Transcript QAV #355 — Andrew Page, Strawman

Tran­script QAV #355 — Andrew Page, Straw­man

Dura­tion: 67 mins

Cameron (00:04): Wel­come to the QAV pod­cast. If you’re brand new, I just want to intro­duce the pod­cast a lit­tle bit so you know what you’re get­ting your­self into. If you’ve lis­tened to the show before, feel free to just fast for­ward a minute or two, if you’re brand new, here’s the deal? My name’s Cameron Reil­ly, Tony Kynas­ton is an old friend of mine. He’s a very suc­cess­ful share mar­ket investor. I’m talk­ing very, very, very suc­cess­ful. He’s been doing it 30 years. He’s one of the best in the coun­try in terms of a pri­vate investor, very good track record over 30 years and what this pod­cast is about is Tony basi­cal­ly teach­es me every­thing that he knows about invest­ing in the stock mar­ket and you get to lis­ten. But if you’re com­ing into this for the first time, you’ll find that the cur­rent episodes assume a cer­tain lev­el of pri­or knowl­edge.

We assume that you know what we’re talk­ing about, his sys­tem, his method­ol­o­gy, which we explained in ear­li­er episodes so, feel free to lis­ten if you want to get the vibe for what’s going on, but some of it’s not going to make much sense unless you under­stand what the check­list is etcetera. I rec­om­mend if you’re brand new, go back and lis­ten to sea­son three episode one, episode three and, episode five where we go into Tony’s back­ground, his sys­tem, and his method­ol­o­gy in a lot more detail, and then feel free to lis­ten to the con­tem­po­rary episodes. The cur­rent episodes you’ll under­stand more of the con­text of what we’re talk­ing about. With that let’s get into today’s show.

So we want to wel­come to the show today, Andrew Page, the founder of Straw­man.  I’m sure most of you are famil­iar with Straw­man, but if you’re not, it’s an online com­mu­ni­ty of investors that write stocks and share their research and their tips and I think it’s been around a cou­ple of years, but I’m sure Andrew will tell us more of the sto­ry. So wel­come to QAV Andrew Page.

Andrew (02:07): Thanks, guys, great to be in here.

Cameron (02:10): Where are you com­ing from you? You’re Syd­ney based.

Andrew (02:12): I am Syd­ney based. We’re out in the inner West.

Cameron (02:15): Right and things are going well in Syd­ney I think still virus-free Syd­ney, most­ly. Is that right unlike Ade­laide today, sad­ly?

Andrew (02:25): It’s kick­ing around. I heard that they do test­ing with a syringe and that gives you a pret­ty accu­rate read but it’s out there, but the report­ed num­bers are pret­ty low. So hope­ful­ly it stays that way.

Cameron (02:37): I won­der what else they can test via syringe.

Andrew (02:40): A lot.

Cameron (02:40): A lit­tle bit wor­ried about them look­ing at my syringe quite hon­est­ly.

Andrew (02:43): Oh yeah.

 [Cross-talk­ing 00:02:43].

Cameron (02:45): What they going to find in there.

 [Laugh­ter].

Cameron (02:48): So before Straw­man, we’ll go back to your career a lit­tle bit but where I want to start Andrew is Elec­tric Bean. Can you tell me about the Elec­tric Bean?

Andrew (03:01): This is one of those great expe­ri­ences that teach you a lot but you hope nev­er to repeat. So, man, I’m going back quite a few years now but some friends and I thought we would open up a cafe sort of very hip and sexy and we thought it would be great fun and it was a night­mare, frankly. It’s a very tough busi­ness. Any­one who’s run that kind of busi­ness or the restau­rant hos­pi­tal­i­ty busi­ness knows that it’s very tough long hours, very tir­ing, thin mar­gins, hyper-com­pet­i­tive, it was real­ly tough. We start­ed it from scratch and it’s a hor­ri­ble name by the way. I just want to say on the record was­n’t my idea.

[Laugh­ter]

Andrew (03:47): The name hor­ri­ble man. We ran it for about a year and then we sold it actu­al­ly. So we broke even on our start-up costs but it was a waste of time oth­er than what it taught us, what not to do.

Cameron (04:06): What was the Elec­tric part of the bean?

Andrew (04:08): Stu­pid name. I hate it. I said at the time I hat­ed it. I’ll say it again.

Cameron (04:14): Yeah.

Andrew (04:15): Awk­ward name.

Cameron (04:17): I said that about QAV as a brand.

 [Laugh­ter].

Cameron (04:19): Tony yeah, what the, no one’s going to know what a QAV is, but he’s the boss.

Andrew (04:26): You can change it to Elec­tric QAV from there.

 [Laugh­ter].

Tony (04:35): Let’s stick with just QAV.

Cameron (04:35): The cafe it’s inter­est­ing though because one of the big things that Tony did ear­ly on when we were doing the show that real­ly helped me start to under­stand what the hell he was talk­ing about was he would use the cafe anal­o­gy to talk about look­ing at a com­pa­ny and I think a cafe is some­thing that even though most of us haven’t had the Elec­tric Bean expe­ri­ence, we kind of can grasp how a cafe works and so we often do use a cafe anal­o­gy when we’re talk­ing about stocks and look­ing at rev­enue and how much should you pay for it and how would you val­ue it and cap­i­tal and all that kind of stuff. So, any­way, it’s inter­est­ing and you have a bach­e­lor of sci­ence in micro­bi­ol­o­gy too, I believe.

Andrew (05:24): Yeah.

Cameron (05:26): Use­ful par­tic­u­lar­ly dur­ing a pan­dem­ic I’m sure.

Andrew (05:29): Well, to be hon­est with you, I could­n’t get a job if I tried in that indus­try now. I grad­u­at­ed in the ’90s and that when I was at Uni, the human genome project was, they were doing that. It was a multi­na­tion­al, mul­ti­mil­lion-dol­lar glob­al effort. Now you can sequence a genome in a cou­ple of hours on a lit­tle box that sits on your desk so that the field has moved so far beyond what I’m qual­i­fied is to be laugh­able but I know a few basic things about bac­te­ria. Put it that way.

Cameron (06:04): Well, I’m sure that comes in handy at some point with your kids.

[Laugh­ter].

Andrew (06:08): Yeah.

Cameron (06:09): So tell us about Straw­man. Give us the pitch and I guess tell us where it came from. I think you were at Mot­ley Food before Straw­man, is that right?

Andrew (06:21): Yeah. Mot­ley Food and then pri­or to that was a pri­vate invest­ment club called Team Invest and I guess just the big pic­ture here is, is that there’s a lot of val­ue as you guys would know get­ting togeth­er and talk­ing with oth­er investors A- to get ideas but B to get sort of lean in on their expe­ri­ence and their insights and their wis­dom. But as you prob­a­bly know, it’s very hard to do online. If any­one’s tried to join a Face­book group or there’s anoth­er very well-known forum com­pa­ny in Aus­tralia that I won’t men­tion and there are some, actu­al­ly some real­ly high-qual­i­ty con­trib­u­tors, but on these places, but unfor­tu­nate­ly they are buried under­neath the moun­tain of noise and hype and pump­ing and all of the worst aspects of human nature and invest­ing. So it was real­ly just the desire to, with­out all the talk­ing about social plat­forms and tech­nol­o­gy and all the hype that goes with that. I real­ly want­ed an online invest­ment club but one that could bring a bit of trans­paren­cy and account­abil­i­ty to the process so that when I’m talk­ing to some­one, I might not know their real name, but I can have a bit of insight into their track record, com­pa­nies they like, the invest­ment the­sis that backs up their view­points, per­haps some val­u­a­tions and its real­ly try­ing to put some struc­ture around that.

So, it’s actu­al­ly been going prob­a­bly about three years ago we start­ed build­ing it and I’m not a pro­gram. I’m not a devel­op­er. So I think I made every sin­gle mis­take that there was to make build­ing the thing and mis­takes hap­pen to this day, unfor­tu­nate­ly.

Cameron (08:04): Was the orig­i­nal name for the Elec­tric Straw­man.

