QAV 739 — The Buffett Measure

QAV 739 Club

[00:00:00] CR: Wel­come to QAV. Uh, yeah.

[00:00:06] TK: Wel­come back!

[00:00:08] CR: So Tony, you had a per­fect run from Poi­fect and it’s still got a win­ter

[00:00:12] CR: coat, you were telling me.

[00:00:13] TK: Yes. So, uh, yes, she won, which was great. And she’ll get bet­ter as the spring pro­gress­es. So that’s real­ly good news.

[00:00:23] CR: Oh, well, we’ll talk about more about more about that. And after hours you can get into horse rac­ing.

[00:00:28] TK: yeah, okay,

[00:00:29] CR: Um, I hear you had a big chat with Tay­lor too in the car. He said, Oh, I spoke to your boss today. Real­ly? You spoke to Chris­sy? He said, no, the oth­er one.

[00:00:40] TK: Fox.

[00:00:41] CR: Yeah,

[00:00:42] CR: true. Yeah, Um,

[00:00:44] TK: we did have a good con­ver­sa­tion as I was dri­ving back from Wag­ga.

[00:00:47] CR: he appre­ci­ates

[00:00:48] CR: your, uh, wis­dom and

[00:00:49] TK: Yeah, I’ve got to call him back though, because I’ve been think­ing more about it. And um, and

[00:00:58] TK: I mean, I don’t give per­son­al advice, but I meant to ask him if he paid off his HECS debt. So he needs to prob­a­bly do that before invest­ing any of his cash pile.

[00:01:06] CR: Oh, that’s what he was talk­ing to you about. I thought he was talk­ing

[00:01:08] CR: to you about the acqui­si­tion offers that he’s get­ting.

[00:01:11] TK: yeah, he was, but we mor­phed into what to do with his bank account.

[00:01:15] CR: right.

[00:01:16] CR: Yeah.

[00:01:17] TK: Yeah. Yeah. And the oth­er thought, yeah, the oth­er thought I had was, you know, based on what he was telling me about his busi­ness, he might as well just put that cash to work try­ing to expand his busi­ness and grow that because the returns have been real­ly good.

[00:01:32] CR: Yeah. I mean, that’s been his the­o­ry for the last cou­ple of years is spend­ing it on his busi­ness, but he has­n’t fig­ured out how to do it yet, I

[00:01:38] CR: think. Any­way, the A Ord is at an all

[00:01:41] TK: I’ll give him a call.

[00:01:44] CR: Yet again, um, I think the RBA’s due to

[00:01:48] CR: Say some­thing today,

[00:01:50] TK: Say some­thing and do noth­ing, I think is the gen­er­al con­sen­sus, gen­er­al

[00:01:53] CR: even after the US pulled their rates

[00:01:56] CR: down.

[00:01:56] TK: Yes. Yep. Um, there’s been a, The thought amongst the RBA econ­o­mists that we did­n’t go as high as the USA and they’re just pulling back to our lev­el. So they’ll prob­a­bly hold.

[00:02:10] CR: Well, when I say we’re at a all time high, we were a cou­ple of days ago. The mar­ket pulled back yes­ter­day and has pulled back again today, by the looks of it. Down at 8. 356 at the moment, from a high of 8. 470 last week, on Fri­day. Um, but still. All things told, uh, in the vicin­i­ty of the all time high. Uh, so yes, and it’s been good for our port­fo­lios still.

[00:02:41] CR: Um, I did the port­fo­lio reports this morn­ing for any­one who is still pay­ing atten­tion to these things, cause it’s just kind of the same every week, but the dum­my port­fo­lio is track­ing at 16. 21 per­cent per annum, CAGA. Over the last five years ver­sus the STW at 9. 15 per annum. So we’re doing 1. 77 times bet­ter than the mar­ket.

[00:03:07] CR: Not

[00:03:07] CR: quite dou­ble, but close to it.

[00:03:11] TK: Not quite dou­ble mar­ket, which by the way, runs on Thurs­day for its first start.

[00:03:16] CR: Look at you get­ting in a horse plug.

[00:03:19] TK: Yeah. Yep.

[00:03:21] CR: Um, but for the last 30 days, our port­fo­lio is up 4. 91 per­cent per annum ver­sus the STW up 2. 61, still not quite dou­ble, but close. Uh, but the. Stock­o­pe­dia port­fo­lios are just still going nuts, Tony. I mean, the Aussie one is up 17 per­cent since incep­tion, which is July 23, ver­sus the index up 11.

[00:03:48] CR: The US, I said last week it was up 50%, this week it’s up 60%. Since incep­tion ver­sus the S& P up 28%. Well, that’s Sep­tem­ber 23, the incep­tion for that one. Um, like the US mar­ket is just absolute­ly bonkers at the moment. Um, all we’re doing is real­ly just hold­ing on, you know, to buy­ing some frothy stocks and

[00:04:16] CR: watch­ing the froth go frothy.

[00:04:19] CR: Um,

[00:04:20] TK: that’s the case, Cam. Our stocks aren’t gen­er­al­ly frothy and at 60 per­cent we’re doing Dou­ble mar­ket, I would have thought, in the US, which is what we should be doing, um,

[00:04:32] CR: yeah, but I

[00:04:32] TK: on,

[00:04:34] CR: But I mean, the mar­ket’s up 30%. I mean, that’s my point. We’re up 60%, but it’s kind of, it’s nuts, right? The whole thing over

[00:04:41] TK: yeah, yeah,

[00:04:42] CR: The, uh, top per­form­ers, uh, same as they have been in recent times. Willis Lease Finance is up 186 per­cent since we bought it. Land’s End, strug­gling retail­er, is up, uh, 142%.

[00:04:58] CR: Euroseas. Which is, uh, one of these ship­ping busi­ness­es is up 60 per­cent Opti­mum Bank Hold­ings, uh, which is a

[00:05:09] CR: bank hold­ing com­pa­ny, uh, is up

[00:05:12] TK: opti­mal­ly, yeah,

[00:05:15] CR: uh, run by the Trans­form­ers is up 40%. So is Region­al Man­age­ment, con­sumer finance com­pa­ny. It’s up 40. Inno­va Inter­na­tion­al is up 40. ENVA, it’s a tech­nol­o­gy and ana­lyt­ics com­pa­ny.

[00:05:29] CR: And I’m right. Um, yeah, I only bought that in March this year, and it’s already up 40 per­cent since March. So, just, like, it’s absolute­ly bonkers. Absolute­ly

[00:05:44] CR: bonkers, the mar­ket over there.

[00:05:46] TK: yeah, and cut­ting inter­est rates is prob­a­bly going to add fuel to the fire. for the stock mar­ket I would have thought. Sounds like it already is to some of those names and does­n’t it make sense if it’s hap­pen­ing to the finance com­pa­nies because as inter­est rates go down their costs go down. So, um, yeah, I can see why they’re going up.

[00:06:03] CR: As always, we don’t expect it to

[00:06:05] CR: last. Um, it’s, it’s a, it’s,

[00:06:09] CR: a thing that will have

[00:06:11] TK: And we also know from his­to­ry you don’t fol­low the hot hand.

[00:06:15] TK: It’s not going to go up 60 per­cent this year and next year and the year after that. Or it’s very, very unlike­ly to do that. The prob­a­bil­i­ty is very low for it to do that. I’m not going to try and fore­cast it but it will regress to the

[00:06:27] CR: Yeah. But you know, inter­est­ing to me that we are doing dou­ble mar­ket over there, just plug­ging in the same, um,

[00:06:37] CR: for­mu­la, slight­ly mod­i­fied, but more or less the same thing.

[00:06:40] TK: yeah, but the inter­est­ing thing which I keep com­ing back to is that, um, is that Zed score, is that, where, yeah, we haven’t got the han­dles around the qual­i­ty of these com­pa­nies, but it seems like it does­n’t mat­ter. And maybe that’s the sign of a frothy mar­ket, I don’t know.

[00:06:56] CR: I did email Joseph Piotros­ki, uh, over the last week, and asked him if he could rec­om­mend any­one to come and talk to us about F scores and Z scores. Um, haven’t had a reply back from him yet, but he might get back to me. Um, NGI Tony, which I’m not going to pro­nounce, because I’ll prob­a­bly get can­celled if I pro­nounce it.

[00:07:20] CR: Um, yeah.

[00:07:23] TK: it Nav­i­ga­tor? Nav­i­ga­tor Glob­al?

[00:07:25] CR: I was just going to pro­nounce the three let­ter

[00:07:27] CR: acronym togeth­er, and that would not go well. That’d be like watch­ing the,

[00:07:30] TK: where your mind goes to

[00:07:31] CR: Roger Cor­man. Well, look, I grew up in 90s hip hop, man, let’s wear my own Taran­ti­no films, and 70s Blax­ploita­tion films, and then that Roger Cor­man William Shat­ner film I just watched.

[00:07:42] CR: Um, uh, shout out to, uh, Paul and Andy, who, uh, asked about that last week, and I real­ly Uh, to my eter­nal shame, dis­miss their inquiries, because I did look at it when it was on the share list. I thought that’s, because it had a crazy QAV score of like 36. And I went and had a look, because the nor­mal prob­lem when we have wonky look­ing scores with Stock Doc­tor is the, um, mar­ket cap.

[00:08:11] CR: And I went and looked at the mar­ket cap and it looked like, it looked legit. And I was like, yeah, yeah, all right. I think it’s fine. But, uh, you,

[00:08:19] CR: Did more dig­ging.

[00:08:22] TK: Well, to be hon­est, it’s not nor­mal­ly the mar­ket cap. I think it’s more, it’s the num­ber of shares on issue. And that was the cul­prit again this time.

[00:08:29] CR: So there was a bit of an error in Stock Doc­tor and they fixed it. You, you emailed Vic­tor, Vic­tor fixed it. Did the

[00:08:36] TK: Yeah. Good on them.

[00:08:37] CR: the Vic’s fix,

[00:08:38] CR: and

[00:08:39] TK: a quick, big fix.

[00:08:40] CR: quick Vic’s fix Yeah. And it was­n’t on the

[00:08:43] TK: Came back same day.

[00:08:44] CR: Yeah. So well done to Paul and Andy for, uh,

[00:08:48] CR: call­ing bull­shit on that. And I

[00:08:51] TK: But that’s like, I mean, that’s a, there’s a,

[00:08:54] TK: That’s okay. I mean, we, we tell peo­ple to do their own research. If you see some­thing which, as we’ve said before, if you see some­thing which looks crazy like a, you know, an astro­nom­i­cal QAV score, um, I just sim­ply went to the annu­al report and start­ed going through and com­par­ing the num­bers.

[00:09:09] TK: And, um, I did, I did actu­al­ly start with num­ber of shares on issue because that was the prob­lem last time we had this issue with, uh, News Corp, I think, um, and quick­ly worked it out. So, um, yeah,

[00:09:20] CR: If you see

[00:09:21] TK: um, if you see some­thing, see some­thing strange.

[00:09:25] TK: see some­thing,

[00:09:25] TK: strange, do some­thing strange. I know that was, um,

[00:09:28] CR: Doc­tor Strange?

[00:09:30] TK: Hunter S.

[00:09:31] TK: Thomp­son’s approach to all that.

[00:09:36] CR: I miss Hunter S. Thomp­son.

[00:09:39] CR: Um,

[00:09:41] TK: He would cer­tain­ly have fun with Don­ald Trump, would­n’t

[00:09:43] CR: Oh, the whole thing, not just Trump, but the whole

[00:09:46] TK: true. Yeah.

[00:09:47] CR: you know.

[00:09:48] TK: Hmm.

