es one of the oth­er, uh, Sell­ing trig­gers. What do you think?

[00:11:26] Tony: I hold MMS, so I haven’t sold. And I actu­al­ly think we spoke about this when the CFO resigned, but I could be wrong. But um, I think around that time that the share price decline hap­pened, they lost, uh, I’m going to say the South Aus­tralian gov­ern­ment con­tract was a big con­tract any­way for leas­ing vehi­cles.

[00:11:45] Tony: And that’s prob­a­bly the main rea­son why MMS went down. It was also around the same time it went ex div­i­dend, so it could be a bit of that because it’s got a good yield. Um. Uh, yeah, so I’ve been hold­ing it still way above its sell price and it’s start­ing to turn around now.

[00:12:02] Cameron: Right.

[00:12:03] Tony: I saw the, I saw what you sent me, I saw the announce­ment, the CFO had been there for three and a half years, and they’re stick­ing around until a new one’s

[00:12:12] Tony: appoint­ed, so I don’t think it’s a red

[00:12:15] Tony: flag.

[00:12:16] Cameron: Oh, real­ly? He’s stick­ing around?

[00:12:19] Tony: Yeah, it was in the announce­ment, he was going to stay until a new one was appoint­ed.

[00:12:24] Cameron: Oh,

[00:12:24] Tony: So no, red flag for me is like, it looks like some­one’s resigned rather than sign off on the accounts, for exam­ple. Um, and there’s like a mad scram­ble, they’re out the door, they haven’t, they haven’t, um, there’s no suc­ces­sor in place.

[00:12:38] Tony: Um, yeah, and you can sort of read between the lines that they weren’t hap­py putting their name to

[00:12:43] Tony: num­bers that were com­ing out. I’m pret­ty sure that’s not the case with MMS.

[00:12:47] Cameron: I missed that last line. Mr. Conn will remain with Macmil­lan Shake­speare dur­ing his notice peri­od to sup­port an effec­tive tran­si­tion.

[00:12:57] Tony: Yeah.

[00:12:57] Cameron: Okay, alright, well, no pan­ic then.

[00:13:00] Cameron: So, we won’t sell that, we’ll hold on to it, keep hold­ing on to it.

[00:13:04] Cameron: Uh, sur­vey update, had a few peo­ple email me their FY sur­vey results, and as last time, they’re sort of All over the place.

[00:13:15] Cameron: Scott, FY 2324 was up 2.5% cagr. He said over­all, since Octo­ber 22 is down 5%. cagr, uh, what’s that? Octo­ber 22, 23, he said, com­ing up to two years, 18 months, and it’s been a rough cou­ple of years as we know Ed. Said, uh, based on share site from 6 4 21 until this is, Ed gave me his results last week and told me it was from Incep­tion and I said, hold on, you haven’t been around that long.

[00:13:49] Cameron: You haven’t been a mem­ber that long. From 6 4 21 until today, 8. 17%. Um, Says, Play­ing around with dates, I put in the start date of 1722, which was when I went and start­ed fol­low­ing the rules to the let­ter and rolled every­thing I have in. The result is 10. 92%. He points out that cap­i­tal gain is down 3%, but div­i­dends is up near­ly 14%, so it aver­ages out at 11%.

[00:14:15] Cameron: Um, since July 22. I’m not sure if that’s per annum or I assume it is with Share­sight. Yeah, but maybe time weight­ed return and not a CAGA result. He says, I’m still hap­py with this and think I’m get­ting more dis­ci­plined and more com­posed with deci­sions now than when I kicked off a bit rip and tear. Um, Daryl sent me along Email with his results, um, basi­cal­ly again using Share­sight, I think.

[00:14:53] Cameron: His over­all return, and this is going back since Jan­u­ary 2020 to June 2024, is an aver­age of 14. 63 per­cent per annum. He also has a left­over port­fo­lio using Intel­li­gent Investor, which is up 7. 44 per­cent over the same peri­od of time. So these QAV port­fo­lios Rough­ly dou­ble his Intel­li­gent Investor port­fo­lio, which is good.

[00:15:19] Cameron: But as he points out from Jan­u­ary, 2020 to the end of June, 2022, his QAV port­fo­lio was up near­ly 37 per­cent ver­sus Intel­li­gent Investor up six and a half. And then since then, his QAV port­fo­lio is down 6%. Ver­sus Intel­li­gent Investor Up 8. 3. So it’s been a rough cou­ple of years, he says, um, said like in the last year, since 2022.

[00:15:45] Cameron: He said he’s bought 40 stocks in total, cur­rent­ly holds 4, 9 gains, 31 loss­es, 23 of them were 10 per­cent sells. And I said to him, yeah, look, you know, you and I have talked about this a lot, and it’s been my expe­ri­ence, par­tic­u­lar­ly with my super port­fo­lio, and to a less­er extent with the light port­fo­lios. I think our, the mar­ket has been so volatile that our rule one trig­ger has been get­ting us out of stuff.

[00:16:15] Cameron: Um, for the right rea­sons, because it could keep going down, but then we buy some­thing else, and then it rule one trig­gers, and then we buy some­thing else, and it rule one trig­gers, and, and, those shares are going up and down and up and down, and the mar­ket’s been quite flighty over the last cou­ple of years, trip­ping our trig­gers, again, which are there for a good rea­son, to pre­vent a calami­ty should we expe­ri­ence anoth­er GFC.

[00:16:43] Cameron: But, um, it’s been sort of trip­ping us up for the last cou­ple of years.

[00:16:50] Tony: Yeah. That’s, that’s my expe­ri­ence as well. I agree.

[00:16:54] Cameron: I’ve

[00:16:54] Tony: But it has qui­etened down this year. I must, I must

[00:16:56] Tony: admit I haven’t done much trad­ing at all this

[00:16:59] Tony: year.

[00:17:00] Cameron: I’ve been, I’ve been try­ing to, uh, do some analy­sis on my super port­fo­lio over the last cou­ple of years, um, to look at, Uh, you know, that same analy­sis I did for the light port­fo­lios. Um, if, if I had­n’t sold the stocks that I had to rule one, what would have hap­pened, would, you know, would I have net­ted, net be in a bet­ter posi­tion now than I am, I haven’t fin­ished cod­ing that yet, but it’s my plan in my spare time is to try and code up some­thing that’ll do that.

[00:17:36] Tony: You’ve done that before though,

[00:17:37] Tony: haven’t you? I thought you

[00:17:40] Tony: did that a few

[00:17:40] Tony: months ago.

[00:17:41] Cameron: I did that late last year for the light port­fo­lios.

[00:17:43] Cameron: Yeah. Um,

[00:17:45] Tony: Ah, it was

[00:17:46] Tony: for the light

[00:17:46] Tony: port­fo­lios. Okay.

[00:17:47] Cameron: And that one came out and said that it

[00:17:49] Cameron: was

[00:17:50] Cameron: sort of

[00:17:50] Cameron: net. net. Um,

[00:17:52] Tony: Mm hmm.

[00:17:55] Cameron: Um, I think I did with the light port­fo­lios, I did, No, I did­n’t do it just for the high ADT. I looked at some­thing else for the high ADT. That was a volatil­i­ty analy­sis that I did.

[00:18:06] Cameron: Um, but yeah, I, uh, uh, I did do that and you would think I could just take that code and reap­ply it to this, but I’ve for­got­ten what I did and how I did it. So I have to, I have to fig­ure it out all over again, um, by unpick­ing what I did. Should­n’t be too hard if I can throw a cou­ple of hours at it. But, um, yeah, I mean, I, even once I do that, I don’t know what it’s gonna.

[00:18:31] Cameron: What I’m going to get out of it, what it’s going to teach me, like it’s just, um, you know, real­ly just a scratch and itch.

[00:18:39] Tony: Yeah, and, you know, we did a lot of research into using 20 per­cent stop loss­es, and so I’m using 20 per­cent in my own port­fo­lio at the moment, and it cer­tain­ly has­n’t done any worse. I guess all that’s stop­ping me from bring­ing in that rule change to the QAV port­fo­lio is that there just has­n’t been much trad­ing any­way.

[00:18:58] Tony: The mar­ket’s been a lot less volatile. This year, since I start­ed using 20%, so it’s hard­ly, it’s not a great time to com­pare one against the oth­er when there’s been almost no trad­ing

[00:19:09] Tony: any­way.

[00:19:10] Cameron: Yeah, right. Have you been play­ing with Mat­t’s regres­sion tools

[00:19:14] Cameron: much late­ly?

[00:19:15] Tony: Oh, not, not for a cou­ple of weeks. I had a bit of a burst a few weeks ago, but I need to get back to it.

[00:19:22] Cameron: I haven’t heard from Matt for a while, so I don’t know where he’s at with that either. But, um, cer­tain­ly, yeah, the test­ing that we did with that with 20 per­cent was, um, made some improve­ments, but it was­n’t huge from mem­o­ry.

[00:19:36] Tony: Yeah, cor­rect.

[00:19:39] Cameron: Well, that’s all my notes for today. Tony, until we get into ques­tions, what have you got?

[00:19:44] Tony: I had a cou­ple of things. So, um, I did­n’t share this with you cause I only came across it late in the day, but I have an arti­cle about Grain Corp, which was in the Fin Review, I think on Fri­day. I just want­ed to briefly touch on that, um, and the only rea­son, the only rea­son I raise it is because it was, Grain­Corp was on the buy list up until, oh, just very recent­ly, I think.

[00:20:11] Tony: I own it, so I’ll declare that as well, um, and, uh, it’s only just below our buy list at the moment. So, uh, it’s, there’d prob­a­bly be peo­ple out there who have. Uh, heard about it. Um, the arti­cle was about the fact that there’s been a lot of, um, wet weath­er in, uh, Aus­tralia recent­ly, and that’s sup­posed to be a sign that, uh, there’s a lot of plant­i­ng going on for cere­al crops, which, um, you know, Grain­Corp is a com­pa­ny which, uh, stores, uh, grain when farm­ers har­vest and then help mar­ket it over­seas.

[00:20:52] Tony: So, um, no, sor­ry, I’m just try­ing to find the arti­cle again and it’s, uh. I must have closed the win­dow. Um, but a cou­ple of, cou­ple of take­outs for me in read­ing it. Um, here we go. The arti­cle’s called, Grain­Corp looks beyond life as a rainy day stock. And that was on June 16th in the AFR. And I thought that was inter­est­ing in itself.

[00:21:15] Tony: I had­n’t come across that before, but appar­ent­ly there are fund man­agers out there who trade Grain­Corp based on the weath­er. Um, and uh, they tend to buy it when it rains because that’s, you know, Sign that there’s going to be a lot of plant­i­ng and a good crop com­ing up and then they sell out of it when the weath­er heats up because the drought is, um, is not good for this com­pa­ny or for wheat farm­ers in gen­er­al.

[00:21:38] Tony: Um, how­ev­er, uh, the MD of Grain­Corp has said that that’s why they took out, uh, uh, Uh, insur­ance, so that if they have drought con­di­tions, um, their insur­er Aon, um, pays them out. And if they have bumper con­di­tions, then they return the, return the favor and pay a pre­mi­um to Aon. And, um, that’s always been one of my ques­tions about the com­pa­ny is, is, you know, is that to the ben­e­fit of share­hold­ers?

[00:22:06] Tony: Because it’s, they’re try­ing to smooth the results and I get that. But, um, yeah, it does, it does mute. Um, the returns in good times. How­ev­er, the arti­cle points out that the, this is some­thing I did­n’t know, that the, uh, cumu­la­tive pay­outs for Grain­Corp are capped at 270 mil­lion. So these are, these are paid out in good years and, um, that cap is expect­ed to be exceed­ed this year.

[00:22:32] Tony: So the arti­cle high­lights that num­ber one, they’re expect­ing it to be a bumper wheat har­vest because of all the wet weath­er. And num­ber two. They’re expect­ing Grain­corp to be able to bank a lot more prof­its this year because it’s get­ting towards the end of its capped pay­out dur­ing good time. So there was two good things to

[00:22:48] Tony: note in that par­tic­u­lar arti­cle about Grain­corp.

[00:22:52] Cameron: So you’re think­ing about

[00:22:53] Tony: So that was Grain­corp.

[00:22:54] Cameron: putting the rain into our com­mod­i­ty checks,

[00:22:59] Cameron: the three point

[00:23:00] Tony: Yeah, it’s a good ques­tion, isn’t it?

[00:23:04] Tony: Well, no, I think, I think we’re going to, um, you know, the three point trend line will prob­a­bly serve us well any­way. If it’s a cycli­cal stock, once it starts to come off, we’ll sell it. So, yeah, um, no, not going to put the weath­er into it. Um, and I guess, you know, the point is that Grain­Corp man­age­ment have seen this hap­pen before and they’re try­ing to smooth out their returns with this, uh, you know, hedg­ing pol­i­cy.

[00:23:27] Tony: Pol­i­cy they have with the insur­ance, um, insur­ance pol­i­cy with Aon, um, to try and stop that from hap­pen­ing. So it may not be even be worth­while putting the weath­er into, um, our think­ing about this com­pa­ny.

[00:23:39] Cameron: hmm,

[00:23:40] Tony: Um, the oth­er thing I, I picked up from the arti­cle was that, uh, and this is a ques­tion that was raised once before is, Grain­Corp does well dur­ing a bumper crop because it’s, you know, it’s, it’s stor­ing more grain and it’s sell­ing more grain.

[00:23:53] Tony: And that’s how it clips the tick­et in the grain mar­ket. And some­one asked us, well, what’s the point of track­ing the com­mod­i­ty wheat price, um, if we’re, if we’re vol­ume dri­ven in this com­pa­ny? And it was a good ques­tion, but, um, you know, the, uh, The arti­cle makes the point that as the price ris­es, farm­ers are incen­tivized to plant more.

