Transcript QAV 609

This is the tran­script of QAV #609 CLUB EDITION

Cameron  00:06

Wel­come back to QAV, Tony. This is episode 609. We’re record­ing this on the 28th of Feb­ru­ary 2023. What is it? 1:13 pm Bris­bane time, 2:13 pm Cape Schanck time. How’s life down at the Cape prop­er­ty, Tony?

Tony  00:29

Oh, love­ly. Jen’s down here this week, so we’re hav­ing a break which is love­ly. Just be relax­ing and doing jig­saws and went out for lunch yes­ter­day. All good. She’s hav­ing a mas­sage tomor­row. I’m play­ing golf.

Cameron  00:44

Jig­saws?

Tony  00:45

Oh yeah. I love the jig­saws down here.

Cameron  00:47

Are they some of the ones that Tay­lor sold you dur­ing COVID?

Tony  00:51

We’d done those years and years ago, so I don’t know where they are. No, I got three for Christ­mas because peo­ple know I like doing them down here. Jen­ny gave me one of a map of the Morn­ing­ton Penin­su­la, like a hand drawn paint­ing of all the attrac­tions and things, so that was good. Just fin­ished that one. Alex has giv­en me one of the Eif­fel Tow­er, I guess in ref­er­ence to a trip we did with you to Europe, so I’ll do that one next. Then I’ve got anoth­er one from my sis­ter of some wind­mills and tulips. I’ll save that one ’till last.

Cameron  01:25

I would rather have my toe­nails slow­ly pulled out with a pair of pli­ers.

Tony  01:29

Well, that can be arranged.

Cameron  01:35

That’s some­thing Christie will arrange, I think, in time. She loves doing LEGO. I bought her, like, one of the adult LEGO sets for her birth­day. It’s a bunch of flow­ers to go on a vase. She loves doing it. I can’t think of any­thing worse, like fid­dly things.

Tony  01:51

I love LEGO.

Cameron  01:53

Oh, I hate fid­dly things. As a kid I used to get those, you know, the mod­el aero­planes and stuff. I hat­ed them.

Tony  02:01

Oh, I loved it.

Cameron  02:02

I don’t have good fin­gers or patience for that kind of stuff.

Tony  02:07

No, I love it. I’ve always loved that sort of stuff. I used to make a lot of Lego when I was a kid and loved design­ing new things, too. You know, heli­copters and hov­er­crafts and all sorts of things, it was great fun. And I reli­gious­ly buy them for my nieces and nephews as presents.

Cameron  02:25

Fox is obsessed with LEGO. You should come and spend a day in his room. It’s like a LEGO Zoo in his room. I’ll send you some pho­tos. He loves it. He’s been watch­ing, do you know this — you prob­a­bly don’t, but there’s a YouTu­ber called Mark Rober. He’s an ex-NASA and Apple engi­neer and now he’s got twen­ty-five mil­lion fol­low­ers on YouTube. He does engi­neer­ing videos. A cou­ple of his most famous ones, he designed a glit­ter bomb to go in pack­ages on front doorsteps to stop peo­ple steal­ing pack­ages in the US. He’s done a cou­ple of ver­sions of that. Then he did anoth­er very famous one where he built a series of hur­dles for squir­rels in his back­yard where they had to achieve cer­tain chal­lenges to get the wal­nuts which was very big. Any­way, he’s done a mil­lion, and they’re all engi­neer­ing based. And they’re great. He’s real­ly, real­ly good, and Fox is obsessed with his stuff. But he said to me the oth­er day, “I think I want to be an engi­neer when I grow up.” Which is cool, right? I was like, good on Mark Rober. He’s inspir­ing kids to become engi­neers.

Tony  03:38

Oh, that’s fan­tas­tic.

Cameron  03:39

Or at least to think about it as an option, you know, because he makes being an engi­neer look cool. So, that’s great. I love it. And I think LEGO is part of that, too, you know. He loves going and design­ing stuff and build­ing stuff in Lego. I think LEGO is fab­u­lous. Dri­ves me nuts, but I think it’s great.

