Transcript QAV #356

Episode name: QAV 356

Dura­tion: 01:20:09

Cameron Reil­ly [00:05]: Okay, wel­come to QAV Tony Kynas­ton episode 356 this day of our Trump Mon­day, the 23rd of Novem­ber, 2020. How was your week­end?

Tony Kynas­ton [00:23]: Good. We haven’t real­ly done 356 episodes. Have we?

Cameron Reil­ly [00:27]: No, it’s sea­son 3, 56, but we’ve prob­a­bly done one a week for near­ly two years now so.

Tony Kynas­ton [00:35]: More than one a week.

Cameron Reil­ly [00:38]: We’ve done prob­a­bly a hun­dred and some­thing. Yeah. Well, that’s right. We’ve done inter­view. Yeah, we’ve prob­a­bly done 150 to 200, I think hmm, wow holy- crap.

Tony Kynas­ton [00:47]: Yeah, wow exact­ly.

Cameron Reil­ly [00:48]: Think about how many pod­casts I’ve done in the last 15 years.

Tony Kynas­ton [00:52]: Yeah.

Cameron Reil­ly [00:52]: It’s one of these days I’m going to get good at it, one of these days well.

Tony Kynas­ton [00:58]: One of these days.

Cameron Reil­ly [01:00]: Sea­son three, episode 56. I just say 356 because I’m lazy.

Tony Kynas­ton [01:07]: You are the Tol­stoy of pod­cast­ing.

Cameron Reil­ly [01:13]: What a — 200 years say out of date and dead. What do you mean by that?

Tony Kynas­ton [01:18]: No, no, no you took your pod­casts and write them out and be like war and peace with them.

Cameron Reil­ly [01:23]: [Laughs] Yeah. Well, that’s yeah, yeah. Any-hoo, for the third time how was your week­end?

Tony Kynas­ton [01:33]: [Laughs] I can hear a cock crow­ing in the back­ground for the third time. No, it was good, very relax­ing. We had a big night, Fri­day night with Jenny’s old work­mates and we sunk a few bot­tles of red, nice red and sat out in the bal­cony, which was good. It was­n’t that windy. It was about 1:30 in the morn­ing and yeah, it was good, and then Sat­ur­day I spent recov­er­ing.

Cameron Reil­ly [01:59]: It was­n’t windy, but you were pret­ty windy by the sounds of.

 [02:02]: [Laughs].

Cameron Reil­ly [02:04]: Long and windy.

Tony Kynas­ton [02:04]: Wind Bag­gy.

Cameron Reil­ly [02:04]: Wind Bag­gy.

Tony Kynas­ton [02:06]: Hold­ing forth.

Cameron Reil­ly [02:07]: Yeah, yeah. Well, were you talk­ing about invest­ing or the mer­its of hors­es? What do you talk about when you have a din­ner par­ty?

Tony Kynas­ton [02:18]: Well, I think the com­mon theme was where Jen­ny used to work. So, we were talk­ing about that a lot.

Cameron Reil­ly [02:22]: Oh.

Tony Kynas­ton [02:24]: Yeah, yeah.

Cameron Reil­ly [02:26]: Is it still a thing? Is it still around?

Tony Kynas­ton [02:28]: Yeah. It’s still around. It’s still a thing.

Cameron Reil­ly [02:32]: Yeah.

Tony Kynas­ton [02:32]: It was good. Good fun.

Cameron Reil­ly [02:33]: Good.

Tony Kynas­ton [02:33]: Nice bunch of peo­ple.

Cameron Reil­ly [02:35]: Well, that’s good.

Tony Kynas­ton [02:37]: How was your week­end?

Cameron Reil­ly [02:39]: Oh, the usu­al run­ning around after Fox. Oh, Chrissie had a stu­dio con­cert which was great on Sat­ur­day. I always liked her stu­dio con­certs or inter­view con­certs to see where her kids are at. It’s always inspir­ing to see these kids that she’s been teach­ing. For those who don’t know, my wife runs a vio­lin stu­dio. She has taught vio­lin for her entire life, and yeah, like a lot of these kids have been with since she first moved here, not long after she moved here, 11 odd years ago. There’s one lit­tle kid Noah. I remem­ber him start­ing with her 10 years ago when he was three years old and he was real­ly shy and it took him a year to be able to even look me in the eye when I’d say hi to him every week. [Laughs] And he stood up.

Tony Kynas­ton [03:29]: Did you have your shirt on?

 [03:33]: [Laughs].

Cameron Reil­ly [03:34]: What on the week­end or back then?

Tony Kynas­ton [03:35]: Back then.

Cameron Reil­ly [03:35]: Yeah. He stood up on Sat­ur­day and played flood­ed the bum­ble­bee from mem­o­ry night per­fect.

Tony Kynas­ton [03:41]: Oh wow.

Cameron Reil­ly [03:42]: So, it’s amaz­ing just to see that hap­pen in these kids.

Tony Kynas­ton [03:46]: Yeah.

Cameron Reil­ly [03:46]: Like Chrissie feels like they’re her kids and to an extent, and I do too a lit­tle bit, hav­ing seen them every week for 10 years. So, you get to know their fam­i­lies and it’s amaz­ing. Any­way, she does good. She does good in the world I think teach­ing kids the beau­ty of music and how to play a dif­fi­cult instru­ment and its love­ly.

Tony Kynas­ton [04:07]: That’s very reward­ing.

Cameron Reil­ly [04:09]: Where­as I just sit here and take shit from you all week so.

Tony Kynas­ton [04:16]: [Laughs]. Well, you lit­tle bit too don’t you.

Cameron Reil­ly [04:17]:

Lit­tle bit yeah, I try.

 [04:17]: [Laugh­ter]

Cameron Reil­ly [04:18]: Alright where do you want to start this week? You want to talk about why our port­fo­lio is lag­ging the old odds?

Tony Kynas­ton [04:29]: It is for the month. We’ll have a look at its total per­for­mance.

Cameron Reil­ly [04:33]: Yeah, it is for the year, for fis­cal year, Sep­tem­ber, Octo­ber, Novem­ber, I’m assum­ing it’s got some­thing to do with our invest­ment in gold stocks of recent times and the hit that they took and also sort of the all odds. So yeah, after pays in the all odds now, isn’t it so in the begin­ning.

Tony Kynas­ton [04:55]: Oh yeah top 20.

Cameron Reil­ly [04:57]: Yeah.

Tony Kynas­ton [04:59]: The biggest rea­son is the bank stocks have gone up.

Cameron Reil­ly [05:01]: Oh, real­ly?

Tony Kynas­ton [05:03]: Yeah. Well, since the vac­cine news came out every­one’s going okay, maybe it’s not going to be too bad and par­tic­u­lar­ly the bank stocks are up 10% or so.

Cameron Reil­ly [05:12]: Right.

Tony Kynas­ton [05:13]: And then there are real­ly good por­tions of the all odds index. So unfor­tu­nate­ly, we don’t have Mac­quar­ie bank or Mac­quar­ie group in our dum­my port­fo­lio, but that would have giv­en us a good sol­id boost in the last cou­ple of weeks.

Cameron Reil­ly [05:28]: Right.

Tony Kynas­ton [05:29]: Yeah, Mac­quar­ie group is on our buy list and I own it.

Cameron Reil­ly [05:34]: Yep.

Tony Kynas­ton [05:34]: So that’s at least gone as good as the oth­er major banks, but that’s, that’s the main dif­fer­ence is no banks in main port­fo­lio, and as you said, some gold stocks which had gone down.

Cameron Reil­ly [05:42]: Yeah.

Tony Kynas­ton [05:42]: What I find intrigu­ing is all these arti­cles I’m read­ing in the last week or so say­ing it’s a flight to val­ue. Peo­ple are out of growth and are going into val­ue, okay but the banks are good val­ue, but it’s not, not real­ly a flight to val­ue. It’s just some peo­ple have bought into bank stocks. That’s all it is.

Cameron Reil­ly [06:06]: They think that’s val­ue.

Tony Kynas­ton [06:07]: Quan­tise and Syd­ney air­ports and things like tran­sit a lit­tle bit.

Cameron Reil­ly [06:10]: Right.

Tony Kynas­ton [06:13]: And if you look at the best per­form­ing stocks in the last week or so they’d been flight cen­tre and Quan­tise and, and tourism type stocks that were beat­en down very heav­i­ly dur­ing COVID, and they’re only com­ing back now that there’s a vac­cine and the bor­ders are open­ing up but the stocks that we were hold­ing went down in March and rebound­ed quite strong­ly since then.