[00:09:49] CR: was watch­ing an inter­view last night with, uh, John Mier, it was a live, uh, thing on stage, actu­al­ly, a pan­el inter­view­ing John Mearsheimer and, uh, Jef­frey Sachs, and they were talk­ing about the cur­rent elec­tion.

[00:10:06] CR: Uh,

[00:10:08] TK: No, go on.

[00:10:08] CR: not the woman who died with her hat on

[00:10:11] TK: Yeah, that’s Oliv­er Sacks, I just real­ized. That’s Oliv­er Sacks, isn’t it? Yeah. The man who mis­took his wife

[00:10:17] TK: for a

[00:10:17] CR: that’s it, no, Jef­frey Sachs is an econ­o­mist who’s very crit­i­cal of the US, um, and he was an advi­sor to Gor­bachev and Yeltsin back in the end of the That’s it.

[00:10:29] CR: USSR days. Um, but they were talk­ing about how the, the Democ­rats have moved to the right and, and Mearsheimer, I think, or no, Sachs said the Democ­rats would be a right wing par­ty in Europe. And I often say this to my Amer­i­can lis­ten­ers, Bernie Sanders would sort of be a cen­trist in Aus­tralia. Like it’s

[00:10:52] TK: Hmm. Yeah.

[00:10:53] CR: con­sid­ered extreme left over there.

[00:10:55] CR: He’d be

[00:10:56] CR: in the cen­ter some­where. Noth­ing is like he

[00:10:59] TK: That’s what I’ve always thought. I’ve always thought the Repub­li­cans are the Nation­al Par­ty in Aus­tralia, the Democ­rats are the Lib­er­als, and there is no Labour Par­ty in the US.

[00:11:06] CR: Yeah, well, what these guys were say­ing is, you know, the Democ­rats have moved so far to the right since Clin­ton that the

[00:11:12] CR: Repub­li­cans have had to move even fur­ther and fur­ther to the right until they’ve

[00:11:16] TK: Mm hmm.

[00:11:16] CR: know, as Chom­sky’s been say­ing for years, they’ve fall­en off the edge and just gone com­plete­ly bat­shit crazy.

[00:11:21] CR: But John Mearsheimer says he refers to them as Twee­dle­dum and Twee­dledee. Like, they’re basi­cal­ly the same par­ty, you know. Because they were talk­ing about the fact that Dick Cheney has come out and sup­port­ed Kamala Har­ris. Uh, and his daugh­ter, Liz Cheney, has said, well, that’s because her for­eign pol­i­cy, the Democ­rats for­eign pol­i­cy, most close­ly reflects Dick Cheney’s pol­i­cy.

[00:11:48] CR: Like, in any oth­er era, like 20 years ago, the Democ­rats con­sid­ered Dick Cheney the dev­il, and now he’s sup­port­ing their can­di­date over the Repub­li­cans, and they’re like, oh, that’s all good, you know. Any­way,

[00:12:01] CR: Twee­dle­dum and Twee­dledee.

[00:12:04] TK: I mean, that’s right. I was lis­ten­ing, I’ll talk about it in the after hours, but lis­ten­ing to a great. Pod­cast inter­view with Nicholas Tay­lor, the author of The Black Swan, and he, he made, he’s mak­ing, like, it’s one of those pod­casts where you kind of have to stop after every sen­tence and just think about what he said, but one of his off­hand com­ments was that, um, Don­ald Trump’s iso­la­tion­ist pol­i­cy is bet­ter for world peace than the Democ­rats for­eign pol­i­cy of try­ing to democ­ra­tize the world, because that’s where the, that’s where all the con­flict starts.

[00:12:34] CR: democ­ra­tize the world I think they mean,

[00:12:36] CR: you know, main­tain U. S.

[00:12:40] TK: view­ers inter­ests.

[00:12:41] CR: over the world, yeah. Any­way, back to invest­ing, uh, in the Finan­cial Review today, uh, our friend Alex Gluyas has an arti­cle, ASX in the div­i­dend dol­drums as boards hoard cash. And I, I just want to give a shout out to either him or his sub edi­tor for the allit­er­a­tion and the rhyming schemes in that head­line.

[00:13:06] CR: The Div­i­dend Dol­drums and Boards Hoard Cash. Like that’s, that’s, great. that’s

[00:13:12] CR: beau­ti­ful. I love it. Boards

[00:13:14] TK: We should try and get Alex on the show to talk about his report­ing because we, we seem to quote him a

[00:13:18] CR: Yeah,

[00:13:19] CR: and just who­ev­er, who writes these sub­head­ings, head­lines,

[00:13:22] TK: from what I’m,

[00:13:23] TK: a lit­tle bit I’ve heard is they don’t have sub edi­tors any­more. It’s either, it’s either com­put­er or it’s the jour­nal­ists them­selves. That’s prob­a­bly

[00:13:32] CR: I’d be sur­prised if they actu­al­ly have jour­nal­ists any­more. Alex is prob­a­bly just an AI writ­ing it. Uh, Investors are con­cerned that Aus­tralian com­pa­nies are hoard­ing their earn­ings rather than using the mon­ey to grow their busi­ness or return on invest­ment. Turn it to share­hold­ers as boards wor­ry about a slow­down in the econ­o­my and the hit to prof­its.

[00:13:50] CR: The ASX was hit with one of the sharpest declines in pay­outs in the world in the sec­ond quar­ter of 2024, with the head­line rate plung­ing 19 per­cent from a year ear­li­er to just US 7. 1 bil­lion or 10. 4 bil­lion Aus­tralian, Janus Hen­der­son said. Is it Janus or Janus Hen­der­son,

[00:14:12] CR: Tony? I know in Roman

[00:14:15] TK: I’ve always said Janus. Yeah.

[00:14:17] CR: times, the god who had two heads and looked both ways was the god of Janus.

[00:14:24] CR: They had the tem­ple of Janus, well the Romans did­n’t pro­nounce the let­ter J, J was a Y like a Y, so it was Julius Kaiser, Julius Kaiser, not Julius Cae­sar, Janus was Janus, Jesus would have been Yeshua, or Yesus, um. And, you know, they had the Tem­ple in Rome, and if they were at war, the doors would be open, and if they were at peace, the doors would be closed, and the doors of the Tem­ple of Janus, that’s also where Jan­u­ary comes from, Jan­u­ary is the month of Janus, is the first month of the year.

[00:15:02] CR: And so on the, on my Cae­sar show, I’m always talk­ing about how they had to open their Janus when­ev­er they went to war.

[00:15:10] CR: God, I don’t know

[00:15:10] TK: Well, I’m sit­ting here like a, like a, like a Roman

[00:15:13] TK: cen­tu­ri­on and release. Roger the sketch. Try­ing not to laugh every time you say Janus,

[00:15:19] CR: you had to open your Janus. Any­way, Janus Hen­der­son said. is despite glob­al div­i­dends jump­ing to a record of 606 US bil­lion. Um, now, cor­rect me if I’m wrong, but, um, Buf­fett, Buf­fett, Buf­fet­t’s a big fan of com­pa­nies hold­ing onto the mon­ey and rein­vest­ing it, isn’t He

[00:15:42] TK: Yes.

[00:15:43] CR: like them

[00:15:43] CR: pay­ing out div­i­dends. Right. Hmm.

[00:15:46] TK: Um, it’s, it’s a very much us sort of approach to invest­ing. Um, Aus­trali­a’s dif­fer­ent because of our. Rank­ing cred­it sys­tem, so there’s actu­al­ly an extra advan­tage to share­hold­ers if you pay out a div­i­dend in Aus­tralia because you get a tax break for what­ev­er tax the com­pa­ny’s already paid.

[00:16:05] TK: At least on local­ly earned prof­its, does­n’t always work that way because some com­pa­nies get their prof­its from over­seas invest­ments. Um, so yeah, so there’s a bit of it. So, and, and it’s also because of our super­an­nu­a­tion indus­try, which is designed to, to sup­port peo­ple in retire­ment. Um, it’s also skewed towards serv­ing that beast, um, which is huge.

[00:16:25] TK: And of course they want div­i­dends for that pur­pose as well, for retire­ment, pas­sive income for retire­ment. So Aus­tralia tends to favour div­i­dends. Amer­i­cans don’t. Buf­fett tech­ni­cal­ly is cor­rect to that. Why would you pay it back to a share­hold­er if you can rein­vest it? at a high­er rate of return than the mar­ket in your own com­pa­ny.

[00:16:44] TK: So he kind of uses it as a mis test to see how strong­ly the board feels about its ongo­ing abil­i­ty to rein­vest.

[00:16:53] CR: Well, I had a look at the dum­my port­fo­lio. For the last one year, accord­ing to Navexa, our cap­i­tal gain is 5. 2 per­cent per annum and our income return is 6. 19 per­cent per annum. If I look over the last two years, our cap­i­tal gain is 8. 13 per­cent per annum and our income return is 8. 73 per­cent per annum.

[00:17:19] CR: So, our div­i­dends have actu­al­ly been quite good. Strong in the last one year, if I’m read­ing that cor­rect­ly. If I look over the last three years, our cap­i­tal gain has been 0.71% in our income return 9.6%. But 2022,

[00:17:38] CR: as we know, was a shock­er. Um, if

[00:17:42] TK: Yes. So there’s some things to unpack

[00:17:44] TK: there, which is you’re right to point out that income in Aus­tralia is a huge part of returns. So what Buf­fett would say is that what­ev­er it was, 9% of our growth was through income. He, he would say, yeah, but if the com­pa­ny kept that 9 per­cent and they were grow­ing at a high rate of return, it’s, it’s the ben­e­fit to you is more than 9%.

[00:18:04] TK: It’s what­ev­er it is. Um, but the flip side to that argu­ment is, you know, we’re lucky enough to be able to rein­vest those div­i­dends in a way that earns above mar­ket returns any­way. So we’re kind of get­ting the same. Result because of our strat­e­gy. But if you’re an index investor, then yeah, sure. It’s, it’s bet­ter in the long-term to let the com­pa­nies com­pound the mon­ey they’re giv­ing to you as a div­i­dend by rein­vest­ing them in the com­pa­ny.

[00:18:30] TK: That’s the first thing. The sec­ond thing is that, um, the longer you hold a share, but it may have start­ed off as a 4 per­cent yield­er, which is about the mar­ket aver­age, but you know, um, as the div­i­dends get increased over time, based on the ini­tial start­ing point, you know, price you paid for that stock, the yield must go up.

[00:18:48] TK: So, um, you get to a, there’s almost like a tip­ping point when a com­pa­ny does pay out con­sis­tent­ly increas­ing div­i­dends where you’re, um, get­ting most of your return from that div­i­dend income. Cause it’s just, it’s just grow­ing so large based on your ini­tial, on the cur­rent yield based on your ini­tial invest­ment.

[00:19:09] CR: yeah, right.

[00:19:11] CR: It becomes a larg­er and larg­er

[00:19:13] CR: com­po­nent of the pie.

[00:19:16] TK: yeah.

[00:19:17] CR: Uh, Chris Co.

[00:19:19] CR: One of our sub­scribers, um.

[00:19:22] TK: Sor­ry, before you leave that top­ic, I had some notes to talk about. It’s a, it’s a, apart from the allit­er­a­tion in the title, Div­i­dend Dol­drums, Um, it’s a, it’s an inter­est­ing top­ic and, and I, Alex Hay, my stock­bro­ker, asked me to go into a pre­sen­ta­tion on Zoom on Microsoft Teams from Clime Asset Man­age­ment, which is a list­ed invest­ment com­pa­ny, it’s been around for a long time, today, so I lis­tened to their pre­sen­ta­tion and they honed in on this issue too, because Uh, they point out that they often look for, um, div­i­dend income as part of their strat­e­gy for invest­ing because they know that they’re, they want to pay out a good div­i­dend because a lot of their peo­ple who buy their shares are retirees.