Tony  03:56

I must admit, I pre­fer the way Lego used to be when I was a kid, where you’d just buy a box of bricks, and you could make your own things out of it. Where­as now, you know, because of all the fran­chis­es you’re pret­ty much stuck build­ing the Star Wars, you know, fig­urine that they give you. The X‑Wing Fight­er. All the parts are sort of pre-made for that now, which I don’t real­ly like as much as being able to design your own X‑Wing Fight­er and build it from scratch.

Cameron  04:22

Yeah, well, I think you can still do that. You could still go and buy just the basic bricks. But yeah, the stores are more designed for the cus­tom builds. But it must be a great busi­ness. Like, what would it cost to churn out a LEGO brick? Like, frac­tions, micro cents. They sell them for… Like, the Eif­fel Tow­er one is like $1,000.

Tony  04:45

It’s a great sto­ry. I’m just try­ing to remem­ber where I saw it. There must have been a doc­u­men­tary about it, but the guy who did it — I’ve for­got­ten his name now, back in the 20s or what­ev­er — built wood­en toys first of all. Then plas­tics came in and he even­tu­al­ly came up with the cur­rent design, which is the cir­cle, which is the LEGO clutch where two bricks hold togeth­er with no bind­ing because of the cir­cles on top and the hol­low under­neath. Yeah, and it just went on from there.

Cameron  05:19

Yeah, real­ly great suc­cess sto­ry.

Tony  05:22

Show fox that James May’s Toy Sto­ries. There’s a whole episode in there where he builds a house from scratch out of LEGO — a real house that you can go into. He builds a toi­let and puts a brown Lego brick in the bot­tom of it.

Cameron  05:38

That would appeal to Fox and his eight-year-old-boy humour. Yeah. Any­way, let’s get on to less hap­py sto­ries. Tough day in the mar­ket yes­ter­day. It’s recov­ered a lit­tle bit today, I noticed. Like, it’s rebound­ed quite a bit today — sort of 50% of the dive yes­ter­day. But it just died from 7512 yes­ter­day morn­ing to 7432, and then bounced around a lit­tle bit in the after­noon accord­ing to Perth­Now. Talk­ing from the AAP: “local share mar­ket has suf­fered its worst day of loss­es in almost eight weeks fol­low­ing signs infla­tion in the US is prov­ing remark­ably sticky. The S&P ASX 200 index fin­ished Mon­day down 82.2 points, or 1.12%, to 7224.8, while the broad­er All Ordi­nar­ies dropped 93.1 points, or 1.24%, to 7419.6. It was the ASX’s sec­ond worst per­for­mance of the year after a decline on Jan­u­ary 3.” So, look, lift your game, US. You’re hurt­ing our mar­kets.

Tony  06:56

Or low­er your game, US. The prob­lem over there is that infla­tion is high­er than what peo­ple thought it was. So, peo­ple are still spend­ing and there­fore the ana­lysts are now fore­cast­ing a 0.5% increase in inter­est rates at the next Reserve meet­ing over there. Yeah, but like, again, we’ll talk about it when we talk about the Buf­fett let­ter. But you know, again, infla­tion came out, I think they were expect­ing 4.5% and it was 4.8, some­thing like that; could have the num­bers wrong. But it was, you know, thir­ty basis points high­er than what they thought, and they go bananas. The US mar­ket dropped 1.8% on Fri­day. Which is, you know, one of the dif­fi­cul­ties of being an Aus­tralian investor; you see that on Sat­ur­day morn­ing when you wake up and you think, shit, I can’t do any­thing about it because I know on Mon­day the mar­kets going to open here and it’s gonna go down, so you just have to wade through it. But our mar­ket did­n’t go down as far as the US. What did I read on the week­end? The US mar­ket was down 2.7 or 2.8% for the week, which is a huge fall. So, there’s still, you know, still a fair bit to hap­pen to come to grips with infla­tion at the moment. Still got to play out.

