QAV 726 — Negative Waves

QAV 726 Club

[00:00:00] Don­ald Suther­land: Don’t hit me with them neg­a­tive waves so ear­ly in the morn­ing. I think that bridge will be there. Mm hmm. And it’ll be there. It’s a moth­er beau­ti­ful bridge. And it’s gonna be there.

Cameron: RIP Don­ald Suther­land who got hit with one too many neg­a­tive waves. Final­ly. Um

[00:00:25] Tony: make me laugh

[00:00:25] Tony: about Don­ald. That’s sad news. I

[00:00:27] Tony: was real­ly sad.

[00:00:29] Cameron: Well, it’s not

[00:00:30] Cameron: sad. I mean, what a, What a

[00:00:31] Cameron: career. What a

[00:00:32] Tony: Yeah. Yeah, true. It’s

[00:00:34] Tony: gonna

[00:00:34] Tony: hap­pen.

[00:00:36] Cameron: Um, what a, like, just, this is QAV by the way, episode 726 in case any­one was won­der­ing. Um, yeah, Don­ald Suther­land passed away and you were of course the first per­son I thought of when I read the news. Um, but going over his list of films, like, incred­i­ble.

[00:00:56] Tony: Yeah.

[00:00:57] Cameron: from MASH through to, you know,

[00:01:00] Cameron: you name it, like,

[00:01:01] Tony: Inva­sion of the Body Snatch­ers. Klute.

[00:01:03] Cameron: Look Back. Like, just a

[00:01:07] Cameron: stun­ning. List of

[00:01:09] Cameron: films.

[00:01:10] Tony: Yeah, and gen­er­al­ly, like, one of the few actors where I would go, Oh, okay, he’s got, there’s a new Don­ald Suther­land film out. I’ve got to watch it. I’ve got to see it. Even if it’s a bad film, he was a great

[00:01:20] Tony: actor.

[00:01:21] Cameron: yeah.

[00:01:21] Cameron: He’s one of those, one of those guys who always

[00:01:24] Cameron: brought his A game to every­thing and was always good to

[00:01:28] Cameron: watch. Yeah. So,

[00:01:29] Tony: put him in the Michael Caine camp, they were just actors who just want­ed to act, they want­ed to keep on work­ing. They took all jobs and they brought their A game every time.

[00:01:39] Cameron: Nico­las Cage.

[00:01:40] Tony: Well, I think Nicholas has been

[00:01:42] Tony: A

[00:01:42] Tony: bit waver­ing.

[00:01:44] Cameron: no, he always

[00:01:45] Tony: some ups and

[00:01:45] Tony: downs.

[00:01:47] Cameron: Fun­ny.

[00:01:47] Tony: And I can say Michael Caine has too in

[00:01:49] Tony: some respects,

[00:01:50] Cameron: Oh yeah.

[00:01:51] Tony: Yeah, but Don­ald did­n’t.

[00:01:53] Tony: Yeah, exact­ly. Blame it on Rio. Yeah, but uh, but Don­ald did­n’t.

[00:01:59] Tony: He was so good. And, and just like, he just spoke, as a young, as a young kid grow­ing up in Bris­bane, amongst all the fuck­heads, he just spoke to me.

[00:02:08] Tony: He just, you know, he just, you know, MASH spoke to me, he spoke to me, um, I can’t remem­ber the oth­er, Movies he was in paired up with Elliot Gould a cou­ple of times. And I just thought wow, there is a life out­side of this dump. I need to, you know, there is

[00:02:23] Tony: a way out.

[00:02:24] Tony: There’s a lifestyle

[00:02:25] Cameron: is brought to you by Tourism

[00:02:26] Tony: Ha ha ha ha ha ha ha ha ha

[00:02:30] Cameron: you grow up here, you can become a tourist and go some­where else as quick­ly as pos­si­ble. That’s Tony’s mes­sage. Well, more on that in After Hours. Um, more neg­a­tive waves. Uh, bloody Ampol on the crude oil price. Tony, after last week’s episode, We talked about whether or not Ampol was uh,

[00:02:51] Cameron: crude oil,

[00:02:52] Tony: Mm hmm.

[00:02:53] Cameron: should we, and you said it was and crude oil was a sell, so I sold all of my Ampol, Alex does the com­mod­i­ty sta­tus yes­ter­day and crude oil is a buy again, so, no, I don’t have any cash to buy back,

[00:03:11] Tony: Well, you should have. You sold it all last

[00:03:12] Tony: week. You

[00:03:13] Cameron: I rein­vest­ed it, last week.

[00:03:15] Cameron: in some­thing else.

[00:03:16] Tony: Don’t hit me with them neg­a­tive waves.

[00:03:21] Cameron: Oh, I hate that. I hate it. Um, well, uh, look, the mar­ket sort of has said it like one of those weeks. Um, had a good, rel­a­tive­ly good week last week. Crashed ter­ri­bly yes­ter­day and then rebound­ed today back above where it was like, uh, uh, the mar­ket. The mar­ket. The

[00:03:45] Cameron: mar­ket.

[00:03:45] Tony: Don’t look at the mar­ket. Don’t fol­low the mar­ket. Stick to the process.

[00:03:52] Cameron: Yeah. Well, part of my process is

[00:03:55] Cameron: look­ing at

[00:03:56] Tony: Anxed over the mar­ket.

[00:03:58] Cameron: No, but I have to sell stuff. So I look at the mar­ket when I get alerts and I

[00:04:02] Cameron: have to sell things, right?

[00:04:03] Tony: Why do you look at the mar­ket when you get

[00:04:04] Tony: alerts?

[00:04:06] Cameron: Cause it’s, I open my spread­sheet and my spread­sheet tells me where the, what the mar­ket’s

[00:04:11] Cameron: done today. Uh, get over it. It’s all right.

[00:04:14] Tony: Oh, I get

[00:04:15] Tony: over it.

[00:04:16] Tony: Gem­worth,

[00:04:20] Cameron: do things. Why do you frown? I don’t know, I’m just, that’s my rest­ing bitch face. Um, Ed called me, uh, late last week at some point, I was on my way out to Kung Fu, about HLI, Helia Group, which used to be called some­thing else. What was it before it

[00:04:41] Tony: I think.

[00:04:42] Cameron: Group?

[00:04:42] Cameron: And that’s, I

[00:04:43] Cameron: should know that, came up in my super analy­sis. We’ll talk about lat­er on. It had just, uh, fall­en, crashed on the 18th, went from 4. 22, dropped down to 3. 33. And he said,

[00:05:00] Cameron: look, uh,

[00:05:01] Tony: he called, he called you. You could do some­thing about it.

[00:05:05] Cameron: yeah,

[00:05:05] Tony: Go and get a mort­gage camp.

[00:05:10] Cameron: Ed called me to see if it was a

[00:05:12] Cameron: sell

[00:05:12] Cameron: sig­nal.

[00:05:13] Tony: Then he said, God­fa­ther, I’m very sor­ry to both­er you. I hate to bring my prob­lems and lay

[00:05:18] Tony: them at

[00:05:18] Tony: your

[00:05:19] Tony: feet.

[00:05:20] Cameron: Yeah. luck­i­ly for him, it was the day of my daugh­ter’s wed­ding and I could not, uh, Could not decline a request for a favor. Some­day in that day may nev­er come. Um, he, uh, don’t get me start­ed on the God­fa­ther, man. I can talk about that more than read­ing that book. Um, appar­ent­ly, uh, they’ve had a long term con­tract.

[00:05:41] Cameron: I think it’s with CBA and there was an announce­ment that the con­tract was expired and they were asked to resub­mit. And they’re also sub­mit­ting for more things, but the mar­ket just dropped them like a hot rock. All of a sud­den, it was­n’t that they’d lost the con­tract. It was just, uh, the con­trac­t’s up and they have to resub­mit.

[00:06:05] Cameron: So we talked about it and I said, well, look, you know, it’s, it’s a ter­ri­ble thing, but it’s not below its three point trend line. It’s not a rule one. I mean, I held it in, uh, I hold it or held it, hold it in, I think super port­fo­lio or some­thing. It dropped a ton, but it was still up, I don’t know, 30 per­cent from when I bought it.

[00:06:24] Cameron: I said, and it’s, you know, a con­tract up for renew­al is not one of our, Uh, bad news

[00:06:31] Cameron: thing. So you do what you got to do, but you know, I’m going to hold it. Cause you know, I said, I’ll talk to Tony about it next week, but, um, it does­n’t, uh, break any of our sell rules. And then the next day it just rebound­ed.

[00:06:45] Tony: Ha ha ha ha ha Ha

[00:06:47] Tony: ha.

[00:06:47] Cameron: It has­n’t gone all the way back up, but it went from, it had dropped down to 3. 30, it went back up to 4. 08, it set­tled in, now it’s like 3. 90. So, um, yeah, it dropped from 4. 20 down to 3. 90 at the end of the day, so, you know, 10 per­cent

[00:07:02] Cameron: give or take,

[00:07:03] Tony: I dropped for two rea­sons. I mean, first of all Uh, they lost a big con­tract to Mabb last year and the stock dropped down because of that. And then CBA, the CBA con­tract is a large part of their busi­ness, I for­get the num­ber, like sort of above 20%. And so peo­ple were just scared that if it hap­pened again like it did with Mabb, the stock price was going to drop.

[00:07:24] Tony: And this is a clas­sic case of shoot­ing first and Doing the analy­sis

[00:07:28] Tony: after­wards.

[00:07:29] Tony: Peo­ple jump the gun.

[00:07:31] Cameron: But what peo­ple? Who are these peo­ple, Tony? Who are these peo­ple that are

[00:07:36] Cameron: These are pro­fes­sion­als! I

[00:07:37] Tony: Ooh.

[00:07:38] Cameron: mean, these are pro­fes­sion­al peo­ple! They get paid a lot of mon­ey

[00:07:42] Cameron: to be pro­fes­sion­al!

[00:07:44] Tony: they get paid a lot of mon­ey. It does­n’t mean they’re pro­fes­sion­al.

[00:07:46] Tony: Don’t

[00:07:47] Tony: con­fuse one

[00:07:47] Tony: with the oth­er.

[00:07:49] Cameron: Isn’t that the def­i­n­i­tion of a pro­fes­sion­al? Some­body gets paid a lot of

[00:07:52] Cameron: mon­ey to do some­thing?

[00:07:53] Tony: No, a pro­fes­sion­al is some­one who, you know, gets trained in a, in a voca­tion. Like a doc­tor

[00:07:59] Tony: or a you know, a lawyer or a teacher.

[00:08:02] Cameron: Isn’t that a

[00:08:02] Cameron: fund man­ag­er? Don’t they get trained to being fund

[00:08:04] Cameron: man­agers?

[00:08:05] Tony: But I go to fund man­ag­er school, that’s even worse, they go to finance school, get taught about the effi­cient mar­ket hypoth­e­sis, they go to MBAs and get taught how to cut

[00:08:15] Tony: costs and head­count.

[00:08:16] Tony: Yeah.

[00:08:17] Cameron: Well, we’ll talk a lit­tle bit about our sell sig­nals lat­er on when I get to my super port­fo­lio analy­sis. But, in this par­tic­u­lar instance, you know, I did­n’t pan­ic.

[00:08:30] Cameron: I was like, nah, it’s just, you know, it’s not break­ing a rule. So we’re going to hold it and it

[00:08:35] Cameron: rebound­ed. So

[00:08:37] Tony: Yeah. But look, but just, just think about it. Say you’re the man­ag­er of Gen­worth. Like we’ve iden­ti­fied as being a good com­pa­ny. You’re the man­ag­er of Gen­worth, you know, you’ve got con­cen­tra­tion risks. So you’re prob­a­bly doing oth­er things on the, behind the scenes to, you know, try and mit­i­gate that risk. So

[00:08:51] Cameron: yeah.

[00:08:53] Tony: it’s not like.

