QAV #626 — Is Investing Just Luck?

Cameron  00:07

Wel­come back to QAV, Tony. This is episode 626 for peo­ple that are count­ing. We’re record­ing this on the 27th of June 2023, two o’clock in the after­noon. And boy oh boy, Tony, boy oh boy. You know, we were jok­ing around last week about the fact that it had been a good week and that it prob­a­bly would­n’t last. And we were right.

 

Tony  00:37

It’s worse than the pulled pork curse, call­ing an episode “a good week”.

 

Cameron  00:41

Yeah, I know. You’re right. I brought it upon myself. The All Ordi­nar­ies act­ed like a tod­dler with an ice cream cone. One min­utes all smiles and enjoy­ing the sweet taste of suc­cess, the next face down on the ground melt­ing into a pud­dle.

 

Tony  01:02

Well, we should rename it the Very All Ordi­nar­ies, or the All-Very Ordi­nar­ies.

 

Cameron  01:09

It was very ordi­nary. What caused the mar­ket to crash last week, Tony?

 

Tony  01:15

Well, same thing that’s been caus­ing it for the last twelve months.

 

Cameron  01:17

Apart from me call­ing the episode “a good week.”

 

Tony  01:20

Just more divin­ing of the tea leaves when Jerome Pow­ell speaks. The mar­ket got ahead of itself, thought there might be no more inter­est rate ris­es, we get out of a reces­sion, blah, blah, blah. And then Jerome Pow­ell came out and said, clean up that ice cream, get off the floor.

 

Cameron  01:39

They also thought there might no longer be Vladimir Putin run­ning Rus­sia for a few days there.

 

Tony  01:44

Well that hap­pened on the week­end though, I think. I don’t know how much of that got into the mar­ket last week. Yeah, the March on Moscow.

 

Cameron  01:50

Yeah.

 

Tony  01:51

We can talk about it and after hours if you’d like, but it’s just been fas­ci­nat­ing watch­ing dif­fer­ent news sources and how they report it

 

Cameron  01:56

It has been. Tony some­body on Tik­Tok, one of my videos on the QAV Tik­Tok chan­nel today told me that suc­cess in invest­ing is most­ly about luck.

 

Tony  02:06

Are we on Tik­Tok?

 

Cameron  02:11

We’re on all the Toks, Tony. Tik­Toks, the tok­toks, the fin toks.

 

Tony  02:17

So we’re, what do you call them? Fin­flu­encers?

 

Cameron  02:21

We’re try­ing to be Fin­flu­encers, Tony, we’ve got a long way to go.

 

Cameron  02:25

We’ll have to get back to get Tay­lor to man­age us, get a few brand deals going. I caught up with him last week.

 

Cameron  02:29

He said that, yeah. He called me as soon as he got out and said that it was real­ly great. I’m sure he spent most of the time just talk­ing about what a dip­shit his father is.

 

Tony  02:39

A lit­tle bit of that.

 

Cameron  02:40

It’s his favourite pas­time.

 

Tony  02:41

Yeah. Any­way, the con­ver­sa­tion goes some­thing like, “I told him, he just went ‘Ah,’ so I went ‘ah!’ ”

 

Cameron  02:49

Pret­ty much the tenor of our con­ver­sa­tions. He’s right, there, he’s on the mon­ey. So, luck. Get­ting back to that. Some­body on Tik­Tok was try­ing to con­vince me that suc­cess and invest­ing is all about luck. How would you respond to that, Tony?

 

Tony  03:02

Well, do you think it’s luck the stock mar­ket’s gone up on an aver­age of 10% a year for the last hun­dred years or more? It’s hard­ly luck, is it?

 

Cameron  03:09

No. But what about your suc­cess in invest­ing? Is that luck?

 

Tony  03:14

There’s an out­side chance it is, but no, it’s dis­till­ing, you know, things I’ve learned over the years and apply­ing them and refin­ing them and cut­ting out things that don’t work. That’s the sci­en­tif­ic method. It’s not luck.

