Hi QAVVERS,

Both mar­kets are run­ning at all-time highs, despite all com­mon sense and log­ic, but ours is not to ques­tion why, ours is just to buy and buy. Do I expect dis­as­ter ahead? Yes, yes I do. Will our rules man­age the process for us? Yes, I’m con­fi­dent they will. They have in the past, and they will again. But let us make hay while the sun shines.

I spent all morn­ing record­ing episodes of my Renais­sance pod­cast about witch tri­als and were­wolves, but I guess you don’t care about that.

AUSTRALIAN MARKET UPDATE

The All Ordi­nar­ies rose rough­ly 3.45% over the past five days to close at 9,452, slight­ly out­pac­ing the ASX 200’s 3.3% advance for the week. Report­ing sea­son is under­way.

US MARKET UPDATE

The S&P 500 post­ed a strong week­ly gain through Thurs­day August 7, clos­ing around 7,710 after hit­ting a fresh all-time high mid-week:

So, let’s get into my week­ly updates and see where we are at.

All the Best,
Cam

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QAV MYTH KILLERS

“Count the ANDs”

Last week I wrote about Richards Heuer’s “Psy­chol­o­gy of Intel­li­gence Analy­sis”, the book he wrote inside the CIA about why intel­li­gent, well-resourced experts reach wrong con­clu­sions from good infor­ma­tion. I’ve kept read­ing it. Chap­ter 12, “Bias­es in Esti­mat­ing Prob­a­bil­i­ties”, teach­es us a lit­tle about how prob­a­bil­i­ties work in fore­cast­ing.

Heuer starts by quot­ing the ear­ly work of Amos Tver­sky and Daniel Kah­ne­man, two of our favourite psy­chol­o­gists. Their research showed that when peo­ple make pre­dic­tions, they use the “avail­abil­i­ty rule”. This means they make pre­dic­tions based on how avail­able cer­tain mem­o­ries are. How eas­i­ly they can recall some­thing. We do this because it works quite well. Nor­mal­ly. As he says:

“If one thing actu­al­ly occurs more fre­quent­ly than anoth­er and is there­fore more prob­a­ble, we prob­a­bly can recall more instances of it. Events that are like­ly to occur usu­al­ly are eas­i­er to imag­ine than unlike­ly events.”

It makes sense that our brains would work that way.

Unfor­tu­nate­ly, the real world is often more com­pli­cat­ed and gut judg­ments don’t always work in our favour.

He also writes about “anchor­ing bias”, where you have a result in your mind, due to past expe­ri­ence or some­thing you’ve been told, and you tend to get stuck on that result, regard­less of how accu­rate a pre­dic­tor it is. We see this behav­iour in invest­ing when a stock goes up 100% past its buy price and we instinc­tive­ly think “well it prob­a­bly won’t go up much more than that”, based on absolute­ly no evi­dence. It just seems like a high num­ber. (At least, that’s how my brain seems to work.)

He says that when an ana­lyst wants to explain what’s com­ing, they build a sce­nario. A series of events linked togeth­er in a nar­ra­tive. First this hap­pens, which leads to that, which pro­duces the oth­er thing, and here’s where we end up.

Every­one does it. It’s how our brains work.

Then Heuer points out how you’re actu­al­ly sup­posed to cal­cu­late the odds on some­thing like that. You mul­ti­ply the prob­a­bil­i­ty of each indi­vid­ual event.

Before you can do that, you have to apply a per­cent­age prob­a­bil­i­ty to an event. He makes the point that ana­lysts will often say some­thing is “unlike­ly” or “prob­a­ble” or “it is high­ly unlike­ly that…” — but if you insist they put a per­cent­age on it, they can strug­gle to be accu­rate:

“In one exper­i­ment, an intel­li­gence ana­lyst was asked to sub­sti­tute numer­i­cal prob­a­bil­i­ty esti­mates for the ver­bal qual­i­fiers in one of his own ear­li­er arti­cles. The first state­ment was: “The cease-fire is hold­ing but could be bro­ken with­in a week.” The ana­lyst said he meant there was about a 30-per­cent chance the cease-fire would be bro­ken with­in a week. Anoth­er ana­lyst who had helped this ana­lyst pre­pare the arti­cle said she thought there was about an 80-per­cent chance that the cease-fire would be bro­ken. Yet, when work­ing togeth­er on the report, both ana­lysts had believed they were in agree­ment about what could hap­pen.”