Cameron  08:16

I think the thing that’s been bog­gling my mind over the last week or two, and we talked about this last week, is a lot of these com­pa­nies are com­ing out with great look­ing reports in Aus­tralia, half year­ly reports. They’ve obvi­ous­ly had a bit of a tail­wind over the last — some of them — over the last year because of the Ukraine war and sup­ply side issues and all these sorts of things, you know, and then on the oth­er side, you’ve got infla­tion and inter­est rates going up. But you know, they’re com­ing out with record prof­its, and then their mar­ket price, their share price, would just tank. And you know, I’ve seen peo­ple in our forums just scratch­ing their heads about it. In some cas­es, they’ve report­ed a good half year­ly result, but their pro­jec­tions for the rest of the year aren’t too strong. In oth­er cas­es, their pro­jec­tions are fine. I think XTE was an exam­ple yes­ter­day, but the share price still just took a beat­ing.

Tony  09:08

Yeah, well, some­one’s asked the ques­tion about that, so I’ll save my com­ments until then. But I did note XTE has gone through its three-point trend­line sell price today. I think you were say­ing before­hand, you had to sell it from the dum­my port­fo­lio.

Cameron  09:23

Yeah, I held on this morn­ing because it was only one cent below the 3PTL, and I felt like, ya know, the mar­ket’s going to be up today they say so I’ll go to Kung Fu and I’ll wor­ry about it when I get home. I got home and it dropped down to 58.5 cents and I’m like, “ah, damn it.” Speak­ing of things break­ing through their 3PTL, I was just talk­ing to you before the show about GNC, Grain­Corp, and you point­ed out that there is a futures chart on Stock Doc­tor for wheat. When we had a look at it, it’s W# for peo­ple that want to have a look at it, wheat is a Josephine and is about to become a sell by the looks of it. It’s very, very close to the sell line, which means we’ll have to dump our GNC. Is there any­thing else that’s grain relat­ed that we should look at that’s on our buy list often?

Tony  10:18

I can’t think of it. Grain­Cor­p’s prob­a­bly the only one. And that’s the grain han­dler that sends things over­seas; it does tend to, to per­form along with the grain price. And it’s bot­tomed out and it’s going up again, like, just bot­tomed out in the last three or four months, and it’s going up again. It’s climb­ing up in a zigzag pat­tern, so even though it cross­es it may well come back if it does cross it’s sell line, going up.

Cameron  10:49

Well, so we’ll start track­ing that as of this week in our Comm­Sta­tus tab in the buy list.

Tony  10:57

Yeah, I did notice a cou­ple of oth­er reports came out for first stocks on the buy list and stocks I own. So, Wood­side report­ed just recent­ly: tripled its prof­it, large­ly due to the merg­er with the BHP oil and gas oper­a­tions, and its div­i­dend is why up as well. So, that was a good result. Stan­more Coal, I saw came out, the cok­ing coal provider, and their prof­it was twen­ty times last year’s num­bers but their share price went down. I think ana­lysts are kind of look­ing for future guid­ance in par­tic­u­lar — they always are — but in par­tic­u­lar now, because they know that it’s been a good half. They want to know what’s going to hap­pen and if they don’t get every I dot­ted and every T crossed when they’re pre­sent­ing, the com­pa­nies can have their stock price marked down. Like, for exam­ple, Qan­tas was the oth­er one I was going to men­tion. They haven’t made a prof­it for three years, I think, and this is the first year they have; they made a bil­lion dol­lars, and their share price came off 10%, large­ly because peo­ple thought it was as good as it was going to get and with the increased com­pe­ti­tion, they won’t be able to main­tain their mar­gins. Yeah, I mean, the fun­ny thing is, like, noth­ing changed from the day before the results were announced in terms of the com­pe­ti­tion or the issues that caused the sell off, so there was obvi­ous­ly some kind of, prob­a­bly some­thing in the results announce­ment which some­one picked up on and extrap­o­lat­ed from. But Qan­tas went down, its back up again today. I bought some. I’m not sure that that kind of 10% sell off in a day is the right reac­tion to a good result, real­ly, so we’ll see.