 

Cameron  03:28

My reply was, you know, if it was one per­son that applied the val­ue invest­ing prin­ci­ples and was suc­cess­ful with it over the long term, then maybe you could say it was luck. If it was two peo­ple, hmm. But when there’s like lots and lots of peo­ple, you know, Buf­fett and Munger and all of the peo­ple that they’ve brought up around them, you’ve learned from them and oth­ers, and peo­ple have learned from you. Our dum­my port­fo­lio is still per­form­ing 2.3 times the STW, not the XAO — we’ll talk about that lat­er. Yeah, so like, when you see peo­ple, lots and lots of peo­ple, per­son after per­son after per­son, apply­ing the same basic prin­ci­ples and get­ting sim­i­lar results, I think it’s hard to put it down to luck.

 

Tony  04:19

Well, and to use the words of the mas­ter… Well, I should­n’t say, use the words. My favourite Buf­fett writ­ing I think just about ever is a book, or an arti­cle he penned called “the Super investors of Gra­ham and Doddsville.” And this is back in, I think, the 80s/90s maybe, when a guy called Eugene Fama was all the rage and the mar­ket was effi­cient, and you weren’t able to ever reap long term returns or beat the index because as soon as you had an edge, it would be built into the share price and every­one would jump on it, blah, blah, blah. And Buf­fett turned around and said, hey, wait a minute, wait a minute. How come I’ve done all this for the last twen­ty or thir­ty years and I know fif­teen-twen­ty oth­er peo­ple I grew up with, I went to Colum­bia Uni­ver­si­ty with, and they’re all doing the same thing, and we’re all beat­ing the mar­ket? And some­one said it was just like, and so he wrote a paper called “The Super investors of Gra­ham and Doddsville”, which is spoke not just about him­self, but about oth­er fund man­agers he knew that had put Ben Gra­ham’s work into prac­tice, and were beat­ing the mar­ket con­sis­tent­ly. So, it’s not luck.

 

Cameron  05:25

I tend to agree. Let me talk about the port­fo­lio updates, Tony. So yes, the All Ords crashed late last week. We’re still, as I said, out­per­form­ing the STW by about two and a half times. Finan­cial year report: we’re behind the STW still, but we’re still up by about 9.5% for the finan­cial year, so can’t real­ly com­plain too much about that. And, you know, I’ve had a cou­ple of Zoom calls recent­ly, and peo­ple have been talk­ing about their per­for­mance in the last twelve months, or the finan­cial year I should say, and, you know, some of them are under­wa­ter. But it depends a lot on when you start­ed. Like, if your port­fo­lio was­n’t full and you’ve had to do a lot of try­ing to get estab­lished in the last eigh­teen to twen­ty-four months, it’s been a real­ly tough peri­od. And yeah, you’re gonna have to rule one a bunch of things as the mar­ket tanks, and it’s hard to get estab­lished. Dum­my port­fo­lio obvi­ous­ly has been estab­lished since 2019. And we’ve had to trade a lit­tle bit, but not as much, and it’s, you know, it’s coast­ed along rel­a­tive­ly unham­pered dur­ing this peri­od of tur­bu­lence. There’re still times when you have to sell stuff, because of 3PTLs or what­ev­er and then if you try and replace it, you can get rule oned end­less­ly for a peri­od of time, and that hurts. But I do think it’s not luck. It’s just the length of mar­ket cycles, right? If you start, you’re seri­ous invest­ing in the mid­dle of a down­turn, or the begin­ning of a down­turn, or just before a down­turn as we did with the first light port­fo­lio, yeah, you’re gonna suf­fer for a cou­ple of years while the mar­ket is tur­bu­lent, but it’ll turn around again, and you’ll get back up on top and it’ll all even out in the mix. Guess­ing right there that it’s all gonna be okay.

