QAV Club Weekly Update 2024-08-27

TK on Stock­o­pe­dia Webi­nar

[00:00:00] Cameron:

[00:00:00] Cameron: Wel­come to QAV. My name is Cameron Reil­ly and a lit­tle bit dif­fer­ent this week. Tony’s gone down to his vaca­tion house in Vic­to­ria. And I told him to take the week off and I’m going to put in here a record­ing of the webi­nar that Tony did. for Stock­o­pe­dia last week with Elio D’Am­a­to From Stock­o­pe­dia. And it’s basi­cal­ly them, I guess Elio  inter­viewed Tony. Apolo­gies.

[00:00:28] Cameron: If you already tuned in and heard this, uh, but you know, it does­n’t hurt to hear it again. And. I think it nev­er hurts to hear Tony tell sort of the back­ground. He has an invest­ing and talk about the basic prin­ci­ples of QAV and Elio brings a fresh take on it, inter­view­ing Tony. Those of you who’ve been around invest­ing for a while. We’ll know, Elio , not only from his many appear­ances on Phil Muscatello’s shares for begin­ners pod­cast and also all of the Stock­o­pe­dia events, but going back, uh, A few years now he was one of the faces at STOCK DOCTOR for many years, did a lot of pub­lic fac­ing stuff for stock doc­tor. So Elio is a very expe­ri­enced investor inter­view­ing Tony about QAV, I think it was a great chat. So let’s jump into it. Shall we?

[00:01:21] Elio: Every­one, wher­ev­er you may be tun­ing in across this won­der­ful region of ours, my name’s Elio D’Am­a­to, but the chap down below me more impor­tant­ly, and who we’ve turned up for today, is Tony Kynas­ton. Go Tony, how you doing?

[00:01:34] Tony: Good, thanks Elio, how are you?

[00:01:36] Elio: Yeah, very well, thank you, very well, we’ve had a shared and long jour­ney over many years now, but no doubt we’ll get to Talk about all those sorts of things in a moment.

[00:01:47] Elio: I do need to look after a lit­tle bit of house­keep­ing first before we get into the nit­ty grit­ty, but obvi­ous­ly qual­i­ty at val­ue invest­ing is what we’re here to talk about today. Uh, we talk about many faiths in this church we call invest­ing, uh, Tony, um, and it’s not for us to stand on the pul­pit to sug­gest one is right or wrong or not.

[00:02:07] Elio: But obvi­ous­ly, your approach res­onates quite strong­ly with a num­ber of our mem­bers as well as myself and there­fore you’ve been wel­comed to the pro­gram today. So thank you very much for ded­i­cat­ing your time to all our mem­bers today.

[00:02:21] Tony: Well, you’re quite wel­come. And you make a good point about many dif­fer­ent faiths in the one church.

[00:02:26] Tony: But I think that’s the, if I have to leave a mes­sage today, that’s the mes­sage is, is have a sys­tem, work out what sys­tem works for you and then stick with it. That’s the impor­tant thing, I think. It does­n’t mat­ter whether it’s val­ue or momen­tum or qual­i­ty or growth or what­ev­er. Um, there’s enough, enough research into each of those styles so you can decide which one works for you and which one has worked the best through thick and thin.

[00:02:49] Tony: And then that’s your sys­tem. Stick with it. And there you go.

[00:02:53] Elio: That’s it. I’m not kid­ding. It’s not the end of our pro­gram. We’ve got a lot more to go, Tony. So, uh, stick, uh, stick by. But just quick­ly. I do need to remind every­one that the infor­ma­tion in this pre­sen­ta­tion is of a gen­er­al nature only. None of it takes into account your objec­tives, finan­cial sit­u­a­tions or needs, and there­fore, should you decide to speak to any­one oth­er than your sig­nif­i­cant oth­er in life, then you need to do so with an advi­sor that’s licensed to have that con­ver­sa­tion with you, and of course, past per­for­mance is no indi­ca­tor of future per­for­mance, But you know, we don’t end up here by acci­dent, but that’s okay.

[00:03:25] Elio: We’ll just gloss over that one because I have to say that. And don’t for­get to ask the ques­tions. I can see Chris is sit­ting there on the side­lines. Uh, the chat box, you’ll notice, I think it’s one of those lit­tle icons, uh, on your right hand side or the right hand side of your screen, just sim­ply select on the chat one, and you can ask a ques­tion of, um, Tony, some of you have pre, uh, ques­tions, not all of them.

[00:03:49] Elio: Quite a hun­dred per­cent sense. So by all means, if you want to elon­gate on those par­tic­u­lar ques­tions, please do so. Although, Chris, we got yours pret­ty clear­ly, so we’ll talk about that in a moment. But also, if you’ve got ques­tions through this pre­sen­ta­tion, please ask them. We’ll try to come to them towards the end of the pre­sen­ta­tion, unless there’s any burn­ing, of course, that we need to address straight away.

[00:04:11] Elio: But it is about you today, Tony, and thank you very much for com­ing along and shar­ing your views with our mem­bers. And one of the things we like to do that, you know, pos­si­bly may be very dif­fer­ent from a num­ber of oth­er, you know, sim­i­lar sort of sit­u­a­tions is we want to learn a bit about your back­ground, how you got to be here today, um, less about your invest­ing, more about your per­son­al stuff.

[00:04:35] Elio: Oh, sure. Yeah, tell us a bit about your back­ground and, uh, and also, uh, advance. Thank you, too, for, um, the pre­lim­i­nary slides that you sent.

[00:04:44] Tony: Yeah, no, you’re, you’re wel­come. Uh, so I’ve been invest­ing my own mon­ey for 25 odd years now. Uh, I had a cor­po­rate career, uh, In two big com­pa­nies, Shell Oil, a world­wide com­pa­ny, I was in gen­er­al man­age­ment there and even­tu­al­ly had a lit­tle bit to do with the Fly­buys pro­gram and mar­ket­ing and direct mar­ket­ing at Shell.

[00:05:09] Tony: Then moved across to Coles Myer which is now, Part of the Wes­farm­ers group and ran a com­pa­ny there called MyerDi­rect, which was a pio­neer in cat­a­logue and online retail­ing back in the day. Um, so lived and worked through the dot com bub­ble, which is one of the many booms and busts that I’ve seen in the mar­ket over the years.

[00:05:28] Tony: Been a few. Yeah. And all the time invest­ing along the way. Um, and it start­ed for me Back in prob­a­bly about the, what was it, being the mid 90s, maybe ear­ly 90s, uh, uh, when I was work­ing at Shell, they brought in a HR pol­i­cy which allowed us to bor­row from the com­pa­ny, uh, up to our annu­al salary and at a prefer­able inter­est rate, which was the inter­est rate that Shell could organ­ise, uh, for its cor­po­rate activ­i­ty.

[00:05:57] Tony: Um, the only caveat was we could­n’t use it to, Pay off our own­er occu­pi­er mort­gages. We had to invest with it. So it was kind of a tax thing. Yeah. So, you know, I was a young exec­u­tive wear­ing a suit and gal­li­vant­i­ng around Mel­bourne, around Aus­tralia, and some­times the world. And I thought I was a hot­shot in, uh, in how com­pa­nies worked and oper­at­ing com­pa­nies.

[00:06:21] Tony: And with­in about a year, I’d lost about half of that bor­rowed mon­ey. Um, main­ly from fol­low­ing tips and, uh, and, uh, the hot hand and, you know, I worked for an oil com­pa­ny so I used to trot up to the explo­ration guys and ask them what they were hear­ing about the specky oil drilling stocks and specky min­ing stocks and then put mon­ey into a pen­ny dread­ful to see it, watch it halve.

[00:06:46] Tony: Yeah, that’s if you’re lucky. All those kinds of things. And of course, uh, as soon as the stock­bro­kers in Mel­bourne found out that we had a bit of mon­ey, we became instant­ly friend­ly with them. And, uh, and you know, that did­n’t help, um, to a cer­tain extent, but it was also part­ly my fault. I mean, um, we had some good advice.

[00:07:05] Tony: Uh, I remem­ber one of the stock­bro­kers sat down and work out a plan where I could invest in the share mar­ket and have the div­i­dends pay off the inter­est and, And, uh, I kind of, uh, work­shopped that with some friends who were in the same sit­u­a­tion. And we all thought that was too bor­ing. We want­ed, you know, the returns were too low.