Cameron  12:43

There’s an old say­ing, too: buy on the rumour, sell on the facts. Do you think a lot of the funds buy if they think they’re gonna have a good result, then they report the good result and then they just take their prof­its and move on?

Tony  12:58

It’s pos­si­ble. I haven’t heard of any­one doing that, but it’s pos­si­ble.

Cameron  13:04

All right, well, let’s talk about the QAV report, just quick­ly. The dum­my port­fo­lio improved a bit again this last week, sur­pris­ing­ly. We’re up about 16.14% CAGR per annum over the — what is it now? Sep­tem­ber 2019, three and a half years, a lit­tle bit less — ver­sus the bench­mark which retreat­ed a lit­tle bit last week. It’s now up 7.09% CAGR per annum. So, we’re doing a lit­tle bit bet­ter than dou­ble the bench­mark since incep­tion. For the finan­cial year we’re still way behind though. We’re up 6.48% ver­sus the STW up 17.96%. In the last sev­en days, took a beat­ing from AMP. I actu­al­ly had to sell AMP out of the dum­my port­fo­lio yes­ter­day. It’s the first thing I’ve had to sell since I think, about, Novem­ber. So, it’s been a good run for the dum­my port­fo­lio. But yeah, AMP took a real beat­ing over the last cou­ple of weeks, and I end­ed up buy­ing three stocks to replace it because I had two parcels of AMP to dou­ble the pain.

Tony  14:18

I’m in the same boat.

Cameron  14:19

Yeah. HLI, DUR and BRI are what I replaced it with, and I have no idea how they’re doing today. But yeah, we’ll see. We had a Yahoo Finance arti­cle go up, and I have to con­grat­u­late Phil Mus­catel­lo. Phil from Shares for Begin­ners emailed me this morn­ing and said, “hey, I just had a huge spike in my traf­fic.” And I went to look, and it’s this Yahoo Finance arti­cle that’s writ­ten about Tony. Appar­ent­ly Tay­lor wrote it, and I said “yeah, kind of.” And then I emailed it to Tay­lor and said Phil got a spike, and Tay­lor went and had a look, and appar­ent­ly in the arti­cle where it says “Tony, co-host of the QAV pod­cast,” instead of link­ing to our web­site, he linked to Phil’s web­site.

Cameron  15:12

He said, “oh, you’re gonna hate me.” He said, “I must have just Googled Tony’s name and pulled a link up.” I’m like, “dude, what the hell?” So, you’re wel­come, Phil for the free traf­fic. Tay­lor called me last night before we worked this out and told me it was the num­ber one trend­ing arti­cle on Yahoo Finance yes­ter­day, was that arti­cle. So, if peo­ple haven’t seen that, go up to Yahoo Finance. It was called some­thing like “Three life lessons from one of Aus­trali­a’s best investors.” And what were the three life lessons, Tony?

Tony  15:12

Oh no.

Tony  15:55

Start ear­ly, start invest­ing ear­ly, be the snow­ball, buy a house and pay it off, and don’t do things that are cool. They were the three life lessons.

Cameron  16:08

Yeah, very good. Well, thank you for your con­tri­bu­tion to Phil’s lis­ten­er­ship. You owe us, Phil. You owe us one.

Tony  16:20

So does Tay­lor.