 

Tony  07:17

Yeah, well, I mean, two points. First of all, I think peo­ple have to just dis­avow them­selves of this idea that every year the mar­ket or their port­fo­lio’s gonna go up. And again, to quote Munger, if you can’t stand los­ing 50% of your paper port­fo­lio, then don’t start invest­ing, because it’s going to hap­pen at some stage. Like it did to me dur­ing the GFC. So, yeah, you’ve just got to push through these times. And the rea­son why I say that is because a) I don’t know what’s going to hap­pen next week. So, I don’t know if the mar­ket will be up or down, so I there­fore can’t do any­thing par­tic­u­lar­ly dif­fer­ent to posi­tion the port­fo­lio. And b) no one rings a bell at the top of the mar­ket or the bot­tom of the mar­ket. So, if I’m out of the mar­ket because I think it’s gonna go down and some­one assas­si­nates Vlad Putin and Jerome Pow­ell with the same bul­let and the share mar­ket just goes on a tear, you’re out of the mar­ket, and you’ve missed it. So, I know it’s dif­fi­cult, but that’s the busi­ness we’re in, right? We’ve opened the busi­ness, and sales are a bit slow this month, or this year. The bet­ter exam­ple is, you bought a house, and then the RBA comes out and rais­es rates, and every Mon­day in the Fin Review, you read an arti­cle about how hous­ing prices are drop­ping. What do you do? Do you sell your house? Or you just go, no, I’m gonna keep liv­ing here. It’ll turn around, it’ll come good. That’s the same thing with a share port­fo­lio.

 

Cameron  08:38

Yeah. The house one’s a good anal­o­gy. And you know, the rea­son, apart from, you know, the fact that I trust you, right­ly or wrong­ly…

 

Tony  08:48

Don’t trust me. Go and read Buf­fett and Munger and those guys.

 

Cameron  08:53

And I know how his­to­ry works. I stud­ied his­to­ry for a liv­ing for a long time. You know, I saw it in our own dum­my port­fo­lio. We launched, there was the COVID crash not long after we, you know, com­plet­ed our port­fo­lio. It halved, or what­ev­er, very, very quick­ly, in a cou­ple of months.

 

Tony  09:15

You were like, what’s going on Kynas­ton? This is all rub­bish. Argh. No, you weren’t.

 

Cameron  09:19

And then the mar­ket turned around rel­a­tive­ly quick­ly. We were up at one point, we were up like 40%, over the STW. And then the mar­ket turned down and, you know, our lead is nar­rowed. Now we’re down to, you know, what­ev­er, we’re at. Sort of, like, 15–16% year on year. But we’re two and a half times the STW still, and I know that when the mar­ket turns around, we’ll prob­a­bly get a big­ger lead on the STW for a while. I remem­ber when we were like, what were we doing? Like sev­en times bet­ter than the STW at one point, and you said to me, don’t get too excit­ed. It’s not gonna last. It won’t be like this for­ev­er. In the back of my head, I was like, you don’t know what you’re talk­ing about, Kynas­ton. We’re gonna kill this thing.

 

Tony  09:33

Well, we should have rung a bell and sold at the top of the mar­ket.

 

Cameron  09:55

Yeah, we should have got out and gone to the Bahamas.

 

Tony  10:16

Yeah, it’s actu­al­ly, it’s fun­ny, because that’s prob­a­bly the more endear­ing mem­o­ry I have of the share mar­ket. There’s been, you know, I don’t know how many times, half a dozen a dozen times, where I’ve sat back and gone, geez, I’m doing well. That’s a bit unusu­al. And they’re always the times I should have sold out.

 

Cameron  10:33

Okay, well maybe we should add that to the check­list. If Tony’s feel­ing buoy­ant or bull­ish, sell now. Just fin­ish­ing my report. So, for the finan­cial year, we’re up but not as up as much as the STW. And for the quar­ter report, were sort of slight­ly behind, I think. We’re down 1.4%, and the STW is down 0.4% for the quar­ter, sucky quar­ter. Last sev­en days, you know, it’s a sea of red: more red than a Com­mu­nist’s wardrobe dur­ing the Cold War. More red than a stop sign at a Fer­rari con­ven­tion. More red than Drac­u­la’s wine cel­lar after a buy one get one free spe­cial. I’ve got a whole list of these from Chat GPT. Yeah, a lot of red, a lot of red in our port­fo­lio. Now just talk­ing about XAO. You know, we com­pare our­selves, we bench­mark against the STW, which was, you know, anoth­er one of Steve Mab­b’s bril­liant ideas. As we know, it’s like the top two hun­dred accu­mu­la­tion index.