[00:08:54] Tony: They’re all out play­ing golf and then CBA rings up and they go, shit, what are you going to do, play the back nine or go back to work? It’s like, they’ve been think­ing about this for a long time and prob­a­bly, if they’re good, try­ing to put some­thing in place to

[00:09:06] Tony: mit­i­gate the risk.

[00:09:08] Cameron: Yeah. But what, what, what just strikes me is like how reac­tive the mar­ket is to stuff like that.

[00:09:16] Tony: Yeah.

[00:09:17] Cameron: Like there was, you, you would swear that, you know, some­body from HLI had just shot some­body in the mid­dle of down­town Mel­bourne and, you know, was danc­ing around the body or some­thing. Like it was like, what?

[00:09:31] Tony: Mmm.

[00:09:32] Cameron: Any­who, there you go.

[00:09:34] Cameron: Good thing we have rules, uh, is what I told myself. Um, speak­ing of, uh, rules, you know, we have had this, uh, you know, jokey rule about the curse of the pulled pork, uh, for the last cou­ple of years. You do a deep dive on a stock and it imme­di­ate­ly plum­mets. Well, your good mate at Fin­di (FND), what­ev­er his name is, uh, who

[00:09:58] Tony: Mr.

[00:09:58] Cameron: offered,

[00:09:59] Tony: Daniel

[00:09:59] Cameron: to come on the show and then ghost­ed me ever since.

[00:10:02] Cameron: Um

[00:10:03] Tony: He’s prob­a­bly play­ing golf,

[00:10:05] Tony: giv­en where the share

[00:10:05] Tony: price is.

[00:10:06] Cameron: heh With dia­mond, with

[00:10:08] Tony: Yeah.

[00:10:09] Cameron: of dia­monds.

[00:10:10] Cameron: Clubs

[00:10:11] Cameron: made of plat­inum. They’re up 55 per­cent in the last 90 days, Fin­di. Up 329 per­cent since you did a pulled pork on them back in Jan­u­ary.

[00:10:26] Tony: So can I just say I’m avail­able for spon­sor­ship. If any­body out there who runs a com­pa­ny would like me to do a pull

[00:10:32] Tony: book.

[00:10:35] Cameron: 329 per­cent since Jan­u­ary! Wow. Um, and he did lis­ten to your book and he emailed us and said, thanks very much. Um, you know, things are going well, but, um, that’s, uh, that’s, that’s a good one. Good old FND. And I near­ly sold it at one stage too, for some rea­son. I think it, uh, a lit­tle while ago, it, it sort of,

[00:11:02] Tony: did dip. Yeah.

[00:11:03] Cameron: It did dip

[00:11:05] Cameron: and I think it near­ly, I think it broke a rule one or at some point, but um, I can’t remem­ber what it was.

[00:11:10] Cameron: But any­way, there you go. Max! Max, uh, sent me some­thing on Twit­ter. Ben Gra­ham’s last will and tes­ta­ment. Uh, this is a lit­tle thing that he got out of some­where, I don’t know where, but I’ll just read it. In his last years, Ben Gra­ham dis­tilled six decades of expe­ri­ence into ten cri­te­ria that would help the intel­li­gent investor pick val­ue stocks from the chaff of the mar­ket.

[00:11:33] Cameron: The ten. Num­ber one, an earn­ings to pri You can com­ment on these as we go. An earn­ings to price yield of twice the AAA bond yield. The earn­ings yield is the rec­i­p­ro­cal of the price earn­ings ratio.

[00:11:48] Tony: Yeah. Pret­ty basic val­ue met­ric. We use some­thing sim­i­lar, the low­est PE in the last three years. Um, I like this one in that it does link it back to the bond yield. So it does mean that the PE will change, like the thresh­old for scor­ing will change as the, as the mar­ket goes up and down. So that’s inter­est­ing, but that would be sit­ting around about nine or 10 at the moment.

[00:12:10] Tony: I’m not sure what a, AAA bond is yield­ing cash rates at, what’s the cash rate at? 4. 35. So AAA bonds prob­a­bly yield­ing about 5, 5. 5. Um, which, and this is say­ing buy some­thing at, at less than, if the PE is less than dou­ble the, um, the bond yield. So he’s talk­ing about buy­ing some­thing in sin­gle dig­its as a PE at the moment.

[00:12:36] Cameron: Uh,

[00:12:38] Cameron: right.

[00:12:39] Tony: Yeah. It’s a, it’s a strange way of say­ing it, but

[00:12:42] Tony: that’s that’s what he means.

[00:12:44] Cameron: Sin­gle dig­it. It’s an EP, not a

[00:12:48] Cameron: PE.

[00:12:49] Tony: Yes. Yes, he’s using, instead of putting price over earn­ings, he’s putting earn­ings over price. And I think that’s just so he can, he can com­pare it to the bond yield,

[00:13:00] Tony: which is also

[00:13:01] Tony: earn­ings over price.

[00:13:03] Cameron: do you think that would be a good met­ric to pay atten­tion

[00:13:07] Cameron: to?

[00:13:08] Tony: Well, I mean, broad­ly, he’s say­ing, uh, buy things with a low P. E., but he’s, he’s, he’s defin­ing low P. E. in a kind of rel­a­tive way by tying it back to the, the bond rate. So in, at times when the bond, bond yield is very high, then, um, you can afford to pay more for stocks to, um, and we’ve got a, uh, a, you know, a wider, the wider tar­get, I guess, to buy stocks.

[00:13:35] Tony: And when the bond yield is very low, he’s say­ing, um, you should be buy­ing even cheap­er stocks. So he’s putting it rel­a­tive to the bond mar­ket.

[00:13:43] Cameron: Right. Okay, num­ber two, a price earn­ings ratio down to four tenths of the high­est aver­age PE ratio the stock reached in the most recent five years. Uh, well, that’s kind of sim­i­lar to our low­est PE

[00:13:58] Cameron: score, right?

[00:13:59] Tony: Yeah, it is. It’s just, again, he’s defined it slight­ly dif­fer­ent­ly. He’s tak­en it over five years and he’s say­ing if it’s 40 per­cent off the high­est, high­est, uh, yeah, high­est aver­age PE ratio. I guess that’s, I don’t think he’s say­ing it’s the aver­age over the five years. I think he’s say­ing it’s the aver­age PE, the aver­age of the five PEs over the last five

[00:14:18] Tony: years.

[00:14:20] Cameron: Right.

[00:14:21] Tony: So sim­i­lar sort of

[00:14:22] Tony: thing.

[00:14:23] Cameron: yeah, look­ing to buy it when it’s PEs rel­a­tive­ly low com­pared to its his­to­ry. I mean, we don’t, we’ll give it a score if it’s the low­est in the last

[00:14:35] Cameron: three years.

[00:14:36] Tony: well, that’s the inter­est­ing thing about this. He’s got a whole scor­ing sys­tem as well, and that, back when I first read Ben Gra­ham, that was one of my key take­aways from it was, yeah, okay, he’s doing, he’s doing fac­tu­al analy­sis and then build­ing up a check­list, build­ing a score­card

[00:14:50] Tony: for it. Yeah.

[00:14:52] Cameron: Num­ber three, a div­i­dend yield of two thirds of the AAA bond yield. So we looked at earn­ings to price yield

[00:14:59] Tony: Mm hmm.

[00:15:00] Cameron: it’s a div­i­dend

[00:15:01] Cameron: yield.

[00:15:02] Tony: hmm. So again, the div­i­dend yield he’s talk­ing about would be around 4 per­cent now, two thirds of 4. 35, what­ev­er that works out to be. Mm hmm. And yeah, inter­est­ing one. Again, the div­i­dend in the U. S. is a dif­fer­ent, has a dif­fer­ent frame­work to div­i­dends here, because at least recent­ly, for the last sort of 30 odd years, we’ve had frank­ing cred­its and they don’t.

[00:15:25] Tony: So there’s an incen­tive for com­pa­nies to pay a high­er div­i­dend yield here. to fund retirees invest­ments. Um, but yeah, he is, he is focus­ing on div­i­dend pay­ing com­pa­nies and that in a lot of ways that rules out gross stock straight away. Cause, um, it’s very typ­i­cal for a gross stock not to pay a div­i­dend and put their, you know, what­ev­er mon­ey they have, what­ev­er cash they have back into expand­ing the

[00:15:49] Tony: busi­ness.

[00:15:50] Cameron: Yeah. Num­ber four is a stock price down to two thirds of tan­gi­ble book val­ue per share.

[00:15:59] Tony: Yeah, again, uh, that’s a very deep val­ue, uh, and, you know, it’s, I guess, the one that we use is book plus 30, and that’s the one that Buf­fett talks about when he rebuys Berk­shire Hath­away shares, so, um, two things here, it’s an even deep, it’s an even steep­er, um, val­ue met­ric than what we use, because he’s say­ing two thirds of tan­gi­ble val­ue, and the sec­ond thing is he’s focus­ing on tan­gi­ble, Tan­gi­ble book val­ue, I guess I can equate with net tan­gi­ble assets, which is peo­ple will be famil­iar with, more famil­iar with.

[00:16:30] Tony: Um, and so, you know, it gets down to this whole debate about whether you’re fac­tor­ing in good­will or not into the assets of the com­pa­ny. Um, and I don’t know where that stood back in the 1920s and 1930s when he was writ­ing this. Uh, it says the last, the last will on tes­ta­ment, but it does­n’t say when this was writ­ten.

[00:16:48] Tony: Um, so it’s got­ta be, you know, I think he died in the sev­en­ties. So it’s got to be pri­or to that at some stage, um, the good will argu­ment about whether it was an asset or not, or a tan­gi­ble asset, real­ly, sort of, from my mem­o­ry, was a big thing in the 80s, I’m not sure it was a big thing before that.

[00:17:07] Cameron: Right. The next one, num­ber five, a stock price down to two thirds of net cur­rent asset val­ue, cur­rent assets, cur­rent assets, less total debt.

[00:17:18] Tony: Yeah, well, again, a fair­ly sim­i­lar thing, I mean, um, net tan­gi­ble, or tan­gi­ble assets, or tan­gi­ble book val­ue is going to have both. Cur­rent and non cur­rent assets in it, but now he’s going even fur­ther than that and say­ing, um, two thirds of net cur­rent assets, uh, and that’s, I mean, the whole thing about this is it’s very deep val­ue, and when I first came across this decades ago and tried to put it into prac­tice, I don’t think I found a stock that, um, met these met­rics, it was very hard to find them, and to find some­thing trad­ing at two thirds of its net cur­rent assets, so net cur­rent asset is some­thing that you can liq­ui­date, With­in 12 months, um, so it’s, you know, often­times it’s receipts from cus­tomers.

[00:17:59] Tony: Um, it, it, it’s not, it’s stock. It’s not things like, uh, the build­ings, you know, it usu­al­ly isn’t any­way. I guess you could sell a build­ing with­in 12 months, but they’re nor­mal­ly seen as a longer term asset. Um,

[00:18:13] Cameron: it’s your apart­ment.

[00:18:15] Tony: it can’t take 12 months. Oh God, don’t men­tion the war. yeah, so it’s, I mean, you know, think about, you’re try­ing to find a cof­fee shop, which is, which is for sale.

[00:18:26] Tony: That’s, um, less than its cur­rent assets. So cur­rent assets in a cof­fee shop, it’s going to be, um, pos­si­bly the equip­ment, def­i­nite­ly the inven­to­ry. So the beans, so you’re buy­ing it for two thirds of what they’re hold­ing in beans. It’s, it’s going to be real­ly hard to find a com­pa­ny that you can buy at this kind of

[00:18:44] Tony: lev­el.

[00:18:45] Tony: And.

[00:18:46] Cameron: it’s a

[00:18:47] Cameron: fire sale, real­ly. I mean,

[00:18:48] Tony: It’s a fire sale, yeah, and then you’ve got to ask the ques­tion, why is the fire sale hap­pen­ing? Is it because it’s unloved in the mar­ket, but it’s got a future? Or is it actu­al­ly going out of busi­ness?