Cameron Reil­ly [06:36]: Right, right, and we sold one of our gold stocks last week, Reg­is resources, Steve Mad­den emailed us this after­noon say­ing he thinks we did it too soon, but it hit our three-point trend line and rules are rules, as you said to me last week, or I said to you last week, some­thing like that

Tony Kynas­ton [06:57]: Pre­ma­ture ejec­tion he said.

 [07:02]: [Laugh­ter].

Tony Kynas­ton [07:03]: Well, he was­n’t say­ing that to be fair to state.

 [07:04]: [Laugh­ter].

Cameron Reil­ly [07:06]: You’re mak­ing him say­ing it a lot fun­nier than he is. Come on.

 [07:08]: [Laugh­ter].

Cameron Reil­ly [07:09]: He’s on the board of the Aus­tralian share­hold­ers asso­ci­a­tion. He can’t be that fun­ny.

Tony Kynas­ton [07:14]: And he’s got RSI as well.

Cameron Reil­ly [07:15]: Yeah.

Tony Kynas­ton [07:15]: From pre­ma­ture ejec­tion.

 [07:17]: [Laugh­ter].

Tony Kynas­ton [07:17]: Ejec­tion.

Cameron Reil­ly [07:20]: Oh, you’re in a mood. How much have you been drink­ing today? It’s only four o’clock down there. You start ear­ly today under the goonies.

Tony Kynas­ton [07:28]: No, I haven’t no, to be fair he was using the RSI indi­ca­tor the rel­a­tive strength index.

Cameron Reil­ly [07:36]: Oh.

Tony Kynas­ton [07:37]: Reg­is resources was­n’t a sell accord­ing to that.

Cameron Reil­ly [07:41]: Hmm, mm.

Tony Kynas­ton [07:41]: So, he could be right. We’ll see but it cer­tain­ly crossed our sell point.

Cameron Reil­ly [07:44]: Right.

Tony Kynas­ton [07:44]: Last week. Yeah.

Cameron Reil­ly [07:47]: Talk­ing about the flight to val­ue, you just men­tioned reminds me of a quote I threw into our newslet­ter today. I was watch­ing a video over the week­end by a guy. It was an inter­view with a guy called Bruce Green­wald. He’s the Robert Hiboron pro­fes­sor emer­i­tus of asset man­age­ment and finance at Colum­bia busi­ness school and the author of “Val­ue invest­ing from Gra­ham to buf­fet and beyond”. And he’s just putting out a new edi­tion of that. And he was being inter­viewed by 10 Oh San­tos, who is the David L and LCM Dodd pro­fes­sor of finance and fac­ul­ty direc­tor of the Heil­bronn Cen­tre. I don’t know why I feel com­pelled to say it like that but I just do, and it was fun­ny. He was say­ing that the first edi­tion of the book, when it came out, every­one was say­ing val­ue invest­ing was dead. The sec­ond edi­tion has come out. Peo­ple are again say­ing val­ue invest­ing is dead.

Tony Kynas­ton [08:52]: [Laughs].

Cameron Reil­ly [08:52]: But I took his quote from the video, he said, “what invest­ing has always been con­sists of two basic ideas. The first is you look for oppor­tu­ni­ties where nobody else is look­ing and you stay away from the crowds that are over­pay­ing for glam­orous oppor­tu­ni­ties. That has­n’t gone away. The sec­ond thing a tra­di­tion of approach­ing val­u­a­tions with a clar­i­ty and a pre­ci­sion that nor­mal investors, don’t, it’s more than just slap­ping a mul­ti­ple on things and say­ing, okay, this is a grow­ing busi­ness. It’s worth 40 times earn­ings.” And then he goes on to talk about how val­ue invest­ing has changed, evolved since gra­hams day and the ear­ly buf­fet days and all that kind of stuff. And I know that the way that you do it, the way you teach it is a lit­tle bit dif­fer­ent again but those two things remain the same, right? We’re look­ing for.

Tony Kynas­ton [09:43]: Yeah.

Cameron Reil­ly [09:43]: Missed oppor­tu­ni­ties and we’re pay­ing a lot of atten­tion to valu­ing them and deter­min­ing what we think is a good buy.

Tony Kynas­ton [09:54]: Yeah, no, def­i­nite­ly. I agree with those, those quotes.

Cameron Reil­ly [09:57]: And we’ve strug­gled when we get oth­er peo­ple on the show quite often to get them to explain the eval­u­a­tion. It’s been a com­mon theme I’ve noticed over the last cou­ple of years, it does­n’t mat­ter who it is, when­ev­er we asked them well, how do you decide what the intrin­sic val­ue of some­thing is, they stum­ble around.

Tony Kynas­ton [10:15]: Hmm, mm.

Cameron Reil­ly [10:15]: It’s a fas­ci­nat­ing to me because I’ve only been doing this for a cou­ple of years now but if some­body asked me, “Well, how do you guys deter­mine the val­ue of a stock?” I’d be able to artic­u­late it in a minute or two, I think high lev­el. Not many peo­ple we’ve had on the show as guests have been able to do that. Why do you think that is?

Tony Kynas­ton [10:35]: I think it’s a two-fold prob­lem. I think it actu­al­ly is very hard to val­ue stocks, but I think it’s the big­ger prob­lem is that most peo­ple, they use stocks rel­a­tive­ly rather than fun­da­men­tal­ly. And what I mean by that is they’ll say things like, well, it’s a grow­ing com­pa­ny and they usu­al­ly they get sold at their 40 times earn­ings or four times sales or 10 times sales. It’s soft­ware as a ser­vice busi­ness and there­fore it should be sold at 10 times sales or 50 time’s sales or what­ev­er. But who says that? Why should you buy it and then pay 50 times sales? It’s because that’s what every­one else does. That’s a rel­a­tive val­u­a­tion, and that’s where I think peo­ple get a bit lost in terms of valu­ing things.

Cameron Reil­ly [11:20]: Hmm, mm.

Tony Kynas­ton [11:20]: It’s a bit like when you go and buy a house, you could look at it fun­da­men­tal­ly and say, well, it’ll cost me this much to build a house if it was to be knocked over, or we could look at it and say, well, if I rent­ed it, I get this much yield, and that places a val­ue on it or you could say that as real estate agents do, the one down the road sold for a mil­lion doors, this one’s a bit nicer, it sells for 1.2. That’s a rel­a­tive val­u­a­tion. I think that’s where peo­ple lose sight of the right met­rics to val­ue a com­pa­ny.

Cameron Reil­ly [11:52]: Right.

Tony Kynas­ton [11:53]: So, most of the val­u­a­tions we’ve heard, I think could be rel­a­tive ones if we’ve ever heard any [Laughs].

Cameron Reil­ly [11:58]: Yeah.

Tony Kynas­ton [11:59]: We gen­er­al­ly hear things like it’s grow­ing.

Cameron Reil­ly [12:02]: Yes.

Tony Kynas­ton [12:03]: We don’t hear things like its fair val­ue or its above its val­ue or its below its val­ue. They just say it’s grow­ing.

Cameron Reil­ly [12:09]: Yeah, good man­age­ment, sol­id good peo­ple, good sto­ry. They are invest­ing in R and D. Remem­ber that was one of Rudy’s things but yeah.

Tony Kynas­ton [12:22]: Yeah, and he’s right. Those things do make a good com­pa­ny.

Cameron Reil­ly [12:26]: Yeah.

Tony Kynas­ton [12:27]: But that’s dif­fer­ent to a good invest­ment.

Cameron Reil­ly [12:29]: Yeah.

Tony Kynas­ton [12:30]: And peo­ple lose sight of that all the time.

Cameron Reil­ly [12:32]: Yeah, I mean I’m not tak­ing the piss of any­one obvi­ous­ly, but it’s been gen­uine­ly sur­pris­ing to me how dif­fi­cult it has been for peo­ple to artic­u­late it. Now I mean some of it might just be that they’ve nev­er had to artic­u­late it before but even when you and I start­ed doing this show, I don’t think you were in the habit of hav­ing to artic­u­late how you did this, but you can do it.

Tony Kynas­ton [13:03]: At least it was all writ­ten down. It was all writ­ten down. We just went through it.

Cameron Reil­ly [13:06]: Yeah. I mean you could do it. You were a lit­tle bit waf­fle about it at first.

Tony Kynas­ton [13:09]: [Laugh­ter].

Cameron Reil­ly [13:10]: No, I mean that in the nicest way, just because you weren’t in the habit but now, you’re smooth as but­ter right because you’ve done it for two years every week, but most of the.

Tony Kynas­ton [13:23]: It won’t be long before I’m play­ing flight of the bum­ble­bee will it.

 [13:26]: [Laugh­ter].

Cameron Reil­ly [13:33]: But yeah. Any­way, it’s just sur­prised me how few peo­ple are able to artic­u­late why they invest in.

Tony Kynas­ton [13:42]: Yeah.