 

Tony  11:42

I think, isn’t the STW an ETF that cracks the top two hun­dred?

 

Cameron  11:45

Yes. That’s what it is. Yeah, same thing. And, you know, as you’ve said a cou­ple of times, I think over the last few months, a lot of the action, a lot of the growth in the ASX in the last year in has been the top two hun­dred. If you look at the rest of the mar­ket, there’s not as much. And you know, we obvi­ous­ly invest most­ly in a lot of small­er cap stocks. So, we’re not nec­es­sar­i­ly very reflec­tive of the top two hun­dred. We’ve got a few stocks in there, FMG and those sorts of things from time to time, QAN. But nor­mal­ly, we’re down in the low­er end of the mar­ket, I think. So, I had this bright idea of try­ing to bench­mark us against the XAO today. I thought oh! Navexa, we can bench­mark our­selves against the XAO. I did that and the dum­my port­fo­lio was back to sev­en times per­for­mance of the XAO. I was like, oh, look at that, that’s a bet­ter num­ber. And then you remind­ed me that’s not an accu­mu­la­tion index. Div­i­dends aren’t fac­tored in. I had to reverse it all, that was so depress­ing. But I still can’t find, it’s real­ly hard to find the XAOI index out there. Why is that do you think?

 

Tony  11:51

You don’t recall this con­ver­sa­tion from a cou­ple of years ago? This is this is how we land­ed on STW, because we could­n’t get a feed for XAOI.

 

Cameron  13:07

I know that hap­pened after you remind­ed me. Why? Why is it so hard to get an XAOI index? I googled it again today, and there’s just the one. I think it’s the Dow Jones web­site, S&Ps web­site, where you can go in there and play with it and some­how and get a fig­ure. But peo­ple don’t report on it for some rea­son. No one reports on it. Not even the ASX seems to report on it.

 

Tony  13:42

Yeah, it’s strange, isn’t it? I mean, I think it’s a bet­ter bench­mark than the All Ords, but they don’t. And also, too, I think in these kinds of mar­kets, div­i­dends mat­ter. The div­i­dends that the com­pa­nies are throw­ing off are prob­a­bly more impor­tant than the growth in the under­ly­ing stock prices in terms of per­for­mance at the moment.

 

Cameron  14:04

Cer­tain­ly, in our port­fo­lio over the last year or two. Div­i­dends have been a big com­po­nent of our per­for­mance. Strip the div­i­dends and it’s, you know, just on cap­i­tal gain alone it’s not look­ing great.

 

Tony  14:14

Yeah. Get­ting back to your com­ment before about whether it’s big ver­sus small in the mar­ket. I mean, I invest in the big end of the mar­ket, so I’m not hav­ing much more luck than the dum­my port­fo­lio is at the moment. So, I don’t think it’s big ver­sus small. It’s pos­si­bly more val­ue ver­sus, well, I was going to say growth, but not growth. No, I think a lot of the gains in the ASX have been some of the min­ing stocks, coal for a while, bank stocks, etc. And if they’re just too expen­sive for us to buy, they can go up still, but we’re just not going to look at them.

 

Cameron  14:48

‘Well any­way. Bot­tom line is I’m still bench­mark­ing us against the STW.

 

Tony  14:53

That’s fine. Noth­ing wrong with that.