Cameron  16:21

Jeez, what are you gonna do? Ray Dalio is exit­ing Bridge­wa­ter. I read this big arti­cle on him the oth­er day, “Hedge fund multi­bil­lion­aire paid bil­lions to quit his own com­pa­ny.” “One of Wall Street’s most pow­er­ful Titans will be paid bil­lions to walk away from the $180 bil­lion hedge fund he found­ed in his New York flat almost fifty years ago. Accord­ing to a report by the New York Times, US mul­ti-bil­lion­aire Ray Dalio had nego­ti­at­ed secret reg­u­lar pay­ments through a spe­cial class of stock infor­mal­ly named Ray shares, worth bil­lions of dol­lars. Dalio, who has an esti­mat­ed net worth of $27.4 bil­lion, gave up con­trol of Bridge­wa­ter in Octo­ber, the mighty hedge fund which man­ages $180 bil­lion in cap­i­tal. Although the sev­en­ty-three-year-old retired last year, he kept his seat on the fir­m’s board.” What a pik­er. Like, you know, War­ren and Char­lie are still going into the 90s. He stepped away. I had­n’t heard about that, had you heard about that?

Tony  17:30

I read a sim­i­lar arti­cle. I’m just mak­ing a note now about being paid to leave the com­pa­ny, though, once I get to 73. Yeah. A few bil­lion dol­lars, that’d be nice. Secret shares.

Cameron  17:42

Secret shares.

Tony  17:45

It tells you where his head is at, though, isn’t it? Like, he’d been paid bil­lions to step down in secret, and War­ren’s giv­ing away 90% of his wealth to char­i­ty.

Cameron  18:00

I see Ray on Insta­gram or Tik­Tok or some­thing from time to time. He does a lot of video con­tent. I had­n’t heard him talk about him leav­ing. Yeah, no, it’s inter­est­ing. I guess he’s got oth­er things he wants to do. But it’s, yeah, I don’t know. I just can’t imag­ine build­ing some­thing like that and walk­ing away from it.

Tony  18:24

Well, he’s being paid well to.

Cameron  18:25

Well, speak­ing of deci­sions, we were quot­ing Char­lie Munger last week about, he said some­thing like the num­ber one prob­lem he sees in busi­ness­es is deny­ing real­i­ty; how things change, and peo­ple just can’t get their head around it, deny the real­i­ty of the sit­u­a­tion, keep doing what they’ve always been doing. And then I saw, I think the next day, in the Finan­cial Review, an opin­ion arti­cle by senior cor­re­spon­dent Aaron Patrick enti­tled, “The real­i­ty defy­ing opti­mism of ASX CEOs.” “The gap between how some CEOs describe their com­pa­ny’s per­for­mance and real­i­ty seems to become unusu­al­ly large. Blue Scopes 64% prof­it fall was encour­ag­ing, Chief Exec­u­tive Mark Vas­sel­la wrote in the steelmaker’s earn­ings state­ment on Mon­day, because it demon­strat­ed the com­pa­ny’s resilience when prices dropped. In an inter­view on Sky News, he argued that after very high steel prices, ‘what we are see­ing here is a rever­sion to a more nor­malised steel price.’ Still, the out­look is bright. There are ‘mas­sive plans’ for build­ing green ener­gy infra­struc­ture in North Amer­i­ca, he said, and ‘quite a back­log’ of demand for cars. The sell­er was pro­mot­ing his stock. The pitch failed. He ignored or glossed over real­i­ty. BlueScope shares fell 10% on Mon­day after investors worked out that the results includ­ed a 100 mil­lion prof­it down­grade.” And then he goes on to say the “CEO sales job,” and we’ve talked about this on the show many times in the past. “All CEOs are sales­men. They sell them­selves to staff, direc­tors, cus­tomers and share­hold­ers. They’re paid opti­mists. A pub­lic com­pa­ny CEO who says ‘we real­ly blew it this half, but there’s a fifty-fifty chance we can turn the busi­ness around in two years’ is unlike­ly to sur­vive long, no mat­ter how hon­est the state­ment. But the gap between how some CEOs describe their com­pa­ny’s per­for­mance and real­i­ty seems to have become unusu­al­ly large.” Now, you’ve, you know, you’ve known a lot of CEOs in your time, you’ve watched a lot, you’ve played up in the upper ech­e­lons of the cor­po­rate world, Tony. Your wife has been up in the upper ech­e­lons for most of her career. What do you think about CEOs and deny­ing real­i­ty? Is it get­ting worse or has it always been a prob­lem? Or is it what they’re paid to do, deny real­i­ty?