[00:24:14] Tony: Um, and so the vol­ume should fol­low as well, and that made sense to me too. I guess just cir­cling back to that ques­tion.

[00:24:21] Cameron: hmm,

[00:24:22] Tony: So that’s grain cork, the grain cork arti­cle, and I have a pulled pork to share with you as

[00:24:26] Tony: well today.

[00:24:27] Cameron: who’s pork are you pulling today

[00:24:28] Tony: um,

[00:24:33] Tony: I’m going to pull a book for a com­pa­ny called, I’ve changed names, it’s now called Embark Edu­ca­tion, and it was called Evolve.

[00:24:45] Cameron: hmm,

[00:24:46] Tony: I’ve got to say, I real­ly strug­gled find­ing a pulled pork today, main­ly because I’ve done most of the com­pa­nies on the buy list, and I know that it’s prob­a­bly enough time for some of them to come back and cir­cle back and revis­it some, but I do try and find a new one every time to do.

[00:25:02] Tony: But, um, a lot of the ones I picked out, which I had­n’t done before, were either very close to their sell lines, or they were com­mod­i­ty sells, or they were, like it was, um, there was one com­pa­ny I had a look at which is now called Arti­cor, it’s the old Red Bal­loon, um, it was, it’s new on the buy list this week for the, um, I don’t think it’s been on before, so new for the first time.

[00:25:25] Tony: But if I looked at this graph, it was, you know, a huge falling knife. So there was a cou­ple of those as well. So I was strug­gling to find some­thing to talk about. I start­ed research­ing Embark and then I real­ized what it was, which is an edu­ca­tion roll up and run by some Peo­ple who I’ll go into when I talk about the risks asso­ci­at­ed with this com­pa­ny or talk about the com­pa­ny and its cul­ture and nar­ra­tive at the end.

[00:25:52] Tony: Uh, and I, I, I hes­i­tat­ed to do the pulled pork on it. I will do a pulled pork on it and I’ll present the facts and I’ll let peo­ple, lis­ten­ers, make up their own mind. Um, but it’s an inter­est­ing one, I guess, just to tease out a cou­ple of issues around. Cul­ture. So, um, this com­pa­ny, uh, Embark Ear­ly Edu­ca­tion, uh, small ADT stock, I’ll say from the out­set.

[00:26:19] Tony: So it’s only about 36, 000. Trad­ed on aver­age per day. Uh, it’s an ear­ly child care preschool edu­ca­tor. It’s Gold Coast based. It used to be called Evolve. And, uh, which was a, an oper­a­tor of a chain of New Zealand child care cen­tre busi­ness­es. Uh, that, that par­tic­u­lar chain was sold off last year. Um, to pri­vate equi­ty and the mon­ey was used to move to Aus­tralia and fund the Aus­tralian expan­sion.

[00:26:46] Tony: I think it did have a cou­ple of Aus­tralian child care cen­tres, but it’s focus­ing on Aus­tralia, uh, going for­ward. Um, they cur­rent­ly have 29 cen­tres and they’re split, I guess, almost half and half between Queens­land and Vic­to­ria. Uh, and they, I don’t think they use the Embark brand as a ban­ner brand. They oper­ate under the lega­cy brands for these child­care cen­ters.

[00:27:08] Tony: And that’s, I guess that’s a hint at one of the impor­tant things about this com­pa­ny. It’s a roll up. So we’ve talked, I’ve talked about roll ups in the past. Um, they, they, uh, in my opin­ion, they’re, they’re great for growth until they stop. And then they, um, they strug­gle, uh, lat­er on in, in their life cycle.

[00:27:26] Tony: Um, there’s even a Sell Your Cen­ter tab on the Embark web­site, guid­ing poten­tial ven­dors through the sales process. So they’re very, very focused on acquir­ing new cen­ters as part of their growth, uh, for this com­pa­ny. And so that’s one rea­son for doing this small ADT stock, is that it may not trade at 36, 000 per day in the future as it, as it grows.

[00:27:48] Tony: Um, because, uh, you know, the fund man­agers will see the growth. It will even­tu­al­ly get big enough to fall into their, you Um, onto their radar, and then it’ll sort of, I expect it will take off from there. And that’s the his­to­ry of these kinds of roll ups. But I just real­ly cau­tion peo­ple on hold­ing a stock like this for the long term.

[00:28:10] Tony: Because, um, they tend to have prob­lems once the growth, um, stops. Or, once there’s an eco­nom­ic, um, head­wind, like a, like COVID. COVID par­tic­u­lar­ly hurt the child care cen­ter indus­try. So, uh, well, every­thing’s going well. They do real­ly, real­ly well. But, um, when things slow down, they can, they can have prob­lems.

[00:28:32] Tony: Um, okay. Any­way, get­ting back to, uh, the com­pa­ny, um, they, I think the smart thing they’ve done is that they’ve sold those New Zealand busi­ness­es and that’s put cash in their bank in Aus­tralia. So the, the recent acqui­si­tions have been fund­ed from cash and it’s still cash and no debt on their bal­ance sheet so they can con­tin­ue to acquire.

[00:28:50] Tony: Oth­er, uh, uh, busi­ness­es, and they’ve called out the fact that they’re still acquir­ing. They’ve also said that they are now look­ing at debt facil­i­ties. So, even­tu­al­ly the New Zealand mon­ey will run out and they’ll start to bor­row to, to acquire these busi­ness­es. And that’s fine. There’s noth­ing wrong with that.

[00:29:08] Tony: But, um, one thing that they do do is they focus on EBITDA as a key per­for­mance indi­ca­tor. And, um, do you remem­ber what Char­lie Munger

[00:29:16] Tony: called EBITDA?

[00:29:17] Cameron: Bull­shit earn­ings?

[00:29:19] Tony: Bull­shit earn­ings, that’s right. Now, they make the point in their pre­sen­ta­tions that they focus on EBITDA because they want to, uh, they’ve had a lot of over­head costs in sell­ing out of New Zealand and mov­ing to Aus­tralia, so I accept that.

[00:29:31] Tony: But we’re not going to focus on EBITDA when we do our analy­sis of the com­pa­ny. And at the moment, um, You know, their prof­it looks good as well because they’ve just had this huge cash injec­tion from sell­ing out of New Zealand. But it’s some­thing that peo­ple need to be aware of and in the back of their minds that we’ll, we’ll judge them based on our usu­al met­rics of pay­ing inter­est and how that affects prof­it and PE ratios and all those kinds of things and earn­ing per share fore­casts and finan­cial health.

[00:29:59] Tony: They can focus on EBITDA all they like, all they like, but we may not. Uh, they’re also. They’re also in a fair­ly com­pet­i­tive space. So I did a pulled pork on G8 Edu­ca­tion a lit­tle while ago. So that’s the large com­pa­ny in the space. So they’re going up against them and they’re much, much small­er. And there’s a few oth­er small­er com­pa­nies and oth­er ones on our buy list as well, May­field.

[00:30:20] Tony: So it’s inter­est­ing that this sec­tor is on G8, Now, Embark and May­field are on our buy list. We’ve, I’ve talked about that before too, how some­times, you know, with­out nec­es­sar­i­ly being the­mat­ic, we find that there are a num­ber of play­ers in a par­tic­u­lar indus­try, all on the buy list togeth­er. I’m going to run through the num­bers now, because I think they’re good num­bers.

[00:30:41] Tony: I’ll come back and dis­cuss the pos­i­tives and neg­a­tives. So, I’m doing a, um, an analy­sis based on the price of 71 cents, uh, which I think it still is today, actu­al­ly, last time I had a look. Uh, 71 cents is less than con­sen­sus tar­get. It’s more than IB1, but less than IB2, which is 82 cents, so it scores for that.

[00:30:59] Tony: Bye. Recent­ly start­ed pay­ing a div­i­dend, which is good. So their yield is cur­rent­ly 7%. So we can score it for that. It’s high­er than the, um, the aver­age mort­gage rate at the moment. Stock Doc­tor finan­cial health and trend is strong and steady. So we give it props for that. And, uh, there’s an own­er founder and the own­er founder holds 16.

[00:31:20] Tony: 44%. So we will score it well for that. And I’ll come back to the own­er founder when I dis­cuss the com­pa­ny at the end. Uh, the P is 14. 6, um, which. Even though it’s kind of mar­ket aver­age, it’s the low­est in three years, so that’s good, we score it for that. Prop­Caf is get­ting up there, but at the moment it’s 6.

[00:31:37] Tony: 8, so 6. 8 times, so we can hap­pi­ly accept that. Equi­ty per share is 46 cents, so we can’t score it for book or book plus 30. And the inter­est­ing thing, which hap­pens with roll ups, is the net tan­gi­ble assets for this com­pa­ny is a cent. So, big dif­fer­ence between book val­ue, which incor­po­rates all the good­will that they’ve amassed when they’re buy­ing out child­care cen­tres, and the actu­al net tan­gi­ble assets, in oth­er words, what’s the val­ue of what they’re buy­ing, exclud­ing good­will.

[00:32:06] Tony: You know, I think, I think, Good­will is legit­i­mate in these cas­es because, uh, you know, if you’re buy­ing an exist­ing busi­ness and it’s a child­care cen­ter, for exam­ple, and you’ve got all these peo­ple signed up and you’re look­ing after their kids, um, and they’re pay­ing, Good mon­ey to, for enroll­ments and every­thing’s work­ing well.

[00:32:27] Tony: I think it’s fair to pay good­will rather than just the, you know, the cost of what­ev­er the leas­ing is, you know, slept on the lease and all that kind of stuff and what­ev­er equip­men­t’s in the, in the child care cen­ter. So, um, but any­way, there’s some­thing to watch out for and peo­ple need to be aware that the, the, uh, book val­ue and the net tan­gi­ble assets are vast­ly dif­fer­ent.

[00:32:44] Tony: Earn­ings per share growth is, is great. The fore­cast is for 75 per­cent earn­ings per share growth. Again, that’s a, um, some­thing that we look, that is a char­ac­ter­is­tic of roll ups. So, you know, growth mind­ed investors will love this. Uh, and growth over P is 5. 1 times, so that’s way above our, our cut off of 1.

[00:33:05] Tony: 5 before we score it. Uh, it’s a recent three point upturn. Uh, equi­ty is not con­sis­tent­ly increas­ing, and I guess that’s because they’re, they’re pay­ing, you know, tak­ing cash out of the bank from the New Zealand sale and putting it to work. So, we don’t score up for that, but that’s not nec­es­sar­i­ly a bad thing.

[00:33:23] Tony: Uh, this com­pa­ny has a qual­i­ty score all in all of 100%, which is good, and a QAV score of 0. 15. So, on the num­bers, it works well for us. Cou­ple of pos­i­tives, the child­care sec­tor is, uh, receives a lot of sup­port from the gov­ern­ment via rebates. And even though I do hes­i­tate to invest in sec­tors which require gov­ern­ment sup­port, because it can be tak­en away with a change of gov­ern­ment, I think child­care is prob­a­bly safe, in that child­care rebates are being increased on both sides of pol­i­tics.

[00:33:54] Tony: And it would be a bit of a vote killer I think, if they ever, uh, Reduce child­care rebates in the future. So even though it’s reliant on gov­ern­ment sub­si­dies, I think it’s prob­a­bly safe from that point of view. Um, the oth­er pos­i­tive is it’s an expe­ri­enced own­er founder, and he’s return­ing to the indus­try to com­pete against their old com­pa­ny.

[00:34:11] Tony: So Chris, Chris Scott, who was the founder, used to be the MD or CEO of G8, the com­pa­ny I did a pool talk on, um, a few months ago and, and the largest one in this sec­tor. Um, I’ll go through the RIS, so, uh, I mean, I’ve high­light­ed that I don’t like focus­ing on EBITDA, um, we’ll have to, we’ll have to look at, um, the num­bers, you know, a bit low­er down, I think, than that, uh, and EBITDA, EBITDA, um, Won’t change nec­es­sar­i­ly, even though they’ll arrange debt and become more indebt­ed.

[00:34:48] Tony: So, because it’s earn­ings before inter­est and tax­a­tion. And if they have a lot of debt, that won’t come through in the EBITDA num­bers. So we’ve got to be care­ful of that. It’s a roll up and they end. And if you look at the sec­tor, um, ABC Learn­ing is the clas­sic one. Back in the 80s, I think it was, or 90s, when Eddie Groves

[00:35:06] Tony: from Queens­land rolled up child­care cen­ters, first of all, and

[00:35:08] Tony: then crashed

[00:35:09] Tony: and burnt.

[00:35:10] Cameron: What’s he doing today, Eddie

[00:35:11] Cameron: Groves?

[00:35:13] Tony: I’ve got no

[00:35:13] Tony: idea.

[00:35:14] Cameron: Oh, Eddie Groves. What a

[00:35:17] Cameron: char­ac­ter.

[00:35:18] Tony: G8, the his­to­ry of G8 is, it has a sim­i­lar sort of, um, cycle to it, not as bad as ABC, but, but, uh, they rolled up and rolled up and rolled up, and then, uh, got to the stage where there was a glut of child­care providers in the indus­try, and builders were build­ing child­care cen­ters on spec, hop­ing that, you know, com­pa­nies like G8 would roll, would buy them, and they nev­er did.

[00:35:40] Tony: And then there was just, uh, there’s lots of gov­ern­ment sub­si­dies in the indus­try. So peo­ple were open­ing child­care cen­ters, um, left and right and got to the stage where, you know, back in sort of the mid 2010s, there were child­care cen­ters were offer­ing incen­tives to enroll peo­ple into their child­care cen­ters, like giv­ing away free iPads is one I recall.