 

Cameron  14:55

Okay, fine. I’ll stop it then. “It’s time to ban pen­ny stocks from Aus­trali­a’s flag­ship share index,” Tony, accord­ing to Tom Richard­son of the Finan­cial Review. “If you want to attract and win the trust of seri­ous over­seas investors includ­ing sov­er­eign wealth funds, pen­sion funds and asset man­agers, you don’t want a flag­ship index pock­marked by pen­ny stocks.” He says that “pen­ny stocks are rear­ing their ugly heads on Aus­trali­a’s flag­ship S&P ASX 200,” speak of the dev­il, “with alarm­ing reg­u­lar­i­ty and a reflec­tion of the mar­kets dete­ri­o­rat­ing qual­i­ty as the ASX shrinks for the first time in eigh­teen years. Last week, Aus­trali­a’s flag­ship index resem­bled a pen­ny stock casi­no with shares in lithi­um explore Lake Resources crash­ing 38% to 29.5 cents after it revealed a six year delay to its Argen­tin­ian lithi­um project. Spec­u­la­tive biotech Imu­gene fin­ished the week just 8.9 cents, with tech hope­ful Brain­ship los­ing 13.8% over the week, up to 34.5 cents.” So much for lithi­um boom stocks.

 

Tony  15:15

That’s what I was think­ing, too.

 

Cameron  15:35

Is this Lake Resources the same as Sil­ver­lake Resources? SLR?

 

Tony  16:13

No, dif­fer­ent.

 

Cameron  16:14

That’s not con­fus­ing. So, he goes on to say here that like these are obvi­ous­ly stocks trad­ing for less than a buck. He said, “in the US, pen­ny stocks are defined as those that trade less than US $1.” And they’re banned in the US from the index appar­ent­ly, I did­n’t know that. He says they’re viewed as ripe for manip­u­la­tion. “A 10-cent stock only needs ten bids high­er to 20 cents to soar 100% and dou­ble and manip­u­late it’s mon­ey.” And he’s say­ing that the Aus­tralian index should remove stocks under a buck. I thought I’d get your thoughts on all that, Tony.

 

Tony  16:55

Well, it’s news to me. I don’t think, I can’t recall see­ing any stock manip­u­la­tion going on in the pen­ny end of the mar­ket. Not say­ing it can’t or it won’t, but it does­n’t make much sense to me. Because the com­pa­nies you spoke about there, I think even though their share prices are in the cents on the dol­lar, they’re still a large mar­ket cap. I don’t know what Sil­ver­lake is, or sor­ry, Lake Resources is, or Ima­gen, but I would­n’t be sur­prised if the mar­ket cap is still in the hun­dreds of mil­lions of dol­lars. So, they’re sub­stan­tial com­pa­nies. I don’t buy into the argu­ment that if the shares are 10 cents and they can eas­i­ly be manip­u­lat­ed to get to 20 cents. I guess they could if no one else trad­ed except for small parcels. But if I owned a mil­lion dol­lars’ worth of, I don’t know, Lake Resources, and I saw the share price dou­ble because only small trades have been going through, and I tried to sell my mil­lion dol­lars’ worth of shares, it does­n’t mat­ter what the share price is. It’d drop again because, you know, the vol­ume would just be too big. So, yeah, I’m not real­ly buy­ing the argu­ment. I haven’t seen any evi­dence of it in Aus­tralia. I would also think, too, if they did ban stocks less than $1 from the ASX, I would­n’t be sur­prised if com­pa­nies like Lake Resources just did a con­sol­i­da­tion to get their share price up to $1 again. It seems like a sort of mean­ing­less exer­cise to me.

 

Cameron  18:16

Lake Resources, share code LKE, by the way, mar­ket cap 408 mil­lion accord­ing to Stock Doc­tor.

 

Tony  18:25

Yeah. So, it’s still sub­stan­tial. I would guess it’s had lots of cap­i­tal rais­ings which would have dilut­ed the share price down each time.

 

Cameron  18:34

Right.

 

Tony  18:35

That’s typ­i­cal­ly how large com­pa­nies find them­selves with cents to the dol­lars for their shares. They’ve raised mon­ey a num­ber of times. It’s a bit of a trap if you’re a share­hold­er, because you’re being dilut­ed down to a small­er and small­er hold­ing in the com­pa­ny. But I’m not sure that’s the rea­son to exclude them from the index, because their mar­ket cap is still large. So, yeah, I’m not nec­es­sar­i­ly buy­ing into that.

 

Cameron  18:57

He says, “Lake Resources entered the ASX 200 index in June 2022 and its shares have plunged more than 80% since then.”