[00:18:57] Cameron: Or the peo­ple have a, you know, Per­son­al emer­gency, they have to get their cash cause they got­ta, I dun­no, pay for lawyers bills or some­thing. What­ev­er it is. Go on the run. Uh, num­ber six, total debt, less than tan­gi­ble book val­ue. We don’t real­ly look at debt per se,

[00:19:19] Tony: Um, no, we do in terms of the finan­cial health rat­ings that Stock Doc­tor use, they fac­tor in debt.

[00:19:25] Tony: Yeah. But we don’t, we don’t specif­i­cal­ly pull it out as a, as a,

[00:19:29] Tony: met­ric.

[00:19:31] Cameron: Num­ber sev­en, cur­rent ratio, cur­rent assets divid­ed by cur­rent lia­bil­i­ties of two or more. That’s also part of the finan­cial health, isn’t it?

[00:19:41] Cameron: Cur­rent ratio.

[00:19:42] Tony: Yeah. I mean, Stock Doc­tor will have their own ver­sion of what that ratio thresh­old is, how they score it. But yeah, cur­rent assets divid­ed by cur­rent lia­bil­i­ties would be, um, a met­ric that they would use. Um, it’s nor­mal. It’s nor­mal. Often­times called the quick ratio, and if it’s less than one, peo­ple see it as being, um, well, see it as being a neg­a­tive, so you can’t real­ly, you don’t have enough income com­ing in to cov­er the out­go­ings in the short term.

[00:20:09] Tony: It cer­tain­ly does­n’t spell the end of the world because it could be oth­er ways of get­ting income. That’s not part of the cur­rent assets, but, um, uh, and, and of course solv­ing your cur­rent lia­bil­i­ties could have oth­er solu­tions as well, besides pay­ing them off, so, um, it’s not the end of the world, but gen­er­al­ly you’d look for some­thing that fits into this, um, he’s say­ing look for some­thing that’s not just greater than one, but greater than two.

[00:20:32] Tony: Again, a real­ly Deep val­ue way of invest­ing.

[00:20:37] Cameron: Num­ber eight, total debt equal or less than twice the net quick liq­ui­da­tion val­ue as defined in num­ber five, which was two thirds stock price, two thirds of the net cur­rent asset

[00:20:50] Cameron: val­ue. Num­ber

[00:20:53] Tony: say­ing, um, okay, you’ve got cur­rent assets that you need to liq­ui­date quick­ly, but that’s going to be use­less if the debt you hold in the com­pa­ny is more than that val­ue because you’re just going to, you know, you’re going to pay off your debt. You’re not going to pay off all your debt and there­fore you won’t be able to trade.

[00:21:07] Tony: So that’s, that’s a fair­ly.

[00:21:10] Tony: Obvi­ous one, I would have thought.

[00:21:13] Cameron: nine, earn­ings growth over the most recent 10 years of 7 per­cent com­pound­ed, a dou­bling of earn­ings in a 10 year peri­od.

[00:21:24] Tony: Um, yeah, it’s like I said, if you, you try to find a, his list of stocks is going to fil­ter out almost every stock on the mar­ket. I think if it’s, if it’s trad­ing at its, um, less, it’s half its asset val­ue. Um, it’s got a two to one quick ratio and it’s grow­ing at 7 per­cent at least per year. Yeah. It’s invest­ing nir­vana.

[00:21:45] Tony: So, um, this is a the­o­ret­i­cal list, at least in today’s terms, I think. One of the things I’ve seen both from him and through Buf­fett and oth­er peo­ple is that tech­nol­o­gy plays a big part in the suc­cess of pri­or investors because he would have been very, very hard to get your hands on finan­cial infor­ma­tion back in the 1920s.

[00:22:07] Tony: Um, and then to do the analy­sis, you’re talk­ing, you know, pads and pads of pen and paper, work­ing it all out and then doing what­ev­er test­ing you have to do to work out which is good and which is bad. I mean, the guy would have been devot­ing full time. Elbow grease to this prob­a­bly. And that would have put him apart to most investors in the mar­ket, right?

[00:22:29] Tony: Um,

[00:22:29] Cameron: Yeah.

[00:22:30] Tony: so this is, I think that’s one of the rea­sons why he could do that. And num­ber two, it’s one of the rea­sons why I could find com­pa­nies that were trad­ing in this kind of Nir­vana spaces because it was so hard to find for any­body else.

[00:22:42] Tony: And, you know, and then you, then you sort of advance and tech­nol­o­gy advances and then there are, you know, peo­ple who put togeth­er books of finances and, um, then you hear sto­ries about, you know, Char­lie Munger being called a book with two legs and Buf­fett say­ing his kids used to say he’d walk upstairs every night with a stack of annu­al reports to read the data.

[00:22:59] Tony: So they were doing it as well, but prob­a­bly had a bit bet­ter data sources than what, um, Gra­ham did. And they were suc­cess­ful, but again, it was a very labo­ri­ous mechan­i­cal oper­a­tion. You know, we live in the age where we can get access to infor­ma­tion eas­i­er, and we can run check­lists to screen the whole mar­ket.

[00:23:16] Tony: So, I think

[00:23:18] Cameron: so can

[00:23:18] Cameron: every­body else.

[00:23:19] Tony: it’s like in every­body else. That’s right. So that’s, I guess that’s what I’m say­ing. It’s, it’s what, what are we doing dif­fer­ent­ly that, um, gives us the edge. And, uh, for Ben, I think it was putting togeth­er this great, great check­list, which describes the ulti­mate com­pa­ny. But as soon as it became eas­i­er to do, like that, that ben­e­fit got trad­ed away.

[00:23:37] Cameron: Yeah. Um, and the last one, num­ber 10, sta­bil­i­ty of growth in earn­ings defined as no more than two declines of 5 per­cent or more in year end earn­ings over the most recent 10 years.

[00:23:54] Tony: Yeah, great. They are good com­pa­nies.

[00:23:59] Cameron: So, the rest of this says, Togeth­er, Ben’s 10 points con­struct a for­mi­da­ble risk reward bar­ri­er. The first five point to poten­tial reward by pin­point­ing a low price in rela­tion to such key oper­at­ing results as earn­ings. The sec­ond five mea­sure risk by mea­sur­ing finan­cial sound­ness and sta­bil­i­ty of earn­ings.

[00:24:17] Cameron: Back­test­ing has shown that con­cen­trat­ing on stocks that meet just two or three of these cri­te­ria can pro­duce good results. Chang­ing mar­ket con­di­tions and busi­ness prac­tices make it unlike­ly that many stocks will get by these screens, which Gra­ham worked out togeth­er with James Rhea, an aero­nau­ti­cal engi­neer.

[00:24:36] Cameron: Six years after Gra­ham died, Rhea tucked the for­mu­la into a mutu­al fund known as the Amer­i­can Diver­si­fied Glob­al Val­ue Fund, run by Rhea’s son, James Jr. It turned out to be a clunk­er. And,

[00:24:53] Tony: from that.

[00:24:55] Cameron: yeah, it’s a bit of a, uh, bit of a anti cli­max when you go through all the 10 points and then it goes, yeah, but it did­n’t work when they put it into prac­tice.

[00:25:05] Tony: Yeah. And, um,

[00:25:08] Cameron: oh, I was gonna say, I did some more research on RIA. If that is, in fact, how he pro­nounces his name and, um, his work with Gra­ham. I came across this arti­cle. It says, uh, it’s refer­ring to an arti­cle that Ria wrote. He recounts the first time he met Ben Gra­ham. Gra­ham asked him to describe his stock selec­tion the­o­ry, but with­out using math­e­mat­ics, Ria did so using his milk cow anal­o­gy.

[00:25:30] Cameron: And I know you like a good anal­o­gy. We’ve always used the cof­fee shop anal­o­gy, which helped me a lot. Rheer likened his method of pick­ing stocks to that of select­ing a milk cow. When pick­ing a milk cow, you ide­al­ly want a cow that gives lots of milk, earn­ings, but also will give more milk year over year, growth and earn­ings.

[00:25:50] Cameron: Fur­ther­more, you would like sta­bil­i­ty in the growth. Also, Ria went on to explain cheese can be made from the milk, which is the div­i­dend giv­en back to the cus­tomer. So, he also would want a lot of cheese from the milk, a high div­i­dend yield. Part of Ria’s research was to look for stocks with high reward to risk ratios.

[00:26:08] Cameron: To him, a high reward cow was one that pro­duced a lot of milk, increased its milk out­put at a sta­ble rate, and allowed for a lot of cheese to be made. The risk in Rhea’s milk cow anal­o­gy was that the cow would stop pro­duc­ing milk, mean­ing you lose your milk, earn­ings, and cheese, div­i­dend yield. The degree of risk was how much you paid for the cow rel­a­tive to what you could get for the meat on its bones, the liq­ui­da­tion val­ue.

[00:26:33] Cameron: The high­er the price paid for the cow rel­a­tive to its liq­ui­da­tion val­ue, the high­er the risk. I I wan­na I wan­na know what kind of cow can keep giv­ing out more and more

[00:26:42] Cameron: milk every year does its I don’t have to

[00:26:45] Cameron: keep increas­ing in size. You end up with a cow the size of a fac­to­ry

[00:26:50] Cameron: or some­thing.

[00:26:51] Tony: per­haps if you buy it when it’s very young and it starts to pro­duce more and more as it ages, but yeah, I mean, a cou­ple of things. That’s, that descrip­tion is much more like the light. War­ren Buf­fett approach or the Char­lie Munger approach to buy­ing qual­i­ty com­pa­nies at a fair val­ue and look­ing for the moats and look­ing for them to con­tin­ue to, you know, put prices up and improve earn­ings year on year because of their moat.

[00:27:13] Tony: So, um, that last sen­tence was the val­ue bit, um, and it’s, it’s kind of a qual­i­ty of val­ue sort of. Sum­ma­ry as well, isn’t it? We’re find­ing good com­pa­nies at fair, at good prices. So yeah, I mean, um, it’s a good anal­o­gy. It’s inter­est­ing. It’s a cow, like we use cof­fee shops and cof­fee beans now. So I guess back when this anal­o­gy was first made, there was a lot more under­stand­ing of the worth of a cow by the pop­u­la­tion.

[00:27:38] Tony: Rest of the day, it’s a lot more under­stand­ing of cof­fee. Um, but, but yeah, it’s, uh, it’s, it’s a good one. It’s, it also leads you to think, well, when’s the best time to buy a good cow? It’s prob­a­bly when the price is down for, um, Cows at the slaugh­ter­house, which hap­pens from time to time for var­i­ous rea­sons, you know, droughts and floods and all that kind of stuff, so that lends itself again to Buf­fet­t’s way of think­ing, which is you, you know, you’re fear­ful when oth­ers are greedy and greedy when oth­ers are fear­ful.

[00:28:09] Tony: So there are always going to be good cows around, you’ve just got to buy them at the right price, which is the val­ue side of invest­ing, which is the side I like.

[00:28:17] Cameron: Yeah, so, con­tin­u­ing look­ing into this and the James Rhea fund, I found an arti­cle called A Con­trar­i­an Look at Ben­jamin Gra­ham, uh, says, When Ben­jamin Gra­ham died at age 82, which was in 1976, by the way, he was one of the great leg­ends of Wall Street. Bril­liant, suc­cess­ful, eth­i­cal, the man who invent­ed the dis­ci­pline of secu­ri­ty analy­sis.

[00:28:44] Cameron: Now 20 years lat­er after his death, his mem­oirs are reach­ing the pub­lic at last, this is in 1996. A huge­ly suc­cess­ful chron­i­cle of one of the rich­est and most event­ful lives of the cen­tu­ry. In a read­able and in size of book prac­ti­cal spec­u­la­tion by Vic­tor Nieder­hofer and Lau­rel Ken­ner, I came across a crit­i­cal assess­ment of Ben­jamin Gra­ham.

[00:29:05] Cameron: The ancient Greeks had Her­cules, the mighty hero dei­fied by Zeus for noble deeds and wor­shipped by men. In the 21st cen­tu­ry, Amer­i­cans have Ben­jamin Gra­ham. Goes on and on and on about he’s the father of secu­ri­ty analy­sis, etc, etc. Um, quot­ing War­ren Buf­fett, we’re here for only one rea­son, to lis­ten to the wis­dom of Ben­jamin.