Tony  20:56

It’s always been a prob­lem, and it is what they’re paid to do. I would­n’t call it deny­ing real­i­ty because I think they under­stand per­fect­ly well what the real­i­ty is. They’re spin doc­tors. I’ve always felt very uncom­fort­able around peo­ple who do that. I think it’s psy­cho­path­ic, myself. To stand in a meet­ing and watch the CEO lie, basi­cal­ly, try­ing to put a spin on a… Try­ing to shine up a piece of shit to make it shine, which is their job. So, I get it, but they could take a leaf out of War­ren Buf­fet­t’s book. I mean, you look and almost every year he starts off with his annu­al let­ter, “I fucked up, peo­ple, I made a mis­take. I made this mis­take, I made that mis­take.” And that just gets it straight off out of the way. Clears the deck, you actu­al­ly feel a bit sym­pa­thet­ic for him, and then he tells you about the results.

Cameron  21:57

The dif­fer­ence being that War­ren can’t get fired.

Tony  22:00

Well, that’s true. Yeah, no, that’s true. So, he does­n’t have to sing for his sup­per. I mean, that’s how these peo­ple get into it, you know, it’s evo­lu­tion­ary, real­ly. The per­son who gets the top job in a pub­lic com­pa­ny, unless they’re founder, or the son of the founder, or daugh­ter of the founder, they’re gen­er­al­ly some­one who’s just been suc­cess­ful at hid­ing prob­lems and man­ag­ing upwards. That’s real­ly all it is. I’ve seen it a hun­dred times. It’s annoy­ing, because they’re not the best per­son to run the com­pa­ny, not even close to the best per­son to run the com­pa­ny, but they just hap­pen to be the one that evo­lu­tion­ar­i­ly suc­ceeds. And don’t for­get, there’s sur­vivor bias here. There’s anoth­er hun­dred peo­ple who tried to put good spin on things who got found out and did­n’t get pro­mot­ed. So, you know, below the per­son who’s spin­ning are the peo­ple who’re copy­ing the spin­ner, so that does­n’t bode well for these organ­i­sa­tions, either. But yeah, I’m not a fan of it. I don’t see how any­one could be a fan of it. And I don’t see how they think they can be doing a good job for their com­pa­ny by spin­ning like that. It’s just, it’s pat­tern lying, real­ly?

Cameron  23:10

And why are the boards allow­ing them to do this? I mean, it’s the boards that hire them. It’s the boards that fire them. Sure­ly the peo­ple on the boards are smart enough to know when they’re spin­ning every­thing and things aren’t going well. Are their con­ver­sa­tions with the board dif­fer­ent to their con­ver­sa­tions to the staff and the pub­lic?

Tony  23:28

No, often­times the board­’s ex-CEOs. They’re the past mas­ters.

Cameron  23:33

So, they’re all in on it.