[00:20:08] TK: So, they, they put up a slide, and I haven’t had a chance to ver­i­fy this, but they’re say­ing the fore­cast div­i­dend yield for the ASX200 is about 3. 25%, so that’s prob­a­bly about 1 per­cent below the long term aver­age, which is around 4. 5%, or as I said, 1. 25 per­cent below that, so it’s quite low, um, and they were point­ing out, though, a cou­ple of dif­fer­ent things that’s been hap­pen­ing.

[00:20:35] TK: The, the. Point they made was that, um, most of the, you know, a lot of div­i­dends in the Aus­tralian mar­ket come from banks or finan­cial sec­tor com­pa­nies or resource com­pa­nies. And so, um, if you look at the bank­ing com­pa­nies, you know, Com­mon­wealth Bank is at an all time high. So they, they picked on three stocks.

[00:20:54] TK: They looked at CBA, West Farm­ers and J. B. Hi Fi and CBA and J. B. Hi Fi have been on the buy list from time to time, so some of our lis­ten­ers may hold them. Um, but, you know, now that they’re at record high PEs and West Farm­ers is trad­ing at 30 times and Comm­Bank trad­ing at 25 times as a PE ratio, their yields are quite low com­pared to their his­tor­i­cal num­bers.

[00:21:20] TK: Um, so that’s one of the rea­sons why the mar­ket is low. And then the oth­er rea­son is that, A lot of div­i­dends were com­ing from resource stocks over the last few years, like Fortes­cue Met­als at one stage was yield­ing 10%. Um, I think, uh, even BHP had a high yield, but as iron ore prices drop, they’re not able to con­tin­u­al­ly, their prof­its will decline, so they’re not able to pay out that same sort of num­ber, um, as a div­i­dend.

[00:21:46] TK: So there’s a cou­ple of things going on there. Um, I guess the mil­lion dol­lar ques­tion is, is this some kind of lead­ing indi­ca­tor to a mar­ket cor­rec­tion as things regress to the mean, or is this going to be, um, busi­ness as usu­al, or will it be affect­ed by, you know, um, inter­est rates being cut? So, I don’t think any­one knows the answer to all those things, and there’s so many mov­ing parts, it’s hard to fore­cast, but, uh, I, I think their analy­sis as to why the mar­ket was yield­ing three and a quar­ter per­cent was quite accu­rate.

[00:22:15] TK: The, the banks are on high PEs, and there­fore low yields, and the, you know, Recent pay­outs by iron ore min­ers are com­ing to an end.

[00:22:24] CR: Yeah. Well, you know, my main ques­tion, I mean, look­ing at the last year in our port­fo­lio, is that as a per­cent­age of the return, cap­i­tal gain up five, income up six, it has­n’t been a bad div­i­dend year for us. I’m won­der­ing if that’s, um,

[00:22:45] TK: Yeah,

[00:22:46] CR: to

[00:22:46] CR: do with the stocks that we invest in.

[00:22:49] TK: yeah, good point Cam, I was going to make that point too, that div­i­dend yield is not often a prob­lem on our buy list because we’re buy­ing val­ue stocks, and so it’s kind of the inverse of what I just said about banks, if a com­pa­ny’s price is low, and it’s a qual­i­ty com­pa­ny with lots of cash flow so it can still main­tain its div­i­dend, the yield­’s usu­al­ly high or above mar­ket.

[00:23:07] TK: So a lot of our stocks are yield­ing above mar­ket, it’s not hard for me to find stocks on our buy list which are yield­ing well above three and a quar­ter per­cent. And sort of five or six per­cent, which is almost get­ting to dou­ble yields, dou­ble mar­ket yields.

[00:23:21] CR: Even though it’s not some­thing that we

[00:23:23] CR: specif­i­cal­ly look for or fil­ter on.

[00:23:26] TK: Yeah, cor­rect.

[00:23:28] CR: Okay.

[00:23:29] CR: You’re done with that seg­ment?

[00:23:32] TK: I am, thank you.

[00:23:33] CR: Good. Chris Co.

[00:23:36] CR: Back to Chris. Uh,

[00:23:38] TK: That’s allit­er­a­tion as

[00:23:39] CR: It is. Con­grat­u­la­tions, Chris. Well done. Good job. He, uh, has rec­om­mend­ed this newslet­ter before, men­tioned it before. It’s a New Zealand based newslet­ter, Mar­ket Analy­sis, and he said he thinks it’d be good for QAV mem­bers if they want some­thing else to read.

[00:23:58] CR: It was start­ed by a guy called James Cor­nell, um, and hav­ing a look through their web­site, I believe he sort of retired to Malaysia or some­thing at some point, I’m not sure if he’s still run­ning it or not, but it’s been going for 40 years or some­thing, it’s been going since the

[00:24:13] CR: 80s. You ever sub­scribed to it or read it or any­thing?

[00:24:17] TK: I haven’t, no, I haven’t heard this one before.

[00:24:19] CR: I had a look at, uh, through the site and, um, There, there’s a post from 1997 called Iden­ti­fy­ing Shares with the poten­tial to out­per­form the mar­ket. And I think it’s sort of the, the basis of their strat­e­gy and think­ing. And I just sort, I’d read, um, some sec­tions from it because it, I, it sounds famil­iar. Um.

[00:24:45] CR: Bits of it we won’t agree with, but most of it sounds famil­iar. So it says, um, the main rea­son why the share mar­ket works so well is that near­ly every investor has a dif­fer­ent opin­ion on the future of a par­tic­u­lar share. For every investor using, using a share selec­tion method and seek­ing to buy shares in a par­tic­u­lar com­pa­ny, there has to be an equal num­ber of investors using alter­na­tive meth­ods who are seek­ing to sell.

[00:25:09] CR: Quite obvi­ous­ly, many investors, and that includes pro­fes­sion­al fund man­agers who, over­all, are unable to beat the mar­ket, must be using share selec­tion meth­ods that, over­all, don’t work very well. Some share selec­tion tech­niques, for some rea­son I’m find­ing it real­ly hard to, to say share, share selec­tion with­out laps­ing into Sean Con­nery and say­ing share selec­tion. the share selec­tion.

[00:25:35] CR: Mr.

[00:25:36] TK: feel free to.

[00:25:36] CR: Yeah. some

[00:25:38] TK: Well, the New Zealand South Island accent is very

[00:25:40] TK: Scot­tish any­way, so you can pre­tend to be a Kiwi. Yeah.

[00:25:43] CR: Some share selec­tion tech­niques, for exam­ple, buy­ing shares trad­ing on high price sales ratios or on high price earn­ings ratios, work quite poor­ly. No, that’s enough of that. But there are always enough excep­tions, at least over the medi­an term, that some investors will believe that their Favorite growth share is worth this high val­u­a­tion.

[00:26:06] CR: Usu­al­ly what hap­pens is that the com­pa­ny grows strong­ly, but the share price had antic­i­pat­ed most of that growth. and appre­ci­ates at a low­er rate than the mar­ket aver­age. So to invest suc­cess­ful­ly in the share mar­ket, it is nec­es­sary to first­ly choose a sen­si­ble share selec­tion method. One that is based upon both sound invest­ment the­o­ry and which has been shown to work in prac­tice over a rea­son­ably long peri­od of time.

[00:26:37] CR: A chim­panzee throw­ing darts at the share table in a news­pa­per once out­per­formed a pro­fes­sion­al fund man­ag­er. How­ev­er, despite the chim­panzee’s, actu­al­ly he calls it Cham­panzee here, maybe that’s if you have a chim­panzee that suc­ceeds at

[00:26:52] CR: some­thing he becomes

[00:26:53] TK: Yeah.

[00:26:54] CR: Cham­panzee, it’s a

[00:26:55] TK: Yeah. Like Sean Coons becomes P Did­dy.

[00:26:58] TK: Yeah.

[00:27:00] CR: it’s in, in the chim­panzee

[00:27:03] CR: hier­ar­chy, if you’re at the, if you’re like

[00:27:06] TK: the, P Did­dy.

[00:27:07] CR: you’re the alpha male, you’re the alpha male. You’re the Cham­panzee.

[00:27:13] CR: Good on you, Cham­panzee. despite,

[00:27:16] TK: Remem­ber that TV series from

[00:27:18] TK: the six­ties? The Lancelot Link. Secret Chimp. Maybe you go around like Lancelot Link, you know, remem­ber Lancelot link where the mon­keys got dressed up as secret agents and they’d smoke cig­ars and they’d Yeah.

[00:27:28] CR: but I would, I total­ly want to watch that show. It looks awe­some.

[00:27:31] TK: Yeah.

[00:27:31] CR: awe­some. Any­who, how­ev­er, despite the Cham­panzee’s advan­tage com­pet­ing against a fund man­ag­er, not against the mar­ket aver­age, it is unlike­ly to be able to repeat this per­for­mance over sev­er­al time peri­ods. The report­ing of this share selec­tion method.

[00:27:46] CR: Is also prob­a­bly biased in favour of this one suc­cess­ful result, as no one has report­ed on the per­for­mance of oth­er ani­mals, e. g. bulls, bears and stags, that play an impor­tant role in the stock mar­ket. Sec­ond­ly, no share selec­tion method will work on this. All Of The Time. If a method works most of the time, or only some of the time, and does no harm at oth­er times, then it could still gen­er­ate sig­nif­i­cant, above aver­age prof­its over the longer term.

[00:28:14] CR: So once you have cho­sen the right, in invert­ed com­mas, method. It is still nec­es­sary to apply that tech­nique con­sis­tent­ly over a long peri­od of time, allow­ing its supe­ri­or prof­its to steadi­ly accrue. For exam­ple, growth invest­ing worked in invest, invert­ed com­mas, in the 1980s, while val­ue invest­ing has been bet­ter in the 1990s.

[00:28:36] CR: So if you tried val­ue invest­ing in the 1980s, then switched to growth invest­ing in the 1990s, you will prob­a­bly be rather dis­il­lu­sioned with the share mar­ket. How­ev­er, apply­ing Either method con­sis­tent­ly over both decades would have worked out quite well. Assum­ing you start­ed invest­ing some time in the last 20 years, and again this was pub­lished in 1997, and not know­ing in advance which method would work, and by the way, which means this came out sort of in the mid­dle of the dot com boom,

[00:29:06] TK: Yeah, dot com, yeah,

[00:29:09] CR: And before the GFC, uh, which method, not know­ing in advance which method would work best in the imme­di­ate future, the most con­sis­tent­ly reli­able results would have been achieved by invest­ing 50 per­cent of your port­fo­lio in growth shares and 50 per­cent in val­ue shares over both decades. Diver­si­fy­ing your invest­ments between shares select­ed by dif­fer­ent suc­cess­ful meth­ods is just as impor­tant as diver­si­fy­ing between shares of dif­fer­ent com­pa­nies, diver­si­fy­ing inter­na­tion­al­ly glob­al­ly.

[00:29:38] CR: And diver­si­fy­ing across time. All right. I’m going to pause there because

[00:29:43] CR: I got to that bit and I went, I did

[00:29:46] TK: yeah,

[00:29:47] CR: I did a Scoo­by.

[00:29:50] TK: yeah, well the growth, the com­ments about growth and val­ue, whilst I agree with pick and stick, you know, stick to a strat­e­gy, um, you know, for the long term, don’t drop and change, you know, what works on Wall Street has done long term regres­sion analy­sis which shows that growth under­per­forms val­ue. Which is also, you know, sto­ry of Berk­shire Hath­away and my expe­ri­ence as well.

[00:30:17] CR: Yeah. And you know, in terms of diver­si­fy­ing your port­fo­lio, 50 per­cent in growth and 50 per­cent in, um, val­ue.