[00:07:21] Tony: We could do bet­ter than that. So any­way, I made all the mis­takes, um, then decid­ed to knuck­le down and put my game face on and work out, um, A lit­tle bit more about this invest­ing caper. Uh, and so I start­ed to sub­scribe to back then newslet­ters. There weren’t, weren’t no tools like Stock­o­pe­dia or such. Uh, so read books.

[00:07:43] Tony: Sub­scribed to newslet­ters, um, went along to sem­i­nars, all that kind of thing. Um, learned a lot about invest­ing. But the light bulb moment for me was when I was, uh, in an air­port book­shop and picked up a copy of Mak­ing of Amer­i­ca, mak­ing the Mak­ing of an Amer­i­can Cap­i­tal­ist by Roger Lowen­stein, and it was War­ren Buf­fet’s sto­ry and, uh.

[00:08:05] Tony: You know, by the time I’d land­ed in the plane, I was a con­vert. Um, the whole sto­ry very much res­onat­ed with me, um, made, made a lot of sense. I mean, I, I had a sci­ence degree from uni­ver­si­ty, so I was drawn to that numer­ate style of analysing com­pa­nies rather than the sort of, uh, sto­ry side of analysing com­pa­nies.

[00:08:25] Tony: And, uh, and that, that stuck and I was able to, you know, Work my way back by invest­ing in those kinds of stocks and even­tu­al­ly pay back the debt when I left Shell. And have been going on from there refin­ing what I do along the way.

[00:08:41] Elio: Yeah, look, that’s real­ly excit­ing. I mean, our mem­bers will know those are sto­ry stocks and the path you’ve trod­den to go to get to where you are today is some­thing that we’ve all shared, Tony.

[00:08:52] Elio: We’ve all, you know, fol­lowed that tip, you know, the taxi dri­ver, which is gen­er­al­ly a bit of a warn­ing sig­nal, but, but it’s been blar­ing for a while. Let’s face it, you know, we are. Record highs or not that far off any­way. Um, and yeah, we did get cor­po­rate and yet these oth­er great busi­ness­es just keep going up and up and they keep pay­ing us div­i­dends.

[00:09:12] Elio: And in that instance there, um, that would obvi­ous­ly have cut down your inter­est. As Jonathan has remind­ed us, uh, an inden­ture, servi­tude, employ­ee reten­tion, is what is, is what is, Unfor­tu­nate­ly known it as so good on you, Jonathan. Good to see that we’ve got some peo­ple with a sense of humour, but I do want to go back to it because, of course, this is about giv­ing, which is what you’ve kind­ly and gen­er­ous­ly done over your jour­ney with regards to shar­ing your invest­ments as it were and, um, and how you’ve got to where you are.

[00:09:46] Elio: And I want to talk about the QAV pod­cast because effec­tive­ly you haven’t just kept it all inter­nal, you’ve shared it with the world. The chap that’s over your shoul­der just there is Cameron, Cameron Reil­ly. He is a close, well, not only a con­fi­dant, but also he shares with you the pod­cast. Maybe you could tell us a bit about that rela­tion­ship with CAM and how it’s evolved into the pod­cast.

[00:10:11] Elio: You know, the QAV pod­cast, as it were, and what your ulti­mate goal is of try­ing to, um, help investors and how that all works.

[00:10:19] Tony: Yeah, well, well, Cameron and I have known each oth­er for a long time now. I was an ear­ly, he was a, he was a pio­neer in the pod­cast­ing sphere, uh, prob­a­bly did the first pod­cast in Aus­tralia.

[00:10:31] Tony: I’d haz­ard a guess and say, um, And I was lis­ten­ing in from pret­ty ear­ly on and I reached out to him after a while and we made con­tact and we caught up for lunch and became friends after that. I was actu­al­ly liv­ing over­seas in New Zealand at the time and he was in Bris­bane but my fam­i­ly come from Bris­bane so I’d go back there and we’d catch up.

[00:10:55] Tony: We would, you know, talk about a lot of things and even­tu­al­ly decid­ed to col­lab­o­rate on a few projects. We wrote a book about, um, uh, about, you know, um, the, what we called it the psy­chopath epi­dem­ic, but it was real­ly about insti­tu­tion­al psy­chosis and how our soci­ety is dri­ven by the imper­a­tive to keep the insti­tu­tion going.

[00:11:18] Tony: Which is not nec­es­sar­i­ly in the inter­ests of the end user or the cus­tomer or the user of the insti­tu­tion. And, I mean, that had a chap­ter on what we’re talk­ing about here, that not every­one in the finan­cial ser­vices indus­try is in it to help you. They’re usu­al­ly in it to help them. So, that’s some­thing to always be aware of, I think.

[00:11:38] Tony: And I think it’d be, You know, um, quite rea­son­able for your cus­tomers to say, well, for your lis­ten­ers to say, well, why is Tony, you know, out there then talk­ing about this and try­ing to sell some­thing? And I guess the short sto­ry is, I’m not real­ly. Um, I ben­e­fit­ed, as I said before, from learn­ing about Buf­fett.

[00:11:56] Tony: Buf­fet­t’s always been out there talk­ing about valu­ing, invest­ing, talk­ing about what he does. I see it as almost like a pub­lic ser­vice that, um. It’s my way of giv­ing back. I could go and work on a soup kitchen and help a hand­ful of peo­ple or I can talk about what I did and hope­ful­ly help a lot more. Um, and, and share what I do and how I do it and what I’ve learnt.

[00:12:21] Tony: And you know, peo­ple, when we launched the pod­cast, some of my clients, Uh, friends and past col­leagues said, well, why would you want to do that? Why would you want to give away your secrets and, and your edge, so to speak? And the real­i­ty is it’s not real­ly my secret or my edge. It’s been out there for a long time.

[00:12:38] Tony: And as War­ren Buf­fett says, he’s been teach­ing val­ue invest­ing for over 50 years, and it still has­n’t real­ly caught on. So, uh, it’s not like we’re invit­ing an awful lot of com­pe­ti­tion by shar­ing this, but what would you want to do? Is, um, again, to use a Buf­fet­tism, if you, if you’re patient and dili­gent and apply your­self, you can beat the mar­ket.

[00:12:58] Tony: Um, oth­er­wise go and buy an index fund. And I think that’s a very valid thing to do. So this is about teach­ing peo­ple how I did it and how you can beat the mar­ket and, and shar­ing a track record of that per­for­mance. And this slide shows that. So when we launched our QAV pod­cast, it was about five years ago.

[00:13:16] Tony: And we decid­ed from day one to Start up a dum­my port­fo­lio which we have on our web­site and we track using Navexa and over that five years that dum­my port­fo­lio has com­pound­ed at 17. 4 per­cent against the bench­mark index, the SPDR200 of 8. 6%. So, we, my expe­ri­ence over time is that I was able to get dou­ble mar­ket and that’s borne out start­ing again from scratch with QAV where we’ve done it live every week on our pod­cast.

[00:13:48] Elio: I think you’re up to episode 372 or some­thing like that now, so, um Well, it’s per­haps the sum, but trust me to those that lis­ten intent­ly, we’re very much big fans and, uh, mem­bers can learn about, um, uh, where there’s actu­al­ly, uh, cause there’s many parts to the whole QAV offer­ing, and there is a free part as part of the newslet­ter, uh, that you can sign up for.

[00:14:14] Elio: And I’ll show some details of that, uh, a lit­tle bit lat­er as well. Uh, but, uh, I do want to talk about those invest­ing mile­stones because of course, yes. You know, you did, um, as it were, you know, you’re heav­i­ly influ­enced by Buf­fett, as many of us are. I don’t think you’re an island there in that regard, but not with, but obvi­ous­ly his per­spec­tive and posi­tion and what he has access to is very dif­fer­ent to us as reg­u­lar investors.

[00:14:41] Elio: So, would you mind just spend­ing a bit of time in regards to your over­all invest­ment strat­e­gy and how you basi­cal­ly go about iden­ti­fy­ing poten­tial oppor­tu­ni­ties, acknowl­edg­ing. That you’re not rely­ing on a tip sheet, as it were, that you are actu­al­ly doing your own research.

[00:14:56] Tony: Yes, yeah, for sure. And when I say I’m, I’m drawn to Buf­fett or influ­enced by Buf­fett, I, I’m not a 100 per­cent Buf­fett, you know, dis­ci­ple, um, because we’re in very dif­fer­ent sit­u­a­tions.