[00:36:04] Tony: So this, you know, this could hap­pen again when an indus­try is so Um, I guess so attrac­tive finan­cial­ly, obvi­ous­ly the returns get com­pet­ed away. That’s a basic, uh, tenet of eco­nom­ics. So, um, they do, they do run in cycles, I guess is my point. Um, some­thing to focus on, and this is where G8 came unstuck is occu­pan­cy rates.

[00:36:25] Tony: So the way to mea­sure, you know, the glut in the mar­ket or the sup­ply and demand in the mar­ket is to look at the occu­pan­cy rates and, um, G8 came unstuck, I think when they fell below 80%. Uh, and. Uh, Embark is above that now, but that would, that would be a met­ric to watch out for, um, in the future, uh, if peo­ple want to, uh, invest in this stock.

[00:36:46] Tony: The last point I want to make is to look at the peo­ple who are behind, um, this com­pa­ny. And I’m just going to read a few arti­cles from the Fin Review. I’m not going to draw any con­clu­sions, um, I think, I think the facts will speak for them­selves, but peo­ple need to be aware of who they’re deal­ing with. So, uh, we’re talk­ing about Chris Scott, who is the, uh, uh, the founder of this com­pa­ny.

[00:37:13] Tony: Um, I’ll give you some back­ground on him. And this is from a finan­cial review arti­cle going back to. Uh, 2015, so it’s at the time when he was run­ning G8, uh, edu­ca­tion. Um, there’s a sub­head­ing in the arti­cle which says opin­ion divid­ed. Scott is a, I’m quot­ing here, Scott is a divi­sive per­son among fund man­agers and bankers.

[00:37:34] Tony: Those that know him call him deter­mined and ambi­tious, while oth­ers have paint­ed him as a per­son with a check­ered past. Chris is a busi­ness­man. As a busi­ness­man, is an extreme­ly shrewd oper­a­tor that knows how to get the most out of the peo­ple who work for him and has a tray of want­i­ng to get things done, said one source who has known Scott for more than a decade.

[00:37:54] Tony: There is no doubt Chris has upset peo­ple, which has made for a good news sto­ry. Uh, so that’s one, one, uh, quote. I’m going to go back and into this arti­cle a bit fur­ther and I’m going to just get a bit of a his­to­ry. On Chris Scott. Here we go. So, whether he con­trols, oh, so, I’ll skip over that.

[00:38:19] Tony: Chris Scott grew up in inner city Mel­bourne. His father was a floor sander, his moth­er a clerk. He left school at 15 to labour in fac­to­ry jobs and then became a truck dri­ver. Chris says, we had no mon­ey, I just could­n’t go on with school. I like dri­ving trucks and I got to see Aus­tralia. There was free­dom when you left the depot.

[00:38:36] Tony: I was pret­ty rebel­lious. I don’t like being told what to do. That’s why I knew I need­ed to work for myself. Scott began study­ing law by cor­re­spon­dence and gained a break by tak­ing an exam, which land­ed him a spot at Mel­bourne’s La Trobe Uni­ver­si­ty where he stud­ied eco­nom­ics, earn­ing hon­ours. Sick of Mel­bourne’s cold weath­er and after a year in Syd­ney, he chased a Chi­nese girl he met at uni­ver­si­ty to Penang.

[00:38:57] Tony: The pair mar­ried and Scot­t’s strong con­nec­tion to South­east Asia began. Scott moved to Sin­ga­pore in 1978 start­ing a road trans­port busi­ness haul­ing refrig­er­at­ed freight between Thai­land and Sin­ga­pore and car­go to and from Malaysia. He lat­er start­ed two suc­cess­ful sea freight han­dling and mar­ket­ing firms before sell­ing and mov­ing his fam­i­ly to the Gold Coast.

[00:39:17] Tony: It was for­tu­itous tim­ing. The Queens­land tourism mar­ket was boom­ing and Scott began acquir­ing prop­er­ty man­age­ment busi­ness­es. That mor­phed into a com­pa­ny called S8, the S stand­ing for Sin­ga­pore and the 8 rep­re­sent­ing the pros­per­i­ty to the Chi­nese. That com­pa­ny list­ed on the ASX in 2001. Before merg­ing with the then high fly­ing invest­ment bank MFS in a 700 mil­lion deal, mil­lion dol­lar deal in 2007.

[00:39:44] Tony: Scott debuted on the BRW Rich list that year with a $280 mil­lion worth, but lost just about all of it. When MFS col­lapsed spec­tac­u­lar­ly the fol­low­ing year, uh, he and the chair­per­son, the lady called Jen­ny Hud­son, tried to sal­vage some of the wreck­age from MFS in its dying days, but it was too late. The PAM man­aged to extract 20 well per­form­ing child­care cen­ters, and despite not know­ing about child­care.

[00:40:08] Tony: They saw an oppor­tu­ni­ty in the wake of ABC Learn­ing. Scott lat­er moved back to Sin­ga­pore, only to re emerge two years lat­er, again com­bin­ing with Hud­son, and moved into what was then known as Ear­ly Learn­ing Ser­vices. It merged with their com­pa­ny Pace Child­care, and they lat­er renamed the firm GA Edu­ca­tion.

[00:40:26] Tony: I guess the G stands for Gold Coast. Suc­cess­es fol­lowed, though crit­ics remained. Scott says he nev­er con­sid­ered the life he has led would have been pos­si­ble as a young man dri­ving trucks. So that’s his back­ground. And one more quote, because I don’t want to go on too much more about this. If I can find it, um, No, I can’t find it. I won’t both­er. The last quote I was going to read was, um, No, no, I can find it. Here it is, here, sor­ry. So this is anoth­er arti­cle from the Fin Review, and this is, uh, Sep­tem­ber 30, 2019. The head­line reads, Jen­ny Hud­son accused of using child­care cash for ANZ Share Buy. So I’m, I’m going back to a stage where, uh, Jen­ny Hud­son, who was the chair of, uh, GA Edu­ca­tion, when Chris Scott was the, uh, MD, was being inves­ti­gat­ed for using com­pa­ny funds.

[00:41:22] Tony: And, and, uh, I’m not going to make any, uh, com­ments about that. That’s, that’s been, um, done and dust­ed, that sto­ry. But dur­ing the, uh, dur­ing the tri­al, uh, Mr. Scott appeared as a wit­ness. Amongst wit­ness­es on Mon­day was Mr. Scott, I’m quot­ing from the Fin Review, who described first work­ing with Ms. Hud­son when she was a cor­po­rate lawyer with McCul­loch Robin­son to help float accom­mo­da­tion provider S8 in 2001.

[00:41:50] Tony: He described her as bril­liant, aggres­sive like him­self, and a stick­ler for observ­ing the law. Mr. Scott, who described him­self as a for­mer truck dri­ver, spoke of rapid­ly grow­ing G8 through acqui­si­tions. Jen­ny’s job was to make sure I did­n’t cut too many cor­ners, he said. That was the beau­ty of the rela­tion­ship, it worked per­fect­ly.

[00:42:08] Tony: A range of peo­ple bought G8 Child Care Cen­ter takeover oppor­tu­ni­ties, includ­ing Mrs. Hud­son. Ms. Hud­son, he said the hear­ing con­tin­ues. So I guess I just want­ed to make peo­ple aware. of the CEO of this com­pa­ny and the colour­ful back­ground that he has, a very suc­cess­ful back­ground, I want to add. Peo­ple made a lot of mon­ey out of GA before it hit the rocks and the com­pa­ny is still around today and we did the pulled pork on it recent­ly.

[00:42:37] Tony: I guess the inter­est­ing thing about GA, if I recall back to when I did that pulled pork, is that they have changed their strat­e­gy and they’re not try­ing to roll up child care cen­tres now, they’re try­ing to. Make the ones they have more prof­itable and they’re focus­ing on things like, um, IT to, to dri­ve effi­cien­cies there.

[00:42:55] Tony: So, um, yeah, uh, I, in my life­time, and you prob­a­bly have too Cam, I’ve seen these Gold Coast entre­pre­neurs come and go. Um, Chris Scott has sur­vived, albeit through the, you know, list­ing and then, demise of S8 and the list­ing and I guess dif­fi­cult peri­od for G8 when he left the com­pa­ny and now he’s back to go head to head against his old com­peti­tor.

[00:43:25] Tony: So I can paint a pic­ture where it says he knows the ropes and won’t make any mis­takes he made in the past again. Or you can, you know, look at those arti­cles about a divi­sive, uh, You know, fig­ure in the indus­try, um, who maybe push things too far. So I’m not going to com­ment on that, but I just want­ed to make peo­ple aware.

[00:43:45] Tony: The com­pa­ny has great num­bers at the moment. It’s small, it’s grow­ing fast. It’s not a com­pa­ny I would rec­om­mend peo­ple hold, you know, for the rest of their lives because roll ups tend to stop rolling up and have prob­lems, but

[00:43:56] Tony: it could be inter­est­ing in the short term or short to medi­um term

[00:43:59] Tony: any­way.

[00:44:01] Cameron: Yeah, I was try­ing to work out, uh, what hap­pened with Jen­nifer Hud­son’s legal issues. I

[00:44:09] Cameron: can’t find

[00:44:11] Tony: I, I mean, I, I, she came up when I was search­ing Chris Scott, um, on the AFR data­base, and I could­n’t find out what hap­pened either. But there was a num­ber of, uh, num­ber of ASIC probes into, um, her role with GA at the, at the time, and one con­cerned, uh, they were buy­ing out anoth­er child­care. provider, and one con­cerned, um, whether there was a mis­use of funds for her to per­son­al­ly buy some shares as well.

[00:44:38] Tony: But I could­n’t see what the results were.

[00:44:40] Cameron: yeah, very strange, cause the charges were brought five or six years ago and there’s, I can’t find what hap­pened.

[00:44:51] Tony: Well, they should be resolved, you would have thought, but some­times these things are treat­ed con­fi­den­tial­ly as part of a set­tle­ment too, so we might not ever find out

[00:44:58] Tony: what hap­pened.

[00:44:59] Cameron: Um,

[00:45:00] Cameron: I know she was

[00:45:01] Tony: But cer­tain­ly life is colour­ful on the Gold Coast.

[00:45:04] Tony: Yeah.

[00:45:06] Cameron: Jen­nifer Hud­son was for­mer­ly Queens­land’s busi­ness woman of the year, too, before all of her legal issues came to light.

[00:45:15] Cameron: Um, okay. So there’s a pulled pork, uh, but some ques­tion marks over the man­age­ment.

[00:45:25] Tony: Yeah, cer­tain­ly on the num­bers it looks good. I put ques­tion marks on the man­ag­er, but the man­ag­er is a proven suc­cess­ful oper­a­tor. My ques­tion mark is, it’s end­ed bad­ly twice for this per­son in the past. I’m just high­light­ing the fact that that may not hap­pen this time, but peo­ple don’t want to buy this one and put it in the

[00:45:45] Tony: bot­tom draw­er,

[00:45:45] Cameron: Hmm.

[00:45:46] Tony: think.

[00:45:48] Cameron: EVO is still the code for Embark. EVO, it’s now Embark, it’s still EVO. I

[00:45:57] Tony: Yeah.

[00:45:59] Cameron: think I have owned them at some stage. I’m not sure if they’re still. Um, in my port­fo­lios. Just going to do a quick check.

[00:46:08] Cameron: Wait­ing for my spread­sheet to run all of its things that it runs when I open it up.

[00:46:15] Cameron: Well, uh, while I’m wait­ing for this, uh, some­thing that I just thought I should point out. When Alex did get around to send­ing me her buy list for the week, and I was com­par­ing her buy list to my buy list, that I had done yes­ter­day. Um, every­thing looked in order. The one dif­fer­ence was VUK, Vir­gin UK, which is at the top of her buy list this week, with a QAV score of like 0.

[00:46:42] Cameron: 51 and I had it at 0. 21 and I spent a long time this morn­ing before I went to Kung Fu try­ing to fig­ure out Where the dif­fer­ences were, which is hard to do because I’m using the AF mod­el and she’s using your mas­ter list. And so I have to try and match up data. What I real­ized in ret­ro­spect, I should have done was just give it all to GPT and say, find the

[00:47:06] Cameron: find

[00:47:07] Tony: Ha ha

[00:47:08] Cameron: in these two data sets, which I actu­al­ly did as

[00:47:11] Cameron: a test when I got back and it found it in a sec­ond.

[00:47:13] Cameron: So what I’ve worked, what I fig­ured out was her Prop­Caf num­ber was half of my Prop­Caf num­ber. And I was like, that’s weird. When I dug into it fur­ther, I found out that It was her oper­at­ing cash flow num­ber was dif­fer­ent to mine. What I fig­ured out is Stock Doc­tor must have updat­ed VUK’s results some­where in between when I did my down­load on Fri­day night and when Alex did her down­load, I think on Sun­day, the results are updat­ed because they have a, you know, I think like a March end of finan­cial year.

[00:47:57] Cameron: Um, and so, big dif­fer­ence in their finan­cials, which screwed up the

[00:48:03] Cameron: Prop­Caf num­ber. Yeah. like over the week­end, lit­er­al­ly, which is weird. I do own EVO, there you go, it’s in one of the light port­fo­lios. Bought it 23rd of April, 68 cents, cur­rent­ly 71

[00:48:20] Tony: hmm.

[00:48:21] Cameron: It’s up 5%. Okay, I will make a note to keep an eye on

[00:48:30] Cameron: that.

[00:48:30] Tony: Ha ha ha ha ha. I just noticed on the AFR web­site that rates are on hold still. The RBAs met and they’re not increas­ing or decreas­ing

[00:48:42] Tony: rates.