 

Tony  19:07

Okay. So, that means they’re now mak­ing up a much small­er part of the ASX, so what’s the prob­lem? The index is work­ing like it should work.

 

Cameron  19:15

Right. Well, he says, “if you want to attract and win the trust of seri­ous over­seas investors, includ­ing sov­er­eign wealth funds, pen­sion funds and asset man­agers, you don’t want a flag­ship index pock­marked by pen­ny stocks.”

 

Tony  19:28

We don’t have a flag­ship index pock­marked by pen­ny stocks. Our flag­ship index con­sists of min­ers and bankers and super­mar­kets, real­ly. That’s what you’re buy­ing. I don’t know why, I’m not even sure why you want to attract peo­ple to buy the ASX index any­ways. Is he just say­ing that more buy­ers push the price up, and that’s prob­a­bly a good thing for share­hold­ers here. So, maybe it is an attrac­tive thing to do. And look, if we’re out of step with inter­na­tion­al rules around these things, it’s prob­a­bly worth­while review­ing and bring­ing our­selves back into line, but I’m not see­ing any evi­dence of mar­ket manip­u­la­tion from pen­ny stocks.

 

Cameron  20:03

He says, “the ASX 200 should exclude busi­ness­es that have zero rev­enue and stock prices under $1 to pro­tect index buy­ers and oth­er mar­ket par­tic­i­pants.” You can have zero rev­enue and be one of the top two hun­dred stocks in Aus­tralia? Wow.

 

Tony  20:22

Well, I mean, that’s going to poten­tial­ly elim­i­nate a lot of com­pa­nies from the index, because that’s one of the things they do; they raise cap­i­tal through the stock mar­ket before they have a work­able busi­ness. It’s one of the things we try and warn peo­ple against, is invest­ing in those com­pa­nies. But, you know, I mean, one stage Fortes­cue Met­als Group would have been in that. You know, I’ve got a ten­e­ment here I could put an iron ore mine on, but I need to raise cap­i­tal to do it. So, I don’t get it, I don’t buy into that argu­ment.

 

Cameron  20:52

It can still be list­ed; he’s just say­ing they should­n’t be part of the top two hun­dred.

 

Tony  20:57

Well, okay, if that’s dif­fer­ent to the way it works around the world and you need to line the rules with them, that’s fine. But there are, of course, oth­er rules in the index besides just the mar­ket cap. You do have to have liq­uid­i­ty, etc. I don’t have an opin­ion on whether it’s a good or a bad thing, it’s nev­er wor­ried me before. But if we’re out of sync with the rest of the world, sure, review the rules.

 

Cameron  21:26

The oth­er arti­cle I want­ed to ask you about, this is also from the fin. This is yes­ter­day, Chan­ti­cleer. “The $2.1 tril­lion rea­son it’s time to wor­ry about oil. Wilson’s James Karakat­sa­nis says oil demand is as robust as it was twen­ty years ago, but the poor out­look for sup­ply risks bad news for economies and good news for investors.” Then it says, “for the last five years, James Karakat­sa­nis has been on the inside of Big Oil help­ing to assess new explo­ration prospects at Exxon Mobil. But now the geo­sci­en­tist who has just joined Wilson’s as the finan­cial advi­so­ry firm’s ener­gy ana­lyst has deliv­ered a stark warn­ing about what awaits the sec­tor. Most don’t think twice when we dri­ve the car or open the fridge to grab food that’s been grown, made and trans­port­ed with ener­gy dense process­es. But Karakat­sa­nis says the world could soon face upheaval as the stub­born real­i­ty of sup­ply and demand in the oil mar­ket sets in. Glob­al demand for crude oil is more robust today than it was twen­ty years ago, he argues, as eco­nom­ic devel­op­ment pro­pels non-OECD coun­tries into the role of the world’s major oil cus­tomers, shift­ing from 45% of glob­al con­sump­tion two decades ago to 55% today. Even on the most con­ser­v­a­tive esti­mates, assum­ing no pop­u­la­tion growth and con­sump­tion lev­els ris­ing towards those seen in the US and Aus­tralia, demand from Chi­na, India, Indone­sia, and Brazil will lift glob­al con­sump­tion by 41% from today’s lev­els.” He says there’s a sup­ply issue. And he also goes to say that the shale rev­o­lu­tion in the US is almost over. They’ve gone from being self-suf­fi­cient with oil two years ago to got noth­ing. They’re gonna have to buy oil from Sau­di Ara­bia and Rus­sia again. 