[00:15:09] Tony: He’s cur­rent­ly man­ag­ing of one of the largest Com­pa­nies in Amer­i­ca and try­ing to invest cap­i­tal in ways that can move the nee­dle for him. Um, you know, we don’t have that, uh, I guess lux­u­ry or yoke in our own per­son­al port­fo­lio so we can invest in com­pa­nies which are a lot small­er. So I think, uh, my invest­ing is prob­a­bly a bit more like the ear­ly stage Buf­fett where he was look­ing for under­val­ued com­pa­nies.

[00:15:32] Tony: He, he kind of got influ­enced by Munger and changed to being a qual­i­ty investor. And there’s a bit of, bit of that in what I do as well. Um, But I guess it’s some very sim­ple prin­ci­ples that I, you know, struck me over the years were, the index has gone up rough­ly 10 per­cent over the long peri­od of time. It does­n’t always do that, and it can go down over short peri­ods, but for the last, what, 150 years or so in the Aus­tralian mar­ket and longer in the US mar­ket and over­seas, that’s what it’s deliv­ered.

[00:16:05] Tony: So if you buy an index for a life­time, you’re going to get about 10 per­cent com­pound­ing. It then kind of comes down to, well, if I have like a crate of apples that I want to sell and I take out the bad ones, the ones that have been eat­en by worms and look yel­low and things like that, then sure­ly I’ll sell more of the ones on the left, so they’ll out­per­form.

[00:16:24] Tony: And so that’s what the sys­tem is designed to do. It’s, it’s as much about tak­ing out the bad stocks as it is about Iden­ti­fy­ing the good stocks, and if you can do that, um, and you won’t, I don’t do it 100 per­cent of the time, in fact, even Buf­fett says he does it 6 out of 10, um, times, and, but if you do that over time, you’re going to get bet­ter than the index, and so that’s the kind of under­ly­ing prin­ci­ple, and then it’s how do you, how do you do that, I guess, and, um, I kind of, If some­one’s asked me how to get start­ed in this, I’d say go out and buy an index fund, get famil­iar with the stock mar­ket, get famil­iar with, you know, div­i­dends, get famil­iar with earn­ings reports, all that kind of thing.

[00:17:07] Tony: Um, you’ll prob­a­bly fair­ly soon real­ize you can prob­a­bly put togeth­er your own index fund because every quar­ter the ASX tells you what’s in the top 10 or top 20 or what­ev­er you want to use. Um, and then, you know, after maybe a year or two, you’ll start to real­ize, well, actu­al­ly. Not every stock in the index is going, is going up.

[00:17:25] Tony: Some of them go back­wards and they get replaced. But you’ll kind of work out which ones are the heavy lifters. And it’s usu­al­ly only a cou­ple. And then you’ll kind of work out what is mak­ing them the heavy lifters. What, what’s the sort of KPI that, that dri­ves that. And then if you take that sort of idea, you can apply it to the rest of the mar­ket.

[00:17:43] Tony: And that’s kind of the step­ping stone to becom­ing, uh, a pret­ty good stock investor is to work your way up through that process.

[00:17:52] Elio: Yeah, def­i­nite­ly. Sur­vivor­ship bias, as Quant guys would say, would help with the ETF, and then yeah, sur­vivor­ship bias in the sense of, Keep the ones that are good, keep them, and get rid of the bad ones, and then, you know, it should work

[00:18:06] Tony: out in the end.

[00:18:07] Tony: And, and do a bit of research and work out why the ones haven’t sur­vived. That’s, that’s an impor­tant thing.

[00:18:13] Elio: So, yeah, it touch­es on a good point because, uh, I love this one. I love pulling it out of the cup­board. So you’re going to hear me for a bit, Tony, but I do love say­ing it. Um, you know, sales are van­i­ty.

[00:18:23] Elio: Prof­it is real­i­ty. The Cash is King, and I do know you like to focus on cash, maybe you can just explain that to lis­ten­ers in all view­ers in a bit more detail.

[00:18:36] Tony: Yeah, for sure. So, um, if, if you speak to some­body who’s, uh, has­n’t been invest­ing for a while and say that you like val­ue invest­ing, they prob­a­bly think that you like stocks which have a low PE rat­ing.

[00:18:49] Tony: And so that’s kind of how I came into val­ue invest­ing, start­ing with that met­ric. It did­n’t take me long to real­ize that the E side of that, the earn­ing side of that, could be heav­i­ly manip­u­lat­ed. And if you think about the finan­cial state­ments as a water­fall, you start with the rev­enues brought in at the top, the sales, and you get to earn­ings at the bot­tom.

[00:19:08] Tony: And in between, There’s a whole lot of, uh, num­ber crunch­ing, which can be influ­enced by man­age­ment assump­tions. And that’s, you know, required and rel­e­vant and, um, it’s, it’s part of the account­ing prac­tices to, for man­age­ment to decide how much they need to put aside for, you know, depre­ci­a­tion, for cap­i­tal use in the future, to replace their assets, um, for bad and doubt­ful debts, for what­ev­er.

[00:19:35] Tony: par­tic­u­lar thing that they can see com­ing up. It’s, it’s up to man­age­ment to decide whether the good­will they have on their bal­ance sheets needs to be impaired or, or not. So there’s a whole lot of work that the finance depart­ments and then the boards of com­pa­nies have to do to express their opin­ions before you get to earn­ings.

[00:19:55] Tony: And that expres­sion of opin­ions allows a lot of lee­way in what the earn­ings num­bers are. And I’m, I’m always. Rem­i­nisce, I was remind­ed of, this is going way back to the 90s when News Corp was still large­ly in Aus­tralia and the CFO of News Corp would end his earn­ings, the bot­tom line of the accounts, with 999.

[00:20:17] Tony: 999 and it was his way of telling ana­lysts that And then you say, look, I can make this fig­ure be what­ev­er I want it to be. And so my point is that earn­ings can be adjust­ed and, and don’t get me start­ed on abnor­mal earn­ings and how, abnor­mals ver­sus the state of the earn­ings, um, cause that’s a whole oth­er debate as well, but short, long sto­ry short, if you start with the cash­flow, it’s the oper­at­ing cash­flow is the very first thing in the accounts and in a nut­shell, it’s, it’s The mon­ey tak­en in less the cost of col­lect­ing it.

[00:20:49] Tony: And there’s, there’s very lit­tle abil­i­ty or require­ment to make assump­tions to manip­u­late that. So I pre­fer price to oper­at­ing cash­flow as my key, uh, val­ue met­ric rather than price to earn­ings. Um, so that’s, that’s kind of like the, the linch­pin for my whole cal­cu­la­tion. I want to buy some­thing which is going to throw off enough cash that it will pay me back in a short peri­od of time.

[00:21:13] Tony: If, even if I get it wrong, it’ll still pay me back.

[00:21:16] Elio: Yeah, because you touch on a real­ly inter­est­ing thing, Tony. You like to, you know, basi­cal­ly, as a bench­mark, so you’re obvi­ous­ly screen­ing in order to try to iden­ti­fy these. Just explain that rela­tion­ship to every­one, how you screen, because, I mean, with 2, 000 stocks on the ASX, that’s a bloody lot to get through, and for­tu­nate­ly, soft­ware helps us with that, but, um, but then you’ve still got to whit­tle that list down to, you know, 5, 10, 15, 20 odd, you know.

[00:21:42] Elio: Com­pa­nies that you could poten­tial­ly invest in. So how do you start and whit­tle that list down?

[00:21:47] Tony: Yep. So I use a data provider, drop it into Excel, and then, uh, and then use fil­ters in Excel to do that. So for a start, if we take out the com­pa­nies that don’t have oper­at­ing cash­flow or don’t have pos­i­tive oper­at­ing cash­flow, you’re los­ing.

[00:22:02] Tony: Well over half of the com­pa­nies in the indus­try. It’s a big tail. It is, yeah. So you’re tak­ing out all the explo­ration com­pa­nies, all the start ups, all that kind of thing. Stor­age stocks, yeah. Yeah. We, we, I want to invest in com­pa­nies with a track record, with man­age­ment that’s proven itself, um, that, that are, um, con­tin­u­ous­ly throw­ing off cash.

[00:22:23] Tony: And, and so, you know, that, that drops the num­bers right down to maybe a third or so. Right. of the index. Um, and it’s amaz­ing how much is revealed by that price to oper­at­ing cash flow met­ric. If the com­pa­ny isn’t mak­ing cash, um, that’s, I mean, it could be in a growth phase. It could be in an explo­ration phase.