[00:48:42] Tony: I

[00:48:43] Cameron: What has the share mar­ket done as a result of that?

[00:48:47] Cameron: Noth­ing much.

[00:48:48] Cameron: It’s hard

[00:48:48] Cameron: to tell. It’s a bit of a delay

[00:48:50] Cameron: in my things on Yahoo Finance any­way.

[00:48:54] Tony: Yeah, it’s still about the same, up 0. 78%, which I think it was

[00:48:58] Tony: going into the meet­ing prob­a­bly.

[00:48:59] Cameron: That’s good to know.

[00:49:02] Tony: Hmm.

[00:49:02] Cameron: Alright, some ques­tions Tony. Um, start­ing off with Alex. There’s about 12 ques­tions from Alex. Alex F this is, not your Alex.

[00:49:13] Tony: Mm hmm.

[00:49:13] Cameron: thank you Alex for keep­ing us, uh, on our toes. First of

[00:49:17] Cameron: all,

[00:49:18] Tony: Yeah.

[00:49:18] Cameron: can TK please pro­vide an overview of the ASX Sub­stan­tial Hold­er announce­ments and how to read them?

[00:49:24] Cameron: Why do they occur? Does TK view announce­ments becom­ing, chang­ing or ceas­ing as good, bad or neu­tral? Why would this act as a fudge? ASG is a good exam­ple, with recent exam­ples of dif­fer­ent announce­ments. Why would CBA become a sub­stan­tial hold­er in ASG? I have to admit, I see these sub­stan­tial share­hold­er things hap­pen­ing all the time, and I look at them from time to time, I’m nev­er real­ly sure, you know, how impor­tant they are, so I’m glad Alex asked the ques­tion.

[00:49:59] Tony: Yeah, it’s um, to give an overview of what they are, so there’s a whole set of rules that the ASX impos­es around noti­fy­ing peo­ple. I think it’s with­in two busi­ness days when some­one buys at least a 5 per­cent stake. That’s, that’s the first one any­way. So if a fund man­ag­er comes along or any­body comes along and buys 5 per­cent of a com­pa­ny, they’ve got two days to noti­fy the ASX.

[00:50:23] Tony: That’s prob­a­bly the most com­mon noti­fi­ca­tion. And I. I think there’s lots of them these days in par­tic­u­lar because super­an­nu­a­tion funds and and oth­er insti­tu­tion­al investors are get­ting larg­er and larg­er and so they often do buy 5 per­cent stakes in com­pa­nies or 6 per­cent stakes in com­pa­nies so we see it all the time. I guess the rea­son for this In the past, um, when things weren’t as com­mon, uh, as they are now in terms of, uh, large insti­tu­tions being able to buy 5 per­cent stakes in com­pa­nies, is it could, it was seen as being a poten­tial start of a takeover of the com­pa­ny. So if you think back into the 1980s, when you had lots of cor­po­rate raiders.

[00:51:07] Tony: Run­ning around buy­ing stakes in com­pa­nies, you know, John Elliott would buy a block­ing stake, and Robert Holmes Court would buy a stake, and so they would have to noti­fy peo­ple with­in a time frame that they were buy­ing a stake, and then, um, stock­bro­kers and ana­lysts could focus on that com­pa­ny and say, Hey, what’s going on here?

[00:51:23] Tony: Is it in

[00:51:23] Tony: play? So that’s kind of the back­ground

[00:51:26] Cameron: Dar Paper,

[00:51:27] Tony: Yeah, exact­ly. Yeah. Um, what we’re see­ing hap­pen­ing now, though, is a bit, is a bit more mun­dane. So, Bye. Bye. There’s a cou­ple of things. Often­times, these notices are issued by what’s called a nom­i­nee com­pa­ny, so, or a cus­to­di­an. So, uh, and one of the points that Alex rais­es is that the Com­mon­wealth Bank is involved in one of these noti­fi­ca­tions for ASG.

[00:51:52] Tony: So, a nom­i­nee com­pa­ny or a cus­to­di­an is some­body like a stock­bro­ker or like a bank or some­one who’s oper­at­ing for insti­tu­tions who are buy­ing some­thing on behalf of anoth­er ben­e­fi­cial own­er. And they’ll have their own con­tracts in place to say that, you know, div­i­dends flow through to the ben­e­fi­cial own­er, even though in this case, I think it’s Colo­nial First State, which is owned by CBA.

[00:52:14] Tony: They own the shares, but they’ve got a back to back agree­ment with the actu­al per­son who’s pay­ing for it, that they get the votes, the per­son who pays for it gets the votes and the div­i­dends. So, um, that could be use­ful. For a whole heap of rea­sons, one of which is it’s a way for over­seas investors to eas­i­ly invest on the ASX if it’s done by a local bro­ker or a local man­ag­er of these things, cus­to­di­an.

[00:52:39] Tony: Or it could be that some­one’s try­ing to keep their iden­ti­ty away from the stock mar­ket, so they don’t want the mar­ket to know that some­one’s buy­ing a posi­tion in the com­pa­ny. And it was, was inter­est­ing that one of the sub­stan­tial Um, notices was from KKR who are, you know, a buy­out firm. So this is for ASG.

[00:53:00] Tony: So, um, I thought that was inter­est­ing. I don’t for a minute think that KKR is going to launch a bid for ASG. Um, they may well just be, you know, invest­ing as a, as an insti­tu­tion­al investor in a com­pa­ny of their life. And the rea­son why I say it would be dif­fi­cult for KKR to launch a takeover bid is that this com­pa­ny, um, is almost entire­ly owned by The car deal­ers who orig­i­nal­ly either start­ed the com­pa­ny or who have been bought out and fold­ed into the com­pa­ny.

[00:53:28] Tony: So there’s a lot of equi­ty held by the key play­ers, by the own­er founders and by the sub­se­quent car deal­er­ships they’ve bought out. So it would be, unless it was a, unless KKL were going to launch a, a Knock out blow to get those peo­ple to sell. It’d be unusu­al for them to try and those own­ers and try and risk con­trol from them.

[00:53:50] Tony: Um, but that’s what these, this is due, this is what these announce­ments are meant to do is to alert us to the fact that there’s big move­ments in the, either the vot­ing con­trol or the, um, the own­er­ship of the com­pa­ny. And that’s anoth­er point to make is I think that the ASX rules talk about. Uh, Vot­ing Con­trol as, as their thresh­old for mak­ing announce­ments, not nec­es­sar­i­ly just own­er­ship because com­pa­nies, um, not so much in Aus­tralia, I don’t think we have.

[00:54:16] Tony: Dif­fer­ent class­es of share­hold­ers in Aus­tralia, but in the states where they have sim­i­lar rules, um, there can be vot­ing stock and non vot­ing stock, like in com­pa­nies like News Corp, which allow peo­ple to retain con­trol even though they don’t own the major­i­ty of the shares. So the ASX talk about vot­ing con­trol, a 5 per­cent stake, um, or con­trol­ling 5 per­cent of the votes, which is when you have to, uh, make an announce­ment.

[00:54:40] Tony: Uh, you then have to, I think it’s if you increase it by 1%. So if you own 5 per­cent made an announce­ment and then owned anoth­er 1%, so it’s now 6 per­cent you have to then announce it again to the ASX. So some­times when we look at com­pa­nies we see Page after page of ASX announce­ments in their announce­ment sec­tion, um, of these move­ments and it’s only because some­one’s bought an issue like, like a colo­nial first state or even some of the index funds who are, you know, buy­ing into larg­er com­pa­nies, if they bought a stake of 5 per­cent and the share price has gone up and they’re forced to buy anoth­er 1%, they have to announce it.

[00:55:18] Tony: And so on and on it goes, um, there are then oth­er rules. I think it’s, uh, I think it’s, I know the law says you can’t buy a 20 per­cent stake with­out launch­ing a takeover, so I think you have to announce that if you get to 19 per­cent maybe, or maybe 20%, you have to make anoth­er announce­ment that you’ve increased your hold­ings.

[00:55:39] Tony: I think you have to do it again at 50 per­cent to let peo­ple know you now con­trol the board. And then you have to do it again at 90%, which is when it’s a com­pul­so­ry takeover. There’s prob­a­bly some oth­er ones in there too, but, but these are all, these announce­ments are all about alert­ing investors to the poten­tial for cor­po­rate activ­i­ty and poten­tial­ly lead­ing to a takeover in the com­pa­ny. Um, do I pay atten­tion to them? Not real­ly. No, I mean, occa­sion­al­ly I’ll, I’ll do it as part of my research, like for Austal, um, when they’re cur­rent­ly under takeover from a South Kore­an com­pa­ny who wants to buy the ship­builder Austal. And I had a look at that when I was asked the ques­tion about it and noticed that Fortes­cue and I think one of the orig­i­nal own­ers had a large stake in the busi­ness.

[00:56:24] Tony: And I thought, well, that that is going to be dif­fi­cult to, um, to take over a com­pa­ny when it’s got that kind of, um, cor­ner­stone invest­ment, uh, held by. Founders and locals. Not to say it can’t be, but it prob­a­bly means that if it is tak­en over, it’ll be at a vast pre­mi­um to

[00:56:40] Tony: where the share price is now.

[00:56:42] Cameron: AKR, speak­ing of Gor­don Gekko, um, jeez, I remem­ber read­ing a book of,

[00:56:48] Tony: yes.

[00:56:49] Cameron: remem­ber read­ing a book about their takeover of RJR Nabis­co back in the 90s, um, Mer­chants at the Gate, or Bar­bar­ians at the Gate, at the Gate,

[00:56:59] Cameron: you know, is it?

[00:57:00] Tony: And it’s a good movie too. Good movie star­ring James

[00:57:03] Tony: Gar­ner

[00:57:04] Cameron: Oh, James Gar­ner

[00:57:05] Cameron: Wow.

[00:57:07] Tony: Yeah,

[00:57:07] Cameron: I heard, uh, some of the Fire­fly crew talk­ing about James Gar­ner the oth­er day. Um, yeah, I, I, uh, don’t think I ever saw the movie, but I remem­ber read­ing the book. The whole junk bond, uh,

[00:57:20] Cameron: cor­po­rate takeovers, lever­age buy­outs, all those things.

[00:57:24] Tony: Mar­vin Milken, all those

[00:57:25] Cameron: Michael Milken, yeah.

[00:57:29] Cameron: yeah,

[00:57:32] Tony: Nabis­co was the com­pa­ny that was, uh, you know, try­ing to be tak­en over. Uh, and it was a lever­age, one of the first lever­age buy­outs, and they were strug­gling for growth, and one of the things they, their R& D lab had come up with was, um, cig­a­rettes that did­n’t have a smoke.

[00:57:48] Tony: There was no smoke to them like you could smoke them with­out blow­ing smoke in oth­er words and that was going to be the great prod­uct launch going for­ward and then James Gar­ner who’s the CEO is in the lab being shown. This cig­a­rette and he goes, what’s that smell? And the sci­en­tist goes, yeah, yeah, we had to put this chem­i­cal in the cig­a­rette to stop it from smok­ing.

[00:58:07] Tony: And Gar­ner goes, it smells like shit. And the guy goes, yeah, yeah, we’re work­ing on that. And Gar­ner just goes, well, if it smells like shit, it looks like shit. I’m not launch­ing this prod­uct. Yeah,

[00:58:24] Cameron: okay thank you for that, also from Alex, I appear to have missed crude being a cell, does that make ALD and pole a com­mod­i­ty cell? Now, I had a feel­ing we’d talked about this in the past, but I could­n’t find it in our notes. I had a look at the charts of crude oil and Ampol and there’s a lit­tle bit of cor­re­la­tion there.

[00:58:48] Cameron: I don’t know how strong it is. Uh, crude did become a sell a few weeks ago, so he’s right. Um, what do you think about Ampol and crude oil cor­re­la­tion ton­ing?

[00:59:01] Tony: I think it, I think they do cor­re­late because Ampol in par­tic­u­lar out of, I think now all of the, well, there’s only two list­ed com­pa­nies in Aus­tralia in the oil game. The old Shell, which is now Viva Ener­gy, and Ampol. Ampol, well, they both actu­al­ly have refiner­ies, which would be impact­ed by the crude oil price, not, not less than the fact that, of course, retail petrol is affect­ed by, the price of retail petrol is affect­ed by the price of crude.

[00:59:29] Tony: Um, so, uh, I think it, I think it is a sell. Based on the price of

[00:59:33] Tony: crude.

[00:59:33] Cameron: Right,

[00:59:35] Cameron: well it’s not,

[00:59:36] Tony: I looked at, I looked at the buy list. We don’t have a, um, ALD as a comm stock in the, in the,

[00:59:42] Tony: um,

[00:59:42] Tony: spread­sheet.

[00:59:43] Cameron: that’s what I was about to say, yeah, I said that to Alex,

[00:59:45] Cameron: it’s, it’s not list­ed as a Com­stock, um, is, uh, so we have to update that,

[00:59:53] Tony: I know when I, I owned Viva Ener­gy stock last year and I remem­ber sell­ing it on the, on the three point trend line crude oil sell. Um, so I think at some stage we did con­sid­er Viva as a, as a, a stock which was mov­ing. Not nec­es­sar­i­ly one to one, but cer­tain­ly,

[01:00:10] Tony: um, influ­enced by the price of crude. Hmm.

[01:00:16] Cameron: Alex, good one, I’ll let the oth­er Alex know to add that to the Com­stock list so we, uh, pick that up in future. I won­der if I hold Ampol, uh, ALD, I do! Oh god, I hold it in sev­er­al light port­fo­lios, a super port­fo­lio, my Stock­o­pe­dia port­fo­lio, and it’s downed a cou­ple of per­cent on all of those too.

[01:00:44] Cameron: Ugh, Christ.