[00:30:26] CR: What do you think about that?

[00:30:28] TK: No, I think you’ll get aver­age per­for­mance because, as he said, one does well at one stage and one does poor­ly at one stage. So how can you get out­per­for­mance from that?

[00:30:37] CR: bal­ance each oth­er out over time.

[00:30:40] TK: yeah,

[00:30:42] CR: Any­way.

[00:30:42] TK: um,

[00:30:43] CR: He fin­ish­es, he fin­ish­es this sec­tion with say­ing, um, a suc­cess­ful share selec­tion method is not about mak­ing instant rich­es. It is about adding a few per­cent­age points to your invest­ment returns year in and year out, but com­pound­ing that lit­tle extra annu­al return over a few decades will make you very rich.

[00:31:04] CR: So. Most­ly good with that stuff. But then, in page three, he gets into share selec­tion meth­ods. He cov­ers some famil­iar ter­ri­to­ry. He talks about the small com­pa­ny effect. The small com­pa­ny effect, that is the ten­den­cy of small enlist­ed com­pa­nies to out­per­form the mar­ket, was first report­ed in 1978 by Rolf Banz.

[00:31:26] CR: Share bro­ker neglect. Insti­tu­tion­al neglect. The first study of neglect­ed or unpop­u­lar shares was pub­lished in 1964 by Pro­fes­sor Scott Bau­man. Between 1954 and 1961, he con­struct­ed a port­fo­lio of 30 pop­u­lar stocks, being the most wide­ly owned stocks from a sur­vey of 80 large mutu­al funds, and a less pop­u­lar port­fo­lio of stocks held by only one or two of these funds.

[00:31:50] CR: Over the eight year peri­od, the pop­u­lar port­fo­lio under­per­formed the by 2. 7%, while the less pop­u­lar port­fo­lio out­per­formed by 0. 9%. It just remind­ed me of how you’ve said many times that if we find a share that does­n’t have bro­ker or ana­lyst cov­er­age, they can often do quite well because even­tu­al­ly they get picked up and they regress to the mean.

[00:32:16] TK: Yeah,

[00:32:16] CR: We get in on them ear­ly. He talks about under­val­ued shares. One of the first stud­ies of the price earn­ings ratio and invest­ment returns was pub­lished in 1960 by Fran­cis Nichol­son. This study cov­ered 100 large stocks in each of four peri­ods of five years, i. e. 20 years in total. Stocks were ranked by P. E.

[00:32:36] CR: ratio and divid­ed into five port­fo­lios, over­all the high­est P. E. ratio port­fo­lio, i. e. the most over­val­ued. Under­per­formed the mar­ket by 1.8% per year, while the low­est PE ratio port­fo­lio IE the most under­val­ued, out­per­formed by 4.7% per year. A study pub­lished in 1977 by Pro­fes­sor San­joy Basu cov­ered 1400 stocks for 15 years.

[00:33:03] CR: From 1956 to 1971, yield­ed almost iden­ti­cal results with the high PE ratio port­fo­lio under­per­form­ing two by 2.8% per year. And the low­est PE port­fo­lio out­per­form­ing by 4. 2 per­cent per year.

[00:33:19] TK: cer­tain­ly sim­i­lar in style to what O’Shaugh­nessy found dur­ing his regres­sion test­ing too.

[00:33:25] CR: Speak­ing of which, it goes on to say, Lat­er work exam­in­ing these results, bro­ken down by com­pa­ny size, revealed that 1. High PE shares under­per­formed regard­less of com­pa­ny size, and 2. Small com­pa­nies with low PE ratios out­per­formed the mar­ket very strong­ly. This result is con­tra­dict­ed in the recent study by James O’Shaugh­nessy, Now I’ve got to say, share selec­tion and O’Shaughnessy.

[00:33:49] CR: For the 43 year peri­od from 1951 to 1994, men­tioned pre­vi­ous­ly, which found that a port­fo­lio of the 50 high­est P. E. stocks select­ed from the whole mar­ket under­per­formed by 4 per­cent per year, but that the port­fo­lio of 50 stocks with the low­est P. E. ratios also under­per­formed. By 1.3%. O Shaugh­nessy’s study sug­gests that the price to sales ratio is the most reli­able fun­da­men­tal sta­tis­tic.

[00:34:18] CR: His low PS ratio port­fo­lio select­ed from the whole mar­ket out­per­formed by 3% per year. While the high PS ratio port­fo­lio under­per­formed by an extreme­ly sig­nif­i­cant 8.3%.

[00:34:36] CR: Price to sales, sim­i­lar

[00:34:39] TK: to price to oper­ate in cash flow, isn’t it?

[00:34:42] CR: very close.

[00:34:43] TK: Yeah. Yeah. And I’m, I’m guess­ing the PE ratio did­n’t, um, analyse as well because of the earn­ings manip­u­la­tions that we talk about, we have talked about before.

[00:34:53] CR: Yeah,

[00:34:55] TK: it’s

[00:34:56] CR: And then anoth­er one that he talks about, I’ll fin­ish with this one, Insid­er Buy­ing and Sell­ing. They also talk in here about man­age­ment hav­ing a large stake in the com­pa­ny as being a good thing. But then, and this is some­thing that I know has come up on QAV in recent months. Share repur­chas­es, buy­ing by insid­ers, i.

[00:35:16] CR: e. direc­tors and senior man­age­ment, and share repur­chas­es, i. e. where a com­pa­ny buys back its own shares on the mar­ket, are wide­ly con­sid­ered to be favourable. Knowl­edge­able insid­ers are the best place to know what a share is real­ly worth. An ear­ly study by Pro­fes­sor Shan­non Pratt and Charles DeVere mon­i­tored 52, 000 insid­er trades in 800 NYSE stocks in the sev­en years from 1960 to 1966, a buy sig­nal was con­sid­ered to have occurred when three insid­ers bought shares with­in one month, while three sell­ers with­in a month con­sti­tut­ed a sell sig­nal.

[00:35:53] CR: Stocks with insid­er buy­ing were found to out­per­form shares with insid­er sell­ing for up to three years after the insid­er trans­ac­tions. The buy group had rid­den an aver­age of 59. 1 per­cent while the sell group was up only 27. 1%. The buy group steadi­ly out­per­formed the sell group through­out the first 24 months after the insid­er sig­nals, with both groups show­ing approx­i­mate­ly sim­i­lar rates of appre­ci­a­tion dur­ing the third year.

[00:36:22] CR: Where did we get to with insid­er buy­ing? I think from mem­o­ry we found it hard to get an easy report down­load­able on Stock Doc­tor for that.

[00:36:34] TK: usu­al­ly an ASX announce­ment, but I have tracked insid­er buy­ing in the past and haven’t found it to be all that use­ful in Aus­tralia.

[00:36:43] CR: Ah,

[00:36:43] TK: And I think, well, for a cou­ple of rea­sons, I think, um, There might be dif­fer­ent rules in the U. S., and I’m not famil­iar with the rules around declar­ing insid­er trades in the U.

[00:36:55] TK: S., but in Aus­tralia, they’re a black­out peri­od. So man­age­ment can’t buy shares in a com­pa­ny lead­ing up to their results, um, which means they buy them after they announce their results, and if they are good results, then every­one’s buy­ing them. So, you know, it’s the fact that insid­ers are buy­ing them. When they’re allowed to buy them, in oth­er words, when all the infor­ma­tion is dis­closed, it’s not often as strong a sig­nal in Aus­tralia.

[00:37:24] TK: That’s the first thing. The sec­ond thing is that there’s a lot of announce­ments about insid­er trad­ing. And it’s, it’s a lot of the times it’s just like some­one sold some­thing to pay the tax on their options or they’ve exer­cised a few options. So there’s a lot of drib­bling of insid­er announce­ments on the ASX.

[00:37:43] TK: So I think Quan­ti­ty, the size of what’s going on mat­ters, but then even then, like even today, you see com­pa­nies like WiseTech Glob­al, which is, um, uh, has an own­er founder in it who’s been sell­ing down over the years, um, has­n’t affect­ed the share price. And If I’ve seen him inter­viewed and he says the rea­son he’s sell­ing is because fund man­agers want to buy more of the stock and they can’t because there’s he owns so much of it the ADT is not big enough so he’s sell­ing down to allow him to get in so which has sup­port­ed the stock price so um yeah again there’s no clear rules for me in Aus­tralia to sup­port insid­er buy­ing as being a good met­ric.

[00:38:22] CR: how long is the

[00:38:23] CR: black­out peri­od?

[00:38:24] TK: Not sure, um, it’s At least a month, um, I’d have to have a look, but yeah, it’s gen­er­al­ly from, well, some­time in con­fes­sion sea­son when man­age, like prob­a­bly the end of the finan­cial year, I would think through to when they make their results announce­ments, I would guess. I can ask Jen­ny, she’s, she’s sub­ject to it, being a board, being a bank direc­tor.

[00:38:47] CR: Uh, any­way, just to wrap up that whole newslet­ter thing, he says, investors seek­ing max­i­mum long term cap­i­tal growth should use the val­ue and per­for­mance cri­te­ria, giv­ing par­tic­u­lar atten­tion to neglect­ed shares of small­er com­pa­nies.

[00:39:02] TK: Yeah, makes sense.

[00:39:07] CR: So thank you

[00:39:07] TK: I had a look at the web­site when you, uh, When you sent through

[00:39:10] TK: the link, um, and I think to me, there was a, uh, a real­ly pithy quote, which I think was prob­a­bly summed every­thing up, um, and again, this, this chap Cor­nell invert­ed his approach to share invest­ing and said, it’s much eas­i­er to see what I’m doing by look­ing at what I would be the last thing I’d want to do, and he said that you should avoid it.

[00:39:33] TK: The largest com­pa­nies, wide­ly fol­lowed by bro­kers, trad­ing at high val­u­a­tions with declin­ing share prices. to me, that’s patent­ly obvi­ous. Um, and if you kind of take that and invert it, invert it, you get to where, you know, you just did, which is small undis­cov­ered com­pa­nies, which are trend­ing up with their stock price, which is pret­ty much what we do.

[00:39:58] CR: So thank you to Chris for shar­ing that again. Peo­ple can check that out if they want, just mar­ket analy­sis. I think, uh, stock­mar­ket. co. nz is the web­site address. What have you got on your list of talk­ing

[00:40:14] CR: points, TK, that we haven’t already cov­ered?

[00:40:17] TK: Yeah, so just, just, uh, a cou­ple of things, but the first one is I bought some, I was look­ing at what shares to buy recent­ly and, um, I do look at yield because I’m try­ing to fund retire­ment from Div­i­dends, and, uh, I looked at AGL, which was a large ADT stock with a good div­i­dend yield, but, um, when I had a bit of a research into it, a bit of a deep dive into it, it does­n’t have any frank­ing cred­its, so, I think it was AGL.

[00:40:46] TK: Any­way, but any­way, my point is, if you are yield con­scious, then, um, we don’t report in the buy list whether the com­pa­ny is ful­ly franked with its div­i­dends or not, so. If you are look­ing for that, then do your own research and check out some­thing before you buy it and make sure the yield is ful­ly franked. Does make a mate­r­i­al dif­fer­ence. Uh, stocks, one stock in the news that I came across, which, um, piqued my inter­est was Nick Scali. So had been on the buy list ear­li­er this year. Um, so I’m guess­ing a num­ber of peo­ple who were lis­ten­ing might hold it. And there was an arti­cle, uh, I think on the week­end in the Fin about their expan­sion into Great Britain. And, uh, I thought it was inter­est­ing, um, Nick Scali, the fur­ni­ture retail­er has bought, uh, a com­pa­ny in the UK called Fabb, F A B B. Um, they have 21 stores scat­tered across Eng­land in edge of town retail parks in the UK. It’s fair to say. But the chain, a for­mer co oper­a­tive found­ed in 1979, isn’t one of the titans of the UK fur­ni­ture mar­ket.