[00:22:43] Tony: I should say if it is mak­ing cash and lots of it, you can prob­a­bly say it’s well man­aged. So that’s a big tick for man­age­ment for a start­up. Yeah. So that’s the, that’s kind of the first thing that we fil­ter for, but then we have a lot of oth­er fil­ters as well. And those oth­er things. Um, uh, we’ll get to it in a minute, but they’re things that I’ve learned along the way.

[00:23:04] Tony: Um, we were talk­ing about invest­ment mile­stones, and that first one was to use oper­at­ing cash flow rather than earn­ings. The sec­ond one is to use, um, trend lines. So, uh, I think equal­ly as impor­tant in get­ting into, in know­ing when to get into a stock, is know­ing when to get out. And so Um, my ear­ly days as a val­ue investor, I was a clas­sic val­ue investor, which was if the stock price goes down, I’m gonna buy more.

[00:23:30] Tony: Yeah. Um, but what I found was that that falling knife can keep on falling for a long time. That’s good. Yeah. And it can take, it can take years to get back to, you know, your entry price and then go up from there. And that I was bet­ter off sell­ing out when the knife to fall­en a cer­tain amount and then putting that mon­ey to work some­where else.

[00:23:48] Tony: Mak­ing mon­ey dur­ing that dip peri­od and then if I want­ed to get back into the stock when the uptrend had resumed and so I looked around a lot and this kind of hap­pened to me after the GFC When I looked around to say was there a bet­ter way of invest­ing through the GFC Than what I did which was to buy and hold basi­cal­ly And I thought I think there was and Um, there’s all sorts of, as you know, fun­da­men­tal­ist invest­ment, fun­da­men­tal investors who will use, um, charts to, uh, time their, uh, invest­ment deci­sions.

[00:24:21] Tony: Uh, I tried to make sense of a lot of those, but could­n’t in some respects. Um, the one that res­onat­ed with me the most was to use mov­ing aver­ages. So, you know, the short term peri­od, um, has crossed the long term trend. Um, but I did, I, I, the. One issue I had with that, and I think that’s a very good way of invest­ing, is that it need­ed a peri­od of time to all that’s before the trend announced itself.

[00:24:46] Tony: So if you’re using sort of three months over 12 months, you’ve got to, you could be wait­ing three months for that trend to announce. It’s lag­ging, cor­rect. Yeah, so it’s lag­ging. So what I worked out was that most stocks tend to have a zigzag pat­tern, but a gen­er­al either upline or down­line. And so Uh, I kind of come across, um, this, uh, way of look­ing at charts by just sim­ply tak­ing a ruler and putting it across the two high points of a stock chart.

[00:25:15] Tony: And when the stock broke above that line, it was in an uptrend and I put it across the two bot­tom points of a stock chart. And I’m talk­ing about a five year month­ly chart here. So I’m, I want to take a lot of the zigza­gs out of things if I can. Um, but if I did that, um, if the, if I drew a line across the two bot­tom points on the stock chart and the stock broke below that, it was a, a sell sig­nal.

[00:25:36] Tony: So, that was a very sim­ple way to do it. Um, there’s an exam­ple there. There’s an exam­ple. You can, this is, uh, the reject shot. You can see, uh, the two high points have a line which is descend­ing. And towards the end of the graph, the stock price crossed that line. Cross that line and it start­ed going up, that’s a buy sig­nal, and you can see that there’s a cou­ple of points, um, which are the low points on that graph, and you draw a line, and when and if the stock price goes below that, um, it’s a sell sig­nal.

[00:26:06] Tony: Very impor­tant to note that I use a month­ly graph and I use a five year graph. Graph, oth­er­wise it can be too, um, squig­gly and, and there are too many points on the graph. Um, and also it’s impor­tant to note that, uh, every month the graph sort of rolls to the right. And so what’s the high­est point now, may not be the high­est point next month.

[00:26:25] Tony: And you need to look, re look at the draft, uh, look at the lines. And we actu­al­ly have a tool for QAV sub­scribers that, um, does this for you auto­mat­i­cal­ly. You just type in the stock code and it will tell you, uh, where the stock is in terms of its buy and sell lines.

[00:26:40] Elio: Excel­lent. Good, good. So, um, and there’ll be more infor­ma­tion and that’s in regards to the newslet­ter.

[00:26:44] Elio: And I real­ly love how it’s, you know, just to keep it sim­ple, stu­pid as it were, in regards to the the­o­ry, because yes, it’s pret­ty easy to go cross eyed look­ing at charts when you look at too many. But, uh, I sup­pose the good news is it keeps the grand­kids enter­tained. So we can’t Well,

[00:27:02] Tony: it’s fun­ny actu­al­ly, because my daugh­ter when she was very young used to, I used to sub­scribe to her newslet­ter and we’d sit down and put it out on the din­ing room table and I’d say, well, is this stock a buy or a sell?

[00:27:12] Tony: And she’d look at the graph and say, it’s going up, it’s a sell, or it’s a buy, sor­ry, or it’s going down, it’s a sell. Yeah, exact­ly. Let the trend be your

[00:27:20] Elio: friend, but Cor­rect. There are a lot of peo­ple that are sit­ting in on this webi­nar, Tony, and real­ly do want to know those sort of key, you know, nuggets, as it were, those key things you look for in regards to cor­po­rate behav­iour and per­for­mance, so that you can then make that ulti­mate deci­sion and the like, and you’ve come for­ward with a cou­ple cri­te­ria.

[00:27:42] Elio: That to me makes sense, but I think peo­ple, you know, very much get that val­ue hear­ing it from you.

[00:27:48] Tony: Yeah, well, I think the, I think to start with the impor­tant thing is that I use a check­list. So, um, again, fil­ter­ing into Excel and then, uh, tak­ing each of the met­rics that I look at and putting a score. On those, and then sum­ming up the score.

[00:28:01] Tony: A bit like Stock­o­pe­dia, I stack rank it and then buy from the top down. Um, so the Check­list Man­i­festo was a book that came out, I don’t know, 10, 15 years ago. Uh, Atul Gawande was a sur­geon who won­dered why there were so many errors in, um, Hos­pi­tals for surgery and looked around and oth­er indus­tries and legs.

[00:28:25] Tony: Yeah. And set­tled on, set­tled on the, on the air­line indus­try and worked out that the rea­son why there were less areas in that indus­try then in hos­pi­tals was because the pilots reli­gious­ly went through a check­list. Did­n’t mat­ter if they’ve flown the flight. A hun­dred times they went through that check­list and so he put a check­list into hos­pi­tals and sud­den­ly all these mis­takes stopped hap­pen­ing that, as you say, peo­ple had the wrong side ampu­tat­ed or what­ev­er they were oper­at­ed on.

[00:28:52] Tony: Um, and uh, and of course the sur­geons resist­ed it because they were gods in the hos­pi­tal and they could­n’t make mis­takes. And then of course, as soon as one or two did it and their num­bers improved, the risks had to jump on. So hav­ing a check­list is real­ly impor­tant. I think. So one of the things that I look for in the check­list is there’s prob­a­bly about 20 items.

[00:29:10] Tony: Some of them are here. Price to oper­at­ing cash flow is a big dri­ver. I use some sim­ple val­u­a­tion met­rics. I do a cou­ple of intrin­sic val­ue cal­cu­la­tions, which is just sim­ply earn­ings per share over a hur­dle rate. So I do cur­rent EPS over a hur­dle rate. Uh, and then I do a fore­cast EPS over a hur­dle rate.

[00:29:30] Tony: And I think the, I think for me, um, com­ing up with what the stock is actu­al­ly worth is more of a heat map process than a num­ber to arrive at a square. So, uh, val­u­a­tion is part of this process, but it’s, it’s more, is it in a range, which is val­ue, rather than is it trad­ing at a dol­lar, one when it should be trad­ing at a dol­lar.

[00:29:50] Tony: Because I don’t think it’s, it’s, it’s, there are a num­ber of dif­fer­ent ways to, to mea­sure the val­ue of a stock. One is. Um, a dis­count­ed cash flow, and then you get into all the debates about how long that peri­od should be and what the hur­dle rate should be. So, um, that’s, that’s one. Anoth­er one that we have in, that I use is, is price to book.

[00:30:07] Tony: So, it’s how much are the assets worth and can I buy them at their, at their dis­count­ed price. Their val­ue or it’s some kind of dis­count to their val­ue. Um, so that’s impor­tant. But again, there are issues with that because, uh, Good­will comes into it. You have to take that into account. That’s cor­rect. So there’s no one size fits all, I think, for val­u­a­tion.