[00:29:25] Cameron: But then it says, Con­sid­er­ing the great gap between Ben­jamin Gra­ham’s the­o­ry of val­ue invest­ing and the chances of putting it into prac­tice, it is not sur­pris­ing that the per­for­mance of the funds he man­aged was not as attrac­tive as leg­end would have it. The uni­ver­sal­ly revered apos­tle of pru­dent invest­ing was dev­as­tat­ed after the crash of 1929.

[00:29:44] Cameron: After fin­ish­ing 1928 with a 60 per­cent return, he lost 20 per­cent in 1929. He lost 50 per­cent more in 1930. In 1931, he lost 16%. In 1932, much to the relief of his investors, he lost a mere 3%. Jour­nal­ist Janet Lowe in Ben­jamin Gra­ham on Val­ue Invest­ing, lessons from the Dean of Wall Street, wrote, Though Gra­ham was able to stum­ble back and regain his foot­ing in the mar­ket rather quick­ly, after Black Tues­day, Ben’s high risk days were over.

[00:30:15] Cameron: After­ward, he strug­gled to squeeze the best pos­si­ble return from his invest­ments while at the same time seek­ing that wide mar­gin of safe­ty. The aver­age returns on Ben’s port­fo­lio descend­ed from the heights of the pre depres­sion years. Um, before I go on, like, his high risk days were over? I don’t think of Ben­jamin Gra­ham’s invest­ing strat­e­gy as high risk.

[00:30:37] Cameron: When was he, when was he high risk, do you know? Um,

[00:30:41] Tony: Uh, no, that’s a good point. He, um, one of the things I took out of his books were that he would fluc­tu­ate between bonds and stocks, depend­ing on where he felt the risk was less. So I would­n’t have said he was high risk either,

[00:30:53] Tony: real­ly. Mm hmm.

[00:30:56] Cameron: she says, Gra­ham always believed that a Dow of more than 100 was too high, and when it got there, he nev­er again felt com­fort­able in the mar­ket, as the Dow nev­er fell below 100 after 1942. Bri­an was always lean­ing toward being too defen­sive. In the ear­ly 1950s, when the Dow was about 300, he began to pull back from his busi­ness and advised his stu­dents against going into invest­ing.

[00:31:16] Cameron: The mar­ket was too high. Because he believed for so long that the mar­ket was over­val­ued, his invest­ment per­for­mance did not mea­sure up to a buy and hold strat­e­gy or any oth­er sen­si­ble alter­nate strat­e­gy. In 1956, the year the Dow topped 500 for the first time, he left the busi­ness for good and devot­ed him­self to a life of plea­sure.

[00:31:35] Cameron: Um Now, what I took away from that is, he was obvi­ous­ly pre­dict­ing, I assume, that the mar­ket was going to crash. And one of the things that you’ve always taught us is, you don’t pre­dict, you stay ful­ly invest­ed.

[00:31:51] Tony: Yeah, def­i­nite­ly. It’s sur­pris­ing to me that he took a hard line num­ber stance on what he thought was an over­val­ued Dow. He must have real­ized that it was just going to keep going up, even if it was only by infla­tion or, or GDP growth. Um, you’d expect that to hap­pen. So it’s, yeah, I mean, what’s, what’s the Dow Jones now?

[00:32:13] Tony: 20, 000 some­thing, 30, 000. Um, there’s a lot of growth he’s missed out on just by hav­ing a num­ber. So that, that’s strange to hear that. I’m not say­ing it did­n’t hap­pen, but it’s strange to hear that giv­en that. You know, look, if we just went back through his list of. Sor­ry?

[00:32:29] Cameron: 39,

[00:32:32] Cameron: 411 today.

[00:32:32] Tony: Okay, thank you.

[00:32:34] Tony: That’s how much I fol­lowed the Dow Jones.

[00:32:38] Tony: Um, yeah, but that’s, you know, a lot of upside peo­ple would have missed by tak­ing his advice. So it does seem strange when he talks about link­ing PE ratios to bond yields that he did­n’t have a rel­a­tive. Num­ber as he’s lim­it­ed on when the Dow was over­val­ued or not.

[00:32:54] Cameron: Hmm.

[00:32:54] Tony: was inter­est­ing, but I want to hear more about his life of plea­sure that you talked about at the end of that, at the end

[00:33:00] Tony: of that

[00:33:00] Tony: sto­ry.

[00:33:02] Cameron: Yeah. Well, they don’t go into that, unfor­tu­nate­ly, but,

[00:33:04] Cameron: um.

[00:33:05] Tony: Well, they do, they talk about, they do, they talk, is it that arti­cle? Well, they talk about him mak­ing up with his son’s

[00:33:12] Tony: Girl­friend or part­ner?

[00:33:15] Cameron: I missed that bit. Uh, yeah, no, it’s not in this arti­cle that I’m look­ing at, not the PDF. He took off with his son’s girl­friend?

[00:33:26] Tony: I think so, yeah.

[00:33:29] Cameron: that is, uh,

[00:33:31] Cameron: going

[00:33:32] Tony: think he was mar­ried five times and he went to his last wife and said, uh, I’m gonna see you for six months a year and the oth­er six months I’m gonna spend in Europe with this oth­er girl.

[00:33:40] Tony: So, um, yeah,

[00:33:41] Cameron: Hey, well, it’s good to

[00:33:43] Tony: quite, quite the life of

[00:33:44] Tony: plea­sure.

[00:33:47] Cameron: Um, and there was a quote I saw in, uh, Ben’s Wikipedia pro­file says, um, Gra­ham’s invest­ment per­for­mance was approx­i­mate­ly 20 per­cent annu­al­ized return over 1936 to 1956. The over­all mar­ket per­for­mance for the same, uh, time peri­od was 12. 2 per­cent annu­al­ly on aver­age. Even so, both Buf­fett and Berk­shire Hath­away Vice Chair­man Char­lie Munger have said they con­sid­er Gra­ham’s meth­ods nec­es­sary but not for suf­fi­cient, not suf­fi­cient for suc­cess in con­tem­po­rary invest­ing because Gra­ham placed too lit­tle empha­sis on the poten­tial for future growth.

[00:34:25] Cameron: As Buf­fett told jour­nal­ist Car­ol Loomis in 1988 for For­tune, Boy, if I had lis­tened only to Ben and not also to Char­lie Munger, would I ever be a lot poor­er? I was won­der­ing, like, what must Ben have been think­ing in those years when he was watch­ing War­ren go from strength to strength, um, when he was telling peo­ple to stay out of the

[00:34:47] Cameron: mar­ket?

[00:34:48] Tony: Yeah. Well, I think, um, I think he, Ben owned Geico and then sold his shares in Geico to War­ren, to Berk­shire Hath­away. So it was kind of even worse. It was like Ben must’ve had a posi­tion on Geico, which was, it’s not a long term hold and he sold it to War­ren. It’s been a cor­ner­stone of Berk­shire Hath­away ever since.

[00:35:08] Tony: So yeah, it’s, it’s like cou­ple of base plant moments

[00:35:12] Tony: there,

[00:35:12] Tony: I think.

[00:35:15] Cameron: My last bit on Ben­jamin Gra­ham was that accord­ing to Buf­fett, Gra­ham used to say that he wished every day to do some­thing fool­ish, some­thing cre­ative, and some­thing gen­er­ous. And Buf­fett not­ed Gra­ham excelled most at the last.

[00:35:29] Tony: Yeah,

[00:35:29] Cameron: some­thing fool­ish, some­thing cre­ative, and some­thing gen­er­ous. That’s a

[00:35:34] Cameron: nice, nice phi­los­o­phy.

[00:35:35] Tony: it is, isn’t it? I

[00:35:36] Tony: like it too.

[00:35:38] Cameron: Alright, we should move on. Um, I ran a sell analy­sis over my super port­fo­lio,

[00:35:45] Cameron: Tony,

[00:35:46] Tony: Mm hmm.

[00:35:46] Cameron: which I’ve talked about doing for the last cou­ple of weeks. So, basi­cal­ly, my, and look, this isn’t, uh, this isn’t, like, prob­a­bly the be all and end all of analy­sis. It was rel­a­tive­ly rough and ready, but I took I took my super port­fo­lio since, uh, I start­ed self man­ag­ing it, uh, via Aus­tralian Super in August of 21.

[00:36:08] Cameron: I looked at all of the sales that I’d done since that time. And then I looked at what the cur­rent price for all of those stocks is today. Then I cal­cu­lat­ed all of the div­i­dends that they would have accrued since I sold them and added that to it. And looked at. If I had just held those stocks instead of sell­ing them, whether or not I would be in a bet­ter off posi­tion now or a worse off posi­tion now.

[00:36:36] Cameron: And then I also, this morn­ing, cut it down to the first 20 stocks that I sold. So just if I’d held onto those 20, where would I be now if I had­n’t con­tin­ued to trade? So I’ve sold 101 stocks since August 21. 71 per­cent of them are worth more today than when I sold them and 30 are worth less. Um, and that includes whether or not I include div­i­dends or not.

[00:37:07] Cameron: Um, even just with the cap­i­tal gain, it’s basi­cal­ly the same, but if I had the div­i­dends, obvi­ous­ly the appre­ci­a­tion is high­er. Accord­ing to my spread­sheet, uh, if I had held onto all of the stocks, which I’d bought, which I would­n’t have been able to do because I would­n’t have had

[00:37:22] Cameron: that much cap­i­tal, but it would, yeah, it would be 26 per­cent

[00:37:27] Cameron: high­er,

[00:37:28] Tony: Mm-Hmm.

[00:37:28] Cameron: um, today or 7 per­cent a year.

[00:37:32] Cameron: A lit­tle bit clos­er to, you know, 8 per­cent high­er. I’m just open­ing up the spread­sheet. Um, the, uh, the sort of the big hit­ter in all of this is, uh, New Hope Coal. Um, it would have gone up 234%, um, since I sold it.

[00:37:55] Tony: When did you,

[00:37:56] Cameron: the, the,

[00:37:57] Tony: so, so, no. When did you buy it? Was it part of your August 21 port­fo­lio? That’s

[00:38:02] Tony: the, that’s the test, isn’t it?

[00:38:04] Tony: Okay.

[00:38:05] Cameron: Yeah. Yeah. It was very ear­ly on. Yeah. I sold it Octo­ber 21.

[00:38:10] Tony: Mm

[00:38:10] Cameron: Uh, sold Octo­ber 21 at, uh, 2. 15. And it’s now trad­ing at 4. 73. Um, but, and, and the worst though, if I kept hold­ing it, the worst over that peri­od would have been GRR, which is down 45%. But if I just cut it off at the first 20, uh, and take out a cou­ple of dupli­cates like ECX, I bought and sold a cou­ple of times and there was a cou­ple of oth­ers.

[00:38:41] Cameron: Um, and it held those 20 for the last three years. I would have been 55 per­cent bet­ter

[00:38:48] Tony: Oh, so these were the 20 that was in place in August 21 when you start­ed the analy­sis. That was your

[00:38:54] Tony: port­fo­lio at the

[00:38:55] Tony: time?

[00:38:56] Cameron: it’s, uh, yes, the ones that I bought, like the first 20 stocks that I sold, basi­cal­ly, after August 21. So between August 21 and May 22 is when I sold the last of these. Um, would have been 55 per­cent bet­ter off. NHC, as I said, is part of that. So it’s sort of the big hit­ter up, 234%. The worst. I would’ve been worse off with a MI, which would be down 44%.

[00:39:22] Cameron: But, um, the aver­age gain across that 20 is about 38%. So 55% over again, rough­ly three years, depend­ing on when you cut it off, um, rough­ly sort of, uh, 18% a year. Uh, th out­ta, out­ta those 2017 would’ve gained. Um, since I sold them and three are neg­a­tive, uh, which are ASX, AMI, and Ami­co, E H L. Now, uh, caveats is I haven’t real­ly account­ed for cor­po­rate actions I might have missed.