Cameron Reil­ly [13:42]: What they invest in, even the pro­fes­sion­als who do it for a liv­ing.

Tony Kynas­ton [13:46]: Hmm, mm. No, def­i­nite­ly.

Cameron Reil­ly [13:48]: Any­way, enough of that so back to our port­fo­lios. So, we’re trail­ing the old odds for the last cou­ple of months, but I’m guess­ing you’re not con­cerned about that.

Tony Kynas­ton [13:58]: No, because if you look at the per­for­mances, we start­ed the port­fo­lio the old odds is down ‑5% and our port­fo­lio is up some­thing like 10% so.

Cameron Reil­ly [14:07]: Yeah.

Tony Kynas­ton [14:09]: That’s just going to keep widen­ing over time. It might, you know, it might slow down a bit now if the all odds go for a run but that hap­pens from time to time. It hap­pens in the short term. In the long-term, we’ll out­per­form.

Cameron Reil­ly [14:20]: Yeah. Cool.

Tony Kynas­ton [14:22]: Yep.

Cameron Reil­ly [14:22]: Thought you’d say that. See.

[14:23]: [Laughs].

Cameron Reil­ly [14:25]: I’ve been lis­ten­ing and you’re very pre­dictable.

 [14:26]: [Laugh­ter].

Cameron Reil­ly [14:32]: What’s next?

Tony Kynas­ton [14:32]: I don’t know you tell me.

 [14:35]: [Laugh­ter].

Tony Kynas­ton [14:37]: What a pre­dic­tion.

Cameron Reil­ly [14:38]: Let’s talk about some of our jour­nal entries from last week, shall we? What do you think the high­lights were in your jour­nal entries?

Tony Kynas­ton [14:47]: I can’t even remem­ber what they were. You have them in front of you?

Cameron Reil­ly [14:50]: I do yeah. Well, I don’t, but I will.

Tony Kynas­ton [14:53]: Okay, I want to see the pic­tures.

 [14:57]: [Laugh­ter].

Cameron Reil­ly [14:57]: We saw edges which we spoke about. Yeah. Now you told me that I should replace it with Grange resources GRR in the QAV port­fo­lio but in your own port­fo­lio, you replaced it with one of my old favourites, unfor­tu­nate­ly, which I no longer own. So, I don’t get to take advan­tage.

Tony Kynas­ton [15:14]: Oh.

Cameron Reil­ly [15:14]:

Of the bump the price prob­a­bly took when he bought it last week, the reject shop.

Tony Kynas­ton [15:21]: The reject shop. That’s right. Yeah. I bought some reject shop last week. Yeah. Haven’t seen how it’s going. I haven’t looked since last week, but yeah. I sold my Reg­is resources and bought the reject shop.

Cameron Reil­ly [15:32]: Hmm, mm.

Tony Kynas­ton [15:33]: Which was the next one on my buy­er list that I had­n’t done and was big enough for me to buy into.

Cameron Reil­ly [15:38]: Right.

Tony Kynas­ton [15:40]: Yeah.

Cameron Reil­ly [15:40]: It’s trad­ing around about $6.84 at the moment down from its highs of it got up as high as $8 at one point. So, it’s back down.

 Tony Kynas­ton [15:54]:  I think retail has come off along the lines of the gold stocks so the reject shop had a great run after COVID because peo­ple were think­ing that cus­tomers were going to be hit by eco­nom­ics hard times and they go and shop down mar­ket and the opin­ions on that changed a bit after the use of a vac­cine on the hori­zon and bor­ders open­ing. So, we’ll see what hap­pens from there but it’s still, it’s still a very cheap stock. We’re talk­ing about val­u­a­tions before. Let me just pull up the buy list here.

Cameron Reil­ly [16:34]: I’m just look­ing at its buy line because I know every­one wants us to do a lot more buy line charts.

Tony Kynas­ton [16:42]: Hmm, mm.

Cameron Reil­ly [16:42]: When you bring it up, tell me what you’re using. I assume your first point is ran back in sort of March, 2016, your sec­ond point, I’m guess­ing sort of August 2020, maybe.

Tony Kynas­ton [17:02]: First point on the buy line I’ve got at March 16, as you said. And then if I have a look at, yeah, it almost be, it’s changed over the time as it has gone up real­ly. So, the cur­rent buy point is quite high up. It’s real­ly around the cur­rent price, but the last time we had to sell this, where would that be? That would have been around, think­ing maybe around, I’m doing this quick­ly, April, 2019 was prob­a­bly the last time we sold it. So, if I look at the first sort of buy sig­nal after that yeah, I would use the sec­ond high­est point is July, 2000 at 1251 and draw my buy lines from that.

Cameron Reil­ly [17:55]: Okay buy lines.

Tony Kynas­ton [17:57]: It’s basi­cal­ly the high­est point with the next high­est point to the right is the graph I’m using or the method using.

Cameron Reil­ly [18:04]: What’s the sec­ond point? July, 2016?

Tony Kynas­ton [18:07]: Yeah, that’s right.

Cameron Reil­ly [18:09]: Real­ly? So, you’re not using the right most peak, you just tak­ing that one.

Tony Kynas­ton [18:13]: Well, like I said, you can use the right most pick in which case the buy line is around the cur­rent price.

Cameron Reil­ly [18:19]: Yeah.

Tony Kynas­ton [18:20]: But also, if you fol­low the sequence of the buy line fol­lows a sell line.

Cameron Reil­ly [18:27]: Yeah.

Tony Kynas­ton [18:27]: If we look back and see when the last time it was a sell, it’s going to be around about I’m going to say around March, 2019. It’s nowhere near a sell line at the moment, if we take the cur­rent low point, which is that one’s 197, that one’s 178 is June, 2019, that would have been a sell before that. So, if we go back a bit and take the sec­ond low­est point, that would have been Octo­ber, 2018. And if you take that low­est point and then the next one to the right of that, it was a sell soon after that. And then it would have been, yeah buy back in prob­a­bly around Decem­ber, 2019.

Cameron Reil­ly [19:14]: Hold on one sec­ond, don’t we have to scroll the graph back and if we’re going to do this and take the go back five years from that point in time, like five years from 2018.

Tony Kynas­ton [19:27]: Yeah. Strict­ly speak­ing, we should.

Cameron Reil­ly [19:29]: So

Tony Kynas­ton [19:31]: So, you can either use the right most peak, which gives us a buy price around its cur­rent price.

Cameron Reil­ly [19:35]: Yeah.

Tony Kynas­ton [19:36]: We go back to try and work out when the last sell was.

Cameron Reil­ly [19:40]: Yeah right.

Tony Kynas­ton [19:41]: And then the first buy after that was our buy.

Cameron Reil­ly [19:43]: Okay.

Tony Kynas­ton [19:43]: Which is a bit of his­tor­i­cal recon­struc­tion as you say.

Cameron Reil­ly [19:48]: Yeah.

Tony Kynas­ton [19:49]: Because if you think about it’s been on our buy­ers for a while ever since COVID so.

Cameron Reil­ly [19:55]: Yeah.

Tony Kynas­ton [19:55]: The buy­er is going to be around that sort of start of the year time.

Cameron Reil­ly [20:01]: Right. If we take those two points you said before both of them back in 2016.

Tony Kynas­ton [20:08]: Cor­rect yeah. So, the first one is March, 2016 and the sec­ond one is July, 2016.

Cameron Reil­ly [20:14]: Right. So, it was a by the late 2019 around about $2 50.

Tony Kynas­ton [20:22]: Yes, that’s right.

Cameron Reil­ly [20:22]: And it’s been a buy ever since.

Tony Kynas­ton [20:26]: Yep.

Cameron Reil­ly [20:26]: I’ll do a screen­shot of that. Throw it up for the peeps

Tony Kynas­ton [20:29]: Okay, good.

 [20:33]: [Laugh­ter].

Tony Kynas­ton [20:33]: It just look like if you for­get about all the stuff around lines, if you just have a look at the graph, it’s kind of bot­toms out in that peri­od that goes from, say Octo­ber 18 through to the COVID cough and it’s been a gen­er­al upturn since then so even if you just want to sort of eye­ball it from a macro point of view, it’s real­ly around after March that it becomes a buy.

Cameron Reil­ly [20:55]: That’s right.

Tony Kynas­ton [20:55]: A sol­id buy.

Cameron Reil­ly [20:56]: Right.

Tony Kynas­ton [20:57]: Yeah.

Cameron Reil­ly [20:58]: And what was its QAV score?

Tony Kynas­ton [21:05]: I don’t know what it was when we bought it orig­i­nal­ly, but when I bought it last week, the QAV score was 0.36, which is [Cross-talk­ing 00:21:12]

Tony Kynas­ton [21:13]: Yeah, it is.