[00:30:25] Tony: So I use about four dif­fer­ent types and then that becomes a scor­ing heat map. for val­ue rather than being a defin­i­tive num­ber. So I do that. Um, I look at a cou­ple of things like, uh, I look at a three year, so six halves worth of data for things like, uh, equi­ty. Is the share­hold­er equi­ty going up con­sis­tent­ly over time?

[00:30:44] Tony: Again, that’s a tes­ta­ment to man­age­ment and their, and their qual­i­ty. I look at, um, whether there’s an own­er founder in the com­pa­ny because there’s plen­ty of research around that shows that hav­ing, um, Some­one with a large stake in the com­pa­ny and some­body who’s grown up in the indus­try and in that com­pa­ny does bet­ter than a lot of hired man­agers would do.

[00:31:05] Tony: So there’s, um, that, that scores in the check­list. Um, I look at things like, is it the low­est price to earn­ings ratio for the last six halves? Yeah, so there’s a num­ber of these met­rics that I’ve learned to look at over the years. I look for div­i­dend yield being greater than what the aver­age mort­gage rate is at the moment.

[00:31:25] Tony: Um, again, uh, I found over the years that that’s a good proxy for qual­i­ty. A com­pa­ny’s not going to, um, have a decent div­i­dend if man­age­ment thinks that they’re going to have to pull it next year or next quar­ter or next half. So. So that’s, that’s been a good, a good, uh, proxy for qual­i­ty. So a num­ber of things like that, um, which then all get summed up and giv­en a score, and then we stack rank the score.

[00:31:49] Elio: Excel­lent. Good. And, uh, I think that’s a good lead­ing then, um, Tony, in regards to just some com­pa­nies that, uh, are float­ing your boat. I mean, obvi­ous­ly we know the mar­ket, dry rates and does all this thing. And we also note that we are just at the start of report­ing sea­son. So obvi­ous­ly a lot of these results and data can change based on what they actu­al­ly release.

[00:32:11] Elio: But, uh, are there any, I am going to use Stock­o­pe­dia for this folks should be famil­iar with this, but, uh, are there some com­pa­nies that pos­si­bly you might want to just show­case to and then from your per­spec­tive, why you find them of par­tic­u­lar val­ue?

[00:32:25] Tony: Yeah. So, so our buy list typ­i­cal­ly has. You know, some­where like 30 to as high as a hun­dred stocks on it.

[00:32:32] Tony: Um, we put a thresh­old in, uh, fun­ni­ly enough, a larg­er num­ber of stocks on our buy list are over­lap­ping with Stock­o­pe­dia. Um, so we can, we can go through a cou­ple of those if you like. Um, but I did pick out a cou­ple that were dif­fer­ent, which might be of inter­est as well. Yeah, sure. Yeah. So I want­ed to start with a small one, which is called Boom Logis­tics, uh, which is, um, uh, a com­pa­ny which hires out cranes.

[00:33:00] Tony: I’ll

[00:33:00] Elio: get there once I fig­ure it out. Sor­ry, you’re work­ing with some­one with incred­i­bly large

[00:33:05] Tony: fin­gers. Uh, bear with me. Here we go. It’s a small­ish com­pa­ny, so it won’t suit all of your lis­ten­ers here. But any­one who’s inter­est­ed in small cap stocks might have a look at this. Um, why do I like it? Well, uh, it has, it’s throw­ing off lots of cash flow.

[00:33:21] Tony: It does­n’t have a div­i­dend yield, so we can’t score it for that. I don’t know. It trades on a price to cash ratio of about two times, so throw­ing off lots of cash and you can buy it cheap­ly on that cash met­ric. Um, so I like, I like that about it. Uh, it, it, it, When I do my heat map val­u­a­tion, so it’s trad­ing above what I’d cal­cu­late its intrin­sic val­ue to be, but that’s fine.

[00:33:49] Tony: Um, but if I get to its equi­ty per share, again, it con­tains good­will, but that’s a 26 cents, which is almost dou­ble what the share price is. So, you can buy it for a lot less than the equi­ty val­ue of the com­pa­ny. So it scores for that. There are, uh, Founders who own stock in this com­pa­ny and the cur­rent direc­tors own about 15 per­cent of the stock, which is a good thing.

[00:34:12] Tony: So they have big skin in the game. Um, we, I like the qual­i­ty of their, of their finan­cials. Um, it’s, it’s in a, what we call a three point uptrend. So using that graph that we spoke about before. Yep. Uh, what else can I say about it? Um,

[00:34:31] Elio: Well, it has had a bit of a check­ered past. In fact, I can remem­ber look­ing at this stock in a past life, actu­al­ly, when, uh, you know, Min­ing Ser­vices was all the rage, as it were, and then of course it dis­si­pat­ed overnight.

[00:34:42] Elio: So it’s good to see that, uh, good old Booms, uh, get­ting a bit of focus again and, uh, uh, yeah. Yeah, yeah,

[00:34:49] Tony: and we, we do, dur­ing our pod­cast, we do what’s called a pull and pork, so we pull apart a com­pa­ny like this and go through each of the met­rics and, uh, I remem­ber doing this com­pa­ny and one of the things I high­light­ed was that this kind of com­pa­ny is, is very reliant on util­i­sa­tion rates, so if all the cranes are It’s doing well.

[00:35:08] Tony: If it drops down to a low­er util­i­sa­tion rate, watch out. But again, I think the point to make is in using a sys­tem like ours, or even like yours, is we have Our exit strate­gies. And so, um, you know, one of them or two of them in my case are dri­ven by sen­ti­ment. Uh, so that, that can get us out. Um, uh, yeah, there could be some oth­er red flags in terms of the qual­i­ty of the, or if there’s a prob­lem with the audit or, um, some­one key, a key senior per­son leaves unex­pect­ed­ly, those kinds of things we count as red flags.

[00:35:41] Tony: But, um, yeah, if, if uti­liza­tion rates dropped in this com­pa­ny, I would expect to see the stock price. Go down and cut through one of our trend lines for a sell indi­ca­tor. Yeah. So the point I guess I’m mak­ing is that I don’t have to be an indus­try expert in min­ing ser­vices com­pa­nies. I have to be dili­gent in apply­ing my sys­tem to all the stocks on the stock mar­ket and that will tell me when to buy and sell them.

[00:36:09] Tony: Excel­lent, good.

[00:36:10] Elio: So is there anoth­er com­pa­ny we can talk about?

[00:36:12] Tony: Yeah, so that was Boone. I want to talk about MMS, Macmil­lan Shake­speare. And I’ll declare this as a stock that I own per­son­al­ly as well, but I’m pick­ing it out because it did­n’t rate, uh, it rates on our buy list, but it isn’t as high in the Stock­o­pe­dia uni­verse.

[00:36:28] Tony: So, yeah, so again, um, it’s, it’s, uh, it’s actu­al­ly trad­ing below its con­sen­sus fore­cast and that’s some­thing we look at as one of our met­rics. Um, a lot of stocks do trade below con­sen­sus fore­cast, but. Uh, you know, that’s bet­ter than trad­ing above con­sen­sus. Yeah, true. This one, this one does pay a strong yield of over 8%.

[00:36:50] Tony: So, it’ll suit some­one who’s in their retire­ment phase of invest­ing or some­body who’s bor­rowed to invest, for exam­ple. You’re get­ting a strong, healthy div­i­dend yield. Um, and, uh, What else can I say that’s good about it? Price to cash is below five times. So, you know, this is a sol­id com­pa­ny that’s been around for a long time.

[00:37:09] Tony: It oper­ates in the, uh, novat­ed leas­ing and car leas­ing space. Um, and, uh, that’s a, you know, a well estab­lished indus­try, yet you can buy it at five times oper­at­ing cash flow. So that’s, uh, that’s a pret­ty good thing. Um, what else can I say about it? I

[00:37:27] Elio: think, actu­al­ly, this is where Excuse me, and you touched on with Boom and you’ve gone to Macmil­lan now and it sort of makes sense.

[00:37:35] Elio: I think it’ll be inter­est­ing because obvi­ous­ly they’re com­ing up in a fil­ter that you run and your var­i­ous cal­cu­la­tions. But a lot of the stuff you talked about in regards to uti­liza­tion rates in regards to, you know, The emer­gence of EVs and all that sort of stuff, which is what investors in this space would be look­ing at and, uh, and actu­al­ly how that’s fall­en off in recent times.