[00:41:55] TK: So it might seem an unlike­ly launch­ing pad for Scal­i’s big assault in Britain. The Aus­tralian com­pa­ny’s chief exec­u­tive, Antho­ny Scali, admits as much. It’s a very poor­ly pre­sent­ed store net­work with aver­age look­ing fur­ni­ture, he told the Aus­tralian Finan­cial Review. after Nick Scal­i’s recent annu­al result, but he has grand plans.

[00:42:14] TK: It’s his first attempt to bust out of Aus­tralia and New Zealand, and he isn’t plan­ning just to stick a few Nick Scali signs over the top of Fabb ones. He’s ready to take some risks. The 70 odd staff will stay put, but the stores will be giv­en a makeover and even­tu­al­ly restocked with Nick Scali prod­ucts rang­ing from mod­ern swiv­el arm­chairs to mid cen­tu­ry mod­u­lar sofas.

[00:42:34] TK: Fab­b’s board has been cleared out. Col­lard appears from reg­u­la­to­ry fil­ings to have spared nobody, but Fab­b’s Finance Direc­tor Tra­cy Jack­son, and Vet­er­an Man­ag­ing Direc­tor Matt Hes­keth, but Hes­keth is now referred to as Com­mer­cial Direc­tor. Nick Scali has just named for­mer best in class Ross Rod­ney Oreck as its British Chief Exec­u­tive, ready to fly over from Aus­tralia, run the relaunch, and then go for growth.

[00:43:01] TK: For Antho­ny Scali, the growth oppor­tu­ni­ty lies sim­ply in the sheer scale of the UK mar­ket. 67 mil­lion peo­ple is just a lot more than Aus­trali­a’s 26 mil­lion peo­ple. He goes on to say, all the UK retail­ers do dou­ble sales per store than we did in Aus­tralia, and we also think there’s less com­pe­ti­tion.

[00:43:21] TK: How­ev­er, at its most recent trad­ing update in mid June, DFS, one of the major fur­ni­ture stores in the UK, had its full year prof­it fore­cast in half. The com­pa­ny cit­ed ship­ping delays on the Red Sea, which had dri­ven up freight costs and delayed sales. It also said con­sumer demand was at record lows, which makes sense giv­en the state of the UK econ­o­my.

[00:43:44] TK: So, inter­est­ing arti­cle, um, Nick Scali has clear­ly gone in as a val­ue investor and bought FAB. Um, which, on the sur­face of it, looks like a strange invest­ment, but I think it’s a fair­ly smart one, giv­en that, um, he can change over the man­age­ment, uh, bring in peo­ple he likes and trusts, and In a coun­try with three times the pop­u­la­tion and where fur­ni­ture retail­ers do twice the store sales, there’s plen­ty of upside if he gets it even part­ly right.

[00:44:15] TK: So I think it’s a fair­ly astute move for him.

[00:44:17] CR: aren’t you tra­di­tion­al­ly skep­ti­cal of Aus­tralians try­ing to expand to Great Britain? Why are you giv­ing Nick Scali the nod and the wink when you’re nor­mal­ly poo poo­ing

[00:44:27] CR: on that?

[00:44:30] TK: Uh, I think what res­onat­ed with me was the way he’s doing this. Tra­di­tion­al­ly it has­n’t worked. Bun­nings became a crop­per after doing some­thing sim­i­lar. So a bit of a case study in that, that they were try­ing to sell bar­be­cues in win­ter in the UK and it did­n’t work. And you know, there’ll be all sorts of rea­sons why an Aus­tralian going to the UK won’t have that kind of envi­ron­men­tal expe­ri­ence that’s required.

[00:44:57] TK: And you know, the fact that Fur­ni­ture retail­ers are hav­ing prob­lems with the Red Sea, delay­ing ship­ping might be one he had­n’t thought of. So, um, yeah. So, um, there is plen­ty of rea­sons to think he won’t work. Why do I think he’s got a bet­ter chance is because, um, it’s, it’s 21 stores, it’s got plen­ty of upside, and if he does get it right, then, um, he can expand from there.

[00:45:23] CR: Okay. All right. Good luck, Nick

[00:45:25] TK: Own­er founder, Nick Scal­i’s done well

[00:45:28] TK: in Aus­tralia. He does know the retail busi­ness, fur­ni­ture busi­ness in Aus­tralia real­ly well. Um, oper­ates a lot of drop ship­ment, which, um, was a rev­o­lu­tion­ary, rev­o­lu­tion­ary approach in fur­ni­ture retail­ing in Aus­tralia. So, yeah, it might work in the UK as well. Any­way, just, uh, that caught my inter­est.

[00:45:45] CR: Well, actu­al­ly it was­n’t, I mean, it’s run by Antho­ny, was­n’t it? It was

[00:45:48] CR: found­ed by his dad, was­n’t it? yeah.

[00:45:51] TK: It was back in the 50s. Yeah. It’s now run by the Sun.

[00:45:54] CR: Hmm.

[00:45:56] TK: Oh, so you’re say­ing it’s not known a founder.

[00:45:57] CR: Well, I guess it kind of is. It’s the fam­i­ly, right? Yeah. The fam­i­ly’s in it.

[00:46:01] TK: Yeah.

[00:46:02] CR: By the way, the RBA has earned the very high salaries. Uh, by doing noth­ing. So there you go. That’s, that’s a great, it’s a real­ly, it’s a pret­ty great gig real­ly, isn’t it? Like you just like, Hey, uh, you know, we’ve, we’ve, we’ve sat for three months and thought long and hard and we’ve decid­ed we’re not going to do any­thing.

[00:46:23] CR: So where do I get my check from? They, uh, yeah, just, thank you. I’ll pick it up on

[00:46:28] CR: Tues­day. Yeah, good.

[00:46:31] TK: Yeah. Alex should have stud­ied eco­nom­ics at uni­ver­si­ty and gone and worked for the RBA rather than becom­ing an artist.

[00:46:37] CR: the fam­i­ly busi­ness, isn’t

[00:46:38] TK: Easy mon­ey. Yeah. I mean, she could’ve, she could’ve gone off and paint­ed. So I, there’s, I dun­no how many econ­o­mists they have at the RBA . They would­n’t, they would­n’t miss her bug­ger­ing off to paint in the after­noons.

[00:46:49] CR: She could be paint­ing and say­ing she’s think­ing about what to do about inter­est rates while she’s paint­ing.

[00:46:56] TK: Yeah.

[00:46:56] CR: Uh, uh, what else you got?

[00:46:59] TK: I got, uh, one more arti­cle. Um, and this was a stock pick­er, which, uh, lined up with all of our buy list stocks. So, uh, chap’s, uh, name is Nick Sladen. The com­pa­ny is LSN Cap­i­tal’s Emerg­ing Com­pa­nies Fund, which he runs from Mel­bourne and over­sees around 50 mil­lion in assets. But, um, just went through. This is one of the sort of fun man­ag­er inter­views that AFR does reg­u­lar­ly, but some of the com­pa­nies he had, you know, weren’t on our buy list, like Zip, but a lot were.

[00:47:31] TK: So South­ern Cross Elec­tri­cal Engi­neer­ing, Genus Plus, both of those have enjoyed the tail­winds. of elec­tri­fi­ca­tion and work flow­ing from the depen­dence of con­nec­tiv­i­ty across data cen­ters and renew­able ener­gy. Durotech, there’s anoth­er one of his which has also been on our buy list, spe­cial­izes in pro­tec­tion and reme­di­a­tion of infra­struc­ture assets, has dou­bled their prof­its in 2022 lev­els.

[00:47:55] TK: Um, he was asked to nom­i­nate his most under­val­ued stock and he picked out oOh!Media. which has been on our buy list for a long time, um, and he says the stock trad­ing on a very cheap 11 times P. E. ratio is well below what it trad­ed on for many years before COVID 19. As one of the two mar­ket lead­ers in this space, this seems far too low.

[00:48:15] TK: Their assets are hard to repli­cate across road, rail, air­port, office, and street fur­ni­ture. giv­en the reg­u­la­to­ry approvals required and con­tracts in place with adver­tis­ing firms, land­lords and clients. They’ve invest­ed heav­i­ly to dig­i­tize many of their bill­boards over the last decade, which has dri­ven improved yield and prof­itabil­i­ty, which we saw in the recent result with strong gross mar­gins.

[00:48:38] TK: Any­way, I thought that was inter­est­ing to find some­one who was lin­ing up with our, um, buy list and it might be good to get him on the show and talk about that a bit fur­ther.

[00:48:46] CR: Hmm.

[00:48:47] CR: What did you say his name was?

[00:48:50] TK: Uh, his name is Nick Sladen. S L A D E N.

[00:48:54] CR: Oh,

[00:48:54] CR: like Eliz­a­beth.

[00:48:56] TK: Who’s, who’s that?

[00:48:58] CR: Tony,

[00:48:59] CR: Tony, Tony, Tony, Sarah Jane, Sarah

[00:49:02] TK: That some­one tied with

[00:49:04] CR: Tony, was Eliz­a­beth Slay­ton, Liz Slay­ton.

[00:49:07] TK: Oh, real­ly? Okay.

[00:49:09] CR: My child­hood, my child­hood crush.

[00:49:13] TK: Real­ly?

[00:49:14] CR: Come on. You did­n’t, you weren’t in love with, uh, Sarah Jane in the sev­en­ties.

[00:49:19] TK: No. No.

[00:49:21] CR: did you ever crush on in the sev­en­ties?

[00:49:24] TK: Oh gosh. O’Reil­ly and I were talk­ing about this. I think she was on the box. He was, he was a num­ber 96 guy and I was a box guy.

[00:49:33] CR: I remem­ber num­ber 96.

[00:49:34] CR: I don’t remem­ber the box. What was the box? Soapy.

[00:49:38] TK: Oh, num­ber 96 set in the TV sta­tion.

[00:49:40] CR: Ah hmm. Alright, Nick Sladen expect to call.

[00:49:46] TK: Nick­’s line. Yeah. Okay. So Paul Pork on Qan­tas. And I,

[00:49:53] CR: okay.

[00:49:54] TK: I did a Pulled Pork on Qan­tas many, many years ago, but it’s back on, back on our buy list now, so I thought it was worth going through again, giv­en it’s recent on the buy list, and it’s a large, very large ADT stock. So, Pulled Pork on Qan­tas, um, I don’t know if it’s worth out­lin­ing what they do, since prob­a­bly every­one lis­ten­ing will know about Qan­tas.

[00:50:14] TK: They, um, oper­ate the Inter­na­tion­al Air­line. It has an envi­able safe­ty record. They oper­ate Jet­star. The bud­get air­line, as well as Qan­tasLink, the region­al car­ri­er. Qan­tasLink is ben­e­fit­ing from the recent fail­ure of Region­al Express, a com­peti­tor. And I guess also too, per­haps from the fail­ure of Bon­za, which was a small­er com­pa­ny, but anoth­er air­line that went into admin­is­tra­tion recent­ly.

[00:50:38] TK: Qan­tas also have an air freight divi­sion and oper­ate a large loy­al­ty pro­gram, which has been a large prof­it cen­ter for them. Due to the mar­gin on charg­ing sup­pli­ers, main­ly cred­it card com­pa­nies for points. So the share price has res­ur­rect­ed, um, got to its lows about a year ago. It’s res­ur­rect­ed fol­low­ing a messy CEO tran­si­tion 12 months ago, and the com­pa­ny is back on the buy list.