Cameron Reil­ly [21:13]: Yeah, I’ve seen.

Tony Kynas­ton [21:14]: That was the point I want­ed to make about val­u­a­tion. I mean, this is a com­pa­ny which is oper­at­ing quite exten­sive­ly through­out Aus­tralia and we’re pay­ing 1.5 times oper­at­ing cash flow.

Cameron Reil­ly [21:27]: Right.

Tony Kynas­ton [21:28]: So, if you think about it, if you use a cof­fee shop anal­o­gy, this is oper­at­ing cash flows, espe­cial­ly in the retail sit­u­a­tion, the reject shop store is going to be not too dis­sim­i­lar to the cof­fee shop store.

Cameron Reil­ly [21:41]: Hmm, mm.

Tony Kynas­ton [21:41]: And opera oper­at­ing cash flow is basi­cal­ly well, its sales com­ing in list the costs of get­ting those sales. So, it’s pret­ty close to gross mar­gin or gross prof­it in terms of the way to think of it its gross prof­it so we haven’t tak­en out all the oth­er things you take out like financ­ing and tax­es and depre­ci­a­tion and blah, blah, blah. But we’re pay­ing only 1.5 times the gross prof­it of this com­pa­ny.

Cameron Reil­ly [22:08]: Yeah.

Tony Kynas­ton [22:09]: We get paid back in 18 months. To me, what­ev­er your val­ue with­out it can’t be worth much less than what it’s trad­ing for now.

Cameron Reil­ly [22:16]: Yeah. Cool. So, you did­n’t buy Grange resources for your own port­fo­lio because it’s too small. Is that right? The aver­age trade?

Tony Kynas­ton [22:26]: Yeah. That’s right.

Cameron Reil­ly [22:26]: Right. Okay.

Tony Kynas­ton [22:29]: Where­as the reject shop is 1.6 mil­lion aver­age dai­ly trade and Grange is 250 mil­lion.

Cameron Reil­ly [22:35]: Let’s look at some of the oth­er high­lights from last week. You point­ed out, we were talk­ing last week about Hawthorne resources, anoth­er one of our gold stocks, and I think the only stock in the QAV port­fo­lio that’s under­wa­ter cur­rent­ly. You said that.

Tony Kynas­ton [22:51]: [Laughs].

Cameron Reil­ly [22:52]: But.

Tony Kynas­ton [22:53]: Sor­ry, go ahead.

Cameron Reil­ly [22:55]: You said that it’s got a div­i­dend that is going to be paid or would have been paid late last week, right 20th of Novem­ber.

Tony Kynas­ton [23:04]: Yeah. So, in fact, I’ll just have a look up the announce­ments, if there’s any­thing here for it now. Yeah. We should have picked up near­ly 4 cents in terms of a spe­cial return of cap­i­tal and a spe­cial div­i­dend. They split it up for prob­a­bly for tax rea­sons. Going back, let’s see now I’ll get the exact num­bers. Okay. So, there’s a 2.469 return of cap­i­tal and a 0.157 spe­cial div­i­dend. So rough­ly 2.50 cents for return of cap­i­tal and 1.5, 1.6 for spe­cial div­i­dend, but we should add those to our dum­my port­fo­lio now. I’ve got 4.10 cents.

Cameron Reil­ly [23:47]: I just list­ed as a div­i­dend.

Tony Kynas­ton [23:50]: Yeah, I think it’s sim­ple enough to list as a div­i­dend under dum­my port­fo­lio.

Cameron Reil­ly [23:54]: So, it’s how much 4.16 cents.

Tony Kynas­ton [23:58]: The num­bers are quite long its return of cap­i­tal is 0.024690873 cents or dol­lars.

 [24:08]: [Laughs].

Tony Kynas­ton [24:08]: And a spe­cial div­i­dend this is 1.0157869914 is a spe­cial div­i­dend.

Cameron Reil­ly [24:18]: What was that first one again? 0.246?

Tony Kynas­ton [24:21]: 0.2469.

Cameron Reil­ly [24:21]: Yeah.

Tony Kynas­ton [24:21]: 08737.

 [24:21]: [Laughs].

Cameron Reil­ly [24:28]: Wow so I can always.

Tony Kynas­ton [24:31]: That’s the low­est I’ve got­ten involved here.

Cameron Reil­ly [24:31]: Yeah.

 [24:31]: [Laughs].

Cameron Reil­ly [24:35]: I add those up and I get 0.0404778651.

Tony Kynas­ton [24:44]: Hmm, mm so that gets added to the port­fo­lio since it was pay­ing out last week. Now peo­ple, I don’t know own Hawthorne, but peo­ple who do own Hawthorne, I know some of our lis­ten­ers do, should be receiv­ing their noti­fi­ca­tions if they haven’t already pret­ty soon, which will have all the details around that. And they’ll prob­a­bly also have it spelled out in terms of the return of cap­i­tal and the div­i­dend. I’m hop­ing there’ll be some oth­er sup­port­ing doc­u­men­ta­tion about what they’ve received as tax advice. Although it’ll obvi­ous­ly be qual­i­fied by the fact that they can’t give spe­cif­ic tax advice, but often­times in these cir­cum­stances, the div­i­dend com­po­nent, which is a small­er part, is going to be tax­able and the return of cap­i­tal may not be although it may have to be added to your cap­i­tal gains cost base which will have a tax impact in the future when you sell.

Cameron Reil­ly [25:35]: Right.

Tony Kynas­ton [25:36]: Yeah, I mean your accoun­tants can help you with that. And when it comes to tax time and just pass on the doc­u­men­ta­tion and they’ll sort it out for you.

Cameron Reil­ly [25:44]: Right. Well, that’s a nice lit­tle bump for us 0.04.

Tony Kynas­ton [25:51]: I think last week we talked about Hawthorne and I said, I thought it was the gold price com­ing down. That was the prob­lem and that might be part of it but I think the fact that peo­ple had fac­tored in that once the stock went ex-div­i­dend and cap­i­tal return that it was worth 4 cents a share less and it dropped from 14 back to 10.

Cameron Reil­ly [26:11]: Right.

Tony Kynas­ton [26:13]: As you know, the process is always the shares go ex-div­i­dend for a peri­od until they’ve trade come div­i­dend first, and if you buy it, that means you’re enti­tled to that div­i­dend and return of cap­i­tal. And then there’s a gap between when they rule off the books and say, any­one who buys after this date does­n’t get the spe­cial div­i­dend.

Cameron Reil­ly [26:35]: Yeah.

Tony Kynas­ton [26:35]: That’s called ex-div­i­dend but that could be a peri­od of time then before that div­i­dend is received by the share­hold­er so that the peo­ple who were buy­ing ex-div­i­dend, weren’t going to pay 14 cents when 4 cents was on its way but they weren’t get­ting so they pay 10.

Cameron Reil­ly [26:50]: Well, adding that to our port­fo­lio just knocked our growth this year when we start­ed at the begin­ning of Sep­tem­ber up to 8.04%. Sor­ry.

Tony Kynas­ton [27:04]: Okay.

Cameron Reil­ly [27:04]: So, we’ve jumped from six up to eight made a big dif­fer­ence.

Tony Kynas­ton [27:08]: Clos­ing the gap.

Tony Kynas­ton [27:08]: 300 bucks.

 [27:09]: [Laugh­ter].

Cameron Reil­ly [27:12]: Yeah, it is.

Tony Kynas­ton [27:13]: Yeah. So, I’m sor­ry. I did­n’t remem­ber that last week when we talked about it, but I think that’s the rea­son why Hawthorne’s dropped. And if I look at it now, which I think today’s the first trad­ing day after it paid a div­i­dend; it’s up 5% today.

Cameron Reil­ly [27:25]: Right.

Tony Kynas­ton [27:27]: So, I am hop­ing that it’s a good stock on our buy­er list and it will con­tin­ue to trade upwards from here.

Cameron Reil­ly [27:35]: Right, all right. Good. Well, I think that’s enough of a jour­nal notes from last week because we need to get into ques­tions. I had no ques­tions at nine o’clock this morn­ing and now I have a ton so thank you to every­body who was pay­ing atten­tion on the Face­book page today and start­ed send­ing through your ques­tions.

Tony Kynas­ton [27:53]: You’re a good ques­tion wran­gler.

Cameron Reil­ly [27:54]: Yes. That’s my many well few skills.

 [27:59]: [Laugh­ter].

Cameron Reil­ly [27:59]: Here’s from Tim. Hi Cameron Riley I’m still strug­gling with the three-point line on the sell side and was hop­ing that TK and your­self could check our SSG and ADH, please. I saw Mark Mangano post last week with regards to SSG sell at 0.93 cents. My sell was lost so I must be using points on the chart that are incor­rect. I thought the dip due to COVID around the end of March was­n’t being used, is this cor­rect? And then he has anoth­er one about ADH, but let’s talk about SSG.