[00:37:56] Elio: But any­way, that is not real­ly some­thing you can have in a table and that you can run in a scan. So, um, just explain that rela­tion­ship to us. How do you then take a spread­sheet to then the real world in order to make your ulti­mate deci­sion?

[00:38:13] Tony: So, what I found, um, I’ll use Macmil­lan as a good exam­ple, uh, is that the num­bers tell me the sto­ry first of all.

[00:38:20] Tony: So, I, I did­n’t have to know that, uh, Cur­rent fed­er­al gov­ern­ment brought in incen­tives for the leas­ing of EV vehi­cles. That’s the news, that’s the sto­ry, and that’s put a tail­wind behind the three major play­ers in this space, Wheat Part­ners, MMS and, um, what’s the oth­er one? SIQ, from mem­o­ry? Yes, SIQ, Smart, yeah.

[00:38:40] Tony: Yeah, so, uh, I did­n’t have to know that because the num­bers are good. So the num­bers are show­ing me that some­thing Good is hap­pen­ing in this indus­try. Um, you know, I guess it helps to know what that is. Um, uh, but that’s, that’s a nice to know thing. Um, the, the fact is the num­bers are good. They’ve got tail­winds.

[00:38:59] Tony: Um, there’s a lot of EV take up in their new leas­es. Um, so you can do a deep, deep dive into the com­pa­ny and work out. What’s hap­pen­ing and why, but I always come to it from the num­bers point of view. Like it’s the throw­ing off cash hand over fist. I can buy it for a cheap mul­ti­ple of that. Um, it’s a qual­i­ty com­pa­ny.

[00:39:15] Tony: It’s been around for a long time. It’s pay­ing a real­ly good yield. Why would­n’t you buy it? So that’s kind of where I’m com­ing from.

[00:39:22] Elio: No, that makes per­fect sense. Before we get into any ques­tions that peo­ple may have, Tony, is there anoth­er stock you just want­ed to quick­ly cov­er?

[00:39:30] Tony: Yeah, so I just want, I’ll use one that’s um, that’s sim­i­lar to both of us, uh, both to Stock­o­pe­dia and to my check­list, um, Ami­co Hold­ings.

[00:39:39] Tony: Actu­al­ly, no, I’ll jump Ami­co. We’ll go, that was anoth­er small one. I’ll go to AGL. Okay, big one. Yep. Yeah, so just, just because I think big stocks might be more attrac­tive for peo­ple who are lis­ten­ing. Um, Again, scores well in the QAV uni­verse and scores well in the Stock­o­pe­dia uni­verse, I see. Again, trad­ing slight­ly below its con­sen­sus fore­cast, so we score it for that.

[00:40:04] Tony: It’s got a good yield, not above the aver­age mort­gage rate, but still pay­ing 4. 5%. It’s a, it’s a, as any­one would know, AGL is a big com­pa­ny. It’s had a few board ruc­tions in the last few years and it’s now set­tling down. So it’s what I like to call the recov­er­ing com­pa­ny, which is some­thing that I like. So it’s been through its, um, it’s, it’s cri­sis and now it’s com­ing out the oth­er side.

[00:40:29] Tony: And that’s some­thing that Buf­fett likes to do as well, is to find a com­pa­ny in cri­sis, but a big solar com­pa­ny that’s in cri­sis at that stage. Um, if peo­ple are inter­est­ed in ROE, it’s, it’s a strong ROE at 16%. Um, but we can buy it at 4. 3 times, uh, cash­flow, uh, and, and that’s, you know, again, you’re buy­ing one of the cor­ner­stones of, of Aus­tralian cor­po­rate, um, invest­ing at four times its cash­flow.

[00:40:55] Tony: Um, it’s, it’s again, why would­n’t you buy it at that, at that kind of price?

[00:41:00] Elio: And that’s actu­al­ly real­ly inter­est­ing, isn’t it, Tony? Because so often we think about stocks as these inan­i­mate three let­ter codes float­ing in space, but the real­i­ty is that you’re actu­al­ly invest­ing in a busi­ness. Yes. Yes, you’ve got two day set­tle­ment and that makes it much more palat­able, but you are, you do need to look at this as a busi­ness own­er or from a busi­ness own­er’s per­spec­tive, don’t you?

[00:41:21] Tony: Well, I think that’s right. And I think, um, I’ve lived over­seas quite a bit and, uh, All through that jour­ney, I’ve always invest­ed in Aus­tralian com­pa­nies. And I think the rea­son for that is I know the com­pa­nies, um, you know, I’ve got an account with AGL. Um, I can walk down the road and see how Myer’s going under the change of, you know, um, man­age­ment.

[00:41:42] Tony: Um, so I like the fact that, that I’m invest­ing in com­pa­nies which I live and breathe and know, rather than, um, some­times when you’re, when you’re invest­ing over­seas, even though you can do it just based on the num­bers. I like the. The extra sort of, um, I guess it’s a safe­ty net of know­ing that I can go out and check it out for myself.

[00:42:01] Elio: And that’s the whole pur­pose of why we exist any­way. So, um, thanks very much for that, uh, that plug there, Tony, even though you did­n’t intend it. But, uh, here’s a plug, uh, for your­self and for your, um, orga­ni­za­tion. Now that QR code that you can see there will actu­al­ly take you Um, to their web­site, which is QAVpodcast.com.au. Now, I am told that if you use a par­tic­u­lar coupon, there’s also a dis­count if you wish to upgrade to the lite ver­sion or to the QAV Club ver­sion. But I think the newslet­ter is free, isn’t it?

[00:42:36] Tony: So, yes, the way it works is we have like a freemi­um pod­cast. So we do, we release a pod­cast every week and we release a newslet­ter every week, which, you know, tells how the pod­cast is doing.

[00:42:45] Tony: dum­my port­fo­lios going and oth­er salient points. Um, that’s free. Uh, we have the full club mem­ber­ship, which gives you access to all the tools, the check­list, um, uh, the teach­ing instruc­tion, um, Videos and tuto­ri­als on how to use the tools, um, access to Ask Me Ques­tions, uh, and we answer those on the pod­cast, um, in the sec­ond half of the pod­cast, which is for sub­scribers only, and then we have what’s called QAV Lite, which is kind of in between, and that allows peo­ple to Um, get to trade along with us.

[00:43:19] Tony: So as we trade in our dum­my port­fo­lio, we have a cou­ple of those now, four or five, um, that we’ve set up at dif­fer­ent times, um, peo­ple can set up their own port­fo­lio and trade along with us at their own dis­cre­tion, but we will tell you what we’ve bought and sold this week.

[00:43:35] Elio: So full trans­paren­cy, which is, uh, total­ly won­der­ful and, uh, and hav­ing that con­trol your­self, but not only makes you great at din­ner par­ties, Tony, but it also, uh, empow­ers you to make those deci­sions your­self, which again, is some­thing that I think is, uh, very much under­val­ued by many peo­ple.

[00:43:53] Elio: And, um, yeah, you save so much time in regards to, uh, peo­ple’s, excuse me, peo­ple’s invest­ing. So just remem­ber those QR code folks, or just go to the web­site. at your own leisure. Sor­ry, just got a big throt­tle, but Frank, uh, but it will be gone soon. But I do want to, whoops a daisy, did­n’t want to do that. What I want to do is go to some ques­tions because there were some, uh, for you, Tony, and we’ve got one now as well.

[00:44:19] Elio: I’ll come to yours in a minute, Jonathan, but there was, uh, A pre ques­tion from a chap by the name of Chris. So thank you very much for send­ing it, Chris. And I’m going to para­phrase his ques­tion, if that’s okay with you, uh, Tony, basi­cal­ly it’s on the top­ic of port­fo­lio man­age­ment and obvi­ous­ly, you know, if only the mar­ket was only ever open one day a year, but it nev­er is, right.

[00:44:42] Elio: It’s open 24 sev­en and prices go between over enthu­si­asm and over pes­simism all the time. That’s just the mar­ket behav­ing nor­mal­ly. So the ques­tion he real­ly wants to know is how do you go about then finess­ing the port­fo­lio? I mean, any mug can pick a stock, right? Any­one can do that. But man­ag­ing mon­ey, that’s a dif­fer­ent caper.

[00:45:02] Elio: That’s a much hard­er gig. So he wants to know, when do you take prof­its? When do you sell down your hold­ings? When do you, um, you know, pos­si­bly look at, you know, it’s unfed like that orig­i­nal val­ue investor per­spec­tive, where if you see price go down, you just dou­ble up. What­ev­er the case may be, how do you man­age that ques­tion called port­fo­lio man­age­ment?