[00:39:57] Cameron: Con­sol­i­da­tion, splits, those sorts of things. Uh, I don’t know if there were many of those in the last few years with those sort of large com­pa­nies. That may, um, change it. But It was kind of depress­ing to run that analy­sis, but, but then I’ve been think­ing about it overnight and I’m like, well, you know, our sell­ing trig­gers are, this is a com­bi­na­tion of rule one cells, com­mod­i­ty cells,

[00:40:25] Cameron: um,

[00:40:26] Tony: Three point

[00:40:26] Cameron: 3PTL cells, and maybe a

[00:40:28] Cameron: bad news sell­er some­where in there too, I don’t know if there were any, but I haven’t done like a cell trig­ger analy­sis on them, but I know that our, our cell trig­gers are there as an insur­ance.

[00:40:41] Cameron: Um, pol­i­cy, right?

[00:40:43] Cameron: It’s just in the last three, three years, we haven’t had

[00:40:46] Cameron: anoth­er GFC. We did have COVID, uh, before that, actu­al­ly a lit­tle bit before that. So my port­fo­lio, um, start­ed sort of mid COVID spike or towards the end of the COVID spike, post COVID spike. But, you know, and I know we have a, we have a calami­ty, what, rough­ly every decade,

[00:41:05] Cameron: there’s a mar­ket cor­rec­tion.

[00:41:07] Tony: Yep. Well, we’ve had inter­est rate ris­es dur­ing that peri­od, which I think was the rea­son for a lot of our sell­ing. Um. The inter­est rates would rise and the mar­ket would sell off. And we get, I know I per­son­al­ly, I get rule one to three PTO a lot because of that. And then things would recov­er and set­tle down.

[00:41:23] Tony: So, yeah, I mean, I, I agree with you. I prob­a­bly, as the day goes by, I don’t sit down and say, I wish I had gone to cash after COVID because that was when my port­fo­lio was at the high, but. You know, I wish a lot of things too. If I could make that hap­pen, I’d prob­a­bly focus my wish­es on some oth­er things. So, um, you’ve got to be care­ful.

[00:41:41] Tony: We’re not sort of, you know, Mon­day morn­ing quar­ter­back­ing this, but it’s a use­ful, is a use­ful analy­sis and it’s, um, led me to think that a 20 per­cent rule one is a bet­ter idea, um, but you know, the analy­sis we did on that sug­gests it’s mar­gin­al­ly bet­ter or it’s, it’s, um, yeah, a lit­tle bit bet­ter. So I’m not sure.

[00:42:02] Tony: Um, What was your take­away, dear? I mean, I don’t like, I have been a buy and hold investor in the past and it just did­n’t work, espe­cial­ly when the GFC hap­pens, so I think hav­ing sell trig­gers is far bet­ter than not hav­ing them, or hav­ing the ones that we have, um, but yeah, they did­n’t treat us very well for the last cou­ple of years because of all the churn­ing that was going on due to inter­est

[00:42:22] Tony: rate ris­es pri­mar­i­ly,

[00:42:24] Tony: um,

[00:42:25] Cameron: And Ukraine and Gaza and trade issues and Chi­na, COVID lock­downs, and, uh, All the oth­er things that have spooked the mar­ket, but you know, it, it, it, okay. So my take­away is num­ber one, it con­firmed my sus­pi­cion that one of the rea­sons my port­fo­lio has been under­per­form­ing the index for the last few years that I’ve, I’ve been sell­ing a lot when the mar­ket has then just been rebound­ing.

[00:42:52] Cameron: And the stocks that I’ve been buy­ing, haven’t kept up with that. Cause I, you know, I lose it, it, it rule ones and I have to sell it and then it goes up and then I rule one and been in that rule one death spi­ral that we’ve talked about and so that, you know, that hurts, but. Again, I’m real­iz­ing that this is a long term strat­e­gy, right?

[00:43:15] Cameron: And those things are there as an insur­ance pol­i­cy.

[00:43:20] Tony: Yeah, no, I agree 100%. I haven’t stopped using them. They’ve heard us in the last few years, but they’ll help us going for­ward at some stage, because there will be a mar­ket down­turn. I sus­pect, who knows when it will be, I can’t pre­dict it, but I sus­pect giv­en where the PE is in the US stocks, that they’re going to come off at some stage for what­ev­er rea­son, and that will dri­ve the mar­ket down.

[00:43:40] Tony: Or, you know, inter­est rates will go up again because infla­tion has­n’t been tamed, and that will dri­ve the mar­ket down. And then we’ll be thank­ful for it. Sell point rules that we have because we won’t be able to make sense of the mar­ket at the time. We can just apply the rules. So,

[00:43:54] Tony: um,

[00:43:55] Tony: yeah,

[00:43:56] Cameron: As you said, like Mon­day,

[00:43:58] Cameron: Mon­day, Mon­day morn­ing quar­ter­back­ing, we haven’t had a cor­rec­tion, a major cor­rec­tion in the last cou­ple of years. So, you know, in ret­ro­spect, we can go, well, we, we did­n’t have to sell those things because there was­n’t a major cor­rec­tion, but you don’t know you’re in a major cor­rec­tion until, you Lat­er,

[00:44:15] Cameron: right?

[00:44:16] Tony: Yes.

[00:44:18] Cameron: So, uh, yeah, I just, uh, yeah, it, it hurts. It’s painful, but that’s insur­ance.

[00:44:26] Tony: Yeah. And, and if we can think of some ways to amend the rules, um, great, but I haven’t been able to come up with any­thing oth­er than to tri­al a 20 per­cent rule one, give us a bit more breath­ing space before we have to sell some­thing because I was find­ing that was an issue. Like buy some­thing, the inter­est rates would go up.

[00:44:43] Tony: Share price would go down by 11%, I’d sell it and then go back up again once the mar­ket had got­ten used to inter­est rates being high­er again. Um, so that was the killer. Uh, but then we did the back­test­ing, it, it, my, my thoughts are because it came out rel­a­tive­ly the same as a rule one of 10 per­cent that 20 per­cent had less churn, it was, it was bet­ter.

[00:45:06] Tony: But I’m tri­alling it now going for­ward and I think luck­i­ly we’ve exit­ed that kind of tur­bu­lence in the mar­ket which, May this trade a lot. So I don’t know whether the, my port­fo­lio being so placid is now due to the rule one being 20 per­cent or more like­ly that things have just set­tled down. The mar­ket’s com­fort­able with inter­est rates at 4.

[00:45:28] Tony: 35 per­cent or there­abouts. Um, and it’s not as jumpy as it was.

[00:45:33] Cameron: Hmm. Well, I don’t think I’ve been trad­ing as much in my super port­fo­lio either. A lit­tle bit more than you, but I hold more stocks than you do in mine too. So there’s a lit­tle bit more volatil­i­ty there that comes with that. Any­way, so that’s it. It hurts. I, I, I felt sick when I ran the spread­sheet. But, you know, I say, well, you know, it’s It’s a run it 10 years lat­er, 10 years from now and see how you feel, you

[00:46:00] Tony: Yeah. I think buy­ing, buy­ing a hold, I think is attrac­tive and that’s typ­i­cal­ly what a val­ue investor would do. But I’ve just learned that you get burnt so bad­ly dur­ing the down­times.

[00:46:12] Cameron: Yeah. And you just can’t

[00:46:12] Cameron: know,

[00:46:13] Tony: Cor­rect.

[00:46:14] Cameron: like in your 30 odd years of invest­ing, how many major down­turns, GFC is the big one, 2008,

[00:46:22] Tony: yep, uh,

[00:46:23] Cameron: the

[00:46:23] Cameron: mar­ket to recov­er,

[00:46:24] Tony: yep, Asian finan­cial cri­sis in the late 90s, the long term cap­i­tal man­age­ment, um, cri­sis, I for­get when that was, maybe ear­ly 90s, uh, dot com crash, Gulf War I, Gulf War II,

[00:46:38] Cameron: Paul Keat­ing’s

[00:46:39] Cameron: reces­sion we had to have.

[00:46:40] Tony: yeah, well, that was 90s as well. It was around the Gulf Wars, but yeah. Um, I’d say once a cycle, once every sev­en years or so, there’s a major cor­rec­tion.

[00:46:52] Tony: And you can recov­er from it. I mean, to be hon­est, what’s hap­pened to my port­fo­lio in the last three years, and it sounds like yours, is, is a bit like going through a cor­rec­tion, like a, a major down­turn in the mar­ket. Um, even though the mar­ket’s prob­a­bly gone side­ways over that time. Um, we’ve under­per­formed because we’ve been trig­ger hap­py on our sell­ing, but

[00:47:12] Tony: over the last three years, I could eas­i­ly see that, you know, the mar­ket could have gone into a tail­spin for any num­ber of rea­sons, and it just has­n’t, which has been lucky.

[00:47:21] Cameron: yeah. I mean, since, if I go back to August 21, the mar­ket, the All Ords, uh, sor­ry, that’s the Dow Jones. Let me see there. Uh, I want to say August 21, the All Ords was about 7, 900, you know, and we’re just over 8, 000 now. So you’re right. It has sort of gone

[00:47:42] Cameron: side­ways.

[00:47:44] Tony: Yeah, yeah, um, but like you said, any­thing that’s hap­pen­ing in the world could have trig­gered, I mean tomor­row Hezbol­lah could invade Israel and that could be a prob­lem for the stock mar­ket. Um, the RBA could meet in six weeks time and put inter­est rates up and that could be a prob­lem for the stock mar­ket.

[00:48:03] Tony: Um, uh, the pres­i­den­tial debate could go off the rails and that could be a prob­lem for the stock mar­ket. Any­thing could hap­pen, it could be out of the blue, you just don’t know. And when it hap­pens, It spooks the mar­ket by def­i­n­i­tion because no one

[00:48:15] Tony: knows what’s going to hap­pen

[00:48:16] Tony: next.

[00:48:18] Cameron: I, I, I’ve been telling myself today that the mar­ket rebound­ed today because Julian

[00:48:22] Cameron: Assange has been

[00:48:23] Tony: Yeah, I heard that.

[00:48:26] Cameron: Wow, he pled guilty

[00:48:28] Cameron: in a plea deal, but he’s free to

[00:48:31] Cameron: come home.

[00:48:32] Tony: Mmm.

[00:48:33] Cameron: hon­est­ly did not think I would see the

[00:48:35] Cameron: day that he, uh, sur­vived that, so

[00:48:39] Cameron: All right, mov­ing right along. Uh, what’s the time?

[00:48:41] Cameron: Oh,

[00:48:42] Cameron: uh, I’m run­ning

[00:48:43] Tony: a pulled pork

[00:48:43] Tony: to do.

[00:48:45] Cameron: Okay. Uh, why don’t you do that and then we’ll see what time we’ve got left for oth­er stuff.

[00:48:51] Tony: Yeah. So, I was quite pleased to see this com­pa­ny back on the buy list, because it’s one that I’ve owned in the past. The pulled pork is on Tab­Corp Hold­ings, TAH, which came onto the buy list this week, for the first time, I think, since we’ve been putting out a buy list. Most peo­ple would know what Tab­Corp is.

[00:49:12] Tony: Hold­ings Art Code is TAH. They run the, um, uh, they’re a big wager­ing com­pa­ny in Aus­tralia, they run, uh, they have a, uh, a monop­oly on the retail, uh, bed­ding shops in Aus­tralia, or at least on the east­ern seaboard, um, and they’ve been around, they’ve been, they list­ed back in the 90s, they’ve been around for a long time, they’ve had a fair­ly che­quered his­to­ry, um, Uh, they’ve been, the share price is now 70 cents, which was less than what it list­ed at.

[00:49:39] Tony: Uh, I don’t think there’s been con­sol­i­da­tions along the way, but there may have been. Um, I think it’s back on the buy list though because of, uh, the recent news that, uh, they’re chang­ing CEOs. So, uh, Gillon McLach­lan was announced as the new CEO recent­ly. If peo­ple don’t know who he is, he is the ex CEO of the AFL, who retired from that job recent­ly.