 

Tony  23:35

Yeah, you can stay in pow­er, just sign this con­tract with us.

 

Cameron  23:39

We’ll replace you with Prigozhin. That’d be very good thing for the world. Putin’s chef takes over Rus­sia. So, all of this, you know, I don’t under­stand the oil mar­ket. You fol­low the oil mar­ket a lot more close­ly than I do, Tony. What are your fore­casts on the oil busi­ness, Tony?

 

Tony  24:00

Well, for my two cents worth, I think the arti­cles 100% right. I had­n’t heard the shale oil argu­ment about the US. So, that’s news to me. I think there might be a lit­tle bit more to run with the shale oil deposits in the US. I know they were get­ting cost­lier to extract the oil. So, they tend to shut down when the oil prices low and then reopen when the oil price is high. So, I think that will con­tin­ue. Because I agree, I think the oil price will go up, just as I think the coal price will go up. Because, you know, there’s a lot of pres­sure on, in this case, oil com­pa­nies to lim­it their financ­ing, to lim­it their abil­i­ty to find new fields, because there’s a lot of peo­ple in the world who think we should­n’t be min­ing oil because of cli­mate change con­cerns, and I get that. So, there’s a ten­sion going on at the moment on the sup­ply side, because there’s not enough new fields being found, but demand is still increas­ing. So, I think yeah, it’s got­ta force the price up. How­ev­er, that’s a gen­er­al the­mat­ic, and long-term the­mat­ic, or medi­um to long-term the­mat­ic. There’re going to be lots of ups and downs in the oil price along the way, and that’s, I guess, what we pay more atten­tion to, rather than just buy­ing Wood­side and wait­ing twen­ty years to see if we were right or not.

 

Cameron  25:26

Alright. What else? Cos­min, shout out to Cos­min, long time club mem­ber, Cos­min. He’s tak­en some time off, gone back to his house in Thai­land. And he’s work­ing hard, and he’s come up with a num­ber of good break­throughs. He’s post­ed these on our Face­book group, and for peo­ple who haven’t seen them, he’s worked out that stock his­to­ry… You know, with our buy lists we use the Microsoft stock his­to­ry func­tion to update prices so you can open it any day of the week and get the lat­est prices. But some peo­ple don’t have Office 365 and they haven’t been able to use that, so we’ve been pro­vid­ing a sta­t­ic ver­sion of it as well in a dif­fer­ent sheet. But he worked out that you can open it up in Microsoft 365 online with a free account and you can see all of the stock his­to­ry stuff updat­ed. So, that was great. He also did some analy­sis on his own port­fo­lio, and he read­i­ly admits that ear­ly on in his QAV career, he did­n’t fol­low rule one very assid­u­ous­ly, is that the right word? Dili­gent­ly, let’s go with that. Very dili­gent­ly. So, he has got two port­fo­lios in Stock Doc­tor that he showed me. His actu­al port­fo­lio, what he has done, and where it would be if he had fol­lowed rule one reli­gious­ly. He did his own regres­sion test­ing on his port­fo­lio, and he worked out that his per­for­mance would be twice as good if he had fol­lowed rule one dili­gent­ly over that peri­od. So, I thought that was inter­est­ing. I know a lot of peo­ple out there strug­gle with rule 1.