[00:45:22] Tony: Yeah, so I think it starts with how big is the port­fo­lio? So I would rec­om­mend 15 to 20 stocks in a port­fo­lio. Again, that’s been backed up by research over time. Cor­rect. You can, I run a small­er, more con­cen­trat­ed port­fo­lio, but I think you need to have a bit of expe­ri­ence behind you to do that because, um, what you gain in long term out­per­for­mance with that, you, um, suf­fer through volatil­i­ty and you’ve got to have the stom­ach for that.

[00:45:47] Tony: Um, but yeah, so say you’ve got a 15 stock port­fo­lio, the way I would first pop­u­late that is to do a down­load, fil­ter out my stocks, go Cre­ate a buy list, stack rank it, and buy from the top down, and I have liq­uid­i­ty con­sid­er­a­tions, so I can’t buy some of the small­er stocks in that buy list. I, I look for large liq­uid stocks, because I’ve got a rea­son­able amount to invest.

[00:46:11] Tony: Um, so that’s the first thing. Um, and I should also say we don’t put any sort of oth­er screens over our buy list, but if some­one Does­n’t want to buy coal stocks or does­n’t want to buy oil stocks, and they can take those off the list and decide what to buy next. But, but fill up the port­fo­lio of 15 stocks, and you might not get 15 from the first time you do a down­load because there might not be 15 good qual­i­ty com­pa­nies at the right price to buy.

[00:46:34] Tony: So you might do it over time. Which we did with our dum­my port­fo­lio, which you’ll get to 15. Um, then I use, uh, pri­mar­i­ly I use that three point trend line graph that I talked about before. So rolling five year month­ly, look­ing for sell indi­ca­tors. So look­ing for a stock that’s, it’s basi­cal­ly bro­ken out of its uptrend and it’s gone to the sell side of the graph.

[00:46:57] Tony: And so I’ll sell it when that hap­pens. Yeah. Um, Can be a bit tricky around this time of year because com­pa­nies are going to div­i­dend. So you don’t want to sell some­thing because it’s dropped, because it’s gone next div­i­dend, even though it’s crossed the line. So, um, I’ll add that div­i­dend val­ue back into the share price and see if it still is a sell sig­nal after that.

[00:47:17] Tony: Um, so there’s that. Um, I have what I call a rule one and goes back to Buf­fet­t’s rule one, which is don’t lose mon­ey. And rule two is see rule one. Yeah. Sor­ry. Um, I have a stop loss if some­thing drops below 20, 10 or 20 per­cent of what I paid for it. Uh, and I say 10 or 20, it’s been 10 per­cent for a long time and we’re tri­alling 20 at the moment.

[00:47:40] Tony: Um, uh, then I’ll sell it because it’s, you know, I pre­fer it that way. Some­thing’s gone wrong with my invest­ment idea and I just want to pull that weed and move on and I found it’s bet­ter to, you know, go back into buy­ing some­thing at the top of the list and try­ing to get my mon­ey back that way rather than wait­ing for some­thing to recov­er that’s going down that I bought.

[00:47:59] Tony: So there are two main rea­sons to sell. As I said before, I have a cou­ple of red flags. One is if the com­pa­ny has a qual­i­fied audit. You can check for that in the annu­al reports. Um, they’re not very com­mon but occa­sion­al­ly they can hap­pen and they’re a red flag. Um, and they’ve hap­pened to sur­pris­ing­ly good com­pa­nies over the years.

[00:48:19] Tony: Mar­ket dar­lings have sud­den­ly had a qual­i­fied audit and can, You know, can be a lead­ing indi­ca­tor for a prob­lem. And anoth­er lead­ing indi­ca­tor I found is if, um, if, uh, CFO sud­den­ly resigns unex­pect­ed­ly. A key mem­ber, a key mem­ber of staff resigns unex­pect­ed­ly. So there’s kind of trou­ble at the mill, as Mon­ty Python would say.

[00:48:38] Tony: And, uh, and so it’s time to sell the stock as well. So there’s basi­cal­ly, you know, three or four rea­sons why I would sell it. Um, and, and that’s it. And so it’s just a ques­tion of, you know, run­ning your screens, run­ning your graphs, hav­ing a look, um, and then, um, decid­ing whether to sell or just con­tin­ue to, to ride it out.

[00:48:56] Elio: Okay, so what if I then talk about the Great Aussie Dilem­ma? I mean, seri­ous­ly, this is such a stress for every­one, and that is when you dou­ble your mon­ey. Um, you know, because us as Aus­tralian investors, of course, you know, we’re masochis­tic as it were, when it comes to invest­ing, we’re not los­ing mon­ey, we think we’re doing some­thing wrong.

[00:49:14] Elio: But let’s just say you’ve dou­bled your mon­ey in a stock. Are you tak­ing prof­its in order to get your­self more aligned, or are you using math­e­mat­ics, which is uncapped poten­tial for, if you’re long only, that is? Um, for a poten­tial 100 per­cent loss, as it were, what, what are you doing in that sort of sce­nario?

[00:49:31] Tony: Yeah, well, I would­n’t see it as a 100 per­cent loss. I guess, poten­tial­ly, you could get back to what you put into it, less than 10%, um, which is the rule one. Um, no, I’m still doing the same thing. I’m let­ting my, my win­ners run. Because, um, a dou­bling is just a, is a two bag­ger, but it could be a four bag­ger, or it could be, hope­ful­ly a 10 bag­ger.

[00:49:50] Tony: And what I’ve seen over, over time as well, and I think from mem­o­ry, my, my good exam­ple of this is Fortes­cue Met­als Group, um, which I got into, you know, when it was about three or four dol­lars a share, um, and it sort of went up to about sev­en, had a bit of a pull­back, And, you know, um, the ques­tion then is, well, I’ve near­ly dou­bled my mon­ey.

[00:50:09] Tony: Should I sell it? Or, um, is this the begin­ning of a big down­turn? And I said, no, it’s not a sell sig­nal. Uh, it’s still way above its, its, um, its long term, you know, sell trend. I’ll hold it. And of course it went up to 26 and it’s now back below that and I sold out at about 21. So, um, yeah, it’s, it’s, I think you’ve got to take the emo­tion out of this.

[00:50:30] Tony: You’ve got to have a sys­tem which you work out in advance and you. , you test it using past data and you say That’s the right sys­tem, and you don’t sec­ond guess it. You don’t say, oh, I’ve sud­den­ly dou­bled my mon­ey. I’ll throw my sys­tem out the door and I’ll, I’ll sell now , because to get dou­ble mar­ket, you’ve got­ta have a stock which goes a lot high­er than that to cov­er for the ones that drop below that.

[00:50:53] Tony: Of course, you’ve always, you’ve always got­ta have that sort of sta­tis­ti­cal approach to invest­ing in mind.

[00:50:58] Elio: No, good. Excel­lent. Thank you very much for that, Tony. Now, Jonathan does ask, uh, oth­er than monop­o­lis­tic ex gov­ern­ment style com­pa­nies, and I think we know who he may be infer­ring here, but he would like to know, from your per­spec­tive, Tony, What you would think an exam­ple of a good moat or a good Aus­tralian moat, uh, would be in regards to a busi­ness and by, by def­i­n­i­tion, for those that aren’t famil­iar with the con­cept, an eco­nom­ic moat, as it were, is basi­cal­ly the com­pa­ny pro­tect­ing itself and its inter­ests in regards to, you know, hav­ing the cus­tomer buy the short­ened curlies and the car­go URLs and rev­enue basi­cal­ly has to go to them.

[00:51:39] Elio: So how do you go about assess­ing that, Tony?

[00:51:43] Tony: I don’t, is the short answer, I don’t, I’m not an investor who pays atten­tion to moats, and that could be true. Poten­tial­ly be because in Aus­tralia we have a lot of com­pa­nies with moats, but they may not be good invest­ments. And, and what I mean by that, they are good invest­ments, but they’re not going to help per­form.

[00:51:59] Tony: So they’re big com­pa­nies that have a large mar­ket share. It’s very hard for a start­up to break into that indus­try. And I’m think­ing about the four major banks. I’m think­ing about Coles and Woolies. I’m think­ing about the big insur­ance com­pa­nies. You know, they have strong moats. They can con­tin­ue to Buf­fet­t’s def­i­n­i­tion of a strong moat was you can raise prices when, um, you know, there’s times of infla­tion or times of eco­nom­ic uncer­tain­ty.