Tony Kynas­ton [28:34]: Yes. Shaver shop groups. I mean the first point to make is sor­ry that Tim, sor­ry and Mark sold out maybe a lit­tle bit ear­ly, but they can always buy back in, but they would’ve made hope­ful­ly a good deal of mon­ey on the way because the buy on shaver shop group, would be some way maybe just a lit­tle bit north of 50 cents, and it’s now trad­ing at a dol­lar and five, and if they sold out at 93, they still made decent sort of return in a cou­ple of months. So, it’s cer­tain­ly good. In terms of its sale, no, I think we def­i­nite­ly need to use the COVID cough is the low­est point on the graph, which is March, 2020, obvi­ous­ly and that price is the clos­ing price for that month is 31 cents. But this then becomes anoth­er one of those sorts of upward Schro­ding­er’s or bun­ny balls as we call them going for­ward so it’s kind of the sec­ond line that we would have used in the past was 43 and a half cents in April, 2020, and if you draw that line, it’s been crossed going up prob­a­bly about where these guys may have sold out­side of Sep­tem­ber. It was 885. It closed in Sep­tem­ber this year. And that was a bit of a dip between the end of August and the end of Sep­tem­ber. So, I could see that that was a rea­son for sell­ing, but it’s then rock­et­ed up again, up to a dol­lar five today. So, I guess the inter­est­ing thing for me is maybe I need to review my guide­lines for these kinds of rock­et­ing up share prices, but I haven’t seen this kind of rever­sal from a big down­turn because of COVID for well over 10 years.

I mean, the last time we saw a stock mar­kets crash and then rebound was GFC. So maybe 2009, and before that 2002, but maybe, I don’t know, maybe we just have to have a bit more tol­er­ance when shares are on their way up like this because they do sort of go up and then cross their line and then go up again. For me, I’m quite hap­py sell­ing out and then putting the mon­ey back into some­thing else which is clear­er or buy­ing back in once the lines are estab­lished. And I know you have to pay trans­ac­tion costs and tax­es if you do that but if you real­ly liked the stock, then it’s prob­a­bly worth it because you’ve tak­en the risk out of hav­ing a big down­turn. But I’m won­der­ing whether we need some kind of tol­er­ance built in here like maybe there has to be two clear months of down­turn or some­thing like that because we had the same prob­lem with GEA the beta shares, the Aus­tralian share mar­ket fund­ing, and we had a sim­i­lar upward tra­jec­to­ry that was going up very steeply and just devi­at­ed a lit­tle bit which was enough for me to sell it but it’s again, of course kept going upwards with the rise in Aus­tralian share mar­ket with the ASX going up. So yeah, I appre­ci­ate the prob­lem and I apol­o­gize if Tim and Mark feel a bit neg­a­tive about the sys­tem but that’s how I do it and this is a very unusu­al cir­cum­stance.

Cameron Reil­ly [31:44]: So, walk me through look­ing at the SSG charts. Let’s talk about the buy line.

Tony Kynas­ton [31:51]: Yep.

Cameron Reil­ly [31:52]: So high point is going back to a sort of late 2016.

Tony Kynas­ton [32:01]: Yeah. Sep­tem­ber, 2016 at a 1.19.

Cameron Reil­ly [32:04]: And what would you use as the sec­ond point then sort of just before the COVID cough, Feb­ru­ary, 2020.

Tony Kynas­ton [32:10]: It was, yeah, cor­rect.

Cameron Reil­ly [32:12]: Okay. So, the cur­rent buy price would be around 0.55.

Tony Kynas­ton [32:20]:

 Yeah.

Cameron Reil­ly [32:23]: You’re tak­ing the bot­tom at the COVID cough March, 2020 as the first point.

Tony Kynas­ton [32:28]: Cor­rect.

Cameron Reil­ly [32:28]: And then going through the next month, April the next low­est point.

Tony Kynas­ton [32:33]: Yes.

Cameron Reil­ly [32:33]: So, it’s like almost straight up.

Tony Kynas­ton [32:35]: Yep.

Cameron Reil­ly [32:36]: So yeah, then it becomes a Schro­ding­er.

Tony Kynas­ton [32:41]: Yep. That’s right. It does. Yep.

Cameron Reil­ly [32:43]: So, it’s cur­rent­ly both above the buy price and below the sell price.

Tony Kynas­ton [32:50]: Sor­ry now or back in April?

Cameron Reil­ly [32:52]: Well, now it would be. It’s above the buy price but if you draw that line straight up, the sell price is oh, yeah, the sell price is like 1.20 if you draw that line straight up.

Tony Kynas­ton [33:07]: If you use the April one as the sec­ond one, I think what hap­pens or what I would do is over time as it’s going along, there’s anoth­er.

Cameron Reil­ly [33:14]: Anoth­er buy sell.

Tony Kynas­ton [33:15]: Anoth­er trust point.

Cameron Reil­ly [33:16]: Yeah right.

Tony Kynas­ton [33:16]: Which is in Sep­tem­ber, 2020 so if you use that as a sec­ond point, it’s just touch­ing the sell point again now.

Cameron Reil­ly [33:24]: Right. So, you’re right. It’s kind of trad­ing in that it’s just touch­ing its sell point, but it’s well above its buy point.

Tony Kynas­ton [33:30]: Hmm.

Cameron Reil­ly [33:33]: Okay.

Tony Kynas­ton [33:34]: Yet again these ones are a bit tricky, I think.

Cameron Reil­ly [33:36]: Yeah, which is why they’re a bun­ny boil­er.

Tony Kynas­ton [33:39]: Yeah exact­ly, very tricky to han­dle.

 [33:43]: [Laugh­ter].

Cameron Reil­ly [33:43]: We flirt with them and then we regret it.

 [33:51]: [Laugh­ter].

Tony Kynas­ton [33:51]: Yeah. And then we have to buy our kids a new rab­bit.

 [33:52]: [Laugh­ter].

Cameron Reil­ly [33:56]: It’s all fun and games until you come home and have to buy the kids a new rab­bit.

 [34:02]: [Laughs].

Cameron Reil­ly [34:02]: Let’s look at Tim’s oth­er one, ADH.

 [34:07]: Both Speak­ers: ADAS lim­it­ed.

Tony Kynas­ton [34:11]: And this is anoth­er one of those retail stocks I was talk­ing about that has come off its peaks recent­ly because of the feel­ing in the mar­ket that the times are chang­ing and that stores which have done well dur­ing COVID may not do as well going for­ward or may have a slow­er lev­el of growth going for­ward. So, it is a home where stores and the ben­e­fit of dur­ing COVID because peo­ple work­ing from home and spend­ing lots of time there and going, Hmm, I real­ly should change my bed­spreads or my throws on my couch or what­ev­er. And they were going off and buy­ing stuff to spruce up their home. It was okay when their wife was there all day but now that they’re at home work­ing, I think we can make the place look pre­sentable.

Cameron Reil­ly [34:55]: Wow that’s incred­i­bly sex­ist. Tony can’t believe you just said that wow.

Tony Kynas­ton [34:59]: [Laugh­ter]. Well, it could be the oth­er way around too. I sup­pose the wife came home and did­n’t like it, but any­way, ADAS has done real­ly well out of peo­ple refit­ting their homes when they’re work­ing from home and then it’s kind of changed, it’s come off a lit­tle bit, but yeah, let’s go through it.

Cameron Reil­ly [35:16]: Well, the chart looks pret­ty straight­for­ward to me. So, the low point over five years is back in sort of May, 2017, and then the sec­ond point being the COVID cough.

Tony Kynas­ton [35:28]: Yeah.

Cameron Reil­ly [35:29]: Right. So, then I get a sell price, round about 90 cents. The buy price prob­a­bly starts late 2018, and the sec­ond one being just before COVID Feb­ru­ary, 2020.

Tony Kynas­ton [35:47]: Yep.

Cameron Reil­ly [35:47]: So, it’s well, and tru­ly above that sell, but yeah. So, I’d say that’s a pret­ty, pret­ty clean one, Tim. Hmm. Would you dis­agree with any of that?

Tony Kynas­ton [35:59]: Nope. No, I think that’s right.

Cameron Reil­ly [36:01]: Alright. Well, I’ll post these up on the blog post and the Face­book page, et cetera, Tim, have a look at that and let me know if you have any ques­tions, but thanks for the ques­tions. Yeah. Look, these things are tricky as hell and just keep lis­ten­ing, keep prac­tic­ing and you’ll get the hang of it I think and as Tony said before, like some of them, like the shaver shop are just com­plete­ly new ter­ri­to­ry in a bizarre and prob­a­bly too hard. I mean, if you’ve already bought it, then you still have to fig­ure out when to sell it but I don’t know if you bought shavers.