[00:50:04] Tony: Uh, the last CEO of Tab­Corp, um, was asked to, to leave, um, chap by the name of Adam Reit­ens­gild, and, uh, he was shown the door after alle­ga­tions of improp­er lan­guage was used in front of a reg­u­la­tor. Um, he denies the alle­ga­tions, uh, but, uh, decid­ed to leave, um, any­way. And that depressed the stock for a while.

[00:50:28] Tony: Then there was the announce­ment of Gillon McLach­lan, who’s, um, wide­ly seen as being a, um, a good CEO, was appoint­ed. Uh, and so, The stock has rebound­ed enough to make it a a three point trend line buy on our, on our graph. And so it’s come onto the, um, onto the buy list. Uh, I wan­na run through, I guess I’ve had a long his­to­ry with this stock ’cause it’s often a val­ue stock and I’ve, I owned it dur­ing the float and uh, that was an inter­est­ing time too.

[00:50:55] Tony: I remem­ber it was, there was a whole range of gov­ern­ment floats. Prob­a­bly the biggest one was Com­mon­wealth Bank. They float­ed off part of Tel­stra in a cou­ple of dif­fer­ent install­ments. The gov­ern­ment owned the bet­ting agen­cies by state before Tab­Corp was float­ed and then the New South Wales TAB was float­ed.

[00:51:16] Tony: And I remem­ber being told by some­one I knew that the way to scam the Tab­Corp float was to put in lots of small, um, Small appli­ca­tions for shares because I’m going to scale them back a lot. And if you only put in one, you get, you get scaled down a lot. So I’ve applied in all of my rel­a­tives names and friends names and dif­fer­ent address­es and got a rea­son­able allo­ca­tion dur­ing the float and held those for quite a while.

[00:51:48] Tony: So I’ve been

[00:51:50] Tony: a share­hold­er in the past.

[00:51:51] Cameron: should you be admit­ting that pub­licly? Is

[00:51:53] Tony: Oh, I don’t know. there a statute of lim­i­ta­tions on scam­ming, scam­ming the

[00:51:58] Tony: gov­ern­ment? I don’t know.

[00:52:01] Cameron: Well, we’re about to find out.

[00:52:02] Tony: Yeah.

[00:52:02] Cameron: that’s,

[00:52:03] Cameron: that’s, yeah,

[00:52:04] Tony: Um, any­way, I was­n’t the only per­son doing it,

[00:52:07] Tony: if

[00:52:08] Tony: that’s a defence.

[00:52:10] Cameron: that’s always goes well in a court. I’m sure the judges have nev­er heard that one before.

[00:52:16] Tony: One of the things I could say about this com­pa­ny, hav­ing fol­lowed it for 30 odd years, um, is that the cul­ture has always been Fair­ly old fash­ioned, seen as being a bit of an old boys cul­ture. And it was, I think, a clas­sic case of dis­rup­tion by tech­nol­o­gy. So, because it owned the monop­oly of TAB shops, and I’m going back to the time when, you know, when I, when I used to, you know, walk down to the local TAB with a few mates, and it would be chock full of peo­ple in track­suits and, um, guys, if it was in a pub, they’d be drink­ing beer.

[00:52:48] Tony: If it was, um, in a shop front, it would just be full of peo­ple who want­ed to place a bet. Um, almost always 100 per­cent men. No, no women would want to go into an out­let like that. Uh, it would have Sky Chan­nel on the wall, uh, because that was the only way to watch the race if you weren’t at the track. Uh, that was a monop­oly tele­vi­sion busi­ness.

[00:53:08] Tony: Uh, yeah, and so it was a, it was a I could see why the man­agers of the TAB at the time thought they had a license to print mon­ey, because it was, the out­lets were full, it was a monop­oly. Um, and yeah, they’re doing real­ly well, but as, as more and more dis­rup­tion came along and, uh, peo­ple start­ed to be a lit­tle bit on their phones, they did­n’t keep up with tech­nol­o­gy.

[00:53:31] Tony: Um, the peo­ple had found oth­er ways to broad­cast races and, um, that became erod­ed over time as well. Uh, so, uh, now I think dur­ing the research for doing this, uh, Tab­Corp have a, they claim about 33% of the, um, of the wager­ing mar­ket. But I did read some oth­er analy­sis which said that Tab­Corp only had 19 per­cent of the down­load­able bet­ting apps in Aus­tralia, and that Sports­bet had 36%.

[00:54:01] Tony: And then there’s a lot of oth­er small play­ers in the mar­ket as well, Lad­brokes being prob­a­bly the biggest of those. Um, so they’ve real­ly, Real­ly being left behind in terms of tech­nol­o­gy. And that means they’ve been left behind in terms of mar­ket share of young peo­ple, because most young peo­ple now would nev­er dream of going to a TAB out­let to place a bet.

[00:54:20] Tony: They do it on their phones. Um, so that’s, I mean, I have anoth­er per­son­al anec­dote. I went along to a pre­sen­ta­tion that, uh, Alex Hay, my stock­bro­ker put on with one of the peo­ple, one of the exec­u­tives from Tab­Corp, this is going back 15 years or so. And, um, I was just struck by how. Arro­gant and out of touch that per­son was when I was ask­ing them ques­tions.

[00:54:42] Tony: Cause it was around the time that Bet­fair had come out and that was a, a dif­fer­ent way of bet­ting. You’re basi­cal­ly a book­ie or, or bid­ding with a book­ie, um, on a, on a phone app or a lap­top app and Tab­corp nev­er had a prod­uct to match that. And I said, what are their plans? Are they going to match it? And he was just so dis­mis­sive of Bet­fair.

[00:55:01] Tony: It’s like, ah, Bet­fair, it’s, you know, We know that peo­ple who use Bet­fair are just nerds sit­ting at home on the lounge, but peo­ple who want to bet, they love going to our retail out­lets. And I just tripped my head and said, mate, have you been to a tab, a TAB out­let late­ly? So any­way, I could tell because I was a Bet­fair user that, and I could see how much was being bet on each race, what the pool was for each race, and it was equiv­a­lent to what Tab­Corp were pulling in, so I knew it was more than just nerds sit­ting on lap­tops in their lounges bet­ting.

[00:55:32] Tony: But any­way, um, Tab­Corp have been dis­rupt­ed by, by new­er play­ers, um, over the years, and they’re, they’re strug­gling at the moment, which is prob­a­bly why it’s on, you know, our check­list as a val­ue stock. Um, recent­ly, in the last year or so, they spun out, uh, well, going back to nine, uh, 2017, I think it is, I’ll get to it when I go through the his­to­ry, Tab­corp bought, um, or merged with Tats Lot­to, uh, or the Tat­ter­sal­l’s com­pa­ny which runs the Lot­to busi­ness in Aus­tralia, and then, uh, last year they de merged, or 2022 they de merged the, the Lot­ter­ies busi­ness again out of Tab­corp, so they’ve, they’ve had this his­to­ry of Strug­gling for growth.

[00:56:15] Tony: And if you think about the bet­ting mar­ket, unless there’s new sports to bet on, um, or they expand over­seas or what­ev­er, it does­n’t real­ly grow. It’s, it’s a fair­ly sta­ble sort of mar­ket, which is good and bad, but there’s been a strug­gle for growth and they’ve often­times done it through M& A work. So like this, um, merg­er with Tatts Lot­to.

[00:56:34] Tony: Um, one of the things though, that a lot of fund man­agers don’t like is when, is when the com­pa­ny which is strug­gling for growth buys anoth­er com­pa­ny. Um, because then the com­pa­ny that is grow­ing, in this case the lot­to busi­ness, was mask­ing the prob­lems in the gam­bling busi­ness and there­fore the sum of both of those was­n’t trad­ing at the right pre­mi­um for the lot­to busi­ness and so there was a lot of pres­sure on Tab­Corp almost from the time they bought the lot­to com­pa­ny to get rid of it and because it was it would trade at a high mul­ti­ple as a sep­a­rate com­pa­ny and they did and that’s what hap­pened so um You know, I’ll go through the his­to­ry in a minute, but there is this kind of his­to­ry of try­ing to get growth by using the cash flow that comes in from gam­ing to buy or merge with oth­er com­pa­nies, and it gen­er­al­ly does­n’t work out, or they have to divest it.

[00:57:22] Tony: Um, they don’t just have a wager­ing busi­ness, they also have the Sky Rac­ing busi­ness, which broad­casts now on Fox­tel. Um, uh, and I, uh, threw a deal with Chan­nel 7 also on, um, Chan­nel 7’s sub­sidiary chan­nels. Uh, although I’m not sure if Tab­Corp owns that or Rac­ing Vic­to­ria owns that. But any­way, there is com­pe­ti­tion for, for, uh, broad­cast­ing rac­ing in, on Aus­tralian TVs now, which there was­n’t before.

[00:57:50] Tony: Um, and I also have a divi­sion which mon­i­tors, uh, the pok­er machines, um, for integri­ty. So mak­ing sure, Mak­ing sure that pok­er machines are pay­ing out what they should and that they’re, they’re work­ing prop­er­ly and not, um, not break­ing the law. Um, so there’s a cou­ple of oth­er strings to their bow, but, but by and large, it’s a wager­ing busi­ness.

[00:58:10] Tony: Um, one of the things that they’ve, they’ve had issues with over time as well is the chang­ing nature of book­mak­ing, uh, and the way it’s taxed. So, orig­i­nal­ly, Um, the rac­ing prize mon­ey was most­ly fund­ed through the gov­ern­ment tak­ing a, a man­dat­ed tax on the, the tote pools that Tab­Corp ran, and that would go back into, the gov­ern­ment would agree to put that back into rac­ing as prize mon­ey.

[00:58:36] Tony: Um, what’s hap­pened over the years though, with the rise of the online book­mak­ers, is a lot of mon­ey has left the tote pool, and so, uh, gov­ern­ments have, have, uh, Um, increas­ing­ly tax book­mak­ers more, um, but that tax is less than what is com­ing out of the tote pool for Tab­Corp. So Tab­Cor­p’s always had, um, an unleveled play­ing field with how it’s being taxed com­pared to how book­mak­ers are being taxed.

[00:59:01] Tony: So there’s been a fair amount of gov­ern­ment lob­by­ing going on to try and lev­el the play­ing field. And, uh, Tab­Corp signed a new agree­ment last year with the Vic­to­ri­an gov­ern­ment, which came into force at the end of last year, um, which will be more prof­itable for Tab­Corp going for­ward. So that’s some­thing to, on the pos­i­tive side of things, they did some­thing sim­i­lar in Queens­land, uh, and New South Wales are review­ing the tax­a­tion of the rac­ing indus­try.

[00:59:26] Tony: So, uh, Um, I think that’s gonna be a, um, if it’s gonna be a ben­e­fit hav­ing some­one like Gil McLaugh­lin as the CEO because they have always had good, he’s always had good gov­ern­ment con­tacts and good gov­ern­ment, um, uh, rela­tion­ships, um, as at CEO of the A FL and that, that will, um, help I think in terms of mak­ing sure that the play­ing field is lev­eled between tax­es between dif­fer­ent types of wager­ing com­pa­nies.

[00:59:53] Tony: Um, yeah, Gil aside, Gil McLaugh­lin has been called the most, um. The per­son with the most con­tacts in Aus­tralia. So he’s, he’s a very heav­i­ly net­worked CEO, which, which will help in this busi­ness. Um, what else can I say? Uh, and just back on Gil McLaugh­lin, he was, he was a suc­cess­ful CEO of, um, the AFL, dou­bled AFL rev­enues dur­ing his tenure, intro­duced at AFLW, the Wom­en’s League, um, bought Mar­ble Sta­di­um and suc­cess­ful­ly rene­go­ti­at­ed media con­tracts along the way.