 

Tony  27:14

Cor­rect. Yeah. That is a dis­ci­pline that peo­ple tend to forego the soon­est. But yeah, it’s also, I mean, apro­pos to our con­ver­sa­tion last week about the rule one death spi­ral that I’ve been hav­ing over the last twelve months and whether rule one should be 10% or some­thing dif­fer­ent. So, it’s good to get feed­back like that from oth­er users to rein­force the rules are impor­tant. Hav­ing said that, I have asked our ana­lysts to look at com­par­ing a 10% rule one to a 20% rule one over the life of our data. So, the three or four years the pod­cast has been going and we’ve been pro­duc­ing buy lists, and just see the dif­fer­ence it makes. Because, I mean, even today, it’s such a chop­py mar­ket, even today. I sold out of Collins Food I think last week or the week before, and they’ve come out with, you know, an upgrade and the share price bumped up 12%. So, it still would have been hap­pi­ly in my port­fo­lio. I don’t actu­al­ly know if Collin’s Food was a rule one. It might have been a 3PTL sell, I’m not sure. But any­way, it does seem like we’ve been going up and down a lot in the last twelve months, and that’s just the way the mar­kets going. But thanks, Cos­min, that’s great work. Good on ya, mate.

 

Cameron  28:26

Yeah. One of our lis­ten­ers, Max, he was quot­ing some guy called The Chartist, Nick Radge, who does like 15–20% for his equiv­a­lent of rule one. For new lis­ten­ers, rule one is basi­cal­ly where we sell a stock if it drops 10% below what we paid for it. It’s just sort of a stop loss mech­a­nism that we use. And from mem­o­ry, it’s a bit of an arbi­trary fig­ure. It was what it was going to cost you to buy insur­ance, was­n’t it?

 

Tony  28:59

Cor­rect, it was. That’s right. Yeah. And just on that Nick Radge issue if Max is lis­ten­ing, I did have a look at it. Inter­est­ing site, thank you. The dif­fer­ence between what The Chartist was doing and what we’re doing is he was using 15–20% stop loss­es for any sort of retreat on the stock price. Where­as we use a 10% below our buy price. So, we’re just try­ing to pre­serve our orig­i­nal cap­i­tal, and this oth­er guy is just using it as a gen­er­al sto­ploss for lock­ing prof­its.

 

Cameron  29:32

As opposed to our 3PTL?

 

Tony  29:35

Yeah. I think he did have his ver­sions of 3PTLs, and there was a lot of dis­cus­sion of Bollinger Bands and break­outs and things. So, you know, that’s, you know, his way of doing it, it’s dif­fer­ent to mine. But yeah, that 15–20% was a dif­fer­ent appli­ca­tion of the rule. But how­ev­er, it’s a valid point. I’ve nev­er gone back and tried to work out opti­mal­ly what the stop loss should be. So, I’ve got Ryan out there crunch­ing some num­bers for me, which is great.

 

Cameron  30:04

Well any­way, that’s Cos­min’s feed­back any­way. If he had rule oned at 10% his port­fo­lio would be twice as good. Also, Cos­min did some detec­tive work on URW. So, we were talk­ing about this last week. A cou­ple of peo­ple have report­ed that they could­n’t buy you URW, I think maybe Paul was one of those. When they tried to buy it, their bro­ker said, nup, can’t buy it. Cos­min reached out to one of the bro­kers, I don’t remem­ber which one, and got this reply back that said Stake — oh, that’s who it was, Stake — “has decid­ed not to allow trad­ing of URW due to the com­plex­i­ty of CDIs and the for­eign French finan­cial trans­ac­tion tax fee asso­ci­at­ed, as this is not an ordi­nary ASX list­ed com­pa­ny. Trad­ing on this secu­ri­ty will result in clients pay­ing sig­nif­i­cant fees when trad­ing the secu­ri­ty in Aus­tralia. As such, we have made the deci­sion not to list URW as a trad­able instru­ment on Stake. For ref­er­ence, the French gov­ern­ment tax­es the pur­chase of stock in French com­pa­nies with mar­ket cap­i­tal­iza­tion greater than 1 bil­lion euros. Trans­fer tax in euros equals 0.3%, times acqui­si­tion price, times Uni­bail-Rodam­co pro­por­tion, times applic­a­ble for­eign exchange rate.” So, have you ever seen that before?

Cameron  1:17:39

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 invest­ing deci­sions.