[00:51:03] TK: So, inter­est, I mean it’s an inter­est­ing one, um, con­tro­ver­sial, the, There’s been much gnash­ing of teeth by domes­tic cus­tomers this year about can­cel­la­tions and delays and about gen­er­al rise of air­fares and I know Jen­ny’s been bitch­ing about it late­ly because she flies often between Syd­ney and Mel­bourne and Syd­ney and Bris­bane and oth­er places and she keeps quot­ing very high air­fares for that, uh, for those routes, so they’re up, um, and they, and quite as to their, um, I guess, uh, Bet­ter­ment have claimed that they’ve been putting, they put 230 mil­lion in the last year to address what they call cus­tomer pain points, um, which, um, I’m not sure if they have addressed cus­tomer pain points, but they put mon­ey into upgrad­ing IT sys­tems, improv­ing food and bev­er­age and on time per­for­mance.

[00:51:55] TK: So, um, I dun­no, maybe they should have just low­ered the price. peo­ple would’ve gone over it a bit more on, on the air­fares. But any­way, lat­est, lat­est results were inter­est­ing. Um, NPAC was down some 28%. They still made over a bil­lion dol­lars. Um, how­ev­er, mar­gins were up from, uh, 10.4%. Um, but the, the impor­tant met­ric I focused on, they call RPK, um, which is I think, uh. Rev­enue per kilo­me­tre. That’s up 19. 7%. And the rea­son why I sin­gled that one out is that, um, uh, I call RPK the Buf­fett mea­sure because, um, he uses it to illus­trate what he calls the heavy lifter, uh, in KPIs for a com­pa­ny. So he always tries and find the, finds the one met­ric that sum­maris­es how the com­pa­ny is going.

[00:52:48] TK: And in this case, rev­enue per kilo­me­tre is that met­ric for air­lines. And, um, it kind of sum­maris­es every­thing. It gives you a sales up. Um, if they’re fly­ing a lot of planes and their seats are emp­ty, then RPK is down. If they, um, uh, have full planes, but they’re not fly­ing it often or their mar­gins are thin, then RPK is down.

[00:53:08] TK: So it’s a good heavy lifter KPI, and it’s doing well for them at the moment. Um, they’re also, Qan­tas is also invest­ing in new air­craft. And dur­ing the year they received deliv­ery of 16 new planes, uh, they are under­tak­ing a buy­back, so they bought a lot of their shares back last year, and they’re call­ing out they’re going to con­tin­ue the buy­back with anoth­er 400 mil­lion dol­lars of pur­chas­es this year, and they’re not declar­ing a div­i­dend, so they’re fol­low­ing the U.

[00:53:35] TK: S. Style of, uh, return­ing val­ue to share­hold­ers by buy­ing back their shares. Um, how­ev­er, to do all of this, they’re increas­ing their debt by about, oh, just, uh, well, a bit over a bil­lion dol­lars, 1.3 bil­lion. Um, so does, it comes with a price. And, um, that’s gonna be reflec­tive when we get to the num­bers in there.

[00:53:56] TK: Finan­cial health scores. Uh, after invest­ing in cus­tomer pain points, they report increas­es in cus­tomer sat­is­fac­tion and net pre­sen­ter scores. Um, but I guess anec­do­tal­ly they still have some way to go because there’s still arti­cles all the time about peo­ple dis­sat­is­fied with can­cel­la­tions and planes run­ning late and the price of air­fares.

[00:54:17] TK: Um, So they’re putting mon­ey into refresh­ing the fleet and that will deliv­er oper­at­ing sav­ings as new­er planes are more fuel effi­cient, so that’s good, and strate­gi­cal­ly they’re also con­tin­u­ing with Oper­a­tion Sun­rise which is their strat­e­gy of, of You try­ing to get one leg flights from Aus­tralia to Lon­don and New York.

[00:54:42] TK: So they’ve been suc­cess­ful at doing that from Syd­ney to Lon­don, and they’re going to expand that, try and do the same from Mel­bourne and also to go to the east coast of the US. And as planes get bet­ter at fly­ing longer dis­tances, then that’s a fair­ly pop­u­lar thing for Aus­tralians who, you know, suf­fer from the tyran­ny of dis­tance.

[00:55:03] TK: Um, Break­ing it down by divi­sions because Hon­est is always a tale of Dif­fer­ent divi­sions work­ing well at dif­fer­ent times. Jet­star’s earn­ings were up 23 per­cent year on year. I guess that’s not sur­pris­ing if peo­ple are find­ing the air­fares are high and they don’t have as much mon­ey to pay for them, they’re going to migrate towards the bud­get car­ri­er.

[00:55:25] TK: Um, Laws to the loy­al­ty sec­tion, there was also a strong per­former with rev­enue up 18 per­cent and EBIT up 13%. So that’s been a real prof­it house for them over the last few years. Um, both of those things though off­set a 39 per­cent decline in inter­na­tion­al earn­ings. Um, and they also put their air freight.

[00:55:46] TK: earn­ings with­in inter­na­tion­al so it’s a com­bi­na­tion of both of those things. Inter­na­tion­al is very com­pet­i­tive with over­seas car­ri­ers push­ing for more access to the Aus­tralian mar­ket so it is a risk for Qan­tas and it does make that divi­sion fair­ly polit­i­cal because the gov­ern­ment sort of gets lob­bied a lot by peo­ple who want inter­na­tion­al air­fares to come down and there­fore want more over­seas car­ri­ers in Aus­tralia.

[00:56:13] TK: I get lob­bied a lot by the over­seas car­ri­ers them­selves to get more access to slots, in oth­er words ter­mi­nals, in Aus­tralia. But they also get, um, they also get lob­bied a lot by Qan­tas to stop that from hap­pen­ing. Um, and there’s been lots of arti­cles in Rear Win­dow sug­gest­ing that there’s a lot of soft influ­ence going on, like politi­cians get­ting Chair­man’s Lounge mem­ber­ships,

[00:56:37] CR: their sons.

[00:56:39] TK: and their sons, yeah.

[00:56:41] TK: Don’t know if that works, but, um, to date Qan­tas has been able to stave off a lot of over­seas car­ri­ers from increas­ing their slots in Aus­tralia. Any­way, buy the buy. Uh, the oth­er thing which I, I found inter­est­ing in the results was that, Qan­tas has pro­vid­ed some 270 mil­lion to set­tle court cas­es aris­ing from an ACCC case alleg­ing that Qan­tas sold tick­ets on flights that had already been can­celled and anoth­er rul­ing by the High Court that the out­sourc­ing of bag­gage han­dlers involved the ille­gal ter­mi­na­tion of some of their staff.

[00:57:17] TK: So a cou­ple of issues which they’ve, um, they’re putting behind them now I guess, and I guess it’s good that they, they’ve come to. Set­tle­ment on those things, or they will in this year and they pro­vid­ed for it. I guess the good thing is that they don’t have to pro­vide for it going for­ward. So that should be a boost to prof­it in, in future years, unless they do some­thing daft again to get them­selves off­side with the ACCC or the law.

[00:57:41] TK: Any­way, enough about Qan­tas, um, I guess my sum­ma­ry is that, uh, the new CEO, this is, this is her first results announce­ment, and she’s cer­tain­ly been at least try­ing to address the prob­lems that Qan­tas has, and, um, there’s cer­tain­ly some, uh, a lot of progress being made on a lot of fronts to, um, to solve those prob­lems.

[00:58:02] TK: It’s also com­ing through in the num­bers, uh, share price for the analy­sis is 7. 26, that’s just below con­sen­sus, um, and, uh, Uh, but above the IV1 of 427, but below IV2 of 926, so it’s a lit­tle bit in the val­ue range there. ADT is 30 mil­lion, um, per day, so it’s a huge ADT stock, so it won’t be a prob­lem for any­one.

[00:58:26] TK: Uh, there’s no yield, just call­ing that one out again, um, that’s why we can’t score it for that. Stock Doc­tor Finan­cial Health and Trend is Mar­gin­al and Steady, so Mar­gin­al is the inter­est­ing thing here. We don’t score it for Mar­gin­al Finan­cial Health. And I noticed that Qan­tas has had a Mar­gin­al Finan­cial Health in Stock Doc­tor since COVID.

[00:58:48] TK: So they’ve increased their debt and have had rev­enue issues since COVID, I guess. Stock­o­pe­dia ranked Qan­tas at 63 for Qual­i­ty, so they’re also mark­ing it down. And I would think that. Both of these are, um, are due to the, uh, uh, the debt Qan­tas holds. So, Stock Doc­tor, if I break down their finan­cial score, they mark Qan­tas down for a cou­ple of ratios, but they’re basi­cal­ly ratios of cash to lia­bil­i­ties.

[00:59:17] TK: So, um, basic cash to lia­bil­i­ties, cash to assets, and change in cash ver­sus change in lia­bil­i­ties are all things that Stock Doc­tor, uh, rate, uh, What is, um, low­ly for, and that, um, rolls up with the oth­er things, oth­er var­i­ous ratios that they look at, giv­en the mar­gin­al finan­cial health. Uh, p for this com­pa­ny is 8.7 times, which is not the high­est or low­est in the last three years, so it gets no score for that.

[00:59:46] TK: The big win­ner here is prop calf, which is only, um, 3.3 times. So we’re able to buy this com­pa­ny at the very cheap, mul­ti­ple of its, of its, uh, cash. Cash return. Net equi­ty per share for this com­pa­ny is only 19 cents. And if you look at the net tan­gi­ble assets, it’s actu­al­ly neg­a­tive at neg­a­tive 22 cents. So the share price is many, many times book val­ue.

[01:00:09] TK: So we can’t buy it for book plus 30. And that pret­ty much reflects the fact that Um, debt match­es assets on this, uh, bal­ance sheet, so they’ve geared up, um, quite a lot. How­ev­er, I’ve got to say, it’s not unusu­al in the air­line indus­try to see that kind of high debt load because they have a lot of assets, i.

[01:00:28] TK: e. the planes, and even though these are leased, there is often a lot of, um, uh, manip­u­la­tion of lease. So lease buy­outs, if they want to retire a plane ear­ly. They buy out the lease, um, they can write down assets in that case, which is the, the, um, the lease, uh, buy­out. Um, and uh, they often need to do that to mod­ern­ize the fleet.

[01:00:51] TK: So, as I said before, it’s a trade off between, um, end­ing the lease on a plane ear­ly to, um, to upgrade to a new lease on a plane, which is more fuel effi­cient. So they’re doing the sums on that kind of thing all the time. Uh. I think, um, let me move on then, to earn­ings per share, uh, earn­ings per share growth is fore­cast at 20%, which means Qan­tas pass­es our growth test of EPS growth over PE being greater than 1.

[01:01:17] TK: 5, and in this case it’s 2. 3. So, inter­est­ing­ly enough, once again, we see a growth com­pa­ny sell­ing it as a val­ue play at least this stage in the cycle for Qan­tas, so, um, it’s, I think it’s a good thing. I might even do some test­ing on whether, you know, these com­pa­nies would share. Scor­ing for growth and they’re on our buy list for val­ue are actu­al­ly per­form­ing bet­ter than gen­er­al­ly for the buy list because it seems to be a thing at the moment, which could be just the stage of the eco­nom­ic cycle we’re in, but it does seem a lit­tle bit more unusu­al than a lit­tle bit more unusu­al than we nor­mal­ly see to have these com­pa­nies scor­ing on growth.

[01:01:54] TK: Um, as fre­quent­ly as, as they are. Uh, mov­ing on, no own­er, own­er, founder, of course. Um, it’s been around for a long time. Uh, there is a rel­a­tive­ly recent three point upturn in sen­ti­ment. So we score it for that. Um, equi­ty is not con­sis­tent­ly increas­ing, so we can’t score it for that. So all in all, the com­pa­ny on a qual­i­ty basis gets 10 out of 16 or 63%, which is kind of low ish, but not too bad.