[01:00:25] Tony: So, um, Um, he, he has done very well. One of his ex lieu­tenants, a lady called Kylie Rogers, is about to run Rac­ing Vic­to­ria, so he’s going to be well net­worked for his role with Tab­Corp going for­ward. The only inter­est­ing part of that is that, uh, His New South Wales, um, well, the head of New South Wales Rac­ing is also the head of the NRL.

[01:00:48] Tony: So Peter Volan­des is chair­man of both New South Wales Rac­ing and the NRL. And, uh, you know, the head of the AFL would have had an inter­est­ing rela­tion­ship with the head of the NRL, which are com­pet­ing foot­ball codes. So it’ll be inter­est­ing to see what hap­pens with, um, with his rela­tion­ship with Peter Volan­des going for­ward, because, um, rac­ing New South Wales will be a big part of, um, what hap­pens to Tab­Corp going for­ward.

[01:01:12] Tony: Um, Tab­corp itself post­ed a large loss in the Decem­ber half, um, the loss was 637 mil­lion. A lot of that was a one off hit because they, they um, had to deval­ue what they thought their, their licens­es were worth for gam­bling in I think South Aus­tralia and one of the oth­er states as well. Uh, so that won’t hap­pen again, but um, but it was a big hit.

[01:01:36] Tony: How­ev­er, it’s worth look­ing at the under­ly­ing earn­ings, which fell by 14%. Um, And our rev­enue fell by 5%. So there’s a fair few head­winds, um, fac­ing Gill McLaugh­lin, uh, in com­ing into this, this com­pa­ny, I’ve got to admit some of the rea­sons why rev­enue and earn­ings are down is because COVID was an all time high for wager­ing com­pa­nies as peo­ple were locked at home, sit­ting on their couch­es, um, watch­ing.

[01:02:04] Tony: So, um, it’s not sur­pris­ing in some ways that the rev­enue is down post COVID, uh, because peo­ple can go out and do oth­er things besides, besides bet on their phones. Um, the oth­er thing that as a head­wind that they’re fac­ing in the indus­try is that the gov­ern­ment is look­ing at, uh, The way that the indus­try adver­tis­es and is think­ing about bring­ing in bans about adver­tis­ing on TV around sport­ing match­es and pos­si­bly before 8pm to, um, to try and reduce, uh, the influ­ence on chil­dren.

[01:02:36] Tony: So, um, quite a few head­winds there. Um, ques­tion is whether Gillon McLach­lan is, is up to that, um, based on his AFL career, prob­a­bly yes. Well, I am always remind­ed of War­ren Buf­fet­t’s. When he says that if a man­ag­er with a good rep­u­ta­tion meets a busi­ness with a bad rep­u­ta­tion, it’s usu­al­ly the busi­ness that has the rep­u­ta­tion that stays intact.

[01:02:58] Tony: So, um, we’ll, we’ll see, um, what hap­pens on that. A bit of his­to­ry on, um, on the TAB. Uh, TAB stands for Total­iza­tor Agency Board. Um, and a lot of peo­ple won’t know the total, or the Total­iza­tor is an Aus­tralian inven­tion. Um, going back to 1913 by, uh, it was invent­ed by a fel­low called George Julius, who was lat­er knight­ed for it.

[01:03:23] Tony: Um, the first Total­iza­tion machine, um, was installed in Auck­land, New Zealand at a race course called Les­ley and the Sec­ond in Perth in 1916 and the third at Eagle Farm in Bris­bane in 1916. And, um, if any­one’s inter­est­ed, have a Google it and have a look at the, what the machine looked like. But if. It was like a huge room full of pul­leys and weights, um, and cables, um, mechan­i­cal­ly work­ing out, uh, what was being bet where and what the, how the odds were chang­ing on the hors­es.

[01:03:53] Tony: Um, so a tote pool is, is what’s called parimutuel bet­ting. Um, and that means that the, the way that the win­nings are dis­persed is that all of the funds that have been put in to bet on that race, um, or sport­ing event, but gen­er­al­ly a race, uh, are then paid out to the win­ner. So it’s divid­ed by the num­ber of tick­ets that were bet on that win­ning horse, um, less what­ev­er the gov­ern­ment takes out in tax­es and the oper­a­tor takes out, um, as their, their mar­gin.

[01:04:22] Tony: Um, so what it basi­cal­ly means is you don’t know the odds that you’re get­ting until the, uh, race has start­ed and the, Tote Pool is closed, and then it’s cal­cu­lat­ed, and that’s dif­fer­ent to what’s called Fixed Odds Bet­ting, which is, um, what a book­ie does, and you know your odds at the time of plac­ing the bet, what the horse, um, is gonna, uh, pay if it wins.

[01:04:41] Tony: Uh, what else can I say about this? Um, so yeah, so, uh, the tote was an Aus­tralian inven­tion. Uh, or the automa­tion, the TOAT was Aus­tralian inven­tion. Uh, the com­pa­nies were then, um, gov­ern­ment agen­cies were set up to run the TOATs, um, large­ly because they saw it as a way of, uh, tak­ing their, their share of the cut from the pool and using that to fund rac­ing, to fund the, The, um, the prize mon­ey in rac­ing.

[01:05:15] Tony: And then it was­n’t until 19, 19, well, 1994, I think. I’m just look­ing at my notes here. Um, yeah, 1994 when Tab­Corp was list­ed on the ASX. And then a few years lat­er, the New South Wales TAB was list­ed, um, under the code TAB as well. In 1999, Tab­Corp acquired the Star City Casi­nos, which was three Queens­land based casi­nos in, um.

[01:05:44] Tony: Sor­ry, that’s not right, uh, Star City Casi­nos was in New South Wales in 03, uh, they merged with Jupiter’s to own the three Queens­land casi­nos, um, and in 04, uh, Tab­Corp acquired the TAB, which was list­ed sep­a­rate­ly, the New South Wales TAB, which also gave them, um, the Sky Chan­nel broad­cast assets. So they, they expand­ed, they did quite a good job through, um, until that peri­od of just acquir­ing and acquir­ing and acquir­ing.

[01:06:12] Tony: Um, then in 2011, they decid­ed the casi­no busi­ness was­n’t a good one for them, and they dis­merged the casi­no busi­ness­es into a com­pa­ny called Echo Enter­tain­ment Group. And again, it’s this idea of, um, fund man­agers want­i­ng to invest in either a wager­ing com­pa­ny or a casi­no com­pa­ny, and they should trade on sep­a­rate mul­ti­ples, um, on the, on the ASX, which is what even­tu­al­ly hap­pened.

[01:06:37] Tony: Um, and I said before, 2017 Tab­Corp com­bined with the Tax Group, which oper­ates lot­ter­ies, but in 2022 they demerged again with, um, the lot­ter­ies busi­ness. So it’s just, uh, basi­cal­ly a wager­ing busi­ness now. So that’s, that’s the his­to­ry of it. Um, inter­est­ing his­to­ry. I mean, uh, the gov­ern­ments took over the tight busi­ness­es.

[01:07:00] Tony: Um, and then also I got into, um, The fixed price busi­ness­es, uh, and large­ly as a way of con­trol­ling gam­bling. There was a lot of SP book­mark­ing, book­mak­ing going on in Aus­tralia, um, right up until, uh, the abil­i­ty to go into a bet­ting shop and, um, and place a bet through them rather than just going into a pub and find­ing the per­son who was the SP book­mak­er.

[01:07:24] Tony: So there was some appeal, um, to the gov­ern­ment to clean up the reg­u­la­tion of the indus­try by oper­at­ing the totes them­selves. And then, um, Yeah, things evolved and they decid­ed to demerge them that they weren’t should­n’t be in the wager­ing busi­ness. I should high­light that there’s a ESL, I guess, issue or con­cern with a com­pa­ny like Tab­corp and that’s always going to be a part of some­one’s deci­sion to invest in this com­pa­ny.

[01:07:52] Tony: Research sug­gests that maybe up to a third of bet­tors Um, with the, with any sort of wager­ing com­pa­ny are prob­lem gam­blers. So, um, it’s, it’s how the com­pa­nies, uh, can, can, Mon­i­tor for that and exclude peo­ple, which is, um, I think good cor­po­rate gov­er­nance. Um, they haven’t always had a his­to­ry of doing that.

[01:08:14] Tony: And there’s cer­tain­ly been cas­es of, um, one wager­ing com­pa­ny that I think of that has mar­ket­ed to these peo­ple and, and kept them going when they haven’t been able to afford, um, to, to, to. Feed their gam­bling habit and it’s often led to fraud. So it has led to fraud in some cas­es. So, um, there is an ESL con­cern with this.

[01:08:34] Tony: And I think it’s, it’s also fair to call out the gov­ern­men­t’s con­flict­ed nature in this indus­try, but also. You know, most of the syn­tax indus­tries, they get an income from tax­ing these indus­tries and they’re meant to reg­u­late them. Um, so they have an incen­tive to see them grow, but they also have a duty to see them well reg­u­lat­ed and that can often come and do a bit of con­flict, I think, um, not nec­es­sar­i­ly overt­ly, but poten­tial­ly covert­ly that it can hurt their, their bud­gets if they decide to clamp down on com­pa­nies like casi­nos or wager­ing com­pa­nies or any­thing else that they get a tax take from which can be detri­men­tal to peo­ple.

[01:09:14] Tony: Alco­hol, speed­ing, what­ev­er. So yeah, there is an ESL issue here that peo­ple need to work their way through. Going to the num­bers, uh, The rea­son why I’m hap­py to talk about this, um, is that it has a high 2M, so it’s going to be able to be invest­ed by, um, pret­ty much any­one who’s lis­ten­ing to this, uh, pod­cast.

[01:09:37] Tony: Uh, I did the num­bers with a price, a stock price of 0. 70, and that’s less than the con­sen­sus tar­get of 0. 82, but above our IV1. Cal­cu­la­tions and IB2 cal­cu­la­tions, which are 17 respec­tive­ly. The yield on this com­pa­ny is 2. 86%, so it’s good to have a yield, but it does­n’t reach our thresh­old, so we’re not going to score it for that.

[01:10:01] Tony: Uh, and I think there is a risk with this yield because the pay­out ratio I saw in the lat­est pre­sen­ta­tion is 111%. So, um, They’re pay­ing out more than they earn cur­rent­ly, which is either a bet on the future earn­ings going up, or it means it’s going to be a cut to the div­i­dend at some stage when they can’t afford to keep doing that.

[01:10:21] Tony: So it’s, it’s, I don’t think it’s a good sign, bit of a, would­n’t say it’s a red flag not to buy the stock, but it is an issue to watch going for­ward when the pay­out ratio is so high. Um, stocks do, high pay­out stocks do have this sit­u­a­tion from time to time where they tar­get pay­ing out. A lot or most or all of their earn­ings and then they come a crop­per when they try and main­tain a year when they’ve had a slight down­turn.

[01:10:46] Tony: Uh, it can be a short term thing or it can be a prob­lem, but I guess one of the things to watch out for is if a com­pa­ny is bor­row­ing to pay a div­i­dend, that’s a bad sign for me. Stock Doc­tor finan­cial health and trend is strong and steady, so Stock Doc­tor are mark­ing it as a good com­pa­ny. We score it well for that.

[01:11:04] Tony: PE is 11 times, which is the low­est in six halves, so we score it for that. Prop­Caf is only 4. 3 times, so it’s um, it’s a good Prop­Caf score for us, price to oper­at­ing cash flow. Net equi­ty per share is 87 cents, uh, so we can buy it for less than net equi­ty, and there­fore less than net equi­ty plus 30%, which is 1.

[01:11:25] Tony: 14. Um, then we get down to the earn­ings per share fore­cast, which is neg­a­tive 72%. So, some­one out there does­n’t Like the future of this com­pa­ny. Um, I’m not sure if that’s going to change and be upgrad­ed, but cur­rent­ly we can’t score it for growth over PE because it’s neg­a­tive. We give it actu­al­ly a neg­a­tive score for that.

[01:11:45] Tony: Um, but I found that inter­est­ing that it’s fore­cast to go back­wards by so much when, uh, there’s a new CEO com­ing in, they’ve tidied up at least two of their three, bet­ting licens­es with the state gov­ern­ments, uh, and, um, are lucky to have, well, the third’s under review, so lucky to have some kind of rea­son­able out­come there.