 [36:49]: [Laugh­ter].

Cameron Reil­ly [36:49]: If you bought COVID, you’re doing real­ly well because it’s hav­ing a boom­ing year.

 [36:56]: [Laugh­ter].

Cameron Reil­ly [36:56]: What a boom­ing year it’s hav­ing, more cus­tomers than you can poke a dirty mas­cot. If you’d bought shaver shop, let’s say after the COVID cough, when it was going up, if you’d bought it back around, say June, what would you do now, you would have to cal­cu­late what the sell price is after that and that’s still like kind of rough­ly where it is right.

Tony Kynas­ton [37:24]: Yeah, that’s right yeah.

Cameron Reil­ly [37:26]: So, what would you do?

Tony Kynas­ton [37:26]: And well, I don’t know that’s what I’m think­ing I might have to sort of review what we do for those kinds of sit­u­a­tions maybe it means two down­ward months in a row before we sell.

Cameron Reil­ly [37:39]: Yeah.

Tony Kynas­ton [37:39]: It keeps fluc­tu­at­ing around that sell line and it’s buy line because it’s so steep going up.

Cameron Reil­ly [37:44]: Yeah.

Tony Kynas­ton [37:46]: That’s prob­a­bly what we should do is just eye­ball it, still going up.

Cameron Reil­ly [37:52]: Yeah.

Tony Kynas­ton [37:52]: Why don’t we just hold it yeah.

Cameron Reil­ly [37:55]: But then what hap­pens to rules as rules?

Tony Kynas­ton [37:59]: Rules is rules, and as I said before, if it was me, if I own shave a shop, I would have sold out at 93 cents or what­ev­er the num­ber was back in Sep­tem­ber.

Cameron Reil­ly [38:09]: Yep.

Tony Kynas­ton [38:09]: And then if I had­n’t bought some­thing else, I would have bought back in.

Cameron Reil­ly [38:13]: Right.

Tony Kynas­ton [38:14]: In the fol­low­ing month­ly yeah.

Cameron Reil­ly [38:15]: Okay. Cool. Let’s move on to Gary. Hi Cam, how are you? I’m good. Thank you, Gary. I’m hot.

 [38:26]: [Laugh­ter].

Cameron Reil­ly [38:26]: It’s 31.1 degrees in my lit­tle stu­dio here right now and run­ning at 47% humid­i­ty so it’s not a pret­ty sight.

Tony Kynas­ton [38:36]: I feel in luck.

Cameron Reil­ly [38:38]: Real­ly?

Tony Kynas­ton [38:39]: Yeah. We’ve been over 60% today.

Cameron Reil­ly [38:41]: Right, jeez.

Tony Kynas­ton [38:43]: 29 degrees so it’s hot.

Cameron Reil­ly [38:46]: Good for keep­ing cig­ars. That’s about per­fect for cig­ars 60%.

 [38:49]: [Laugh­ter] Okay.

Cameron Reil­ly [38:50]: Yeah. I am won­der­ing if you guys are able to point me in the right direc­tion to look into cre­at­ing an SMSF with my and my wife’s com­bined super. I’ve heard Tony talk about his SMSF before I real­ize he no longer con­tributes to it. And although I am nowhere near ready to look after this myself, it seems like a sen­si­ble idea to com­bine the two to grow quick­er, espe­cial­ly when one isn’t being added too much at all. Any guid­ance, not advice would be much appre­ci­at­ed. Thanks for the show by the way, it is very addic­tive. Oh, that’s good to know, Gary.

Tony Kynas­ton [39:26]: Thanks for the feed­back, Gary.

Cameron Reil­ly [39:27]: Thanks for the com­pli­ment. What would you say about SMSF cre­ation apart from go talk to an accoun­tant?

Tony Kynas­ton [39:37]: It’s true. I’d talk to an accoun­tant, def­i­nite­ly but okay. There’s a cou­ple of, I won’t call them scams, but there’re a cou­ple of things that peo­ple should be aware of with super funds and the indus­try. I’ll say it nice­ly and say it does­n’t go out of its way to pro­mote this but peo­ple who have a career that moves around and most of us do or did as I did, you’ll have dif­fer­ent super funds with dif­fer­ent employ­ers, and if you don’t watch out that, that can lead to you pay­ing lots of costs and more impor­tant­ly, miss­ing out on lots of growth. And just to give you to give you some num­bers around that. So, Gary and his wife maybe they’ve had two jobs each and so between them, they’ve got four super funds with oth­er past employ­ers, maybe their cur­rent employ­er and their past employ­er, and let’s say they have, I won’t even know how much they have in those funds, but gen­er­al­ly if you’re run­ning a self-man­aged super fund, it’s going to cost you sort of around about $4,000 a year to run the fund. And that’s in terms of the reg­u­la­to­ry costs of get­ting tax returns done, and a Super­fund also has to be audit­ed where they check for com­pli­ance with rules and trust the oblig­a­tions and things like that. So, it’s a lit­tle bit more expen­sive than get­ting your own tax return done by an accoun­tant but s not over­ly expen­sive. Okay. So, it costs four grand per fund to do that. If you have four funds, it could poten­tial­ly be cost­ing you 16 grand where­as if you had the one SMSF that com­bined all those four funds, or even if you just roll every­one’s super fund up into one man­aged by one of the employ­ers, you’re sav­ing mon­ey.

Some peo­ple have super funds which have less than 4,000 in them, and often­times when they get that low, they get charged a per­cent­age like 1% or what­ev­er, but you’re still pay­ing a large amount of your mon­ey that’s lying there in the admin­is­tra­tion costs. And anoth­er point to that is if your super fund is some­thing like say $50,000 and that’s with an ex-employ­er, and you’ve got 50,000 in a cou­ple of oth­er ones, the $4,000 that they might be tak­ing out in fees, and I’m not say­ing they do because they do it cheap­er prob­a­bly than more than I can do it but they’re tak­ing out a cou­ple of grand that may be halv­ing your growth in the fold­er or even worse than that. So, you they’ve put your mon­ey into say an index fund and get­ting 10%, which is actu­al­ly quite rare for a Super­fund to do, they usu­al­ly spread it across all sorts of dif­fer­ent assets, and you’re lucky to get 7 or 8%. And then they’re spend­ing three or four grand of that 50 grand a year on the cost of run­ning the fund and you’re mak­ing that kind of mon­ey from just invest­ing it with their bal­anced fund, you’re actu­al­ly stand­ing still, and your growth in those small funds you might have with oth­er peo­ple is being eat­en up in fees. And the oth­er thing to watch out for is if you have insur­ance in the fund now, super funds, often would give you a good deal on insur­ance in terms of its cheap­er pol­i­cy than you can pay out­side of the fund if you went off and did it your­self with an insur­ance com­pa­ny as almost like a mar­ket­ing tool. But again, your pol­i­cy costs on a small fund could still be run­ning into the thou­sands and eat­ing up the growth in the fund.

And some­times that can mean the fund goes neg­a­tive. If it’s a small amount you’ve got invest­ed in that. So, the first thing I’d be ask­ing Gary to there was a play out some old super­an­nu­a­tion state­ments and check that that’s not hap­pen­ing, and if it is to very quick­ly either con­sol­i­date all his funds in the one fund, either with an employ­er or as he’s sug­gest­ing in an SMSF. So that’s just a sort of a nut­shell of some of the traps that peo­ple can fall into a super­fund. And it hap­pened with my wife, Jen­ny. She worked with a pre­vi­ous employ­er for about 18 months before she left and we pulled out the super just recent­ly to roll over into our SMSF and she actu­al­ly went back­wards because the insur­ance she had through that fund was greater than the amount they fund­ed it that year.

Cameron Reil­ly [44:05]: [Laughs] Hold on.

Tony Kynas­ton [44:06]: That’s some­one who’s worked in the finan­cial indus­try all their life.

Cameron Reil­ly [44:08]: And worked for a super­an­nu­a­tion com­pa­ny at the time.

Tony Kynas­ton [44:13]: Cor­rect.

 [44:13]: [Laugh­ter].

Tony Kynas­ton [44:13]: Yeah.

 [44:16]: [Laugh­ter].