[01:00:47] Cameron: Okay.

[01:00:49] Tony: I had a dis­cus­sion with Alex Hay about ALD a lit­tle while ago, and he was try­ing to posi­tion it as an elec­tric vehi­cle charg­ing com­pa­ny.

[01:00:57] Cameron: Who is he?

[01:00:58] Cameron: Musk? it’s

[01:01:00] Cameron: a robots com­pa­ny! Roll Robots! Elon got his pay­day approved by the share­hold­ers. 45

[01:01:08] Tony: I did. my God. Yeah, I thought that, but, I mean,

[01:01:15] Tony: yeah. 84 bil­lion US, yeah. I know Steven Mayne was, uh, Call­ing on, um, call­ing on, uh, the Future Fund to vote against it because they have a stake in Tes­la.

[01:01:27] Cameron: So isn’t the Aus­tralian woman still the chair­per­son of Tes­la?

[01:01:32] Tony: Yeah, Robyn Den­ham, I think her name

[01:01:35] Tony: is.

[01:01:36] Cameron: For­mer

[01:01:37] Cameron: Tel­stra?

[01:01:38] Tony: She was the CFO of Tel­stra. Yeah, yeah, she wrote the share­hold­ers. Because remem­ber that, um, Tes­la was blocked from mak­ing the award because some­one took them to court in Delaware, and a judge ruled that it was a ridicu­lous pay­ment to make to any CEO, or worse to that effect.

[01:01:56] Tony: And then, uh, they put it to the vote in Cal­i­for­nia or wher­ev­er Tes­la is. Share­hold­ers work and it got approved by vote. So, um, Robin wrote to all the Robin quite right­ly as the chair­per­son wrote to all of the share­hold­ers explain­ing why it was a good deal and they vot­ed for it So there you go. What does the judge in Delaware know

[01:02:18] Tony: about the cor­po­rate respon­si­bil­i­ty?

[01:02:22] Cameron: Alright, mov­ing right along, anoth­er ques­tion from Alex. He says in last week’s episode, TK explains val­ue and qual­i­ty invest­ing. Val­ue being buy­ing a dol­lar for 50 cents, and then sell­ing when it reach­es its intrin­sic val­ue of a dol­lar. Okay. Qual­i­ty, as I under­stand it, and to quote Buf­fett, is buy­ing won­der­ful busi­ness­es at fair prices.

[01:02:41] Cameron: The for­mer, we know, has high­er turnover and trad­ing costs. He then went on to use the two terms inter­change­ably, even though they have dif­fer­ent mean­ings. Quite dif­fer­ent buy and sell trig­gers. Can he please explain this fur­ther in the con­text of his sys­tem and the A SX as I believe our exchange is far more cycli­cal as it’s dom­i­nat­ed by com­mod­i­ty stocks and banks.

[01:03:02] Tony: Okay, so if I did Con­flate qual­i­ty and val­ue stocks. I apol­o­gize. I was­n’t mean­ing to but per­haps I was talk­ing about QAV, which is a sys­tem which blends qual­i­ty scores and val­ue scores when I was talk­ing about that. But yeah, cer­tain­ly, yeah, val­ue stocks are some­thing you’re look­ing to buy cheap­ly and have them regress to the mean.

[01:03:21] Tony: I don’t nec­es­sar­i­ly advo­cate sell­ing them when they reach their intrin­sic val­ue or their, or their intrin­sic val­ue. Um, or a dol­lar in this case, uh, and the qual­i­ty side of things is just to give us some mea­sure of com­fort that the com­pa­ny’s going to be around for a while because it’s well man­aged. Um, but our, but our trig­gers are usu­al­ly based on, on, um, on, well, real­ly on momen­tum going out of the stock and falling either below our buy price plus 10

[01:03:49] Tony: per­cent or a three point trend­line sale.

[01:03:53] Cameron: Yeah, and I, I, I would say even though Buf­fet obvi­ous­ly uses those terms and has his own way of apply­ing them, QAV isn’t buf­fet.

[01:04:05] Tony: No, not at all. It’s prob­a­bly clos­er to ear­ly Buf­fett before he was influ­enced by Munger and start­ed to look for qual­i­ty com­pa­nies to buy at fair prices. We’re val­ue, we’re pri­mar­i­ly val­ue investors. Price to oper­at­ing cash flow dri­ves most of

[01:04:20] Tony: our deci­sion or a large part of our deci­sion. And what to

[01:04:23] Tony: buy.

[01:04:24] Cameron: And as you explained it, this is the way I’ve come to under­stand it. The qual­i­ty over­lay is to make sure we’re buy­ing busi­ness­es that seem to be well run, because we’re not experts in busi­ness­es or in sec­tors or in ver­ti­cals. And we don’t want to be, we don’t want to invest the time and effort to become experts in busi­ness­es, which is dif­fer­ent to Buf­fett

[01:04:46] Cameron: and what Char­lie did.

[01:04:48] Cameron: They do spend all day, every day becom­ing experts in the busi­ness­es. And the indus­tries that they invest­ed, we don’t want to do that

[01:04:57] Cameron: because you’re lazy and I’m dumb.

[01:05:00] Cameron: So the lazy and dumb part­ners,

[01:05:06] Cameron: um,

[01:05:06] Tony: That should be just our stan­dard answer to all of Alex’s ques­tions from now on.

[01:05:10] Tony: Yep. We’re lazy

[01:05:11] Tony: and

[01:05:11] Cameron: we’re lazy and dumb. He’s Mr. Lazy and I’m Mr. Dumb. It’s good­night from, good­night from Lazy and it’s good­night from me, good­night. I was, I was explain­ing this. I, we had a new mem­ber I was doing sort of a zoom call with the oth­er day. And, you know, I was explain­ing, you know, Tony does­n’t want to spend all day read­ing annu­al reports.

[01:05:35] Cameron: He wants to play golf and chase hors­es, um, you know,

[01:05:41] Cameron: or

[01:05:42] Tony: Hope­ful­ly I won’t catch them. Hope­ful­ly they’re faster than that. Yeah. Um, yeah, that’s a good point. I mean, you know, it’s, I know enough about busi­ness to know that there are some tru­isms. Like, if you have a lot of debt, it’s a bad thing. If you have a lot of cash, it’s a good thing. If you have an own­er founder who’s very expe­ri­enced in the indus­try, it’s a good thing.

[01:06:03] Tony: And var­i­ous oth­er things I’ve noticed over the years that we can put into a check­list. Which is gen­er­al­ly applic­a­ble to busi­ness­es rather than on a case by case basis on it going to be right for every indi­vid­ual cir­cum­stance. So it’s a sta­tis­ti­cal approach, I guess, as much as

[01:06:18] Tony: any­thing real­ly.

[01:06:20] Cameron: I’m just not­ing lazy and dumb as the title for this episode, it’s not going to count them all.

[01:06:26] Tony: You should write dumb and dumb­er and then cross

[01:06:28] Tony: out dumb­er and put in lazy.

[01:06:32] Cameron: Anoth­er ques­tion from Alex. Reflect­ing on the FY per­for­mance results, how do you live off a share port­fo­lio that has sev­er­al years of neg­a­tive returns in retire­ment? Assum­ing you’re 100 per­cent invest­ed in shares, e. g. if you have an S3, MSF with a val­ue of a mil­lion dol­lars and for the sake of sim­plic­i­ty requires a hun­dred thou­sand each year to live and had a neg­a­tive 15 per­cent return your cap­i­tal is now 850, 000.

[01:06:58] Cameron: You could­n’t have many down years before you’re out of cap­i­tal. Sure­ly the good years would­n’t get you back up to your start­ing posi­tion fol­low­ing such a draw­down.

[01:07:07] Tony: Yeah, it’s a good ques­tion and I guess it’s one that I’m fac­ing going into retire­ment myself. Um, but I, I just, you know, want to, uh, empha­size the fact that you, the way I approach this and the way I think any­one should approach this is that you’re not liv­ing off the cap­i­tal of your invest­ments, you’re liv­ing off the div­i­dends, the income.

[01:07:28] Tony: And there’s a thing in That any finan­cial plan­ner will be trained in from day one. I think it’s, well, I have dif­fer­ent names for it. It’s gen­er­al­ly called the rule of 25, some­times the rule of 24 or 20, but basi­cal­ly it’s say­ing you want your cap­i­tal to be 25 times high­er than your needs to live off in retire­ment, because the aver­age mar­ket div­i­dend is about four and a half per­cent.

[01:07:51] Tony: Um, so, You, you know, if you’ve got a mil­lion dol­lars worth of cap­i­tal, then you are only going to get 45, 000 income from div­i­dends. And you might get a bit more if it’s in your super fund and you’re not pay­ing tax on that and you get the frank­ing cred­its asso­ci­at­ed with that. But, but that’s what you’re real­ly bank­ing on.

[01:08:07] Tony: It’s, it’s, um, a bit like, uh, going back to your mate who, uh, the guy you do the future pod­cast with, I’ve for­got­ten his name.

[01:08:15] Cameron: Sabati­no,

[01:08:17] Tony: Samati­no, thank you. The Samati­no method, which was, um, we talked about one of the very ear­ly pod­casts when we had Steve on the show. He, um, you know, he put mon­ey into the share mar­ket and for­got about the cap­i­tal.

[01:08:27] Tony: He bought an index fund and has been liv­ing off the div­i­dends ever since. And over the long term, that will go up. Um, despite years of neg­a­tive draw­downs, like Alex talks about, could be down 15%, but gen­er­al­ly com­pa­nies don’t cut their div­i­dends when the share price drops. They’ll, they’ll do what­ev­er they can to main­tain their div­i­dend.

[01:08:46] Tony: Um, and that’s cer­tain­ly the case in the mar­ket. I think even in the GFC, the mar­ket div­i­dend may have gone down by like, 30 per­cent tops. So yeah, you might tight­en your belt that, that year, but gen­er­al­ly you’re get­ting a, you’re focus­ing on the income and the incomes, um, a lot more sta­ble and con­tin­u­ous than the cap­i­tal amount, which can move around.

[01:09:08] Tony: Um, so the, I guess the take up is make sure you’ve got enough cap­i­tal and, and then some, and a buffer when you retire so that you can live com­fort­ably off the div­i­dends and I guess add a bit to take into account that, um, they may get cut slight­ly dur­ing par­tic­u­lar­ly bad reces­sions.

[01:09:25] Cameron: War­ren Buffer, Diljidev.

[01:09:28] Tony: War­ren Buf­fett, yeah, right.

[01:09:31] Cameron: Thank you, Alex. Good ques­tions. Um, last ques­tion, well, it’s not real­ly a ques­tion. It’s, well, it is kind of from John. He says, My Excel sheet iden­ti­fies Rio, yet it does­n’t appear in your stock fil­ter. What am I doing wrong? Can you please assist? I checked on the Rio web­site, just in case more finan­cial data was released.

[01:09:55] Cameron: Rio. Pub­lished Q1 2024 oper­a­tions review. The report does­n’t include any finan­cial state­ment data, and he gave me his num­bers, which had a prop calf of 2.21, which was based on oper­at­ing cash­flow of 22.163, uh, 22, sor­ry, 22,163 mil­lion, so 22.163 bil­lion. Shares issued 371, 000, no sor­ry, 371, 216, 214 shares. So I looked up Rio in my check­list that I did Mon­day.

[01:10:37] Cameron: I had a Prop­Caf of 8. 8, which is why it was­n’t show­ing up on my buy list. Um, and that was based on oper­at­ing cash of 22, 163, the same as his. Thanks. Bye.

[01:10:52] Cameron: But op cash per share of 13.66 in a price, uh, at the time was

[01:10:57] Cameron: 120, uh, 20. When I drilled into stock doc­tor, it had shares out­stand­ing as 1 6 2 2 0.53, which I think is in the mil­lions, which is very dif­fer­ent from the

[01:11:14] Cameron: 371

[01:11:15] Tony: mm hmm.

[01:11:17] Cameron: that, uh, uh,

[01:11:19] Cameron: John quot­ed when I went to the most recent annu­al report.

[01:11:24] Cameron: Uh, ASX, Rio said, weight­ed aver­age num­ber of shares, basic mil­lions, is 1621. 4 mil­lion. Oh, is it dol­lars?

[01:11:36] Cameron: No, it should be

[01:11:37] Tony: Should­n’t be a mil­lion dol­lars, no,

[01:11:38] Tony: it’s 1. 6, yeah, 1. 6

[01:11:41] Tony: bil­lion.

[01:11:41] Cameron: My note is wrong. But on the ASX web­site for Rio, it says shares on issue, 371, 216, 216 mil­lion. So, there’s this dif­fer­ence here between weight­ed aver­age num­ber of shares, which seems to be what Stock Doc­tor’s using, and shares on issue.

[01:11:58] Cameron: And then I asked Chat­G­PT

[01:12:00] Cameron: to explain the dif­fer­ence between the two. It said weight­ed aver­age num­ber of shares. This fig­ure gen­er­al­ly rep­re­sents the aver­age num­ber of out­stand­ing shares dur­ing a par­tic­u­lar report­ing peri­od account­ing for any changes in the num­ber of shares over that time frame. It’s a cal­cu­la­tion used to deter­mine earn­ings per share.

[01:12:18] Cameron: Fac­tor­ing in share issues, buy­backs and oth­er alter­ations through­out the year. Shares on Issue is a snap­shot of the total num­ber of shares cur­rent­ly out­stand­ing on a giv­en date, as list­ed on the ASX web­site. It’s a straight­for­ward count of all shares that have been issued and are held by share­hold­ers as of the most recent date.

[01:12:36] Cameron: Seems to me like we should be using Shares on Issue for Prop­Caf and not Weight­ed Aver­age Num­ber of Shares, but tell me what you think, Tony.