Andrew (08:06): No, it was­n’t, any, any men­tion of Elec­tric is black­list­ed for any ven­ture? The idea of Straw­man was I’m real­ly big on the idea of hav­ing my best ideas chal­lenged. So I think we’re all sus­cep­ti­ble to this con­fir­ma­tion bias prob­lem so if you and I both like a par­tic­u­lar com­pa­ny and we talk about it, all we’re going to do is rein­force how bril­liant each of us is. And it’s not a very valu­able process, but if I can speak to Tony who has the polar oppo­site view to me, or even just a dif­fer­ent view to me, that is super valu­able. This is not about stroking ego. This, this is about me being either right or wrong, and if I’m wrong one way or the oth­er, I’m going to find out even­tu­al­ly. Now I can find out by the mar­ket telling me or I can find out by a trust­ed con­fi­dant telling me, and one per­haps is a bit more bruis­ing to the ego but it’s also far less dam­ag­ing to your wealth.

So the idea was that we want peo­ple to share their invest­ment insight, their ideas, and their invest­ment the­sis if you will, but we want it to be chal­lenged. We just want it to be chal­lenged in a very con­struc­tive way where it does­n’t devolve into an argu­ment and end up with some­one call­ing some­one else nuts as most inter­net debates usu­al­ly devolve into that point. So that’s the big pic­ture idea. We give every­one a hun­dred thou­sand dol­lars in play mon­ey. They can build a port­fo­lio with that using real-world price. So you kind of cheat the sys­tem here. There’s some­one who has built up a good track record, has done so by pick­ing good stocks and by man­ag­ing the cap­i­tal wealth, and that gives cred­i­bil­i­ty and that helps you deter­mine who’s per­haps worth fol­low­ing and per­haps who’s worth lis­ten­ing to. Yeah, that’s basi­cal­ly the idea.

Cameron (10:06): Right and they came from sor­ry, Tony.

Tony (10:08): No, go ahead, go after you.

Cameron (10:10):  Oh I for­got what I was going to say. No, I guess you spoke about invest­ing $100,000? Are there lim­its on the amount you can deploy depend­ing on how big the cap­i­tal is of the com­pa­ny?

Andrew (10:34): Oh Tony yes.

Cameron (10:27): I see on Straw­man, a lot of peo­ple are invest­ing in small com­pa­nies. Obvi­ous­ly, they can’t put a hun­dred thou­sand dol­lars into each trade. Is there some kind of sophis­ti­cat­ed black box that stops them from doing it or you just say, that’s fine.

Andrew (10:41): No, they’re all trad­ing rules, and this has evolved. So in the ear­ly days, we just had unlim­it­ed cap­i­tal and it was more like a newslet­ter like Mot­ley Food that’d be by rec­om­men­da­tions or not and we would just track it all in per­cent­age terms and then we added plen­ty mon­ey and then we had to add rules around that. So there’re a lot of rules. I’m quite proud of the way of IP it’s been built up over our time here to try and make it. There’s a bal­ance between giv­ing peo­ple the flex­i­bil­i­ty to do what they feel is appro­pri­ate to them, but also not to gain the sys­tem. So, the big one is that we have a 20% rule in terms of wait­ing. You can­not ini­ti­ate a posi­tion or add to a posi­tion such that it push­es you over 20% wait­ing.

So when you start off with that a hun­dred K you can only put 20 K into a posi­tion and that cash will actu­al­ly pro­vide you with some cash track there as well so cash earns is 0% rate of return, pret­ty accu­rate in this low-inter­est-rate envi­ron­ment.

Cameron (11:39): Yeah.

Andrew (11:40): So that’s if some­one does­n’t put it all their mon­ey into a 1 cent stock. We’ve also got vol­ume match­ing rules around that as well. So on the ASX, if there’s $10,000 trad­ed in a giv­en day, well, that’s all you can buy. And that’s not real­ly some­thing you ever have to wor­ry about when you’re deal­ing with the big, biggest stocks but at the small­er end, becomes very impor­tant. And just this last week, a lit­tle bit con­tentious actu­al­ly, but just this last week, we actu­al­ly had to enforce a two cen­tral as well. So we’ve actu­al­ly stopped peo­ple from buy­ing shares that are less than 2 cents. The rea­son around that is that we oper­ate on end of day clos­ing prices only and with­out get­ting into the minu­tia of it, there’re ways to gain the sys­tem with peo­ple try­ing to buy stocks at 0.1% and flip­ping it the next day for 0.2 of a cent. So oth­er than that, it is any stock you can buy up to 20%. You must vol­ume match with what was trad­ed on the ASX that day, and you can only trade at the end of the day. So you can’t intra­day trade which is fine. We’re more of an invest­ment plat­form but that’s it, oth­er than that, you can do what­ev­er you like.

Cameron (12:50): Does the plat­form take into account tax­es and bro­ker­age as well?

Andrew (12:54): Yeah, no we do an account for either a bro­ker­age or tax. We could, the rea­son we haven’t is because it would be a con­sis­tent fea­ture across every­one. So, if we did add bro­ker­age in, I guess one argu­ment would be, it would penal­ize to some extent those who over­trade. So that is some­thing we have thought about but the tax every­one’s in a dif­fer­ent sce­nario. So as yet, we haven’t, we may in the future, but not at the moment.

Cameron (13:23): Just on that. With­out going into per­son­al cas­es, have you drawn any broad con­clu­sions from your net­work yet? Does some­one who trades fre­quent­ly get a bet­ter result than some­one who trades infre­quent­ly, for exam­ple.

Andrew (13:40): There are always excep­tions to the rule. So we’re knock­ing on the door of about 14,000 users on the plat­form. So, there’s a bit of an infi­nite mon­key the­o­rem here. So, you know, there’s always going to be some­one doing par­tic­u­lar­ly well with a par­tic­u­lar strat­e­gy, and we have peo­ple join­ing all the time. So there are peo­ple who might look bril­liant for a few weeks and then fall away and vice ver­sa. But I would say this is some gen­er­al obser­va­tions. I strong­ly believe this as a gen­er­al rule on mar­kets, but I think those who over­trade tend to under­per­form, and by the way, that’s with­out those tax­a­tion and bro­ker­age restric­tions that we have but def­i­nite­ly, I’ve noticed that. Anoth­er thing that is a very obvi­ous fea­ture to me at least is that you can trade your vir­tu­al port­fo­lio on Straw­man with­out say­ing any­thing.

You don’t have to put any notes up there. You don’t have to put a val­u­a­tion, but those that use the plat­form a bit like an invest­ment diary so they’re not just buy­ing X, Y, and Z because share price is mov­ing up, they’re buy­ing it because they’ve looked at the busi­ness, they under­stand the dif­fer­ent dynam­ics that are at play. You can tell when you see some of these guys that have been on there for a while. They put a lot of research into this. They’ve clear­ly done their home­work and lo and behold, they’re the ones that tend to out­per­form longer term

Tony (15:01): Ques­tion for you about the plat­form and what you’re doing. It seems quite a wide-rang­ing plat­form as you say with 14,000 users. How are you fund­ing it? I can­not see any sort of obvi­ous adver­tis­ing or link­ages that are to bro­kers or some­thing. How’s it being fund­ed?

Andrew (15:15): Tony, it’s 2020. Rev­enue is so last mil­len­ni­um.

Tony (15:21): You put it on after pay have you?

 [Laugh­ter].

Andrew (15:25): Yeah, so we make well-pay­ing outs real­ly. We do a few spon­sored posts occa­sion­al­ly, we have some affil­i­ate pro­grams if lack of share so Aus­tralian share­hold­ers asso­ci­a­tion, these kinds of things but, but we haven’t real­ly turned the rev­enue taps on yet. Frankly, we could, in fact, we’ve had a lot of offers but it tends to be from investor rela­tion firms and it tends to be investor rela­tion firms that are being paid by if I can be blunt, real­ly crap­py min­ing stocks that want to pump their prices, and these guys pay a lot of mon­ey to pro­mote their stock. So it’s been very hard to say no to that mon­ey, but we feel as though the moment we do that, we deval­ue the whole expe­ri­ence.

Tony (16:17): Right.