[01:02:20] TK: So 63 per­cent for qual­i­ty. But a good Prop­Caf, so the QAV score is 0. 19, which is pret­ty good for a large com­pa­ny. So that’s Qan­tas, it’s risks. I think there’s a few risks here. If inter­est rates do go back up, then that, uh, that has a big neg­a­tive impact on a heav­i­ly indebt­ed com­pa­ny. Um, it’s not like­ly, I think.

[01:02:42] TK: Um, I think most peo­ple are think­ing that inter­est rates will come down as they have recent­ly around the world, but not yet in Aus­tralia. Uh, the oth­er risk is that there is polit­i­cal pres­sure, um, to open up more over­seas com­pe­ti­tion. And I think the oth­er risk is that, um, the, I think some­thing may come out of the ash­es of Rex Region­al Express and so they might, uh, get some more com­pe­ti­tion in the, um, Qan­tasLink mar­ket.

[01:03:10] TK: Uh, on the pos­i­tive side, the, the new CEO is, uh, The ex CFO and there­fore will have a good han­dle on debt man­age­ment and fleet invest­ment. She has a deep under­stand­ing of that and it appears to be mov­ing the chess pieces quite well with that. Improv­ing cus­tomer sen­ti­ment, you can say it’s off a low base but that’s got to be a good thing for a com­pa­ny like this, a retail com­pa­ny like this.

[01:03:32] TK: There is a domes­tic duop­oly design, you real­ly want to see some Vir­gin in the mar­ket. I know the Nation­al Par­ty has been tried to sug­gest that they would break that up, but they were shot down by the Lib­er­als on that one. And I think a hid­den pos­i­tive for this com­pa­ny is the loy­al­ty pro­gram. It has almost lit­tle to do with air­lines, except for the fact that some points are redeemed for flights, but it is a very large loy­al­ty pro­gram and makes its mon­ey out of charg­ing the cred­it com­pa­nies a mar­gin for points issued.

[01:04:03] TK: So that’s a hid­den ben­e­fit for this com­pa­ny. So yeah, Good to see Qan­tas back on the buy list. Its share price has been doing well this year, um, but, uh, it’s cer­tain­ly trend­ing upwards.

[01:04:15] CR: Did you have a look at it

[01:04:16] CR: on Stock­o­pe­dia?

[01:04:17] TK: Uh, I did, yeah, so, what was it, um, the qual­i­ty score was down. I for­got the total rank­ing though.

[01:04:24] CR: Qual­i­ty

[01:04:24] TK: got it in front of you?

[01:04:25] CR: Yeah. Qual­i­ty score is 63 val­ue 78, momen­tum 84. It’s a stock reg of 86, but inter­est­ing­ly it has a Z score in dis­tress, neg­a­tive 1.4.

[01:04:39] TK: Right.

[01:04:40] CR: So you know, that’s what I found look­ing at a lot of the. Com­pa­nies, uh, on our Stock Doc­tor buy list, as I’ve said before, that are also on the Stock­o­pe­dia buy list for Aus­tralia,

[01:04:53] TK: Mm hmm.

[01:04:54] CR: the Z scores are all over the place.

[01:04:58] CR: And Qan­tas is, uh, one of the ones that has, uh, quite a dark red dis­tress score. It gets a five for the F score though, which is, you know, sort of just north

[01:05:10] CR: of mid­dle for that.

[01:05:13] TK: Yeah, well that seems to sug­gest that the Zed score is focus­ing a lot on debt lev­els then.

[01:05:20] CR: I

[01:05:20] TK: And that’s, I guess that’s a good point too you’ve raised, is that I would not buy some­thing with a mar­gin­al Stock Doc­tor finan­cial health like Qan­tas, um, so it’s a rea­son that Zed scores just might not be, won’t be a go or no go, but just might not be a score on the check­list.

[01:05:36] CR: Did you say you would­n’t buy some­thing with a mar­gin­al

[01:05:39] CR: or you would­n’t not buy it?

[01:05:42] TK: Would­n’t not buy it. I would­n’t buy Qan­tas.

[01:05:44] CR: Yeah, right. Yeah. So, um, there you go. Uh, I was just look­ing at their five year, uh, price also on Stock­o­pe­dia. So go back to five years ago, uh, a lit­tle bit lat­er than that, sort of, um, Decem­ber 19, just before COVID. COVID trad­ing at 7.

[01:06:05] TK: hmm.

[01:06:07] CR: Then they crashed and, uh, haven’t got back to that yet. 7 sort of 20, give or take today.

[01:06:15] CR: So they’re try­ing to get back to that pre COVID peak. If you’d bought Qan­tas and not sold them. Like we did. I remem­ber, they were one of the first ones that we sold, I think. I think they were one of the first stocks that got hit in COVID, yeah, ear­ly 2020.

[01:06:34] TK: Right.

[01:06:34] CR: Um, if you’d bought

[01:06:35] TK: Yeah, I cer­tain­ly owned it and made good mon­ey out of it, but gave a fair bit

[01:06:38] TK: back when I sold it, um, when COVID hit. And that’s the sto­ry of Qan­tas. I mean, I think it’s a cycli­cal stock. It’s, it’s, you know, it’s, it’s con­strained by the econ­o­my. It’s con­strained by inter­est rates, all those kinds of things.

[01:06:52] TK: So, it’s, it’s, you know, it’s nev­er gonna, you know, Um, be an Ama­zon or some­thing like that and, and trade on a large PE and, and be a huge growth stock. But at the moment, um, I think it’s one to trade in and out of.

[01:07:08] CR: it just reminds me, like, I’m a mem­ber of a num­ber of val­ue invest­ing sub­red­dits. Most­ly full of

[01:07:15] TK: Oh, yeah.

[01:07:16] CR: And from time to time I see some­body ask­ing a ques­tion about should I sell these things down or should I just hold and some­times I’ll weigh in and say well what Tony Kynas­ton says is that he has these sell trig­gers and the amount of hate that I get in val­ue invest­ing sub­red­dits if you sug­gest that you should have sell trig­gers That’s not val­ue invest­ing!

[01:07:41] CR: You have to hold it! For­ev­er! I get real­ly, real­ly angry. You get your­self in like, uh, cell tor­na­does or some­thing and it’s like, yeah, well, we’ve, you know, we do go through peri­ods where we tend to sell a lot, but you know, over the long term, we think it works out. in our favour and oh the fury if you

[01:08:03] CR: sug­gest sell­ing some­thing in val­ue

[01:08:06] TK: Yeah. I know. It’s amaz­ing,

[01:08:07] CR: it’s like a cult it’s a hard­core cult you can’t sell you got­ta buy and hold it for­ev­er

[01:08:16] CR: well thank you

[01:08:16] TK: And just, I mean, that’s so,

[01:08:19] TK: that is so hard to do, to think about all the stocks that you could do that with. Maybe Apple, maybe Ama­zon, and they prob­a­bly weren’t mak­ing mon­ey when they were good times to buy them. So val­ue investors would not have bought them. And yeah.

[01:08:35] CR: and QAN? On, uh, Qan­tas is, uh, I think a good exam­ple. Like we did buy them pre COVID. They were in the dum­my port­fo­lio. And I think in my super port­fo­lio, um, because, you know, they were under­val­ued at the time we thought good com­pa­ny obvi­ous­ly makes a lot of mon­ey. We bought them. If we had held on, uh, we still, depend­ing on when we bought them, but you could still be under­wa­ter five years lat­er, even

[01:09:05] CR: with a com­pa­ny like Qan­tas.

[01:09:06] CR: You know,

[01:09:08] TK: And that’s the real thing, isn’t it? You’re bet­ter off deploy­ing, even though you’re sell­ing some­thing, which is, you know, you’ve liked as a val­ue share, um, you, you’re bet­ter off rede­ploy­ing the cap­i­tal dur­ing that five years and hang­ing

[01:09:20] CR: Yeah, it makes sense to me, but, oh my god, sug­gest that in val­ue invest­ing sub­red­dits, man, and I’ll

[01:09:26] CR: bite your head off. I think it’s hilar­i­ous. I mean, it’s so cult y. Like, it’s, like, so many things in life, right? Peo­ple just devel­op this sort of cult y men­tal­i­ty towards stuff and don’t

[01:09:38] CR: ques­tion the cult.

[01:09:40] TK: Yeah. And I know where it comes from. I mean, Buf­fett famous­ly said, you know, con­sid­er invest­ing to be a bus tick­et that has 10, 10 rides. And every time you buy a share, you clip off a ride. And, um, you, you don’t want to use up, well, if you use up the 10, that’s it, you can’t buy any more. But how many shares is Berk­shire Hath­away?

[01:09:57] TK: How many busi­ness­es is Berk­shire Hath­away?

[01:10:00] CR: Yeah, and

[01:10:01] TK: So it’s a great apoc­ryphal sto­ry to sort of,

[01:10:03] TK: you know, get your mind think­ing that way, but he does­n’t do that.

[01:10:07] CR: Yeah, he sold stuff. I mean, it’s like, it is. I, I, I read that as a, it’s a

[01:10:12] CR: mind­set. You should think about stuff that you

[01:10:15] TK: Mm hmm.

[01:10:16] CR: and hold. So you’re not in there as a day trad­er, but it’s not a reli­gion or, or,

[01:10:22] CR: yeah, maybe it is. Um,

[01:10:25] TK: And the fact that he sold, I mean, look at the last quar­ter­ly results of Berk­shire Hath­away. He sold half his apple stack. So he’s trad­ing all the time.

[01:10:32] CR: well, thank you for that Qan­tas break­down, Tony. Um, I’ve got five min­utes left. I’m going to have to do a quick after hours.

[01:10:39] TK: Oh,

[01:10:40] CR: got­ta go to Kung Fu.

[01:10:41] TK: okay. All right. So what do you want to spend the five min­utes on? I’ve got a quote from what works on Wall Street or I’ve got after hours or I can do both quick­ly.

[01:10:49] CR: Do both quick­ly. Start with O’Shaugh­nessy, I guess. Or you can save it for next week. We already, I

[01:10:54] CR: already quot­ed a bunch of stuff today, you want to save it for next week.

[01:10:56] TK: Yeah, I’ll save it for next week?

[01:10:57] TK: That’s

[01:10:58] CR: We’re already, sort of, over an hour, I think. Yeah. Uh, hour 20. Oh my god. Um, give me a quick after hours, Tony. We talked about

[01:11:08] CR: Poi­fect. She had a win.

[01:11:10] TK: Yeah, dou­ble mar­ket. The horse I own was Steve Mabb. Races for its first start on, uh, it was meant to start tomor­row, Wednes­day, but it’s going to run at Gee­long on Thurs­day, which I think is a bet­ter option. So look­ing for­ward to see­ing that one run. Sor­ry.

[01:11:24] CR: said, good luck

[01:11:26] TK: Yeah, thank you.

[01:11:27] TK: Um, I spent all of Sun­day after­noon using Chat­G­PT to, to try Learn how to code, um, bet­ter,

[01:11:36] CR: Code what? Poi­fect.

[01:11:38] TK: um, uh, my form analy­sis, I want­ed to down­load rac­ing data and then manip­u­late it the way I do, which I do all man­u­al­ly now.

[01:11:46] TK: Inter­est­ing, Chat­G­PT was impres­sive, but it was still a long way from per­fect. I spent a good part of that, yeah, a good part of that time going around in cir­cles

[01:11:57] CR: Which, ver­sion were you

[01:11:58] CR: using?

[01:11:59] TK: Is it 4.