[01:12:47] Tony: I think this is a good exam­ple of garbage in and garbage out, as to why AI won’t nec­es­sar­i­ly rule the world. Because I don’t think it’s a, I don’t think that’s the issue here. I don’t think it’s whether we’re using AI. Um, waived shares or shares on issue. Um, I had a look at it and there’s two com­pa­nies that Rio trades under.

[01:13:08] Tony: One’s on the ASX, Rio Tin­to Ltd, and the oth­er one’s on the Lon­don Stock Exchange, Rio Tin­to PLC. The ASX one has 371 mil­lion shares, the Eng­lish one has 1255 mil­lion shares. If you add them togeth­er, you get to the 1. 622 num­ber which Stock Doc­tor has. So, there’s uh, I’ve seen this before when BHP was a dual list­ed com­pa­ny, um, The com­pa­nies report on their world­wide num­bers, but they have dif­fer­ent share num­bers depend­ing on the stock exchange, and if the data provider has­n’t twigged that they need to search a bit fur­ther and add the Lon­don num­bers in, you get garbage in and garbage out.

[01:13:53] Tony: So, um, Stock Doc­tor, I think is right. Um, and what­ev­er source that, uh, John was using, I think does­n’t add up the Lon­don shares on issue. I, what I did was to go to the most recent results, which were the half year results, and just sim­ply put shares. into the find win­dow and then got to the bot­tom of the, the um, report with which it, where it out­lined these num­bers.

[01:14:16] Tony: The num­bers for the PLC, the Lon­don list­ing, and the num­bers for the ASX list­ing and added them togeth­er to give the num­ber that they use, which they need to use to cal­cu­late things like earn­ings per share and div­i­dend per share. So it was in the foot­notes of

[01:14:28] Tony: one of their lat­est results.

[01:14:30] Cameron: Right. Well, for a start, I don’t think you can blame AI, because, uh, it just explained the dif­fer­ence between weight­ed aver­age num­ber of shares and shares on issue.

[01:14:43] Tony: No, it’s garbage in, garbage out. Garbage was­n’t AI, I

[01:14:46] Tony: just got asked the wrong ques­tion.

[01:14:50] Cameron: Okay, so, Stock Doc­tor’s right that it should be using the glob­al

[01:14:55] Cameron: num­ber.

[01:14:57] Tony: Cor­rect. It’s report­ing the glob­al fig­ures, the earn­ings, um, for the total REIA. Yeah. Yeah. So you’ve got to add both list­ings togeth­er in terms of shares on issue.

[01:15:10] Cameron: Good!

[01:15:10] Tony: And then you can get down to debat­ing the fin­er points of whether it’s the aver­age over the peri­od or whether it’s the cur­rent snap­shot.

[01:15:18] Tony: Um, yeah, the Rio Tin­to did­n’t even say what they were using and

[01:15:23] Tony: I’m not sure.

[01:15:24] Cameron: Um, okay, it did in the annu­al report when I grabbed it, it said weight­ed aver­age num­ber of

[01:15:31] Cameron: shares.

[01:15:32] Tony: Oh, there you go. Okay. It was­n’t in the half year num­bers then. half year

[01:15:35] Tony: fig­ures a lot of bet.

[01:15:38] Tony: Okay.

[01:15:38] Cameron: Good ques­tion, John. And thank you for explain­ing that, Tony. That is all of the ques­tions that I have for this week. Tony, we’re into after hours.

[01:15:48] Tony: Yeah.

[01:15:49] Cameron: We talked, we talked, about half, we talked for half an hour before the show about after

[01:15:53] Cameron: hours.

[01:15:54] Tony: Haha. Before hours. That’s the AM.

[01:15:56] Tony: Now we’ll do the PM.

[01:15:57] Cameron: It did­n’t get record­ed. Talk­ing about. Some great 70s direc­tors, 60s and 70s direc­tors like Richard Rush.

[01:16:06] Cameron: Um,

[01:16:07] Tony: medi­um? how medi­um?

[01:16:08] Cameron: I down­loaded

[01:16:11] Cameron: a book last night which I’ve just start­ed read­ing, The God­fa­ther Note­book. You ever come across that?

[01:16:18] Tony: Is that the one I’ve got in hard copy which goes,

[01:16:22] Cameron: Do

[01:16:22] Tony: the script for the God­fa­ther so it’s cut out and then around the out­side is Fran­cis Ford Cop­po­la’s notes. Yeah I’ve got a hard copy

[01:16:28] Cameron: Oh, you dog.

[01:16:30] Cameron: I can’t. I’m not rich enough to afford a real thing. I had to get an e book ver­sion of it. Isn’t it great? And I just start­ed skim­ming through it this morn­ing. Um, but the thing that jumped out at me straight off the bat, which I’d for­got­ten, because it’s been a long time since I’ve read Mario Puzo’s nov­el, is how trashy the nov­el is.

[01:16:53] Tony: yeah,

[01:16:54] Cameron: I remem­ber read­ing it.

[01:16:55] Tony: was a, he was a trashy writer

[01:16:57] Tony: for

[01:16:57] Cameron: remem­ber read­ing it in my ear­ly 20s, I’d seen The God­fa­ther, loved The God­fa­ther, got the book and went, oh my god, this is trashy. Like, it must be one of the very few instances in Hol­ly­wood his­to­ry where some­body’s tak­en a trashy nov­el and turned it into a mas­ter­piece. It usu­al­ly goes the oth­er way around, right?

[01:17:17] Cameron: The book is usu­al­ly far supe­ri­or to the movie.

[01:17:21] Cameron: Um, but

[01:17:22] Tony: Well, yeah. Well, I would­n’t say it was the only exam­ple. I mean, at that time, I mean, when I was grow­ing up, there were like Harold Rob­bins was all the rage, Peter Bench­ley, who wrote Jaws. I went, you know, I read Jaws when I was a kid. It’s, it’s so trashy

[01:17:35] Tony: and sex filled. Um, noth­ing like

[01:17:38] Tony: the

[01:17:39] Cameron: Oh, hold on. Why are you, why are you

[01:17:40] Tony: and Spiel­berg

[01:17:41] Tony: made a great, great movie.

[01:17:41] Cameron: Sex­field is great, par­tic­u­lar­ly when you feel like 15 when you read it like

[01:17:45] Cameron: I was.

[01:17:46] Tony: Yeah, I know, that’s

[01:17:47] Tony: why I bought the book, right?

[01:17:51] Cameron: Right. Yeah, they were

[01:17:52] Cameron: they were like air­port

[01:17:53] Tony: but Mario,

[01:17:54] Cameron: were air­port

[01:17:56] Cameron: reads, plane reads,

[01:17:57] Tony: absolute­ly, yeah. But that’s why I think The Golf Oth­er is held in such high esteem because, and the note, The Golf Oth­er note­book makes this clear that, that, Cop­po­la just brought next lev­el approach to direct­ing to the script, you know, and it, and start­ing with the fact he took each page of the book and cut it out and then put a frame around it, like glued it to a note, a big­ger note­book so he could write around the out­side on, you know, all of his notes, he’d just take a line and just drill down into it.

[01:18:26] Tony: What were they wear­ing? What were they think­ing? What was hap­pen­ing at that time? Um, you know, that this, this is talk­ing about and, uh, it’s just amaz­ing the lev­el of detail he went to. And the pho­tographs of, you know, the table full of hand­guns, so he got the cast togeth­er and made them all get used to hold­ing revolvers and shoot­ing guns and things like that just so that they would look nat­ur­al

[01:18:48] Tony: on the screen to do it, just every­thing was next lev­el

[01:18:51] Tony: with him.

[01:18:52] Cameron: I haven’t seen that, but I

[01:18:54] Cameron: not­ed at the begin­ning when he’s got all of the char­ac­ters and then he scrib­bled beside him some cast­ing ideas that he had.

[01:19:02] Cameron: In three or four places, includ­ing for Clemen­za, he’s got Castel­lano writ­ten beside it, which I assume was Paul Castel­lano, who was the head of the Gen­ovese crime fam­i­ly in the 70s, and was the guy that was mur­dered as he left a restau­rant one night by John Got­ti, well, by one of John Got­ti’s guys, which is how John Got­ti end­ed up tak­ing over the Gen­ovese crime fam­i­ly was he mur­dered Paul Castel­lano.

[01:19:32] Cameron: But I assume that Cop­po­la’s orig­i­nal idea was to cast real mob­sters in var­i­ous parts of the

[01:19:40] Cameron: film.

[01:19:41] Tony: Oh, was it? Or was that, or was he say­ing that’s who he

[01:19:44] Tony: thought the

[01:19:44] Tony: char­ac­ter was

[01:19:45] Tony: based on?

[01:19:45] Cameron: Well, beside the

[01:19:46] Tony: So he had a visu­al ref­er­ence

[01:19:48] Cameron: James, he’s got Jim­my Kahn, he’s got Al Paci­no,

[01:19:51] Cameron: Mar­lon Bran­do,

[01:19:52] Cameron: yeah.

[01:19:55] Tony: Well, we talked about it. I talked before the show about my Face­book feed keeps throw­ing this stuff up. There was an arti­cle I had recent­ly thrown up where he cast the wrestler to play, um,

[01:20:05] Tony: who was the

[01:20:05] Cameron: Luca Brasi.

[01:20:07] Tony: Luca Brazzi. Yeah. And how it may have turned out to be a dis­as­ter in, in a less­er direc­tor’s hands because Brazzi, even though he was a big hulk­ing wrestler, was com­plete­ly starstruck in his scenes with Bran­do, but then Cop­po­la used that to his advan­tage because Brasi, like, would pre­pare to go in and see the God­fa­ther, um, and would be say­ing his lines over and over in his head and under his breath try­ing to get them straight so he would­n’t stuff up.

[01:20:36] Tony: And Cop­po­la real­ized that’s a real­ly good take on what some­one would prob­a­bly do if they were going in to meet the real God­fa­ther. They’d be ner­vous, even though it was a, you know, a hulk­ing wrestler like Luca

[01:20:47] Cameron: Mm. Yeah, mag­nif­i­cent. Oh, well, there you go. Yeah. I’m look­ing for­ward to hav­ing some time to read through that. It’s, still, you know, not only my great­est film, but of course, the moment I took Chris­sy seri­ous­ly on, you know The first night I met her, I mean, Ajaxio and Cor­si­ca, I said, you know, do you like movies?

[01:21:09] Cameron: Oh yeah, what’s your favorite film? This is pret­ty, pret­ty Amer­i­can, Red­head from late 20s. I was think­ing she was expect­ing to say, I don’t know, the Titan­ic or some­thing

[01:21:18] Cameron: vac­u­ous.

[01:21:19] Tony: on with the

[01:21:20] Cameron: Yeah. Oh, I love Gone With The Wind. That would have gone down. Okay. She said, uh,

[01:21:25] Cameron: she said it’d be a toss up between the God­fa­ther or Cit­i­zen

[01:21:28] Cameron: Kane. And I was like, uh, what?

[01:21:30] Tony: Oh, wow.

[01:21:32] Cameron: Okay. Tell me more.

[01:21:37] Cameron: So there, I had to mar­ry her then.

[01:21:39] Tony: Yeah, right.

[01:21:42] Cameron: Um, what about you? What else? What have, what have you been up to?

[01:21:46] Tony: Been doing lots of gallery vis­its, so went to the New South Wales gallery on the week­end and saw the Mucha exhi­bi­tion with Alex.

[01:21:55] Cameron: What’s Mucha?

[01:21:56] Tony: have you heard of him? Alphonse Mucha. Art Nou­veau, so kind of pio­neered. That style or the revival of that style,

[01:22:05] Tony: you know, peo­ple can Google it, I guess, but he was the, it’s that sort of style of, uh, sort of, uh, fem­i­nine, uh, beau­ty wear­ing long flow­ing gowns from sort of Gre­cian times with flow­ers in their hair and, um, intri­cate, uh, bor­ders around them.

[01:22:22] Tony: Kind of like, That was, it was done at the turn of the last cen­tu­ry, but it had anoth­er renais­sance in the 60s when a lot of sort of hip­pie bands would have that kind of groovy look to their album cov­ers and record posters. Um, and it’s Alex’s favorite style, but it was inter­est­ing to go through the the show because, um, you know, he was an artist, but And then his style evolved when he could­n’t, he lost his patron and he went moved to Paris.

[01:22:51] Tony: Comes from Czecho­slo­va­kia, I think, and went back to Czecho­slo­va­kia at the end of World War I. So a lot of his art was around the you know, tragedy of war and, um, he did paint­ings about, you know, starv­ing chil­dren in the area and, and a lot of it was a, um, a warn­ing to World War II that was com­ing. So in the 1930s, he was paint­ing a lot of, uh, paint­ings, you know, that was talk­ing about, um, peo­ple being aware of what was hap­pen­ing in, in Europe at the time.

[01:23:21] Tony: But any­way, back, back at the turn of the cen­tu­ry, he was in Paris, part of the Fin de siè­cle, and, uh, got a job as a, uh, an artist with, uh, Um, an indus­tri­al com­pa­ny that made bis­cuit tins and kind of that’s how that style evolved. It was, it was a style that was, um, that he liked, but it was also able to be engraved and, and, you know, paint­ed onto bis­cuit tins on mass and real­ly took off when, uh, Sarah Bern­hardt, the famous, uh, actress did her world­wide tour, went to Paris and he was com­mis­sioned to do the.

[01:23:58] Tony: Posters for her show, and he put her into one of the posters. And it was that kind of rev­o­lu­tion­ary and that kind of, you know, it was a big wow moment in Paris. Peo­ple would wake up, see these posters all over Paris of Sarah Bern­hardt in this sort of, uh, typ­i­cal, or not typ­i­cal, but um, new, new old style of like that Ian flow­ing gowns and, and, uh, flow­ers around the out­side and the engrav­ing.