Andrew (16:18): And frankly, it’s that Char­lie Munger idea of he whose bread I eat is so amaz­ing and as soon as we do that, our alle­giance will be with the investor rela­tions com­pa­ny, won’t be with the investors. We want to look after the investors. And the only rea­son we haven’t was a cou­ple of rea­sons. We do have a rev­enue mod­el. I’m hap­py to tell you about it, although it’s very ten­ta­tive and sub­ject to change but why we haven’t want­ed to ini­ti­ate that yet until we’ve got this pos­i­tive fly­wheel hap­pen­ing, the chal­lenge with social net­works, in Google Plus, found this out the hard way. It does­n’t mat­ter how good the tech­nol­o­gy is, if there’s no one on your plat­form, it’s worth­less, and this is Google tried to beat Face­book with Google plus. It was a dis­as­ter. So, we don’t want let any­thing get in the way, and two, we’ve got a self-sus­tain­ing com­mu­ni­ty there.

So any­thing that was going to impede that we weren’t inter­est­ed in. So we’ve just been fund­ing it out of our own pock­ets through until now. And the oth­er thing was try­ing to come up with a mod­el that would enable peo­ple to par­tic­i­pate to vary­ing degrees. We want it to be free always but we want to have a high­er pre­mi­um lev­el of mem­ber­ship that gives you extra ben­e­fits and extra bells and whis­tles.

Tony (17:43): Right.

Andrew (17:43): So it’s been a chal­lenge in sort of design­ing that and build­ing that. I’m real­ly excit­ed to say that I think we’ve got some­thing that’s real­ly cool. I want to keep my cards a bit close to my chest. If you asked me at the start of the year, I would’ve said it was going to be out by July but that’s how things have gone but we’ve got some­thing that I think will be great. It will be free if you want it to be free, but if you want to have a high­er lev­el or a bet­ter expe­ri­ence, there’s some­thing there as well and one that will actu­al­ly rec­og­nize and reward finan­cial­ly those that are the bet­ter con­trib­u­tors.

Tony (18:25): Right. That’ll be the Elec­tric Straw­man.

Andrew (18:28): Yes [laughs].

Tony (18:30): Sign up forms.

Andrew (18:31): Absolute­ly. That’s exact­ly right.

Tony (18:34): So, I guess my line of ques­tion­ing goes to this next ques­tion, if you’re not mak­ing mon­ey out of adver­tis­ing or sub­scribers or some oth­er way like that, are you mak­ing mon­ey by set­ting up your own invest­ment fund that uses some of the bet­ter return­ers to guide what you invest in?

Andrew (18:53): I wish we had. So we’ve got this thing called the Straw­man Index and what that does is, it’s hard to explain ver­bal­ly, but in broad terms, what we do is we take the more pop­u­lar stocks from across the com­mu­ni­ty and we build a sam­ple port­fo­lio based on that and that thing, if you just go to Straw­man, and then hit the com­pa­nies tab, you’ll see how insane­ly good that thing has been. If I open it up now, in fact, we had a very ear­ly alpha release in late 2017, and then the pub­lic ver­sion was released in 2018. Since then it’s been 41% per annum ver­sus 6% for the mar­ket. Even over the last 12 months, it’s been about a 22% return ver­sus a ‑2.6% return for the mar­ket. So, I wish we had done that because we would have made incred­i­ble returns but I’ve been for­tu­nate that all of my per­son­al wealth is in the share mar­ket and has been over 10 years and that’s per­mis­sioned me to fund Straw­man and to avoid hav­ing to go cap in hand to any investor rela­tions firm.

Tony (19:58): I’m just scrolling down that list and it’s great returns, a lot of tech stocks on there and buy­ing up, pay lat­er type stocks. I mean, con­grat­u­la­tions, it’s a great return. I think what would stop me from invest­ing in that index is the wor­ry that next month it’ll go South, just like it did in 2000 so.

Andrew (20:15): Yeah.

Tony (20:19): I mean they’re fan­tas­tic returns from these users and they’re all based on those kinds of com­pa­nies and that seems to be the way that Straw­man goes. Is there any sort of, I guess, diver­gence in the Straw­man pop­u­la­tion that has a more tra­di­tion­al type invest­ment thing, or is it over­whelm­ing­ly of one type of pro­file that tends to go after the buy now pay lat­er or tech stocks in their port­fo­lios?

Andrew (20:47): Yeah, Tony, it’s kind of evolves. So we sort of start­ed off with a few hun­dred and as it’s grown, it has more, so it’s hard to sort of pin it down to any one par­tic­u­lar style. I would say if there was any par­tic­u­lar bias, it was cer­tain­ly towards small­er cap stocks but that being said, I mean some of the real­ly big win­ners that we’ve had are cer­tain­ly small-cap stock, but there are real busi­ness­es there, the busi­ness­es with sales, not nec­es­sar­i­ly prof­its in all cas­es but real busi­ness­es exe­cut­ing to their strat­e­gy very, very well. But I guess the oth­er thing I would say is this index was real­ly we put this in place at incep­tion before we knew how it was going to be one because we felt it sort of lends to the via­bil­i­ty of the qual­i­ty of the com­mu­ni­ty. But I don’t think any­one would sort of say you should fol­low that to the let­ter. It’s more of some­thing just sort of keeps us hon­est. With­in that group, you’ve got peo­ple who would invest only in income stock. Some peo­ple who only invest in prop­er­ty trusts, oth­ers that, go for the buy now pay lat­er as the pot stocks and lithi­um stocks and all the basics so every­thing in between.

So the oth­er thing that I would encour­age you to do is go to that mem­ber’s tab there, you can look at the var­i­ous leader boards that we have and start scrolling through some of those top per­form­ers. The one month, three months data boards are a lit­tle bit of noise. There’s a fair bit of luck involved in those kinds of time­frames, but those peo­ple have been on the plat­form for over a year or so. You’ll see some real­ly great con­trib­u­tors and are a diver­gence in terms of approach.

This is the idea as well I’ve got very strong views as any­one who’s heard me speak before on how I think you should approach the mar­ket and there are cer­tain approach­es that I’m very anti but at the same time, we did­n’t want to be too ide­o­log­i­cal. We real­ly want­ed to sort of let results speak for them­selves, just sort of say we’re agnos­tic. You want to be a chartist. You want to be a momen­tum trad­er. You do you, and you do what­ev­er you want and if you’ll know what you’re doing, it will come out in the results. It’ll come out in the wash, so to speak. So we’re, we’re total­ly agnos­tic and I would say any­one who’s con­sid­er­ing jump­ing on, they don’t feel as though you have to con­form to any one par­tic­u­lar approach. You do what is appro­pri­ate to you and before you fol­low any­one, cer­tain­ly before you, you think about fol­low­ing any of their ideas in the real world, get to get to know them. As I said, there’s so much trans­paren­cy here. You can click on a user pro­file. My pro­file is I should’ve come up with a bet­ter name. My pro­file is Straw­man as well, and you’ll see the stocks I’m hold­ing and you’ll see how often I trade and you only have to flick around there for a few min­utes. You’ll get a very good sense of the kind of investor I am or in terms of the approach I take, the pref­er­ence that I have while the returns are what get the head­lines, it’s div­ing deep­er into the actu­al activ­i­ty of a user that will be very, very valu­able for you in work­ing out who is this per­son out there in cyber­space doing these trades?

Tony (24:02): Yeah. So, I’m just look­ing at your port­fo­lio now. Isn’t this how you invest your­self out­side of the plat­form with real mon­ey on the ASX?

Andrew (24:12): It’s not a per­fect match because of tax con­sid­er­a­tions and the rest of it but it’s pret­ty close. Yeah and so if there’s a stock on my Straw­man port­fo­lio, I think with­out excep­tion, I hold it in real life, maybe the weight­ings a lit­tle bit dif­fer­ent, and maybe the tim­ing’s a lit­tle bit dif­fer­ent, but it’s a pret­ty close ana­log.

Tony (24:34): A cou­ple of things. Have you always invest­ed that way? You said before you’d been doing it for 10 years. So has being on Straw­man changed you at all?

Andrew (24:41): So I’ve been invest­ing for about 20 years or so it’s only that I would argue I’ve only been doing it seri­ous­ly for about 10 years in the sense that like lit­er­al­ly sell­ing my house and putting every last cent I own into the mar­ket. I’ve been doing that for about 10 years but yeah, when I start­ed off, I was buy­ing stuff because the share price was going up and it sound­ed cool.

Tony (25:09): Why did you sell your house and invest it in the mar­ket?