So — back to mul­ti­ply­ing the prob­a­bil­i­ty of indi­vid­ual events in a sce­nario.

His exam­ple uses three events, each of which will prob­a­bly hap­pen. Call “prob­a­bly” 70%.

0.7 x 0.7 x 0.7 = 34%

Add a fourth prob­a­ble event and it falls to 24%.

So a four-step sto­ry in which every sin­gle step is more like­ly than not is, tak­en as a whole, rough­ly a one-in-four propo­si­tion. Three times out of four, it does­n’t hap­pen.

Almost nobody cal­cu­lates it that way. What peo­ple do instead, Heuer says, is aver­age. Four steps at 70% each feels like about 70%, so a long shot feels like a strong bet.

Then he adds this:

“…addi­tion­al details may be added to the sce­nario that are so plau­si­ble they increase the per­ceived prob­a­bil­i­ty of the sce­nario, while, math­e­mat­i­cal­ly, addi­tion­al events must nec­es­sar­i­ly reduce its prob­a­bil­i­ty.”

Every extra detail makes the sto­ry more con­vinc­ing to a human being and less like­ly to be true. A chain can’t be stronger than its weak­est link, and each new link can only ever make it weak­er. The per­son who has thought it through in the most depth, who has an answer for every objec­tion, who can walk you through the whole thing step by step, is the per­son whose sce­nario is least like­ly to come off. Their con­fi­dence is real enough. Our brains like great sto­ries. But, as we point­ed out in last week’s arti­cle, more data, more nar­ra­tive, does­n’t nec­es­sar­i­ly trans­late into high­er accu­ra­cy. It’s just track­ing how good the sto­ry is rather than how like­ly it is. Brains love sto­ries, but hate math­e­mat­ics and prob­a­bil­i­ty. Mine does, any­way.

Which is awk­ward, because a good sto­ry is the main prod­uct the finance indus­try sells. Nobody pub­lish­es a research note that says “we have no idea”. They pub­lish a nar­ra­tive with five mov­ing parts and a price tar­get on the end of it, and the more work they’ve put in, the longer the chain gets. Why? Because they know our brains love sto­ries. For a hun­dred thou­sand years, humans sat around camp­fires telling each oth­er sto­ries. They did­n’t talk about maths.

So, the check­list.

Most of what the check­list asks about has already hap­pened. PROPCAF is the price divid­ed by oper­at­ing cash flow the com­pa­ny has already banked. Net equi­ty, the P/E his­to­ry, the finan­cial health rat­ing, the audit opin­ion, the buy­backs: all of it comes out of state­ments that have already been filed. Even the trend lines are drawn through peaks that have already hap­pened, and the only ques­tion we ever ask of them is whether a stock has breached a line today.

There are fore­cast-dri­ven columns in there too. Next year’s con­sen­sus EPS feeds the growth score and one of the two intrin­sic val­ue cal­cu­la­tions. So it isn’t a fore­cast-free sys­tem. But we don’t make the fore­cast. We bor­row one. Tony put con­sen­sus num­bers into the check­list for an unflat­ter­ing rea­son: he test­ed them against his own IV cal­cu­la­tions and found the con­sen­sus was bet­ter at fore­cast­ing where share prices went than he was (see QAV #521). He calls the whole clus­ter a radar map of val­ue, because no sin­gle method gets it right. It’s one esti­mate, in one place, in a fixed for­mu­la, nev­er chained to anoth­er esti­mate. And when no bro­ker cov­ers the stock, those columns just go blank and the rest of the check­list car­ries on with­out them. Tony reck­ons that’s a bonus, because it means we’re in before the ana­lysts start rec­om­mend­ing it to their clients.

That’s the QAV dif­fer­ence. We lis­ten to what peo­ple are say­ing, but we also look at the cold, hard num­bers. Then we make a heat map.

Any­way. The prac­ti­cal ver­sion of chap­ter 12 takes about four sec­onds. Next time some­body gives you the case for a stock, or cryp­to, or gold — count the ANDs. “If this hap­pens AND then that hap­pens, AND…”. Every “and” in that sen­tence is a mul­ti­pli­ca­tion sign. Four of them, at gen­er­ous odds, puts you at one in four. Six puts you under one in eight. And that’s before you allow for hav­ing guessed the indi­vid­ual prob­a­bil­i­ties too high in the first place, which is what Heuer spends the rest of the chap­ter demon­strat­ing.