Tony Kynas­ton [44:16]: So that’s the first thing, and then on the sub­ject of insur­ance, which is often sold by super funds as a rea­son to have one par­tic­u­lar fun­der or anoth­er. I don’t know Gary’s age or his sit­u­a­tion, the way I approached insur­ance was to look at what I need­ed the mon­ey for, not just to have an amount of mon­ey that my wife and fam­i­ly got if I died, but what we decid­ed to do was I insured my wife and she ensured me for an amount that would allow us to put the mon­ey into a rel­a­tive­ly pas­sive invest­ment like an ETF, and then use the div­i­dends to pay for what­ev­er extra help we need­ed to bring up our daugh­ter. And it’s only been in the last sort of 12 months or so that that she’s now at uni­ver­si­ty that we haven’t need­ed that kind of mon­ey that we’ve been exit­ing our insur­ance poli­cies. So, there’s no real rea­son for us to have an insur­ance pol­i­cy.

So that would be anoth­er thing I’d ask Gary to have a look at not so much whether he needs insur­ance, but we’ll have a look at a sit­u­a­tion to decide if he needs insur­ance and what the objec­tive of that insur­ance is. It might be that the objec­tive is that to get a lump sum to pay down the mort­gage for the oth­er spouse or it might be that it becomes a pas­sive income for the oth­er spouse if you’re not work­ing. But it sounds like they’re both work­ing. So, depend­ing on what they need the mon­ey for that deter­mines how much insur­ance you need. And then don’t get nec­es­sar­i­ly sucked into keep­ing your mon­ey in one par­tic­u­lar super­fund or anoth­er because they tell you you’re pay­ing less than pre­mi­ums, and if you went out and got your own insur­ance pol­i­cy because you might be giv­ing up a lot more in terms of the admin­is­tra­tion costs on those funds than you could do by doing it your­self.

And third­ly, insur­ance, at least part­ly is tax deductible inside super two, but the super­an­nu­a­tion tax rates are much low­er than the top mar­gin­al rate so you’re get­ting less ben­e­fit from hav­ing one com­po­nent of life insur­ance and your super­an­nu­a­tion fund. And that’s the inca­pac­i­ty insur­ance. So, it’s the insur­ance they pay out if for some rea­son you can’t work for a long peri­od of time, like you’ve been dis­abled, or you’ve got can­cer or some­thing like that. They will give you a cer­tain per­cent­age of your reg­u­lar salary. That some­times is called work­ers con­ti­nu­ity insur­ance or dis­able­ment insur­ance. That’s actu­al­ly tax deductible, yeah and it’s often part of a life insur­ance pol­i­cy. So some­times, again, if you take into account the after-tax costs of insur­ance, and life insur­ance and dis­abil­i­ty insur­ances, it’s actu­al­ly cheap­er to have it out of the fund rather than inside the super­fund, and so you’re negat­ing the ben­e­fits of hav­ing all those super funds with insur­ance run­ning.

So, the oth­er things I’d look at in terms of set­ting up your own fund, an accoun­tant will give you a big fold­er, which has all you need to know to set up the fund, and gen­er­al­ly, that’s a trust deed which will be just legal boil­er­plate, and the same trustee is vir­tu­al­ly in effect for all SMSF. And I’ll give you the infor­ma­tion you’ll need to open a bank account because your SMSF will be a sep­a­rate bank account and then some­times they also give you the infor­ma­tion to take to your stock­bro­ker because we’re invest­ing in the stock mar­ket. You’ll need to go to the stock bro­ker and ask for a sep­a­rate account to be set up for the SMSF.

And then last­ly, and this is a ques­tion for your accoun­tant, they may also sug­gest you have what’s called a cor­po­rate trustee. So, in the past, I’ve had both you can act as a trustee your­self, and I now have a cor­po­rate trustee. And the cor­po­rate trustee has become a thing in the last sort of five to 10 years as just anoth­er added lay­er of pro­tec­tion of your assets. So, par­tic­u­lar­ly if you’re being sued or if there’s a bit of divorce or some­thing like that the assets are con­tained with­in a cor­po­rate trustee envi­ron­ment rather than being you as the trustee which has slight­ly dif­fer­ent legal ram­i­fi­ca­tions but that might also be some­thing you want to look at, and if you don’t have a spare com­pa­ny lying around, which most peo­ple don’t, there’ll be a small cost at set­ting up a cor­po­rate trustee com­pa­ny like a shelf com­pa­ny and then you have to do an ICQ return for that every year which costs about $475, some­thing like that, each year to do that. So, your run­ning costs are going to be between four and $5,000 a year. So, I would­n’t open up an SMSF if I only had sort of 30 or $40,000 but if you’ve got hun­dreds of 1000s of dol­lars, and it’s cer­tain­ly worth­while I think you’ll save mon­ey on per­haps where you are at the moment.

Cameron Reil­ly [49:06]: Oh, nice long answer. I have my air con­di­tion­er run­ning in the back­ground.

[49:10]: [Laughs].

Cameron Reil­ly [49:12]: 10 min­utes. That’s great.

Tony Kynas­ton [49:13]:  Yeah good. Thank you.

Cameron Reil­ly [49:14]:   Thank you Gary.

Tony Kynas­ton [49:17]:  One of my agents ask me one of my pets peeves the way peo­ple.

Cameron Reil­ly [49:20]:   Yeah.

Tony Kynas­ton [49:21]:  They can be they can be tak­en advan­tage of by the funds man­age­ment indus­try when the indus­try sup­posed to be work­ing in their favour.

Cameron Reil­ly [49:27]:   Cow­boys and sharks’ man, cow­boys in sharks. Thank you, Gary. By the way, as you already know, not advice. Please don’t take any­thing Tony told you as finan­cial advice, but stuff to think about that you might want to talk to your finan­cial advi­sor or your accoun­tant about. Here’s one for Gary, again, the same Gary I think I’m won­der­ing if you use the DRP on the shares you buy or divs used for oth­er things like day to day liv­ing, oth­er invest­ment, pay­ing back lever­age etc. Does using the DRP on an invest­ment make a dif­fer­ence if you have a small amount invest­ed into a larg­er amount i.e., 10,000, 100,000 or a mil­lion. Thanks, Gary, I don’t know what the Demo­c­ra­t­ic Repub­lic of Pak­istan has to do with your invest­ing Gary. I’m not sure that would be either sov­er­eign risk. I think there Tony.

Tony Kynas­ton [50:20]:  The DRPK. Yeah, no. DRP stands for div­i­dend rein­vest­ment plan.

Cameron Reil­ly [50:25]:   Oh, I see.

Tony Kynas­ton [50:27]:  We’ve spo­ken about this in the past. So, if you get a div­i­dend from a com­pa­ny and the com­pa­ny runs a plan, you can elect to have that rein­vest­ed back into the com­pa­ny rather than paid out to you as cash. And the things to look out for first of all, is how much the dis­count that’s on offer for you to do that and a lot of com­pa­nies will do it at a dis­count, usu­al­ly it’s only sort of two to 3%, but it still adds up. And even if you don’t get a dis­count, it’s still worth con­sid­er­ing because you’re sav­ing on bro­ker­age if you were to put that mon­ey to use buy­ing some­thing else. So, there is a kind of slight ben­e­fit in that but yeah, as I said before on the pod­cast series, I don’t gen­er­al­ly take up the DRP because I do use the mon­ey to pay down lever­age as Gary sug­gest­ed. So, we have a mort­gage and the div­i­dends go to pay down that mort­gage but above and beyond that, you need to take into account your tax posi­tion. So, any div­i­dend that’s paid, whether it’s tak­en as cash or rein­vest­ed, is also taxed and so if you get say, $100 as a div­i­dend and you rein­vest $100 back into the com­pa­ny maybe they offer a dis­count, so maybe get­ting $102 worth of stock for that $100 invest­ed. You’ll still get hit by the tax­man at the end for $47.50 if you’re on the top mar­gin­al rate for that div­i­dend, so it depends whether it is SMS cheap­er but if it’s in your own name, and you’re on a top mar­gin­al rate, you’re pay­ing tax. If you don’t have the cash because you’ve rein­vest­ed the div­i­dend back into stock, you still have to find it from some­where else to pay the tax. So, think about that but also some com­pa­nies will allow you to do a par­tial rein­vest­ment and some peo­ple will rein­vest or save the tax and take it as cash and then rein­vest the rest back into the com­pa­ny. So, they are things to look out for, but gen­er­al­ly I don’t do it because I need the cash to pay off our mort­gage inter­est.

Cameron Reil­ly [52:30]: And then noth­ing to do with Pak­istan is that what you’re telling me.

Tony Kynas­ton [52:34]:   Cor­rect, yeah.

Cameron Reil­ly [52:34]:   Right, okay. Thank you, Tony. Thank you, Gary tk. This one’s from Trent. If TK was invest­ing in three QAV stocks today, what would he be going for if he did­n’t have to wor­ry about large trad­ing vol­umes? I under­stand these are not rec­om­men­da­tions and we’ll do my own research. Cheers, Trent. Just be the top three on the buy list would­n’t its Tony.