Andrew (25:11): I felt as though I could get a bet­ter return.

Tony (25:13): So you did­n’t think of mort­gag­ing the house and putting that in the mar­ket?

Andrew (25:19): So no, I did­n’t and that is a whole oth­er sto­ry. We actu­al­ly found our­selves on 730 report ear­li­er this year, because what’s the short ver­sion? So obvi­ous­ly, when you do that you need to rent, and I thought on paper, rent­ing made a great deal of sense and it was all about how much you could make your cap­i­tal work for you, and finan­cial­ly it’s worked bril­liant­ly. There are no regrets but what we did­n’t fac­tor in was that, when you rent you have no secu­ri­ty and there are lifestyle fac­tors that came into play that don’t get reflect­ed on a spread­sheet. So Tony, if I had a time machine, I should have done that. But I did­n’t do that.

Tony (26:03): Or you go out and buy a house and then sell your shares to buy the house and then mort­gage the house and buy the shares back.

Andrew (26:09): Def­i­nite­ly that is an option too and a lot of this mon­ey also has been since tied up in Straw­man which is at a cer­tain stage as well so it’s.

Tony (26:18): Yeah that’s not finan­cial advice by the way. That’s gen­er­al advice.

Andrew (26:21): Yeah, yeah, yeah, no, I would nev­er advo­cate for any­one to do that. You got to do what’s right for you but that’s what, that’s what we did. 

Tony (26:29): Look­ing at your port­fo­lio in Straw­man, you’re hold­ing a lot of cash. Is there a rea­son for that?

Andrew (26:34):  Yeah, I wish I had­n’t. It’s been a huge drag. So I think of all the com­pa­nies that I real­ly like, I don’t nec­es­sar­i­ly like the val­u­a­tions that are out there and there’s only so much cash I’ve got, as in the real world on Straw­man, there’s only so much cash I’ve got to invest. So I’ve actu­al­ly had a high­er than in hind­sight, nec­es­sary wait­ing in cash because I felt as though I would like some dry pow­der should some attrac­tive oppor­tu­ni­ties come along, and I def­i­nite­ly took advan­tage of that in some way back in March but not near­ly as hard as I should have.

Tony (27:11): That’s an inter­est­ing point, Cameron and I look at set­ting up a QAV port­fo­lio on Straw­man when we were start­ing out and the first ques­tion I asked was what’s the IV you place on this stock? And we both we tried, we both say, well, basi­cal­ly our port­fo­lios above the IV that we would cal­cu­late for the stocks which but it does­n’t wor­ry us. So why is there an empha­sis on hav­ing an IV cal­cu­la­tion for stock?

Andrew (27:43): The very ear­ly ver­sion of Straw­man, we forced you to have an IV. If you weren’t pre­pared to say what you thought the share was worth even broad­ly, we would­n’t let you place the trade.

Tony (27:51): It must have been when we were try­ing to start the port­fo­lio. 

Andrew (27:54): Yeah. So that was as I said, I did sort of start off more ide­o­log­i­cal­ly dri­ven than I’ve since become, so you don’t have to do that any­more. You don’t have a val­u­a­tion there. Per­son­al­ly, as an investor, I think first­ly any intrin­sic val­ue cal­cu­la­tion is wrong.

Tony (28:13): Yeah, I think so too.

Andrew (28:15):  It has to be wrong like I can­not pre­dict the future and even if we could per­fect­ly pre­dict the future, you might have a dif­fer­ent desired rate of return and there­fore use a dif­fer­ent dis­count rate. So there’re prob­lems with all of with that and I acknowl­edge that but I do think at the same time, that you should have a gen­er­al sense as to what is, broad­ly speak­ing, what is cheap, what is expen­sive?

Tony (28:35):  Yeah.

Andrew (28:36):  You have to right?

Tony (28:37): Yeah.

Andrew (28:38): By def­i­n­i­tion, if you’re buy­ing some­thing, I would like to think it’s because you think it’s good val­ue.

Tony (28:42): Cor­rect. 

Andrew (28:43): Now, how you esti­mate val­ue, you may have come at it a dif­fer­ent way to me, but if we were at a pub, and you’re try­ing to pitch me a stock and you could give me a great run­down of the busi­ness that that would be won­der­ful but my next ques­tion would be is “Tony, why do you think this is good val­ue?” Now, I don’t expect you to give me an answer to five dec­i­mal places. And I always laugh when you see the bro­kers say we val­ue XYZ, and they give you this hyper-pre­cise answer. It’s non­sense. When­ev­er I do a val­u­a­tion, I prob­a­bly have a dozen dif­fer­ent val­u­a­tions but I go for that gen­er­al­ly right as opposed to specif­i­cal­ly wrong, I think you have to have a notion of val­ue. Oth­er­wise, what else frames your buy sell deci­sions?

Tony (29:29): Yeah, cor­rect. Now, I agree. If I was forced to use an IV and auto val­ue or to con­vince you as to why a stock was val­ue, I would use price to oper­at­ing cash flow and in our invest­ing world, we look at stocks which have a price to cash flow of less than five and I expect that to go up in the future because it’s some­thing with a price to cash flow of less than five is pret­ty cheap. But whether it goes to 10 or whether it goes to 15 or whether it goes to sev­en I’ve got no idea real­ly.

Andrew (30:00): Yeah.

[Cross-Talk­ing 29:48]

Andrew (30:02): But just you say­ing that already gives me a huge insight into you as an investor and when you say you like the stock; I can frame that opin­ion around a par­tic­u­lar phi­los­o­phy or out­look. I find it’s super valu­able. And, again, we could debate whether that’s the best way but the fact that you have a way.

Tony (30:20): Yeah.

Andrew (30:22): Says it speaks vol­umes to me.

Tony (30:24):  Yeah, right. So let me go back to the index and the Straw­man pro­files on the leader board. If I want­ed to use Straw­man to con­struct a port­fo­lio, how should I do that? If I went out and bought what was on the index now, they may have already had the around, do I wait until there’s a trade on the index and some­thing new comes in before I buy it? What would you rec­om­mend?

Andrew (30:50): I walk you back a bit, and we’re always very care­ful with this part­ly for licens­ing rea­sons but also just for eth­i­cal rea­sons, I would nev­er advo­cate to any­one just buy and sell what­ev­er comes in or out of the index. It’s won­der­ful track record but for a long term investor like me, even the three years that it’s been around for is an incred­i­bly brief amount of time and it’s been achieved in a very bull­ish mar­ket over­all, with a par­tic­u­lar bent towards tech­nol­o­gy and growth stocks which has for what­ev­er rea­son been favoured. So I would not encour­age you to do that. What I would encour­age you to do would be to take that 100 grand and invest it as you Tony would invest it today in real life. If I gave you $100,000 in cash and you went out into the ASX. What stocks are you going to buy and why? Rough­ly what do you think they’re worth? For­get the index. The index is just going to aggre­gate you and Cameron and me and a mil­lion oth­er peo­ple out there and it gives you some per­spec­tive but I would­n’t say just buy the index. In fact, if you bought the index and every­one bought the index, it would just feed on itself and it prob­a­bly would­n’t work.

Tony (31:59): Cor­rect. Yeah. That’s inter­est­ing, though. So how do I approach? How do I make mon­ey from Straw­man as a new user to the net­work? Do I just fol­low some­one who I like who mir­rors my invest­ing style?  And I’m talk­ing about a user who comes in who does­n’t have the time because they’re a doc­tor, den­tist, lawyer, or what­ev­er, to do their own research?

Andrew (32:22): Yeah.

Tony (32:22): But they have the cash to invest? What should I do?

Andrew (32:24): I think there’re two ways to approach it and they’re not mutu­al­ly exclu­sive. I think the first one is just a won­der­ful train­ing ground. I mean, it’s plain mon­ey so you can’t lose any­thing here. But you can still invest in real stocks, real stock prices with vir­tu­al cash and so it’s going to just give you won­der­ful real-world bat­tle expe­ri­ence on the ground but risk-free. So I think for any­one who’s par­tic­u­lar­ly new to the mar­ket, I think get in there, get amongst it, buy some stocks, and you’ll just gain expe­ri­ence with­out risk­ing your real hard-earned cash.