Tony  23:34

Absolute­ly. I mean, I’ve sat in board meet­ings where they spend two hours over a sen­tence. You know, “but if we say this, they’ll think that. If we say this, it’ll look bet­ter.” You’ve got to do a cer­tain amount of that, and you’ve got to have things legaled, and the PR peo­ple will get involved to try and spin it. But yeah, there’s a lot of time and effort devot­ed in pub­lic com­pa­nies to sign­ing off on announce­ments, then bomb because they’re patent­ly lies. And it comes back to con­tin­u­ous dis­clo­sure, too. I mean, tech­ni­cal­ly, you used the BlueScope exam­ple, and I don’t know it in detail, but if it took them to the mar­ket announce­ment of their results to dis­cov­er $100 mil­lion prof­it short­fall and the CEO did­n’t call it out, even dur­ing the announce­ment, how is that con­tin­u­ous dis­clo­sure to the mar­ket? Yeah, so I mean, that’s the game, isn’t it? I prob­a­bly should­n’t pick on BlueScope because I don’t know the details of the sit­u­a­tion, but you’d have to say they found the prob­lem and they said, “okay, we can go to the mar­ket and tell them and suf­fer a share price reduc­tion now, or we can try and dance a bit faster. See if the prob­lem goes away. And then when the results come out and we have to tell them, we’ll just try and hide it and spin it.” It’s just shock­ing, shock­ing cor­po­rate gov­er­nance. It real­ly is.

Cameron  25:06

Reminds me of some­thing War­ren said in his annu­al let­ter, which we’ll get to, next. But speak­ing of psy­chopaths, I don’t know if you saw my post about this, but some polit­i­cal sci­en­tists in the US has just come out with a book about psy­chopaths and pow­er, and how they’re the cause of a lot of the world’s prob­lems. It’s get­ting a tonne of media cov­er­age, obvi­ous­ly got a much bet­ter pub­lish­er than we had for our book three years ago that said exact­ly the same thing.

Tony  25:37

Get Tay­lor to write a Yahoo Finance arti­cle and then link it to our book rather than his.

Cameron  25:41

No, he’ll link it to this guy’s book prob­a­bly.

Tony  25:47

But also, the oth­er leaf out of War­ren Buf­fet­t’s book is he does­n’t give guid­ance. He just says, you know, “I’m not going to give guid­ance because I don’t want you play­ing with the share price based on what you think is gonna hap­pen.” Or, you know, “I can’t fore­cast in twelve months what’s going to hap­pen, so I’m not gonna give guid­ance.” But you know, clear­ly in some of the cas­es we’re talk­ing about they love to go out at the start of the year and say, “oh, it’s gonna be fan­tas­tic this year. We’re doing this, that and the oth­er thing, and build­ing you green steel works,” and all this kind of stuff. And then hope­ful­ly the share price goes up and they can cash in or they can leave before the chick­ens come home to roost.

Cameron  26:25

You know, I guess the bot­tom line of what you’ve taught us for the last three or four years we’ve been doing the show is don’t lis­ten to the sto­ries. If I want to hear a sto­ry, I’ll buy a book. Don’t lis­ten to the sto­ries that the media are telling you, that the CEOs are telling you. Just look at the facts, and the facts are demon­strat­ed by the num­bers, which is why we look at the num­bers,

Tony  26:47

And not even all the num­bers, as again we’ll see in War­ren’s let­ter. Look at the ones they can’t manip­u­late eas­i­ly.

Cameron  26:53

The real num­bers, yeah.

Tony  26:54

Look at cash flow.

Cameron  26:56

So, it was Christ­mas for val­ue investors this week. The Berk­shire Hath­away annu­al let­ter from War­ren came out. And oh, my God, it was such a great read. There’re so many great lines in this. I know you’ve got a bunch of things you want to talk about. I’ll kick it off with some of my favourite quotes from it. “The dis­po­si­tion of mon­ey unmasks humans.”

Tony  27:25

Mr Dalio.

Cameron  27:30

Yeah, I real­ly liked that. I mean, it’s, you know, there’s a say­ing that I used in our psy­chopath book, and so did this oth­er guy: “pow­er cor­rupts, and absolute pow­er cor­rupts absolute­ly.” But you see that mon­ey unmasks, you know, peo­ple’s real lev­els of hon­esty and integri­ty and how they deal with… Mon­ey and chil­dren and pow­er are three things — and ani­mals — where peo­ple’s true char­ac­ter tends to come out. But I thought that was nice­ly put: “the dis­po­si­tion of mon­ey unmasks humans.”