Count the ANDs.

STOCK ANALYSIS OF THE WEEK

There was a sell from the QAV Light port­fo­lio this week, but noth­ing to buy because of report­ing sea­son. Details here.

There was also a sell from the QAV AMERICA LIGHT port­fo­lio this week and we did have some­thing to buy. Details here.

Tony did a Pulled Pork on Alliance Avi­a­tion (AQZ) this week, a com­pa­ny that built its busi­ness on cheap Fokker jets and then watched things unrav­el when main­te­nance costs blew out a mil­lion dol­lars a month over bud­get. Find the full deep dive in the pod­cast link below.

This week’s Pulled Pork on the Amer­i­can show is Ban­co Brade­sco, tick­er BBDO, the sec­ond-biggest pri­vate bank in Brazil and cur­rent­ly sit­ting at the top of our US buy list. Check out the full break­down via the pod­cast link below.

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BUY LIST

Each week, we pro­duce a buy list based on our val­ue invest­ing sys­tem that we share with our QAV Club mem­bers. The intend­ed pri­ma­ry pur­pose of this buy list is for club mem­bers to use as a ref­er­ence for com­par­ing their own buy list. In the­o­ry, all of our buy lists should look pret­ty sim­i­lar each week.

AUSTRALIAN BUY LIST

I did­n’t put out a buy list this week because it’s Report­ing Sea­son, but I did launch an inter­ac­tive check­list dash­board. Check it out if you haven’t had a look yet.

U.S. BUY LIST

QAV Val­ue Invest­ing Buy List 2026-08-03

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PORTFOLIO PERFORMANCE

We com­pare our per­for­mance to what we think is the most rel­e­vant bench­mark (SPDR 200 in Aus­tralia, S&P500 in the USA), but if you’re new to invest­ing, these com­par­isons might not mean much. Instead, you can com­pare our per­for­mance to the top-per­form­ing Super Funds in Aus­tralia and see why an ama­teur active investor (who has a sys­tem to fol­low) can out-per­form most of the “pro­fes­sion­als”.

We pub­lish a fresh per­for­mance snap­shot once a month. Week­ly noise does­n’t tell you much in a val­ue-invest­ing sys­tem — what mat­ters is the trend.

August 2026 per­for­mance snap­shot.

Aus­tralian Mod­el Port­fo­lio: No trades this week.

Amer­i­can Mod­el Port­fo­lio: No trades this week.

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Become a QAV Light Member today and start your investing on the right track

If you want to find out what we’re trad­ing in QAV Light each week, sign up to become a mem­ber. You’ll get an email from me every Mon­day let­ting you know what we’re buy­ing and sell­ing in that port­fo­lio. You can choose to copy our trades or not. It’s the eas­i­est way to start your rules-based invest­ing career… and you don’t even need to know the rules. I’ll fol­low the rules for you. It’s a good first step to even­tu­al­ly becom­ing a QAV Club mem­ber and learn­ing how to run the sys­tem by your­self.

QAV LIGHT: Same des­ti­na­tion. You choose where you sit.

(Note: Amer­i­cans inter­est­ed in join­ing QAV Light or Club please go here instead.)

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Add QAV America — US stocks, the same QAV method

Already a QAV mem­ber? You can add QAV Amer­i­ca as your sec­ond mem­ber­ship at 50% off — US-list­ed stocks, the same QAV approach, billed in AUD through this site (just one pay­ment to keep an eye on). Add QAV Amer­i­ca →

Not a QAV mem­ber yet? Join QAV first, then you can add QAV Amer­i­ca at the 50% mem­ber rate.

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THIS WEEK’S EPISODES

Meet the Fokkers: Val­ue Trap or Bar­gain of the Year?: QAV AU #931

Brazil’s Dis­count Bank – Ban­co Brade­sco: QAV Amer­i­ca #64

STOCK NEWS AND UPDATES

COMMODITIES

This week the big changes to com­modi­ties were the fol­low­ing:

Com­mod­i­ty	Sta­tus
Gold (USD)	BUY
Coal (cok­ing)	SELL
LNG	SELL

DISCLOSURE

Please review our trad­ing and dis­clo­sure pol­i­cy.

SIGNING OFF

That’s it from me for anoth­er week.

SSDD!

• Cam

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That’s it for the week!

QAV A GOOD SHAREMARKET!

Got a ques­tion? [email protected]