The sec­ond way I would do it is actu­al­ly spend a bit of time inves­ti­gat­ing the peo­ple who are more active; when I say active, not nec­es­sar­i­ly in trades but active on the plat­form and adding insight and research and stuff.  You’ll see these peo­ple; they’re very promi­nent in the news­feed. Our activ­i­ty fil­ters will show you sort of who’s putting a lot of work in. The leader boards will show you the peo­ple who have deliv­ered very attrac­tive returns over a long term. Have a look at the peo­ple that res­onate with you, what are the kind of stocks they are buy­ing is that align with your tem­pera­ment and tastes, and then use it as an idea. But the thing is, I’m real­ly fond of say­ing this. I say it all the time but you can bor­row an idea but you can’t bor­row some­one’s con­vic­tion. So we can all have a chat, and I can give you a pitch, and maybe I’m con­vinc­ing in that pitch, and you run out and buy it but the sec­ond  that thing drops 20% for what­ev­er rea­son, you don’t know any­thing about it oth­er than Andrew likes it. You’re not going to be able to hold through those tough times, you’re cer­tain­ly not like­ly to buy more, and maybe you should­n’t be and so real­ly this is an idea gen­er­a­tor, I would argue, but it’s on you what you do with it. And it actu­al­ly frus­trates me quite a lot. If some­one not just asked if it hap­pened when I was at the full or any­where else is that some­one would get a tip from some­where, the inter­net and then if it would go well it was their own genius, and if it went bad, it was every­one’s fault, but their own. And that sounds real­ly harsh but I say that in all seri­ous­ness, this is this is your mon­ey and no one cares more about your mon­ey than you. No one is respon­si­ble for that mon­ey oth­er than you. So don’t jump on the Straw­man and just buy some­thing because some­one who hap­pens to be rank­ing well at the moment likes it. I mean that is a real­ly dumb thing to do but pay atten­tion to what they’re doing, dig a lit­tle bit deep­er, use it as a start­ing point for your own research, build up your own invest­ment the­sis, own the idea, and build con­vic­tion because if you don’t do that, you know the best ideas in the world they’re not going to help you.

Tony (35:06): Yeah, I mean, speak­ing from my per­son­al point of view that’s one of the rea­sons why I haven’t been active­ly involved in Straw­man because I find it dif­fi­cult to find peo­ple that reflect my sort of invest­ment method­ol­o­gy and I could­n’t have the con­vic­tion to invest in some of the high growth, high priced stocks or push­ing peo­ple to the top of the leader boards there so yeah.

Andrew (35:30): I’m so glad to hear that and you should­n’t and I would nev­er encour­age you to, but you should be your true self. As I said, if you look at the short term leader boards, that thing rotates all the time, today’s hero will be yes­ter­day’s hero in a month time. I don’t mean to be mean or rude to the peo­ple who are rank­ing well, at present on those leader boards, I wish them every long-term suc­cess but again, you’ll see over time, those that stick around, and those that roll with the punch­es and those that adapt. There’s no algo­rithm unfor­tu­nate­ly that we can gen­er­ate that’s going to sort of emerge this for you. I mean, this is why back test­ing does­n’t work, right?  We live in a very chaot­ic, hard to pre­dict uni­verse impos­si­ble to pre­dict uni­verse, and yes­ter­day, tomor­row is not going to be like yes­ter­day, even if it’s very sim­i­lar. I just real­ly want to make the point clear­ly here that this is not any kind of black box that you should just fol­low and buy. This is for you to prac­tice on. This is for you to join a peer group who have peo­ple who are self­less­ly shar­ing their ideas and putting them­selves out there for all to see with a track 

 record to get rid of the noise so you can have a sen­si­ble adult con­ver­sa­tion with oth­er seri­ous investors. I mean, that’s why on Straw­man, if you look at Straw­man, here’s some­thing that no one believes, but it’s true. In the whole time that we’ve run this, I’ve prob­a­bly mod­er­at­ed five posts and nev­er had a very rarely ever had to delete any­thing because peo­ple would get on there and try to hide things. I mean, they just get vot­ed down on by the oth­er use in the com­mu­ni­ty and all their shenani­gans result in very poor port­fo­lio returns for them any­way so no one fol­lows. It’s hard to pump and dump when there’s a spot­light shin­ing on you and this com­mu­ni­ty endorse­ment com­mu­ni­ty rank­ing on there, which is I think that the best part about all of this kind of stuff.

Tony (37:37): Yeah, that was my next ques­tion. You’ve out­lined a real­ly good the­sis for the pos­i­tive side of Straw­man but there must be a neg­a­tive side as well, and from per­son­al expe­ri­ence with oth­er forums and oth­er com­pa­nies that do these yeah pump and dumps peo­ple buy­ing a stock and then tout­ing it as the next great next best thing is. I mean there’s a dark side to these kinds of plat­forms. Often I’m not say­ing there is with Straw­man but how do you I guess, apart from what you just said about the rank­ings, how do you try and pre­vent tat­ters and neg­a­tive com­ments and even shouters from unleash­ing may­hem on a plat­form like Straw­man?

 Andrew (38:24): Yeah, so I’ll go back he step so when we got VC fund­ing last year and we speak to a few which is real­ly nice, they ring us up and they want to know more about the busi­ness, and one of the things that you always get asked by these investors is, what is the prob­lem that you’re try­ing to solve here? Forums exist so what’s new about this? And I guess the prob­lem that we’re try­ing to solve is that exact prob­lem of actors that have ulte­ri­or motives which any­one who’s been to said forum that’s out there knows that is a huge prob­lem. That’s the prob­lem that we’re try­ing to solve. And we do it by 1.) Mak­ing peo­ple account­able and peo­ple aren’t dumb. We’ve got a real­ly strong com­mu­ni­ty. So if I get on there, I’m say­ing by this by this and I joined up, you can see when they joined up, they joined up a week ago, they’ve relent­less­ly pumped this thing they put a high price, they’ve got no track record there what­so­ev­er.

 Every­one who’s looked at their posts has vot­ed it down by the estab­lished mem­bers of the com­mu­ni­ty. They get no love, they get no trac­tion, and they take their toys and they go home very, very quick­ly. So even on our com­pa­ny page, every com­pa­ny rather than hav­ing 50,000 threads for every com­pa­ny, we have a com­pa­ny page and if you go click on any com­pa­ny on Straw­man, you’ll be tak­en there,  we give you the con­sen­sus fore­casts from the com­mu­ni­ty and then we’ve got what we call straws, which are kind of like tweets. It’s a con­cise view­point or per­spec­tive on a com­pa­ny. It’s not a con­ver­sa­tion­al thing like a forum. It’s actu­al­ly meant to be a spe­cif­ic insight or per­spec­tive on a busi­ness. There’re algo­rithms there that date them and rank them accord­ing to how new they are, how many peo­ple like them, and I’m real­ly excit­ed about this. We haven’t released it yet but we’re get­ting much more sophis­ti­cat­ed on that. So when some­one who’s been on a plat­form for a year was a real­ly good per­for­mance, and lots of fol­low­ers votes, that will have much more say, than the bloke who joins up yes­ter­day, it has no per­for­mance. So we’re try­ing to sort of algo­rith­mi­cal­ly account for that much like if there was a whole bunch of us around a kitchen table as an invest­ment club and we’ve been doing this for 10 years, we all know each oth­er very well. We know what Cameron’s like, I know what Tony’s like, I know your style, I know your track record and then we invite some­one new into the club, and they sit down at the table and start mouthing off about the lat­est and great­est thing. Now, our opin­ion is going to count for a lot more and it should because we’re known quan­ti­ty even if we don’t have in every case, the best per­for­mance. 

And so we’re try­ing to sort of bring that com­mon sense approach to eval­u­at­ing per­spec­tives to the plat­form and you can do it in very clever math­e­mat­i­cal ways and it start­ed out very basi­cal­ly, it’s still got a long way to run this, just as Twit­ter and Red­dit and these things are always adapt­ing their algo­rithms, we are too. But we’re try­ing to do it in that way so there is a peer review that is in place, there is com­mu­ni­ty endorse­ment on con­tent so we can’t stop and we don’t want to stop any­one from get­ting on there and say­ing what­ev­er it is they think even if what they think is rub­bish, and they’re not act­ing in this in the spir­it in the way that we would like them to but mem­bers can sniff this a mile away, they will act appro­pri­ate­ly and that con­tent will be weight­ed appro­pri­ate­ly.