Tony  28:04

And what I think what War­ren was talk­ing about there, was that a lot of the share­hold­ers in Berk­shire Hath­away have signed up for the giv­ing pledge, and they’re giv­ing away their out­sized for­tunes rather than cre­at­ing dynas­ties and pass­ing it on. And Buf­fett goes on to say he likes man­ag­ing a com­pa­ny where his share­hold­ers share that same kind of men­tal­i­ty.

Cameron  28:30

Anoth­er quote from War­ren: “our goal in both forms of own­er­ship,” talk­ing about own­ing 100% of busi­ness­es or own­ing just a stake in them in pub­licly trad­ed com­pa­nies, “is to make mean­ing­ful invest­ments in busi­ness­es with both long last­ing, favourable eco­nom­ic char­ac­ter­is­tics, and trust­wor­thy man­agers. Please note par­tic­u­lar­ly that we own pub­licly trad­ed stocks based on our expec­ta­tions about their long term busi­ness per­for­mance, not because we view them as vehi­cles for adroit pur­chas­es and sales. That point is cru­cial. Char­lie and I are not stock pick­ers. We are busi­ness pick­ers.”

Tony  29:08

And I mean that is some­what dif­fer­ent to the approach I have. I’m more like an ear­li­er War­ren Buf­fett who’s look­ing for deep val­ue. But the sit­u­a­tion he’s got is he’s got hun­dreds of bil­lions of dol­lars to invest, and he wants to invest once and move on. He does­n’t want to con­tin­ue to man­age that invest­ment and look for time to sell and all that kind of stuff. So, he has involved to invest the way he does, to look for long term busi­ness­es. And he’s quite hap­py to say he’d rather buy a long term invest­ment like that at a fair val­ue than a busi­ness that may not be long term at a cheap val­ue, or cheap­er val­ue.

Cameron  29:47

But I think we tend to be look­ing at busi­ness per­for­mance as well. We’re try­ing to buy shares in good per­form­ing busi­ness­es with a good his­to­ry of per­for­mance where we can get them when they’re under­val­ued, dif­fer­ence being that we will sell them if the share price drops below our buy price to save mon­ey or if the sen­ti­ment turns against them, for some rea­son, in the mar­ket­place. We will save our cap­i­tal and put it some­where else. But we could just as well hold on to those busi­ness­es for the long haul and just, you know, go home and read a book.

Tony  30:32

Well, we could. I don’t think our returns would be as good, but we could. You know, if we were in War­ren’s sit­u­a­tion with lots of cap­i­tal to invest, we’d have to do it that way, I think. There’s no way he could, you know, take 25% of Coke and then say “I’m gonna decide to sell it tomor­row,” and buy some­thing else. It would be very dif­fi­cult to do that. So, that’s why he does what he does. But I think you’re right, the point that we can take and learn from is that it’s not the stock mar­ket that’s impor­tant, it’s the under­ly­ing busi­ness. And that’s why we base our deci­sions on num­bers. It’s how’s the busi­ness per­form­ing? We like a good busi­ness at a good price.

Cameron  31:15

We’re not try­ing to buy a share because it’s trendy and we think it’s going to be pop­u­lar.

Tony  31:20

That’s right. We’re not buy­ing After­pay shares or BNPL shares because they’re going up.

Cameron  1:45:46

The QAV Pod­cast is a pro­duc­tion of Space­craft Pub­lish­ing Pro­pri­etary Lim­it­ed, autho­rised rep­re­sen­ta­tive of AFSL 520442, AFS rep­re­sen­ta­tive num­ber 001292718. Please don’t make any invest­ment deci­sions based sole­ly on lis­ten­ing to this pod­cast. This is pre­sent­ed as gen­er­al advice only, not per­son­al finan­cial advice. We don’t know your per­son­al finan­cial cir­cum­stances. Please see a finan­cial plan­ner before mak­ing any invest­ment deci­sions.