[01:12:06] Tony: Um, to say that their fore­cast earn­ings is going down by so much, um, sur­prised me. I won­der what was dri­ving that, and I won­der if that’ll be upgrad­ed. Um, when Gillian McLaugh­lin gets his feet under the desk. Uh, no own­er, own­er founder for this com­pa­ny because it’s a gov­ern­ment spin off. Um, it does have a new three point upturn, um, large­ly because of the appoint­ment of Gillian McLaugh­lin.

[01:12:28] Tony: Does­n’t have, does not have con­sis­tent­ly increas­ing equi­ty, so we can’t score it for that. So all in all we have 11 out of 17 or 65 per­cent and a QAV score of 0. 15. So in terms of pos­i­tives and neg­a­tives, I’ve cov­ered a few of those as we go through. Uh, the new CEO appoint­ments def­i­nite­ly a pos­i­tive, uh, and giv­en their con­tacts, um, par­tic­u­lar­ly with gov­ern­ment, it’s got to be a good thing.

[01:12:53] Tony: Um, neg­a­tives of the div­i­dend pay­out ratio, uh, poten­tial­ly tighter adver­tis­ing con­trols. And that might be a good thing or a bad thing. I think it might affect sports bet more than it affects TAB or Tab­Corp. I think sports bet are the one which is dri­ving the con­trols because they’re always sat­u­rat­ing the mar­ket dur­ing sport­ing events with tele­vi­sion adver­tis­ing.

[01:13:13] Tony: Um, Oppor­tu­ni­ties and risks, oppor­tu­ni­ties. I think every­one in wager­ing around the world has been inter­est­ed in get­ting into the US mar­ket as state by state. They dereg­u­late, uh, sports bet­ting, uh, sports bet­ting. So up until recent­ly, uh, you could only go to Vegas and bet with a book­ie. Um, and sp book­mak­ing was rife through­out the rest of the US and it’s a bit like the, the his­to­ry of mar­i­jua­na.

[01:13:39] Tony: decrim­i­nal­iza­tion in the U. S., uh, peo­ple are start­ing to real­ize, Oh, it’s not such a bad thing to allow legal­ized, uh, pur­chase of cannabis. We can reg­u­late it, we can tax it. And the same thing start­ing to dawn on states as far as gam­bling in the U. S. And so there’s a bit of a shake up in state by state, uh, bet­ting laws.

[01:13:59] Tony: Um, Tab­corp have dipped a very small toe into that mar­ket, but it, giv­en that they’re, uh, You know, uh, a well cre­den­tialed, um, long term oper­a­tor of, of, uh, bet­ting shops. I would have thought they may have looked at that more aggres­sive­ly, but it’s pos­si­bly an oppor­tu­ni­ty for them. They own a small stake in a com­pa­ny called Dab­ble, um, which oper­ates in the, uh, Aus­tralia and in the U.

[01:14:23] Tony: S., but it’s much small­er in the U. S. than it is here. Um, the risks to this com­pa­ny. Well, the. Age old risks of growth, um, giv­en the wager­ing mar­ket does­n’t grow by a whole heap. Uh, tra­di­tion­al­ly they’ve solved that by cor­po­rate activ­i­ty, but I think the mar­ket’s sort of get­ting wary of that as being a growth dri­ver for this com­pa­ny, and I’ve got to find oth­er ways of doing it.

[01:14:45] Tony: Um, which leads me again back to Buf­fet­t’s quote of, uh, a good, good man­ag­er in a bad, uh, in a bad com­pa­ny meet­ing, and the rep­u­ta­tion of the com­pa­ny remains intact. So it’ll be inter­est­ing to see what hap­pens with Um, the new CEO for this one. So, uh, yeah, have a look. It’s a, it’s a inter­est­ing com­pa­ny with inter­est­ing his­to­ry.

[01:15:04] Tony: On the check­list for the first time that, uh, in a long time that I can recall, and with a new top grade CEO, it might be worth hav­ing a look at.

[01:15:12] Cameron: Thank you, Tony. Not know­ing what SP stood for in SP book­ie, I looked it up and end­ed up

[01:15:21] Cameron: End­ed up with the Crim­i­nal Jus­tice Com­mis­sion of Queens­land’s Issues Paper from Novem­ber 1990. SP Book­mak­ing and oth­er aspects of crim­i­nal activ­i­ty in the rac­ing indus­try. Big expla­na­tion at the begin­ning of, uh,

[01:15:37] Cameron: this, but I

[01:15:38] Tony: SP stands for start­ing price, and it was the eas­i­est way for, um, an ille­gal book­mak­er to, um, pay out cus­tomers was to take bets and then pay out what­ev­er the horse start­ed at on the tote. Um, but they did­n’t have to run a tote them­selves, they could just do it via an SP book.

[01:15:56] Cameron: the sum­ma­ry and the intro­duc­tion to this. It’s talk­ing about Com­mis­sion­er Fitzger­ald at his inquiry. It says, Of all ille­gal indus­tries, SP book­mak­ing has been the one most con­sis­tent­ly involved with police cor­rup­tion in this state. This his­tor­i­cal asso­ci­a­tion with cor­rup­tion extends to include tele­com employ­ees and oth­er gov­ern­ment offi­cials.

[01:16:17] Cameron: Despite the SP indus­try lying low dur­ing the course of the Fitzger­ald Inquiry, it is now large­ly busi­ness as usu­al for the SP indus­try. Ha ha ha ha. Good old police cor­rup­tion in Queens­land. Well, um, we, we kind of need to wrap this up, Tony. Um, cause I’ve got a hard out, I got to go to Kung Fu. Uh, we did have Dave from Newey send his sur­vey results, which I’ll go through in detail next time, I guess, but he does say, um, Since he’s been ful­ly invest­ed with the QAV approach from June 2021 to May 2024, his port­fo­lio has done 21.

[01:16:59] Cameron: 69 per­cent ver­sus the bench­mark of 5. 68%. I am very hap­py as a cus­tomer of QAV. I’m grate­ful I found the pod­cast. I’d like to thank you and Tony again for the excel­lent work you do and the ener­gy you bring week in, week out. The grow­ing num­ber of tools are very help­ful, shout out to the Hive Mind. And he goes on, but I’ll read that next week.

[01:17:19] Cameron: Sor­ry, we don’t have time to go into that in more detail, Dave. Uh, also Toby,

[01:17:25] Cameron: Toby asked some ques­tions about the impact of the new tax rates, but we might have to talk about that next week as well.

[01:17:32] Cameron: Um,

[01:17:33] Tony: I had a few arti­cles to read, but I can push those off and we can talk after hours, if you like,

[01:17:37] Tony: for the last

[01:17:38] Tony: lit­tle bit.

[01:17:40] Cameron: Oh, very quick­ly. What have you got for after hours apart from, uh, Don­ald Suther­land?

[01:17:46] Tony: Yeah, I would just rec­om­mend lis­ten­ing to the Acquired pod­cast. They’ve got an episode out cur­rent­ly on Star­bucks and its his­to­ry, and they’re inter­view­ing Howard Schultz, and it’s, um, it’s a long pod­cast, but it’s, um, quite a good inter­view. It’s worth, worth lis­ten­ing to. Yeah. And, you know, there’s the, I think the, my key take­aways are that, um, Star­bucks, what I did­n’t know about Star­bucks was that Howard always saw it as the third place, so you had home, you had work, and then you had a cof­fee shop, and, and his sort of, um, sort of, the human Part of the busi­ness was always the call for it, and he kept, he ran it that way for a long time, he left, it was run by typ­i­cal cor­po­rate man­agers who cut costs, and, um, the com­pa­ny start­ed to go down­hill, and he came back in and fixed it up, and, you know, just a whole sort of thread of the human approach to busi­ness through it.

[01:18:38] Tony: was, um, was I think real­ly nice to see, um, from Howard Schultz. Uh, I had a cou­ple of, I had three hors­es run­ning over the week­end, um, two of them aren’t worth men­tion­ing, but, uh, ChaChaChanges came very close to win­ning at Pak­en­ham yes­ter­day, ran sec­ond by a nose. Um, he’s got a bright future, I think, so watch out for that one.

[01:18:57] Tony: Uh, and I,

[01:18:58] Cameron: It’s a David Bowie ref­er­ence.

[01:18:59] Tony: it is, yeah. I went through a peri­od of nam­ing my hors­es after musi­cal ref­er­ences.

[01:19:06] Cameron: Very

[01:19:07] Cameron: good.

[01:19:08] Tony: And I watched the movie called Noc­tur­nal Ani­mals. I don’t know if you’ve seen that. It’s about 10 years old now.

[01:19:13] Cameron: No.

[01:19:14] Tony: Jake Gyl­len­haal, Michael Shan­non, and Amy Adams. Real­ly quite liked it. It’s not, it’s not by any means a per­fect movie, patchy in places, has a very con­fronting start, um, with a naked fat lady danc­ing on screen and then you real­ize it’s actu­al­ly part of a, an art instal­la­tion at a, at a LA gallery that Amy Adams works at, but, um, but it stayed with me.

[01:19:41] Tony: It’s actu­al­ly real­ly good. Um, so not, not a per­fect movie, prob­a­bly a 7 but I’d worth, um, I’d rec­om­mend it if any­one has­n’t seen it.

[01:19:51] Tony: So that’s my

[01:19:51] Cameron: Well, thank you. I’ll keep an eye out for that. We watched half of the Gene Wilder doc­u­men­tary that’s on Net­flix last night, which is great. I don’t know if you’re a Gene Wilder fan,

[01:20:01] Tony: yeah, yeah,

[01:20:02] Cameron: I’ve always loved Gene Wilder since my mum and I used to sit there and watch Mel Brooks films in the 70s and ear­ly 80s.

[01:20:09] Cameron: Um, and I’ve been read­ing Niki­ta Khrushchev’s mem­oirs this week, uh, which is fas­ci­nat­ing. You know, it’s just fas­ci­nat­ing to get his per­spec­tive on Stal­in. Um, I’m sort of read­ing the sec­ond vol­ume. I don’t have the first vol­ume, the sec­ond vol­ume, which is like post World War II. And when he goes back to Moscow after run­ning Ukraine and deal­ing with Stal­in and purges and all sorts of stuff going on, um, the insan­i­ty that was going on with the para­noia in the upper ech­e­lons from Niki­ta Khrushchev’s per­spec­tive.

[01:20:46] Cameron: Oh, obvi­ous­ly famous­ly when Stal­in died, threw Stal­in under the bus, um, not with­out his own sins either, uh, and then ran the USSR for 13 years before they threw him under the bus as well, most­ly over what they per­ceived to be his fail­ure of his han­dling of the Cuban Mis­sile Cri­sis. Um, Which was, kept a big secret from the West.

[01:21:11] Cameron: Any­way, inter­est­ing. And Julian Assange released from prison as we said, but, um, I could talk more about that, but con­grat­u­la­tions to Julian and his fam­i­ly and, uh, can’t wait to see whether or not there’s a gag order, what he’s allowed to say, what he’s not allowed to say, what he’s allowed to do, not allowed to do.

[01:21:29] Cameron: In the com­ing years, but, um, yeah, so any­way,

[01:21:33] Cameron: that’s it. I

[01:21:34] Tony: yeah, I was very hap­py to hear that news too today.

[01:21:37] Cameron: yeah. Wow. Big news. Thank you, TK. Thank you for, uh, uh, spend­ing time with us. And, uh, I will talk to you. I might be in Bundy next week, but I can prob­a­bly still do a show from my mum’s spare bed­room. So I’ll, uh, I’ll talk to you between now and

[01:21:56] Cameron: then any­way.

[01:21:57] Tony: All right. Well, enjoy your trip.

[01:21:58] Tony: Enjoy Kung Fu.

[01:22:00] Tony: Okay.

[01:22:00] Cameron: Thanks. Well, cheers, mate. Bye. Well, have a good week, every­one.