Tony (41:56): Has any­one on your site ever rec­om­mend­ed Apol­lo tourism and leisure Andrew, it’s some­thing we need to know. 

Andrew (42:04): What’s the IXX code?

Tony (42:07): It was an IPT after pay. I always get it con­fused with after pay. [Laugh­ter]

Some­thing like that. Don’t wor­ry about it. You know what it’s an in-joke.

Andrew (42:07):  I see why. I can say.

[Cross-talk­ing 42:19]

Andrew (42:20): Well see, this is the thing. I can look it up; I can tell you that eight peo­ple have it in their port­fo­lio. 19 peo­ple are fol­low­ing it. It is exact­ly on the con­sen­sus val­u­a­tion at this stage, but no one has added any straws so it does­n’t look like it has much love on the plat­form at this stage. 

Tony (42:38): Yeah, I won­der why [Laugh­ter].

Andrew (42:42): It’s a long sto­ry sor­ry, Tony. I don’t mean to inter­rupt you.

Tony (42:45): No, that’s all right. I guess get­ting back to your answer, Andrew about the way you’re going to rank peo­ple who come onto the plat­form and try and pump and dump, for exam­ple, is the risk there that you could cre­ate some kind of group thing where the peo­ple who had been the longest or loud­est or have a par­tic­u­lar style of invest­ing dom­i­nate the con­ver­sa­tion?

Andrew (43:07): Yeah, def­i­nite­ly and that is where the refine­ment comes into it. So we try things occa­sion­al­ly and we real­ize that that that is one of the prob­lems so it’s all part of the refine­ment. One thing that comes into it is your per­for­mance and the longevi­ty so you might be dia­met­ri­cal­ly opposed to every­one but if you’ve been doing your own thing on Straw­man for a few months, and you’ve built up a good track record there, that will give you some weight to what you say. The thing is I come back to the very ini­tial premise it’s called Straw­man. I mean, we want ideas to be chal­lenged. The best way to improve an invest­ment idea is to chal­lenge an invest­ment idea and so it hap­pens all the time and stuff I put out there, I’ll hash­tag bull case and I’ll write out why I like a com­pa­ny and some­one will write a bear case and it’s the best thing in the world. And we don’t want to dis­cour­age that in any way, shape, or form. In fact, I vote up on a lot of straws that come through the plat­form that I total­ly dis­agree with but I real­ly val­ue the con­tent and I’m pret­ty sure most of the estab­lished play­ers do that as well because it’s not sort of say­ing I think you’re right, I think you’re wrong. It’s about say­ing I think this is a valid opin­ion and I think it adds to the tenure of the con­ver­sa­tion and to the val­ue of the debate.

Andrew (44:29): Very good. I’m out of ques­tions. Cameron, do you have any­thing to add?

Cameron (44:34): Yeah, I do but before I get into it, Andrew, when you get a lit­tle bit excit­ed, your micro­phone.

Andrew (44:40): Oh.

Cameron (44:40): Is whack­ing your col­lar there.

Andrew (44:42): Sor­ry.

Cameron (44:42): So if you can just stand up to bob your head around [Laugh­ter].

Andrew (44:46): Sor­ry.

Tony (44:47): Pret­ty much. We real­ly should get a prop­er mic. It’s ridicu­lous.

Cameron (44:48): So I want­ed to ask you about your invest­ment phi­los­o­phy. Look­ing at your page here, you’ve had real­ly good per­for­mance on your Straw­man port­fo­lio, look­ing at a lot of the stocks that you hold, there stocks that prob­a­bly would­n’t pass buster for us. I’m inter­est­ed in what’s your process for deter­min­ing what you’re going to buy?

Andrew (45:15): Well, as I said, it’s moved over the years, but I would say in recent years I’ve been very much a growth-focused investor growth at a rea­son­able price. I think gold, sen­si­ble invest­ing is val­ue invest­ing, but I like com­pa­nies that have got a wind at their back and that are grow­ing their earn­ings. I’m not too big into pick­ing up pen­nies in front of [inaudi­ble 45:37] these days. Although I used to do that a lot but it’s real­ly basic. Do I under­stand the busi­ness? If I can have a half-intel­li­gent con­ver­sa­tion with the CEO, I should­n’t be buy­ing that stock no mat­ter how attrac­tive it looks on var­i­ous met­rics and the rest of it. How do they make mon­ey? Are they mak­ing mon­ey? How do they plan to make mon­ey? What’s their avail­able mar­ket? What are the com­peti­tors like? For­get the share mar­ket. I don’t care what the prices are doing. I don’t care about any­thing else. To come back to the café anal­o­gy, I under­stand what a café is. I under­stand how it makes mon­ey. I under­stand what is impor­tant, and I need to be able to under­stand that for a busi­ness. So there’s a lot of real­ly cool busi­ness­es that have actu­al­ly done incred­i­bly well but I’m not going any­where near because I don’t feel as though I’ve got a good han­dle on the indus­try dynam­ics and the busi­ness mod­el after pace in that cat­e­go­ry for me, frankly. I mean I get it. I know what they do, and I could explain to you what they do but that is a very fast-mov­ing space where there are all kinds of struc­tur­al changes with­in that indus­try that I just don’t have a con­fi­dent view on.

And I think the bulls and bears minds may make a good argu­ment. So I’m very hap­py to put things in the too hard bas­ket. If I don’t feel as though I’ve got a high con­vic­tion on what the like­ly future is for that busi­ness just broad­ly speak­ing. So I think that’s the first hur­dle. Once I feel as though I under­stand the busi­ness pret­ty well I then have to quan­ti­fy that earn­ings growth or that free cash flow growth or that sales growth. It has to come back to the finan­cials at some point so I need to try and be able to, as I said, very vague­ly, gen­er­al­ly, right, as opposed to specif­i­cal­ly wrong, but I need to be able to sort of look into a crys­tal ball and say that I think inte­grat­ed research is the kind of busi­ness that can grow its earn­ings at a high sin­gle-dig­it rate over the next five to 10 years.

Or I think this busi­ness is like­ly going to plateau or is going to match infla­tion but I need to have a view on that. I’m very big at look­ing at what can go wrong. So what are the things that I need to look out for? What’s the bal­ance sheet like? Is it in good shape? I can’t pre­dict macro fac­tors and I have no time to even try and pre­dict it. That’s not to say that you should­n’t, but that’s just a lim­i­ta­tion of mine. I got no idea what those things are going to do so I don’t try and do it, but I’d like to think that if we do have a bad reces­sion or inter­est rates go up or FX rates change, the com­pa­nies that I hold, although may be impact­ed by those, aren’t going to be com­plete­ly derailed by those kinds of things.

Do I trust man­age­ment? Do man­age­ment have skin in the game and is it trad­ing at a sen­si­ble price? And I think if I get all of those things right I’ll make an invest­ment, and I try and at a port­fo­lio lev­el wait accord­ing to a com­bi­na­tion of con­vic­tion, qual­i­ty and val­ue. So the high­er the con­vic­tion, the high­er, the qual­i­ty and the bet­ter, the val­ue, the more I will put into a stock and I have no prob­lem hold­ing 15 to 20% of my stock, my port­fo­lio on a sin­gle stock, if all of those things line up cor­rect and then frankly, from there, I feel as though I should be extreme­ly fussy. There’re thou­sands of stocks out there. I think that real­ly when you get to 15 or 20, you’ve got all the ben­e­fits you’re going to get from diver­si­fi­ca­tion.

So I treat my port­fo­lio like a sport team. There’re a lot of great com­pa­nies that I don’t hold, not because they’re awful, but because I just don’t think they’re as good as what I’ve got and so I try to keep it pret­ty tight. And then oth­er than that, the last thing is I look to hold for is I’m like War­ren buf­fet. I nev­er want to sell. Why would I end a beau­ti­ful rela­tion­ship that is con­tin­u­ing to flour­ish? The only time I will sell is if the the­sis is bro­ken or the val­u­a­tion just no longer makes sense, oth­er than that, I’m going to hold on.