[00:52:25] Tony: And if you look at the insur­ance com­pa­nies They’ve passed on their cost increas­es pret­ty strong­ly, um, even though there’s, uh, you know, peo­ple are, uh, you know, feel­ing quite pinched in the pen­ny depart­ment at the moment, so, um, that’s where the, that’s where the moat is, and they’re the com­pa­nies that have them, um, I do own shares in QBE, I’ll declare, but that’s not because it has a moat, it’s because it, it throws off lots of cash and, and, um, You know, uh, scores well on my check­list for all the oth­er rea­sons.

[00:52:53] Tony: Yeah. Um, so I don’t come at as come at these things as moat first. I come at them, um, from the, the check­list first, and if they’ve got a good moat, great.

[00:53:02] Elio: Yeah, and in the case of QBA, I mean, it dou­bled its prof­its, and the share price still went down. I mean, some peo­ple just, you can’t make them hap­py, can you?

[00:53:10] Elio: But I mean, that’s just what hap­pens. Look, if you’ve got a ques­tion, folks, please do type it in the right-hand side. Make sure you select the chat icon there and we can get to those ques­tions in time. Um, Jonathan has come up with a fol­low-on ques­tion, uh, Tony, where he is ask­ing in regards to your ser­vice, do you pro­vide an Excel mod­el?

[00:53:31] Elio: or rec­om­mend­ed one in your ser­vice?

[00:53:33] Tony: We do, so, um, we pro­vide an Excel mod­el, and that’s our check­list, and we tell you how to use it and how to fil­ter it, um, and, uh, yeah, it’s part of the ser­vice. We pro­vide a cal­cu­la­tor which gives us our three-point trend lines and, um, sell prices and buy prices as well.

[00:53:49] Tony: Excel­lent.

[00:53:49] Elio: Good. Thank you very much for that. Um, I do have anoth­er ques­tion. I think, you know, QBA will be a good pos­si­ble lead in, but the gen­er­al mar­ket, and we were sort of inter­ject­ing a lit­tle bit at that at the start of this webi­nar today, where the What do we do with the mar­ket? And I’ve heard you guys talk about it your­self and Can that is, um, in regards to the pod­cast where the mar­ket, you know, a few Mon­days ago, we were all chick­en lit­tle, you know, the sky was falling in on our heads.

[00:54:17] Elio: Uh, basi­cal­ly you could­n’t read a pos­i­tive news sto­ry in the finan­cial press for love or mon­ey. Uh, basi­cal­ly the world was going to end. As it were, and there­fore, so by def­i­n­i­tion, so are our port­fo­lios, because of course, our busi­ness­es were going to resem­ble, I don’t know, some back­wa­ter, uh, type, uh, com­pa­ny some­where, but, um, how, how do you man­age that?

[00:54:37] Elio: How do you deal with the psy­chol­o­gy? of invest­ing because notwith­stand­ing that you have your spread­sheets that three-point chart ulti­mate­ly is a squig­gly line and that thing goes up and down because there is sen­ti­ment some­times at times with regards to the price. So, you know, how do you man­age all that, uh, you know, dynam­ic?

[00:54:56] Tony: Well, I think the sys­tem takes, takes the human behav­iour out of it and you’ve got to be very dis­ci­plined at doing that. Because, you know, we’re fooled a lot by what goes on. So, Buf­fett talks about turn­ing out the noise. He talks about the mar­ket being a man­ic depres­sive who offers to buy your house one day for twice what it’s worth and the next day for half what it’s worth.

[00:55:17] Tony: So, yeah, you’ve got to be aware of that. So, I remem­ber that pod­cast and, you know, Cam and I just sort of laughed it off. It’s the title for the pod­cast was Water Off A Duck­’s Back. Yeah, that’s right. Water Off A Duck­’s Back. Cor­rect. It’s, it’s sit­u­a­tion nor­mal for us. The mar­ket has volatil­i­ty. Volatil­i­ty is our friend as a val­ue investor, because it means we can buy things cheap­er.

[00:55:37] Tony: But, um, if I look, we did­n’t, I don’t think we trad­ed any­thing dur­ing that, the recent cou­ple of weeks with that down­turn and then upturn, but some­one asked us a ques­tion on the pod­cast, what do we do dur­ing COVID? And, um, dur­ing COVID, you know, It was prob­a­bly a bet­ter exam­ple of how human behav­iour could be, you know, intrud­ing into your invest­ment deci­sions.

[00:55:57] Tony: But we stayed the course and in March 2020 or when­ev­er COVID hit, when the world was going to end and peo­ple were pre­dict­ing mil­lions of deaths and no one knew what was going to hap­pen and the share mar­ket went down dra­mat­i­cal­ly, we sold out on the way down. I think I sold all but one or two of my shares, um, Dain Port­fo­lio sold at least half, maybe more of its shares, and then a month lat­er the gov­ern­ment announced all this cash splash and sud­den­ly the share mar­ket came back, and we bought back in again.

[00:56:27] Tony: The sys­tem told us when to sell. The sys­tem told us when to buy. It told us what to buy and what to sell. Um, and it took all the emo­tion out of it because, you know, Cameron was in Syd­ney then with me and we were dri­ving around doing some meet­ings and, and, uh, we’re say­ing, you know, let’s, let’s try and work out what’s going to hap­pen here.

[00:56:44] Tony: And we had no idea, range from, you know, Armaged­don to noth­ing. It’s all just the flu. So we did­n’t know. And, and I think. You know, I’m very grate­ful that we, that I have a sys­tem which I could apply to take all that human guess­work

[00:57:00] Elio: Yeah, and whilst it was­n’t quite as deep as the 87 crash, it actu­al­ly was quick­er from point to point in regards to per­cent­age fall.

[00:57:08] Elio: So it was a pret­ty scary time, and that’s why often you can have, if you have that deci­sion out of your hands, it makes things a lot eas­i­er. So Jonathan, as a final sum up to your ques­tion, no, we don’t pay atten­tion, or Tony does­n’t pay atten­tion to the macro noise, but he’d be will­ing to give you coun­selling.

[00:57:25] Elio: Thank you. If you do need help, because I can tell you, if you could remain sane, lis­ten­ing to that stuff, uh, that’s, um, all great. Um, and hon­est, uh, yeah, fan­tas­tic. Good luck to you. Look, we are com­ing to the end of this pre­sen­ta­tion though, folks. So if you do have any oth­er ques­tions, you can either find Tony on his web­site or just email through to us and I’ll try my very best to put it on.

[00:57:47] Elio: Uh, Tony imper­son­ation for you, uh, but, uh, I guess we’re not, we’re not too dis­sim­i­lar. So that’s the, uh, uh, ben­e­fit, um, of this, but obvi­ous­ly if it gets too hard, um, I’ll pass it to you and then you pass it to Cam. So I think that’s how that works. But, uh, any­way, before we go, just folks, remem­ber this is anoth­er one of our invest­ing mas­ter­mind series that we’ve run with Tony today.

[00:58:14] Elio: The next one is with Ron Cham­ga, who again has a dif­fer­ent approach in regards to iden­ti­fy­ing poten­tial oppor­tu­ni­ties and invest­ments, so, um, we’ll send an invite clos­er to that date where you could reg­is­ter, um, there, um, but obvi­ous­ly I thor­ough­ly encour­age you to go have a look at Tony’s, uh, pod­cast as well to, uh, get an under­stand­ing in regards to it.

[00:58:35] Elio: What floats his boat and how they go about doing their invest­ing. Um, but on that note, uh, Tony, on behalf of all of our mem­bers, uh, and you, uh, inquiries who have just, uh, uh, dis­cov­ered Stock­o­pe­dia, thank you for your time today. Very much appre­ci­at­ed.

[00:58:52] Tony: Yeah, thanks. Thanks for invit­ing me on. It’s been fun.

[00:58:55] Elio: It has been fun.

[00:58:55] Elio: Absolute­ly. And that’s what invest­ing is, to be hon­est. If it ain’t fun, then seri­ous­ly, like I said, just keep los­ing mon­ey, knock your­self out. But look, on that note, we’re about to close our cam­era and our audio off in a sec­ond, because I’ve got a pret­ty impor­tant dis­claimer slide to show next. There it is.

[00:59:12] Elio: And yes, we’ll see you in the next instal­ment of our Mas­ter­mind Invest­ing series. Thanks again, Tony. Bye every­one.