[01:12:01] CR: You weren’t

[01:12:01] TK: Any­way, it must have been, must have been, well, what­ev­er one, it gave me a cer­tain num­ber of ques­tions and then after a while it said I can’t ask anoth­er ques­tion until 5pm and it dropped me back to the old ver­sion. Um, so, both.

[01:12:15] CR: Well, 4. 0 is now the old ver­sion. There’s an old­er old ver­sion, but 0. 1 is the ver­sion you should be using. That’s the new PHD ver­sion, but even that’s not Poi­fect. I’ve, I’ve been hav­ing prob­lems with it all week as well, but, um, it’s

[01:12:31] CR: bet­ter, but not as good. Per­fect, by a long stretch. ChromeDriv­er?

[01:12:36] TK: Sele­ni­um and, and, um, HTML cod­ing and stuff, which was real­ly inter­est­ing. Um, but I had to down­load a Chrome dri­ve, and we got into this kind of, yeah, Chrome dri­ve, we got into this recur­sive loop where Chat­G­PT kept send­ing me to a Google page to down­load the ver­sion of Chrome dri­ver I need­ed.

[01:12:57] TK: But her, but the link that Chat­G­PT was refer­ring to was old. So some­thing had changed where you don’t, she was kept, well, I could call her she, but the Chat­G­PT kept telling me to look for the ver­sion of Chrome I had on this web­site and down­load the Chrome dri­ver to a, to a match. And of course, Chrome dri­vers have changed now, and any sort of ver­sion after a cer­tain ver­sion num­ber works.

[01:13:20] TK: So, um, the web­site had changed, and we were going around in cir­cles. I kept say­ing, but you’re send­ing me to a link. It does­n’t make any sense. My ver­sion of Chrome isn’t there. Well, try this. And so you sent me to a dif­fer­ent site. Same prob­lem. In the end, I worked it out for myself, but it was inter­est­ing.

[01:13:35] CR: Just a point on that, there is some code that you can put into your script that will keep the

[01:13:41] CR: ChromeDriv­er up to date every time you run it.

[01:13:44] TK: Ah,

[01:13:45] CR: they go out of date. Pret­ty quick­ly, and then you have to go through that whole process again, so just ask it for the code that keeps the Chrome dri­ver updat­ed con­stant­ly, and that’s good, yeah.

[01:13:58] TK: yeah.

[01:13:59] TK: good.

[01:13:59] CR: Good, what else?

[01:14:00] TK: So I did that. Uh,

[01:14:02] TK: watched the first episode of The Pen­guin, which is fan­tas­tic.

[01:14:06] CR: that on?

[01:14:06] TK: Far­rel­l’s bril­liant. Fox­tel. Col­in Far­rell is bril­liant. It’s amaz­ing, like, he’s under all this make­up, but he’s still real­ly charis­mat­ic. Um, it’s great. Just this sort of, uh, that clas­sic, almost like a Black­ad­der sto­ry where the under­ling to the prince real­ly runs things from, you know, behind.

[01:14:25] TK: It’s just great. Watch­ing, watch­ing him. Yeah. Um, read­ing a book called Think Like a Freak. You ever read the Freako­nom­ics series?

[01:14:33] CR: a P. Did­dy book?

[01:14:35] CR: Is that by P. Did­dy? No? Oh, okay. Yes,

[01:14:38] TK: Freako­nom­ics

[01:14:39] TK: Um. Series.

[01:14:41] CR: the day.

[01:14:42] TK: Yeah, this is the third book and I had­n’t got­ten around to read­ing it. So I’m read­ing it now. So it’s, it’s like, it’s inter­est­ing, great, great about, you know, how to think about prob­lems and, you know, admit you don’t know what you don’t know, all that kind of stuff, all basic stuff.

[01:14:56] TK: But it’s, it’s a good fast paced read to recov­er it. And the reverse, lis­ten­ing to Nas­sim Taleb on Joe Walk­er’s pod­cast, where it’s like, It’s just so dense, but so inter­est­ing, on prob­a­bil­i­ties, you’ve got to stop and real­ly think about every minute of what Taleb talks about, real­ly. But that’s inter­est­ing.

[01:15:19] TK: You ever read Taleb? Black Swan, and Skin in the Game, and all those,

[01:15:22] CR: yeah.

[01:15:23] CR: I mean you rec­om­mend­ed him to me years ago and I read Black Swan I think, maybe a dif­fer­ent one, I can’t

[01:15:29] CR: remem­ber, but yeah, real­ly impres­sive stuff.

[01:15:32] TK: yeah, and inter­est­ing takes on prob­a­bil­i­ty, so it goes into the maths behind Black Swan events and how you should frame it and how it applies to share mar­kets and his­to­ry and all sorts of things, which is real­ly inter­est­ing.

[01:15:47] CR: fan­tas­tic, well

[01:15:48] TK: And that’s me for the week.

[01:15:51] TK: Yeah. And one of those weeks where, I love those weeks where you Just lis­ten­ing to Joe Walk­er’s pod­cast, I’ve got about 10 things I want to go and read, you know, based on what they’ve said. It’s great to come across some­thing like that every now and then, which is, you know, you go down rab­bit holes on.

[01:16:07] TK: It’s fan­tas­tic.

[01:16:08] CR: Yeah. Absolute­ly. Well, I’ve spent a lot of the last few days, uh, using Chat­G­PT, uh, with serv­er main­te­nance stuff. Um, the webs, all the webs, all my web­sites have been going down sev­er­al times a day. My IT guy is doing noth­ing. So, GPT last week at one point and got it to guide me through a bunch of serv­er admin stuff, which seemed to work.

[01:16:34] CR: The sites, the servers were per­form­ing real­ly well for three or four days. As opposed to going down two or three times a day and I was like, Oh, I nailed it. And then they crashed again on Sun­day night. So I’ve spent most of the last day and a half, uh, it was dif­fer­ent things that brought them down this time.

[01:16:51] CR: So just been going deep, but great, like again, not per­fect, but just great hav­ing this tool that I can say, Hey, what does this mean? And how do I con­fig­ure this plu­g­in? And what do I do with this code here? And stuff that there was no way in hell I could do by myself. Um, I can now fig­ure out most stuff, uh, if I have enough patience.

[01:17:14] CR: So at the moment they’re run­ning well, but it’s been frus­trat­ing. It gave me a headache by the time I fin­ished late last night, um, on yes­ter­day’s efforts, but just hav­ing it as a tool to enable me to do this kind of stuff has been great. I’ve been watch­ing, um, 1956 ver­sion of 1984, um, which I’d nev­er seen before, direct­ed by Michael Ander­son, who I most know as the direc­tor of Logan’s Run in 1976, which has always been one of my favourite films, but he did this 20 years ear­li­er.

[01:17:52] CR: And, uh, real­ly good! Don­ald Pleasence, a very young Don­ald Pleasence is in it, pre Blofeld, and pre Wake and Fright. Um, two things I nor­mal­ly asso­ciate with Don­ald

[01:18:05] CR: Pleasence. What Voy­age?

[01:18:08] TK: Fan­tas­tic Voy­age?

[01:18:09] CR: I don’t think I’ve ever seen that. Good.

[01:18:12] TK: Yeah, it’s the sci fi movie where they shrink peo­ple down and inject them into the blood­stream.

[01:18:19] CR: Um, and inter­est­ing­ly, this ver­sion of 1984 was fund­ed by the CIA. Uh, secret­ly, but I love this, it was fund­ed through a front orga­ni­za­tion called the Amer­i­can Com­mit­tee for Cul­tur­al Free­dom. You can’t get a more 1984 Orwellian title than the Amer­i­can Com­mit­tee for Cul­tur­al Free­dom fund­ing a pro­pa­gan­da film about the evils of social­ism, basi­cal­ly, is the way that they were fram­ing it.

[01:18:54] CR: Um, Of course, as we know, the, you know, the NSA now is basi­cal­ly Big Broth­er and is record­ing every­thing and watch­ing every­thing and lis­ten­ing to every­thing. So we end­ed up with Big Broth­er, but yeah, it’s a real­ly, real­ly well done, uh, ver­sion of the film, like cin­e­ma, cin­e­mat­i­cal­ly, um, the, the art­work, the Big Broth­er is watch­ing you, posters every­where.

[01:19:17] CR: Um, fas­ci­nat­ing. Speak­ing of fas­ci­nat­ing, I’m still read­ing The Demol­ished Man, the Alfred Bester Sci-Fi book. I’m get­ting towards the end of it, but the chief pros­e­cu­tor in this book, which I think was also writ­ten about 1956, is an ai so the like the chief detec­tive in it is prepar­ing his case against the mur­der­er that he then has to give to the ai.

[01:19:42] CR: They’re putting it in with punch cards into the ai, which then. Basi­cal­ly throws the case out because he does­n’t have enough evi­dence. Um, and I was like, wow, that’s, that was real­ly, uh, for­ward think­ing. The, an AI as the chief pros­e­cu­tor that you have to con­vince because it’s unemo­tion­al and it’s pure­ly log­i­cal and it has the entire legal data­base in it.

[01:20:06] CR: And I won­der how long it will be before we get to an AI jus­tice

[01:20:11] CR: sys­tem, AI based jus­tice sys­tem. Haha!

[01:20:17] TK: Har­ry Calla­han on the chief pros­e­cu­tor, that was the premise of, um, dirty Har­ry, was­n’t it? The, the Miran­da laws had come in and Har­ry had bro­ken all the laws to get Ser­pi­co

[01:20:29] CR: Not Ser­pi­co

[01:20:30] CR: Ser­pi­co. was an Al Paci­no film, but uh, yeah. Can’t remem­ber what his

[01:20:34] TK: Oh, not Ser­pi­co. Scor­pio. Scor­pio,

[01:20:35] CR: That’s right.

[01:20:37] TK: yeah. Yeah.

[01:20:39] CR: I’m lis­ten­ing to Cel­lo­phane Mem­o­ries. The new album by David Lynch and Christa­bel. Uh, Christa­bel was the hot Brunette FBI agent in Twin Peaks The Return.

[01:20:56] CR: Do you remem­ber her? She was the,

[01:20:58] TK: to pic­ture her.

[01:20:58] CR: she was the eye can­dy in Twin Peaks The Return.

[01:21:02] CR: She was work­ing with Alfred and, uh, Agent Cole. Any­way, she’s, she’s a musi­cian. She’s done songs with David before. They’ve just come out with a new album, which is real­ly Lynchi­an, like real­ly dreamy with lots of lyrics and, you know, it’s great. It’s good sort of

[01:21:22] CR: back­ground music while I’m work­ing. Very, very

[01:21:25] TK: Yeah, right. I’ll check it out.

[01:21:28] CR: read­ing Spin­oza­’s Ethics, final­ly crack­ing into Spin­oza. I’ve been read­ing about Spin­oza all my life. I thought I should final­ly crack open Spin­oza. 17th cen­tu­ry Jew­ish pan­the­ist philoso­pher. It’s good stuff. I’m enjoy­ing it. Uh, any­way, so that’s been my week out­side of serv­er main­te­nance, which

[01:21:53] CR: is dri­ving me nuts.

[01:21:56] TK: And Kung Fu.

[01:21:57] CR: Yeah, well with that, got a grad­ing com­ing up, got a brown belt grad­ing com­ing up in a cou­ple of weeks,

[01:22:01] TK: Oh, good luck.

[01:22:02] CR: a runoff,

[01:22:03] TK: Good luck. All right.

[01:22:05] CR: thank you Tony,

[01:22:06] TK: Enjoy.

[01:22:07] CR: have a good

[01:22:08] TK: nice to chat as always.

[01:22:10] CR: bye now,

[01:22:11] TK: hap­py ASX. Bye.

[01:22:12] CR: good week, what­ev­er we say.