Cameron (49:49): Quick ques­tion, Andrew, on val­u­a­tion. We’ve had this dis­cus­sion with oth­er peo­ple we’ve inter­viewed, espe­cial­ly growth investors. How do you go about valu­ing a stock that may not even be prof­itable at the moment?

Andrew (50:00): Yeah, it’s hard. Well, it depends if it’s a pret­ty prof­it kind of com­pa­ny, I think you can get a lot of insight by just start­ing with top-line growth and again, gen­er­al­ly, right as opposed to specif­i­cal­ly wrong nor is it going to grow at 17.3% per growth for four years, but you know what kind of gen­er­al rate of growth that we’re look­ing at? What are the typ­i­cal net mar­gins or oper­at­ing mar­gins for a busi­ness in that sec­tor? I mean am I rely­ing on this thing throw­ing out a 20% net mar­gin in 10 years or is it more like­ly to be a 5% net mar­gin? I need to have a han­dle on that and I need to be able to argue what’s rea­son­able. And then I need to fig­ure out what’s a rea­son­able mul­ti­ple for that com­pa­ny, whether I’m doing a price to sales, price to cash flow, price to earn­ings. What is rea­son­able based on the his­tor­i­cal expe­ri­ence based on what views we’re are doing and all the rest of it.

And you fol­low all that togeth­er you can get a tar­get price that might be about five years out and then I just dis­count that back by my desired rate of return and the high­er the risks involved with the more I will dis­count that back. And then I will stress that using a vari­ety of assump­tions and try and fig­ure out a price that sort of what’s an aver­age price based on that agglom­er­a­tion of dif­fer­ent views. It’s that Ben Gra­ham mar­gin of safe­ty phi­los­o­phy which I’m just huge on. All of these are guess­es. Peo­ple in our indus­try like to call them fore­casts which sounds real­ly sophis­ti­cat­ed but they’re all total guess­es. But I like to be very con­ser­v­a­tive in my guess­es and then I like to add a real­ly big fat mar­gin of safe­ty on that so even if I’m wrong and I’m prob­a­bly going to be wrong, that I’ve got far more upside than down­side. I’m look­ing for asym­me­try here where if things go right, there’s a lot of upside, but if they don’t go my way, then the down­side is lim­it­ed. And frankly, I expect that it’s the whole Peter Lynch, if you’re right, six times out of 10, you’re good in this game. I expect to be wrong a lot of the time but hope­ful­ly, if I’m doing it right and so far so good, when you get it right, the gains more than make up for the los­es. You cut the ones that aren’t work­ing well, and you con­tin­ue to invest in the ones that are doing well. I’m a big fan of aver­ag­ing up by the way too. If a com­pa­ny con­tin­ues to exe­cute real­ly well and my con­vic­tion con­tin­ues to go up, I’m more than hap­py to add to that at a much high­er price than what I ini­tial­ly bought in.

Cameron (52:28):  I saw a video that I think was the RASK con­fer­ence from last year and you opened up by talk­ing about ETFs and how you rec­om­mend ETFs to friends and fam­i­ly, par­tic­u­lar­ly if they’re not will­ing or ready to be a seri­ous investor and invest a lot of time and effort it, which is some­thing com­mon with what Tony has said on the show over the last cou­ple of years, he believes that ETFs are a great place. He talks about the invest­ing lad­der and ETF is sort of one of the bot­tom ones on the lad­der as you’re work­ing way up but you men­tioned the rate of return that you’re look­ing for when you’re doing your DCF and I was won­der­ing what you think is a good rate of return to get? Because one of the things I’ve learned from Tony over the last cou­ple of years is that as an investor, well, cer­tain­ly with Tony’s mod­el, we’re just chas­ing that 15 to 20% com­pound growth on aver­age every year, not try­ing to get a 100% where you’re 15 to 20% with rel­a­tive­ly low risk, rel­a­tive­ly low effort. I don’t have to spend 12 hours a day read­ing annu­al reports like War­ren Buf­fet does. What are you try­ing to achieve with your port­fo­lio, your real mon­ey, not your Straw­man fake mon­ey, your real mon­ey. What do you think is real­is­tic based on your 20 years of invest­ing?

Andrew (54:03): I think 10% is real­is­tic, frankly. I feel as though it’s a pride before fall moment. I’m real­ly mind­ful of hubris but it’s actu­al­ly been much, much high­er than that. Let’s go back a hun­dred years with the U.S or any of the major west­ern indus­tri­al­ized economies. That’s about what mar­kets do with cap­i­tal gains and income and giv­en that I can get about that, we could debate end­less­ly what the next five to 10 years is going to bring prob­a­bly going to be less than that, but who knows, but long-term, if I can get any­where near that, the pow­er of com­pound­ing is so phe­nom­e­nal that I’m going to do real­ly well over time. And if I can get that by doing no think­ing what­so­ev­er, just by buy­ing an ETF, well, if I’m going to put all this effort into it either I just have to love it for the sake of it, and for­tu­nate­ly I do but also I need to com­pen­sate for my time and effort and anx­i­ety and all of that kind of stuff. So, I would say if you’re putting in a lot of effort and you’re not get­ting more than 3, 4, 5% above your bench­mark, then there’s prob­a­bly bet­ter things you can do with your time. By the way, it does­n’t sound like it. If you can tar­get 10% and you can get 12% per annum over the next 20 years, that’s such a phe­nom­e­nal dif­fer­ence on the return so it’s very mate­r­i­al but you need to be get­ting some out-per­for­mance to jus­ti­fy what it is that you’re doing. And I think what peo­ple mis­un­der­stand about that is they think that if I can tar­get 10% a year, that’ll be great and right.

But that means I get 10% each and every year. No one gets that. Buf­fet does­n’t get that. No one gets that. What will hap­pen is that one year you’ll get 60%, and then the next year you’ll get ‑20%, and then you’ll get 3%, and then you’ll get 8%, and then you’ll get ‑40%. There’re a lot of noise that is hid­den in that aver­age. The worst thing I think that can hap­pen to you as an investor is that the first few years you just absolute­ly knock it out of the park because it sets ridicu­lous expec­ta­tions, and con­verse­ly, you can do very, very sen­si­ble things and get a very ordi­nary or even a very dis­ap­point­ing return over the first few years and it just dis­suades peo­ple from doing it, but it’s about process. It’s about con­sis­ten­cy and if you do that, and you can gen­er­ate that as an aver­age, not get­ting 10% every year, but aver­ag­ing that 10% every year, I think you should be pret­ty hap­py and if you can get 15 to 20% by all means.

Cameron (56:55): Just to wrap up, what’s the num­ber one thing you’ve learned out of the Straw­man exper­i­ment so far?

Andrew (57:04): As an investor or as an entre­pre­neur?

Cameron (57:08): Well, both if you want yeah.

Andrew (57:11): So as build­ing a busi­ness, I com­plete­ly mis­un­der­stood the com­plex­i­ty and dif­fi­cul­ty and the tech­ni­cal chal­lenge. I kind of thought how hard can it be? We’ll get some peo­ple in, they’ll build it, we’ll go on and then we’ll run the busi­ness where­as real­i­ty, the tech­ni­cal devel­op­ment nev­er stops. The real­i­ty is that some­one who might be a $400 an hour devel­op­er is much, much cheap­er than some­one in the Philip­pine who’s charg­ing you $10 an hour because although on an hourly rate it’s much cheap­er, they’ll prob­a­bly make a big mess of things and you’re going to have to fix it up and they’ll take 10 times as long. There were a lot of blogs and pod­casts that talk about start-ups and also make sure you get good peo­ple. I nod­ded and every­one nods, make sure you get good peo­ple because they are every­thing, and we’ve had some hor­ror sto­ries of some of the peo­ple that we’ve had because I was a “tight ass” and I based my judg­ment on an igno­rance of what was impor­tant. And by look­ing at things on an hourly rate basis which was a mis­take, which we final­ly addressed by the way, got some real­ly great devel­op­ers now, but that set us back years and lit­er­al­ly cost me tens of thou­sands of dol­lars, if not more. So there’re big lessons in all of that.

Cameron (58:25): Same with mar­ket­ing con­sul­tants like Elec­tric Bean ver­sus Straw­man, You want to.

[Laugh­ter].

Cameron (58:31): You want to par­ty for the good brand con­sul­tants.