[01:24:23] Tony: And the sto­ry was that it took about, um, an hour for the. Peo­ple to wake up in the morn­ing and steal all the posters that have been put up overnight, for Sarah Bern­hardt, tour­ing Paris. And that kind of was a shot in the arm for his career. And then she com­mis­sioned him to, to paint lots of posters for her plays in New

[01:24:41] Tony: York, and he became kind of a world­wide sen­sa­tion

[01:24:44] Tony: after that.

[01:24:44] Cameron: Wow. Yeah, I know this the

[01:24:46] Cameron: Art Nou­veau style obvi­ous­ly that.

[01:24:48] Cameron: he did but I’ve nev­er heard of the name before so that’s great.

[01:24:52] Tony: Yeah, good, good exhi­bi­tion. And real­ly pow­er­ful when it came to paint­ings before World War II and that sort of 30s peri­od where he was real­ly wor­ried about war break­ing out in Europe, about his par­tic­u­lar peo­ple. So I did­n’t know much about the his­to­ry of Czecho­slo­va­kia and how it came about after World War I had fin­ished and how it had been part of Rus­sia pri­or to that.

[01:25:16] Tony: He did a lot of paint­ings, you know, because there were famines when the Bol­she­viks took over that affect­ed Czecho­slo­va­kia and his peo­ple. There’s, there was a, just such a, there was a huge paint­ing that took up almost one wall of the gallery of a woman, you know, obvi­ous­ly dis­tressed in the moon­light. Um, it was a great paint­ing because the moon was a speck in the dis­tance and there was an aura around it.

[01:25:40] Tony: And then she was in the light from the moon, even though it’s a very sort of gray. Dark blue paint­ing. Uh, and, and she’s dis­tressed and then in the dis­tance you can see the wool start­ing to to appear above the hill and it was just, it was just like the epit­o­me of despair and it was his point about what was hap­pen­ing in Europe in the late 30s at the time.

[01:26:02] Tony: Very pow­er­ful and mov­ing paint­ing.

[01:26:03] Cameron: hmm. Mm hmm. And where’s that on in Syd­ney? It’s uh,

[01:26:07] Cameron: AGNSW?

[01:26:08] Tony: New South Wales Art Gallery. Yeah. And at the same time it’s, the Archerball was on, so we went down­stairs and looked at the Archerball final­ists as well, and the Archerball entrants, and the Sul­man and the Winn prizes, which Alex and I do every year, which was great fun, and Jen­ny came along too, so always good to see that.

[01:26:24] Cameron: Any­thing in par­tic­u­lar stand out?

[01:26:26] Tony: Oh, well, I think it was a deserved win­ner. The Tim Win­ton por­trait was, was quite good. Did­n’t look much on the posters, but when you see it in real life, it was quite impres­sive. Um, yeah, my, my pick, though, would have been, uh, Sean Glad­well’s paint­ing of Julian Assange, which I thought was ter­rif­ic, um, which you would be inter­est­ed in, I guess, but, um, I had­n’t, had­n’t seen Sean Glad­well do an oil paint­ing before.

[01:26:48] Tony: He, my, from my lim­it­ed knowl­edge of Sean Glad­well, he’s I’ve been a more of a con­cep­tu­al artist and done graf­fi­ti and video work that I’ve been aware of up until now. So that was inter­est­ing. But that was a, that was a por­trait, I thought, um, yeah, so, uh, good. I always enjoyed going along and debat­ing who was the best and what the best pic­ture was and all that kind of stuff.

[01:27:13] Cameron: Hmm. Fan­tas­tic. I’m just look­ing at the web­site now. I guess it’ll come to Bris­bane at some stage. Hmm. The Tim Wyn­ton one is very inter­est­ing.

[01:27:24] Tony: And it looks, looks bet­ter in real life. When you see it life size, you can see a lot more detail in it than you can see on a pho­to­graph,

[01:27:32] Tony: I think any­way.

[01:27:33] Cameron: the artist. Hmm. Alex, uh, enjoyed it, I assume.

[01:27:39] Tony: She did, yeah, loves, loves Mucha, um,

[01:27:44] Tony: Art Nou­veau has always been her favourite style.

[01:27:46] Cameron: Hmm. I

[01:27:46] Cameron: did­n’t know that.

[01:27:47] Tony: Took lots of notes and told me lots about how it was done and, you know, stuff I, I, it’s just so great going through a gallery with Alex. She’ll talk about, you know, what the artist must have done here and how they lay down paint and then did this to it.

[01:27:59] Tony: And yeah, it’s just so much going on, which the lay per­son just would­n’t pick up

[01:28:04] Tony: on, but she does, which is real­ly

[01:28:06] Tony: inter­est­ing to

[01:28:07] Tony: hear.

[01:28:07] Cameron: I remem­ber, you know, when we were going through muse­ums in, uh, Europe with her, hmm, six years ago. Eight, 2018, it was? Wow.

[01:28:17] Cameron: That’s a long time ago.

[01:28:18] Tony: mm,

[01:28:19] Cameron: Uh, what else? I’m read­ing Clara and the Sun, uh, nov­el by Kat­suo Ishig­uro, the British Japan­ese nov­el­ist who won the Book­er Prize for, um, Remains of the Day.

[01:28:36] Cameron: Back in the

[01:28:37] Tony: oh,

[01:28:38] Cameron: eight­ies,

[01:28:38] Cameron: what­ev­er.

[01:28:40] Tony: mm,

[01:28:40] Cameron: This is a nov­el that he wrote, came out in 2021. It’s a sci­ence fic­tion nov­el. Um, basi­cal­ly about the main char­ac­ter is, uh, what they call an arti­fi­cial friend. It’s like a robot, AI robot that a child will have as a, Best Friend, basi­cal­ly, it’s like a AI child toy, but, you know, is able to walk around and do stuff, a ful­ly func­tion­ing humanoid robot, small­ish, um, child sized.

[01:29:16] Cameron: Um, but the inter­est­ing thing like this, so this book came out a year or 18 months before Chat­G­PT 3. 5 broke. And so it’s a fair­ly recent, but what’s imme­di­ate­ly evi­dent is how out of date it is already, because the AI. Robot, the main char­ac­ter Clara, does­n’t know stuff about the world that it should know, that Chat­G­PT would already know, you know, it’s, it’s amaz­ing to me that even as recent­ly as three years ago, sci­ence fic­tion authors writ­ing about what’s Arti­fi­cial intel­li­gence was so off the mark for how AI looks today already, you know, we just, we had no idea that it would be able to do the things that it can do as quick­ly as it could do.

[01:30:15] Cameron: And that when you train it on the sum of all human knowl­edge, it’s going to know stuff. It, like the robot says, I’ve nev­er seen a water­fall, but I, you know, I read about one in a mag­a­zine and does­n’t real­ly know what a water­fall likes. Chat­G­PT. We’ll be able to tell you in infi­nite detail what a water­fall does, what it looks like, the physics behind it.

[01:30:38] Cameron: Um, it’s been trained on mil­lions of images of water­falls, videos of water­falls, as well as text of water­falls. So yeah, um, yeah, just anoth­er exam­ple about how it’s tak­en us by sur­prise.

[01:30:55] Tony: yeah, but also too it’s, you know, not unusu­al for sci­ence fic­tion to get, fall behind, it’s hard to pre­dict an accel­er­at­ing future, but the inter­est­ing thing I think is that how, how many times do I think about, you know, Asi­mov’s books, the robot series, I, Robot, and the rest of the robots, and how, how impor­tant the three laws of robot­ics are.

[01:31:14] Tony: were cen­tral to his sto­ry, and prob­a­bly will be to AI going for­ward, you know. First, do no harm to a human. For­get­ting what the sec­ond law is, and the third law is don’t, by doing noth­ing, don’t let a human come to harms, or some­thing like that, but yeah. Um, and so, you know, the, the, the core of Asi­mov’s Sci­ence fic­tion was­n’t to write about the tech­nol­o­gy, he did­n’t tell you, he said famous­ly the robots have positron­ic brains, he did­n’t try and talk about large lan­guage mod­els and how it would all work, he just made some­thing up, a macguf­fin about, you know, this is what the robots are, they just do things, and we have to work out how they inter­act with human­i­ty and how that’s going to work, and I thought that was, you know, sci­ence fic­tion was as much about the human side of things, or try­ing to high­light the human­i­ty of, of

[01:32:00] Tony: the future rather than just talk about the tech­nol­o­gy, often.

[01:32:04] Cameron: The first law, a robot may not injure a human being or, through inac­tion, allow a human being to come to harm. Also known as the last episode of Sein­feld. The sec­ond law, a robot must, the Good Samar­i­tan law, a robot must obey the orders giv­en it by human beings except where such orders would con­flict with the first law.

[01:32:25] Cameron: The third law, a robot must pro­tect its own exis­tence as long as such pro­tec­tion does not con­flict with the first or sec­ond law. I’ve always thought they’re ridicu­lous, and I still think they’re ridicu­lous, because

[01:32:38] Tony: Ah,

[01:32:39] Cameron: you can’t hard code some­thing into a robot that’s writ­ing its own code. You’re

[01:32:45] Cameron: gonna have

[01:32:47] Tony: well you could.

[01:32:48] Cameron: How?

[01:32:49] Tony: What are you say­ing? Because that could then

[01:32:50] Tony: amend the three laws

[01:32:52] Tony: of

[01:32:52] Tony: robot­ics.

[01:32:53] Cameron: Yeah, it’s gonna be code, right? How long is it gonna be before you think the AIs are writ­ing their own code?

[01:32:59] Tony: Oh, well, they’re doing it now.

[01:33:02] Cameron: Well, they’re not, but there’s Then again, there’s real­ly no code that’s run­ning the AIs

[01:33:09] Cameron: real­ly.

[01:33:10] Tony: Yeah.

[01:33:12] Cameron: you know, there’s

[01:33:13] Cameron: there’s no code There’s no instruc­tions for how to think.

[01:33:16] Cameron: It’s just, you know, they’re being taught how to read and under­stand real­ly

[01:33:21] Cameron: infor­ma­tion.

[01:33:22] Tony: Hmm.

[01:33:24] Cameron: Yeah, the, the abil­i­ty, like this whole thing about, they call them guardrails, um, or super align­ment

[01:33:30] Cameron: in the indus­try, how we, uh, pre­vent AI from doing harm

[01:33:39] Cameron: to humans, I think is, uh, you know, we’ve got Buck­ley’s Chance.

[01:33:46] Cameron: I mean, at some point, if every­thing plays out accord­ing to the way things are, Peo­ple in the indus­try seem to think it’s going to play out. You, we’re going to have machines that are a mil­lion times smarter than humans. You think there’s any guardrails we can put into place that they’re not going to just step over like humans step­ping over a line of ants?

[01:34:08] Cameron: Oh, you can­not pass this, uh, bound­ary, Mr. Human. Yeah, real­ly? Okay.

[01:34:14] Tony: So, so if that’s the case, then are you hap­py for AI to keep

[01:34:19] Tony: devel­op­ing, giv­en that it

[01:34:20] Tony: can’t have

[01:34:21] Tony: guardrails?

[01:34:22] Cameron: Oh, absolute­ly. In fact, I, I think

[01:34:24] Cameron: it’s incred­i­bly impor­tant.

[01:34:25] Tony: So you’re hap­py to risk

[01:34:27] Tony: the future of human­i­ty? to, on a

[01:34:30] Tony: sci­ence

[01:34:30] Tony: exper­i­ment.

[01:34:31] Cameron: I think the future of human­i­ty is already well beyond

[01:34:34] Cameron: being at risk

[01:34:36] Tony: ha, yeah it is, exact­ly.

[01:34:38] Tony: So why add

[01:34:39] Tony: anoth­er

[01:34:39] Tony: one?

[01:34:40] Cameron: because this is the only thing that’s going to save us. It could also

[01:34:44] Tony: Okay, so you’re, yeah, so there’s an equal, you’re see­ing at least some kind of prob­a­bil­i­ty that it’s good for us as much, that bal­ances out the

[01:34:51] Tony: prob­a­bil­i­ty that it’s

[01:34:51] Tony: bad for us.

[01:34:52] Cameron: So Steve and I have talked about this on the

[01:34:54] Cameron: Futur­is­tic Show. So in, in AI cir­cles in the last year or so, there’s been this talk about P Doom. What’s your P Doom num­ber? Your prob­a­bil­i­ty of doom, right? My argu­ment is my P Doom, P Doom num­ber for the human race, is extreme­ly high, 90, 98, I’d say 98%. In the next, I’ve been say­ing this for, you’ve heard me talk about this, uh, you know, over the

[01:35:19] Cameron: years, right? I think our prob­a­bil­i­ty of sur­viv­ing this

[01:35:22] Cameron: cen­tu­ry is very low, the way that we’re going. And if not, you know, I’m not talk­ing about the com­plete destruc­tion nec­es­sar­i­ly, but a sit­u­a­tion where there’s a big enough calami­ty where civ­i­liza­tion as we know it ceas­es to be able to func­tion because we’re fac­ing mul­ti­ple con­cur­rent exis­ten­tial threats, cli­mate change, um, nuclear war, uh, not to men­tion, and then there’s nan­otech, grey goo, you know, pan­dem­ic lev­el stuff that we just had a taste of.

[01:35:56] Cameron: we seem to be com­plete­ly unable to deal with even one of those, let alone mul­ti­ple of them con­cur­rent­ly.

[01:36:04] Tony: Yeah.

[01:36:06] Cameron: And, you know, so how are we going to solve those prob­lems? There’s four or five. Um, pos­si­bil­i­ties. Num­ber one, humans sud­den­ly grow up and evolve and, you

[01:36:20] Cameron: know,

[01:36:22] Tony: Let’s, let’s take that one off the

[01:36:23] Cameron: yeah, right? No signs of that hap­pen­ing.

[01:36:27] Cameron: Two, a great leader, a Che Gue­vara, Fidel Cas­tro emerges that has glob­al sup­port and can guide us through and every­one lis­tens and says, yeah, you’re right, we should do that. Let’s, let’s all get behind this guy or girl. Can’t see that hap­pen­ing.

[01:36:43] Cameron: Third,

[01:36:44] Tony: not

[01:36:44] Tony: with­out calami­ty

[01:36:45] Tony: along the way.

[01:36:46] Cameron: Jesus comes and saves us. Don’t like the chances of that one.

[01:36:50] Cameron: We’ve been wait­ing for him for 2, 000 years, he still has­n’t turned up. Four, the aliens

[01:36:55] Tony: and did­n’t do much when he was here last time. So it did­n’t save us. last time.

[01:37:01] Cameron: the

[01:37:06] Tony: prob­lems. What a waste.

[01:37:15] Tony: That’s right, we want to be dark for us on

[01:37:17] Tony: that one, yeah.

[01:37:18] Cameron: fifth is AI saves us from our­selves. It’s the only one, it’s the only path for­wards I can see that has even a chance of

[01:37:30] Cameron: res­cu­ing us.

[01:37:31] Tony: Does­n’t, AI, does­n’t, sor­ry to inter­rupt, does­n’t AI fall into the

[01:37:35] Tony: aliens com­ing

[01:37:36] Tony: to save us

[01:37:37] Tony: cat­e­go­ry? Like, why would

[01:37:39] Tony: AI both­er?

[01:37:40] Cameron: Well, that is an

[01:37:40] Tony: Aren’t we in, aren’t we in the way?

[01:37:42] Cameron: Yeah, but at least, you know, I don’t think aliens are

[01:37:45] Cameron: going to exist or do exist. I think the prob­a­bil­i­ty of the coex­is­tence of hyper intel­li­gent life, uh, coex­ist­ing with us any­where close to being able to vis­it us is high­ly unlike­ly in an expand­ing, very dark, very large uni­verse.

[01:38:03] Cameron: And the, you know, the, uh,

[01:38:04] Tony: No, I agree, because the only way they could coex­ist with us is if they’re about the same intel­li­gence as us, and then they can’t reach us. Because we can’t reach them, trav­el to them,

[01:38:14] Tony: so

[01:38:15] Tony: it’s

[01:38:16] Tony: unlike­ly, I

[01:38:16] Cameron: Also, just, you know, you take the age of the uni­verse and the, you know, the amount of time that humans have been able to trav­el off plan­et and how close we have come in that same peri­od of time to wip­ing our­selves out. There’s, there’s a win­dow,

[01:38:34] Cameron: there seems to be a win­dow of oppor­tu­ni­ty between when a civ­i­liza­tion becomes intel­li­gent enough to get off plan­et and when it kills, wipes itself out.

[01:38:42] Cameron: And it’s not a very big win­dow out of, you know, 13.8 bil­lion year his­to­ry of the uni­verse, like a 200 year win­dow that you have. And I, I don’t, so, you know, I keep say­ing I think the P doom with­out AI is 98%. I think the P doom with AI is maybe 70%. Um, so that’s a 28%.

[01:39:04] Tony: 97, maybe?

[01:39:05] Cameron: That’s a twi

[01:39:07] Cameron: what­ev­er it is, there’s a mar­gin of hope there that the AIs will

[01:39:15] Cameron: be net pos­i­tive.

[01:39:18] Tony: I’m still, yeah, look, I accept every­thing you said, and I’m not going to argue with it, but I still, I think the oth­er course is that AI does­n’t turn out to live up to its height.

[01:39:27] Tony: So it does­n’t change the P doing prob­a­bil­i­ty

[01:39:29] Tony: at all.

[01:39:29] Tony: Yeah,

[01:39:31] Cameron: there’s a lot of

[01:39:32] Cameron: things that I was lis­ten­ing to Sabine Hossen­felder, one of her recent YouTubes, this week, just talk­ing about the ener­gy require­ments that are It’s all backed in for us to have super intel­li­gence and the thou­sand new pow­er plants that we need to build in the next 10 years for that to hap­pen.

[01:39:49] Cameron: And she’s like, it’s just not going to hap­pen. But of course the counter argu­ment to that is we get AI to a point where it’s good enough to help us solve cold fusion. And then we have cold fusion gen­er­a­tors, right?

[01:40:02] Cameron: So

[01:40:03] Tony: Or

[01:40:03] Tony: some­thing

[01:40:03] Tony: else.

[01:40:04] Cameron: it’s an iter­a­tive thing. We get it to a point where it

[01:40:07] Cameron: can help us solve all these prob­lems.

[01:40:08] Cameron: And she also said in this video, I total­ly agree that it’s going to be mas­sive for AI, even, you know, just in the, uh, sor­ry, for sci­ence in the next cou­ple of years, because she’s like, the great­est thing hold­ing back sci­ence is there’s mil­lions of papers writ­ten every year and no one can read them all.

[01:40:25] Cameron: So, even if you’re an expert in a par­tic­u­lar field, you can’t read all of the papers that are writ­ten in that field, let alone the oth­er 400 fields that prob­a­bly have some crossover learn­ings that could be applied.

[01:40:37] Cameron: Um, so, AI will be able

[01:40:40] Tony: Yeah.

[01:40:41] Cameron: find those

[01:40:42] Cameron: threads, hope­ful­ly.

[01:40:43] Tony: That’s, it’s inter­est­ing, isn’t it? There was a book I read called The Death of Sci­ence. It was writ­ten about 10 years ago, I think, or there­abouts, about the fact that there has­n’t been any great sci­en­tif­ic break­throughs along the same sort of curve as there was in the 20th cen­tu­ry, ear­ly 20th cen­tu­ry, because a lot of sci­ence is just so.

[01:41:00] Tony: A, bureau­crat­ic, because you’re always writ­ing grant sub­mis­sions for your fund­ing, but B, because you have to be so, you have to be at the pointy end of your field. Um, to be able to do research into advanc­ing the field and it could be some­thing that’s real­ly impor­tant in the field next to you, you nev­er hear about that would solve all your prob­lems, but you just nev­er hear about it because we’re just get­ting so, the sci­ence is get­ting so, um, uh, I for­get now what the term is, but so, you know, it’s at the pointy end of each field, there’s not the sort of, um, cross fer­til­iza­tion of ideas that there was and, and that to me is a com­pu­ta­tion­al prob­lem.

[01:41:37] Tony: So as you say, if we can amp up, um, AI or some­thing. Uh,

[01:41:42] Tony: that can crash through that bar­ri­er and

[01:41:45] Tony: sci­ence should go

[01:41:46] Tony: for­ward.

[01:41:46] Cameron: There was, I read a sim­i­lar book, The Trou­ble

[01:41:48] Cameron: With Physics, by Lee Smolin, about 20 years ago. Talked about the same thing, how physics, you know, in the first, you know, You know, the 20th cen­tu­ry, it was a major rev­e­la­tion, a major break­through every decade. And then it just, just ground to a halt.

[01:42:07] Tony: Yeah.

[01:42:09] Cameron: Um, what else? We’ve been watch­ing Rip­ley. Have we talked about Rip­ley? Did you watch Rip­ley?

[01:42:15] Tony: I think so. I saw the first episode. I haven’t gone along with

[01:42:17] Tony: it. Yeah, you said it was like a Felli­ni film and I agreed.

[01:42:22] Cameron: We’re still going with that. We’re about four or five episodes in.

[01:42:24] Cameron: It’s good.

[01:42:25] Tony: Okay.

[01:42:26] Tony: Worth

[01:42:26] Tony: doing?

[01:42:27] Cameron: Yeah. I mean, if for no oth­er rea­son, it’s

[01:42:29] Cameron: beau­ti­ful. Like every frame

[01:42:31] Tony: Yeah, right. Yeah.

[01:42:33] Cameron: dead beau­ti­ful. You could take any frame and blow it up and hang it on your wall and you’d be hap­py. Like just,

[01:42:38] Cameron: it’s Yeah, absolute­ly deli­cious and vio­lent and creepy.

[01:42:44] Cameron: And Andrew Scot­t’s great in the main role.

[01:42:49] Cameron: Um, yeah, that’s about it.

[01:42:52] Cameron: Apart from

[01:42:53] Tony: We watched, when Alex was up here, we watched the holdovers. Togeth­er that was not bad. Paul Gia­mat­ti’s

[01:43:01] Tony: movie, I think, did he win the Acad­e­my Award for it? I

[01:43:04] Tony: think he might have. Or it won the Acad­e­my Award.

[01:43:07] Tony: Yeah,

[01:43:08] Tony: this year.

[01:43:08] Cameron: Oh, okay. I haven’t

[01:43:09] Tony: We had to rent it. Um, yeah. It’s, it’s a lit­tle movie. It’s, it’s, it’s worth watch­ing.

[01:43:16] Tony: It’s

[01:43:16] Tony: not bad. Rev­o­lu­tion­ary, but it’s nice. Good

[01:43:19] Tony: movie.

[01:43:20] Cameron: What’s it about?

[01:43:21] Tony: Well act­ed. Uh, so an Amer­i­can uni­ver­si­ty, at Christ­mas time, they send their stu­dents home for a break, but four of the stu­dents have to stay as holdovers, liv­ing on cam­pus. over the Christ­mas break in the snow and so there­fore they need one of the staff to stay back and Paul Gia­mat­ti’s giv­en the job.

[01:43:44] Tony: He’s a real­ly smart his­to­ry pro­fes­sor. He’s always bad­ger­ing the kids and giv­ing them a hard time. They hate him. He hates them for being these rich kids who, you know, whose par­ents, you Um, can take them off to go ski­ing on their sum­mer breaks while he’s stuck behind and all this stuff. Uh, and then three of the kids get to go ski­ing with some kid’s rich father who comes in a heli­copter and flies them all off to Tel­luride to go ski­ing.

[01:44:10] Tony: And there’s one kid left with poor G and Mat­ty and they get to become friends is prob­a­bly the syn­op­sis of it. Yeah, and you find out Paul Gia­mat­ti’s back­sto­ry, which was inter­est­ing as well. So yeah, not a, not a huge movie, but inter­est­ing and, and nice along the way. It was good.

[01:44:27] Cameron: I’ll have to check it out

[01:44:29] Tony: Yeah, and well act­ed. And we watched a series called Bod­kins, which has come out on Net­flix.

[01:44:36] Tony: Um, which I think it rat­ed 7 out of 10 on IMDB, and it’s about right. It was worth a, worth a watch. I liked it because it was, um, it’s set in Ire­land, in a rur­al town in Ire­land. Um, And the char­ac­ters just, as I was watch­ing I’m think­ing this is so like an Aus­tralian indie movie. And then I found out it was pro­duced by Joel Edger­ton.

[01:44:58] Tony: So it just had that sort of, you know, there’s a, there’s a hard nosed reporter in it. There’s like a kick ass female reporter in it. There’s a bunch of cra­zies in the town and idio­syn­crat­ic char­ac­ters that get up to, you know, nice, you know, things they have awake and every­one gets drunk and, um, And there’s some hard bit­ten crime going on behind the scenes and yeah, it’s good.

[01:45:21] Tony: Not great, but good.

[01:45:22] Cameron: with

[01:45:23] Tony: It’s worth watch­ing.

[01:45:24] Cameron: Forte play­ing a pod­cast­er. I think I’ve

[01:45:26] Cameron: seen the trail­er.

[01:45:27] Tony: I

[01:45:28] Tony: thought you might

[01:45:28] Tony: like that.

[01:45:29] Cameron: No, I hate that. I hate shows that are made about,

[01:45:32] Cameron: I hate shows that are made about pod­cast­ers. Cause where’s my show?

[01:45:36] Cameron: Like I haven’t, no one’s mak­ing a show about. My life. Prac­ti­cal­ly invent­ed pod­cast­ing. What cred­it do I get? No one’s mak­ing a TV show about me or giv­ing me a TV show.

[01:45:49] Cameron: Just infu­ri­ates me.

[01:45:52] Tony: Well, Talon might get one before you

[01:45:54] Cameron: Yeah, that’s

[01:45:55] Tony: Rod­dy’s been telling me about his pic­tures. Yeah.

[01:45:58] Cameron: He got a, he gave me a serve when I saw him on the week­end. He goes, I lis­ten to your pod­cast. You’re bloody talk­ing about my deal. It’s sup­posed to be secret. You’re not sup­posed to talk about that.

[01:46:12] Cameron: You go, you should know by now. Don’t tell me any of them. It ends up on a pod­cast.

[01:46:17] Tony: There.

[01:46:19] Tony: Yeah, right. Because who are you going to talk to

[01:46:22] Tony: about

[01:46:22] Cameron: Yeah, I don’t have any friends. It’s just you and Ray. That’s

[01:46:25] Cameron: all. The only friends I have out­side of Chris­sy.

[01:46:29] Cameron: Alrighty, well I should go and say hi to Fox, he’s home from school. Thank you TK, thank you every­one for the ques­tions,

[01:46:36] Tony: All right.

[01:46:37] Cameron: uh, we’ll be

[01:46:38] Tony: Thank you. That was good.

[01:46:38] Cameron: next week. Ciao.

[01:46:41] Tony: All right. Thanks, Kim. Hap­py QAV. Hap­py stock

[01:46:44] Cameron: Yeah, QAV a good week.