Andrew (58:36): Straight after this, I’m tak­ing this down from my LinkedIn.

[Laugh­ter].

Cameron (58:40):  Do that.

Tony (58:42):  It’s good. Where it came from? It’s a good sto­ry.

Andrew (58:45): Yeah, I mean it is so true in so many dif­fer­ent aspects, whether it is mar­ket­ing, it’s the joke in mar­ket­ing, right? I mean every mar­keter knows that half their bud­get is wast­ed. They just don’t know which are right? And I think there’re a lot of par­al­lels with that so a lot of lessons learnt there. If I was to start again with this thing, I reck­on we could get to where we are now in about six months and we’d have tech­ni­cal­ly from an infra­struc­ture and archi­tec­ture per­spec­tive, we’d have some­thing that was a mil­lion times bet­ter. So you live and you learn. From an invest­ment per­spec­tive, I guess it’s not so much a learn­ing but a rein­force­ment which is real­ly pay atten­tion to those that dis­agree with you. I mean, seek out con­tra­dic­to­ry opin­ion and take it seri­ous­ly. I think that for every one of the stocks that I hold, I’ll give you the bull case and I’ll explain to you why I’m hold­ing it but if I can’t artic­u­late the bad case bet­ter than the most bear­ish per­son out there, then I should­n’t be hold­ing that stock. It does­n’t mean that obvi­ous­ly, I need to agree with it but I real­ly pay atten­tion to those that posts dif­fer­ing views to me on Straw­man and I think that’s a les­son that’s been real­ly reit­er­at­ed and rein­forced, and it’s a very hard thing to do emo­tion­al­ly and psy­cho­log­i­cal­ly because as I said we want that con­fir­ma­tion bias and you just look at Twit­ter, right? Like we all sur­round our­selves in this bub­ble, of all the peo­ple that we agree with because it’s more com­fort­able. But I real­ly try and fol­low peo­ple on a lot of social plat­forms that I fun­da­men­tal­ly dis­agree with them in a lot of areas just to try and avoid that and I think that is some­thing that as investors, we should all try and do a bit more of.

Cameron (1:00:33): Yeah, no, I agree. I think as humans we should do that, it’s cred­i­bly impor­tant to have our ideas chal­lenged and put our­selves in sit­u­a­tions where they will be chal­lenged by smart and artic­u­late peo­ple.

Tony (1:00:45): Yeah.

Cameron 1:00:45: Good stuff. Well last ques­tion, we always ask our guests to give us a book rec­om­men­da­tion either from an invest­ing per­spec­tive or not. What are you read­ing? What can you rec­om­mend as a good read?

Andrew (1:01:00): I just fin­ished just this morn­ing. I fin­ished read­ing a book called ‘Homo Deus’ by Yuval Noah Harari. He’s more famous for Sapi­ens and Sapi­ens is an incred­i­ble book and I’ve just pur­chased ‘Lessons for the 21st Cen­tu­ry’ which is the oth­er books. It’s a brief his­to­ry of the future. It’s pret­ty bleak and it’s a very mind-blow­ing kind of book, and I think what it high­light­ed to me is that we are liv­ing in such a unique point in his­to­ry and the future is going to be either unbe­liev­ably bril­liant or unbe­liev­ably ter­ri­ble. It’s prob­a­bly my take away from it is we’re going to bifur­cate.

Cameron (1:01:46): What else is new?

Andrew (1:01:47): Yeah, it was dif­fer­ent. I mean, if you meet in the mid­dle ages, your great, great-grand­chil­dren prob­a­bly had the same lifestyle and same world as you do but even I was born in 1975 and my kids, my lifestyle as a kid is very dif­fer­ent to what my kids and I dare say my grand­kids will be. If they’re not all chipped up with neu­ro link brain devices or some­thing at that point. It’s just a fas­ci­nat­ing point, and I think it’s inter­est­ing as a human but I think there’re lot of lessons for investors as well.

Cameron (1:02:23): I was hav­ing a con­ver­sa­tion with one of my 20-year-old on the week­end. He came over and he was depressed, he’s sad and he’s frus­trat­ed and he’s angry and I said, “what’s going on?”. He goes, “You know, my Tik Tok num­bers just have stag­nat­ed for the last cou­ple of months. It’s not grow­ing”. I said, “Wow. Yeah, that’s a real­ly tough prob­lem.” I said, “Let me, let me show you some­thing.” I grabbed a pho­to off my hard dri­ve of my moth­er when she was, I think about two in Bund­aberg like this lit­tle wood­en shack, they lived in a truck that they were dri­ving around in which was no more than an engine with a steer­ing wheel jammed into the top of it and like a plank of wood on the back and she told me she did­n’t have elec­tric­i­ty until she was four in the house. And I’m like, your biggest prob­lem is that your fun­ny videos that you’re mak­ing aren’t grow­ing. You’ve only got hun­dreds of thou­sands of peo­ple and.

Andrew: [Laugh­ter].

Cameron (1:03:22): Not the mil­lions you thought you’d have by now watch­ing your videos real­ly that’s.

Andrew (1:03:26): Small prob­lem.

Cameron (1:03:27): Yes.

Tony (1:03:28): Did he took the pho­to on post­ed on Tik Tok?

Cameron (1:03:36): No, he did­n’t, but he did make me do a Tik Tok with him where I took my shirt off.

Tony (1:03:36): So that can’t be seen.

[Laugh­ter].

Cameron (1:03:38): Yeah, yeah.

Tony (1:03:39): I feel.

Cameron (1:03:39): You’re wel­come.

Tony (1:03:40): Peo­ple on Face­book who have to look at the head­ings and [Cross-talk­ing 19:21].

Cameron (1:03:45): You’re lucky I did­n’t charge you to see the glo­ry of my dad though Tony. Well, Andrew, thanks very much. Real­ly appre­ci­ate you com­ing on and hav­ing a chat. That was fas­ci­nat­ing and I’ll jump back into Straw­man and spend a bit more time in there and have an under­stand­ing a lit­tle bit more about it. Thanks, man.

Andrew (1:04:02): I real­ly enjoyed it guys real­ly.

Tony (1:04:04): Me too.

Andrew (1:04:04): My plea­sure.

Cameron (1:04:05): Good luck for the future too. It’s such an excit­ing future I think you have.

Andrew (1:04:08): Thank you very much. Thank you.

Tony (1:04:11: Yeah. Thanks for spend­ing some time with us. That was great.

Andrew 1:04:14): Oh, absolute­ly. My plea­sure. My plea­sure. I think we sing from the same hymn sheet in a lot of ways.

Tony (1:04:20): Yeah I think so too.

Cameron (1:04:21): Well, that’s the end of the free episode for this week. For the brand new folks, I want you to know that each week we have a free episode and a pre­mi­um episode. If you want to check out the pre­mi­um episodes, you can go up to our web­site, qavpodcast.com.au, and sign up for the two-week free tri­al. You get to have a look at the pre­mi­um episodes. You get to have a look at the check­list, the get­ting start­ed guide, all of the video con­tent that we have. You get invit­ed to our VIP din­ners and our VIP zoom calls for club mem­bers. You get to ask Tony ques­tions that we can answer. You get to get invit­ed to our Face­book group, our pri­vate Face­book group, et cetera, et cetera, and also we get a pri­vate club mem­ber newslet­ter each week we send out as well with some stuff in it so check that out qavpodcast.com.au.

But as I said, if you’re brand new and you’re try­ing to fig­ure out what’s going on, go back and lis­ten to sea­son three, episodes one, three, and five, 301, 303, and 305 and then you might also want to go back and lis­ten to sea­son one as well. All of the free episodes in sea­son one, where we go into a lot of detail about Tony’s sys­tem and method­ol­o­gy and fig­ure out if this is right for you. If it’s some­thing that you want to go fur­ther with, if you want to learn how to invest like Tony does, then you can check out the QAV club. The oth­er thing I always have to say is we’re not finan­cial advi­sors, so don’t take any­thing you hear on this as finan­cial advice. This is just here to teach how one guy invests and thinks about invest­ing. If you need finan­cial advice or tax advice, please go see a finan­cial advi­sor or a tax advi­sor.

With that stay safe, good luck with your invest­ing, and we’ll be back next week.