Tony Kynas­ton [52:58]:    It would exact­ly, yep.

Cameron Reil­ly [53:00]:  Which are as of the last sheet, you sent me Hawthorne resources, Grange resources and Eclipse group.

Tony Kynas­ton [53:10]:  Cor­rect, and just for full dis­clo­sure, I own shares in Eclipse group, which has done well for me, it’s gone from about $1.22 to 1.80 this year. So that’s pret­ty good. And again, those top stocks on the buy­er list by now are also trad­ing at one and a half times oper­at­ing cash flow. So that’s such a cheap way of buy­ing cash for a busi­ness which is mak­ing mon­ey. It’s been around for a long time. It’s going through a bit of a turn­around at the moment because they had branched out into oth­er busi­ness­es look­ing for growth and then they’ve sort of stum­bled at hav­ing too much com­plex­i­ty and then the new CEO came in and start­ed to sell off those com­pa­nies, which is one of the rea­sons why it’s going up. But, also, I’ve for­got­ten the chaps name, and I apol­o­gize but we had one of the fund man­agers on a cou­ple of weeks ago who talked about these kinds of leas­ing com­pa­nies and finance com­pa­nies. And he said, quite right­ly, that dur­ing COVID, nobody was turn­ing over their leas­es so com­pa­nies like Eclipse pro­vide financ­ing for vehi­cle leas­es, among oth­er things and those leas­es were being extend­ed rather than new cars being bought and it had slowed down the whole indus­try dur­ing COVID. But we would expect that to change going for­ward as the econ­o­my opens up, and I think Eclipse has got plen­ty of upside in it.

Cameron Reil­ly [54:45]:  Well, we have all three of those stocks in the QAV port­fo­lio. I just want to point out already, and Grange resources is also 1.58 price to oper­at­ing cash flow so round about the same so two of them trad­ing one and a half times, hmm.

Tony Kynas­ton [55:03]:  Hmm, it’s very cheap, isn’t it?

Cameron Reil­ly [55:04]: It is cheap.

Tony Kynas­ton [55:06]: Yeah. I mean these also have good qual­i­ty scores as well so they’re good com­pa­nies but would there be any busi­ness, you could walk down the street and turn down that was offered to you at 1.5 times oper­at­ing cash flow?

Cameron Reil­ly [55:20]:   Yeah, I mean out­side of out­side of some secrets that they might be hold­ing on to that would be a real­ly easy buy right.

Tony Kynas­ton [55:33]:  Yeah, and we can see from the share mar­ket that this pos­i­tive sen­ti­ment so being bought by oth­er peo­ple as well so we can take some kind of com­fort that oth­er peo­ple can see that it’s a sen­si­ble buy but yeah, I’m bowled over that these com­pa­nies are so cheap.

Cameron Reil­ly [55:49]:  Hmm, why do you think that is? Let’s gets back to that quote from Green­wald that I read out ear­li­er on right. Peo­ple’s atten­tion is going to more glam­orous things.

Tony Kynas­ton [56:03]:  Yeah.

Cameron Reil­ly [56:04]:   In the banks. As you said, some of these busi­ness­es are a lit­tle bit bor­ing. By the way. I’ve been mean­ing to tell you this. We were doing an inter­view last week, I think it might have been Andrew Page at Straw Man, and he and I were on the call and he came in a cou­ple of min­utes lat­er, while I was in the process of say­ing that your approach to invest­ing is very bor­ing, in that we look at bor­ing com­pa­nies, and you just came in at the last bit where I said, yeah, Tony’s very bor­ing and then I went oh, hi, Tony. I for­got to men­tion to you, that’s what it was, that I was­n’t talk­ing about you and your per­son­al­i­ty.

Tony Kynas­ton [56:45]:  Oh okay.

Cameron Reil­ly [56:45]:   Your approach to invest­ing, you’re very con­ser­v­a­tive and we look at bor­ing com­pa­nies, right, that just gen­er­ate a lot of cash and we can get them at a good price.

Tony Kynas­ton [56:55]:  Thank you for that but I haven’t thought about it.

56:58 [Laugh­ter].

Cameron Reil­ly [56:58]:  It’s been bug­ging me. I’ve been mean­ing to point that out to you.

Tony Kynas­ton [57:04]:  Okay.

Cameron Reil­ly [57:05]: Thank you Trent for your ques­tions. Shawn, “What’s your gen­er­al opin­ion of AGM vot­ing rights? I’ve ignored the proxy options giv­en to me so far, but won­der­ing how you guys approach your vot­ing option? And you’ve talked about this recent­ly.

Tony Kynas­ton [57:17]:  Hmm, yeah, I rarely vote and if I don’t like the com­pa­ny, I sell the shares, which I’ve real­ly done as well, quite frankly so yeah.

Cameron Reil­ly [57:25]:   You’re like the typ­i­cal Amer­i­can, you real­ly vote unless you absolute­ly have to.

Tony Kynas­ton [57:33]:  Yeah, and if I don’t like it, I move.

Cameron Reil­ly [57:36]:   Well, no, don’t do that.

Tony Kynas­ton [57:38]:   No, I think Stephen Mane rais­es good points about this and maybe some peo­ple do deserve and a bit of a slap on the knuck­les for all the cap­i­tal rat­ings they’ve done which dilute retail share­hold­ers and we’re going through one of those, I think it was AMI Resources, which we spoke about last week sor­ry Aure­lia Met­als and that’s a valid point. And there are some peo­ple out there who think that com­pa­nies aren’t doing enough on their ESG and so that’s a valid point. And there are peo­ple out there who think that CEOs get paid too much, and they can have a chance to vote and express their opin­ion on that but all those things rarely inter­est me. I’m there to make mon­ey, and if I can’t make mon­ey, I’ll sell the stock and go some­where else and that’s a sweep­ing gen­er­al­iza­tion and I know that the ASA does a lot of good work in terms of mak­ing rec­om­men­da­tions on where to vote.

So, if Shawn wants to look at how to vote and takes an inter­est, that’s fine and the ASA is a good place to start because they have good rec­om­men­da­tions on how they pro­pose vot­ing, and they do lots of research on that and I think it’s a great part of cor­po­rate democ­ra­cy if you like that we get to vote at AGM’s on all these things, but I think the large num­ber of them are the same things, re-elect some direc­tors, approve the pay for the CEO. Occa­sion­al­ly, some­thing big comes along like approve a takeover or some­thing sim­i­lar or approve a large cap­i­tal invest­ment, for exam­ple, a refi­nanc­ing deal and yeah, I may vote in those sit­u­a­tions, but I can’t recall the last time I did.

Cameron Reil­ly [59:35]:  Then you have the news Corp AGM which I believe went for 20 min­utes last week.

[59:39] [Laughs].

Cameron Reil­ly [59:39]:  And it was just con­sist­ed of Rupert talk­ing about how seri­ous­ly they take cli­mate change.

[59:46]: [Laughs].

Cameron Reil­ly [59:49]: 

Well, I hope his edi­tors are lis­ten­ing around the world because I don’t take it very seri­ous­ly.

Tony Kynas­ton [59:52]:  They take it very seri­ous­ly but even the oth­er way.

Cameron Reil­ly [59:56]: Oh, I’m sure they under­stand the Rupert nod and wink.

Tony Kynas­ton [59:59]: Yeah exact­ly.

Cameron Reil­ly [59:59]: They would­n’t have the job if they did­n’t under­stand that sure we take it seri­ous­ly next.

Tony Kynas­ton [1:00:05]:  Yeah.

 Cameron Reil­ly [1:00:05]: Thank you, Shawn. Jamie, hi Cam, this one might not be in entire­ly in Tony’s cir­cle of com­pe­tence but I’d like to under­stand the blan­ket sell guid­ance for qual­i­fied audit reports. Not all qual­i­fi­ca­tions are cre­at­ed equal­ly, there are adverse opin­ions, the worst lim­i­ta­tions on scope can be for very good rea­sons, empha­sis of mat­ter, essen­tial­ly high­light­ing already dis­closed mat­ters but it takes a trained eye to know what’s what maybe that’s why it’s eas­i­er to just sell.

Tony Kynas­ton [1:00:39]: True but the qual­i­fied audit the one that I mean when I say qual­i­fied audit is usu­al­ly word­ing to the effect that the audi­tors, they usu­al­ly say some­thing like, there’s a mate­r­i­al con­cern that the busi­ness may not be ongo­ing or words to that effect, which is the most seri­ous one. So, they’re the ones I’m look­ing for when I say qual­i­fied audit but the fact that the audi­tors have raised the fact that the busi­ness may not be a going con­cern before they con­duct an audit. And again, man­age­ment will often dis­pute that. Some­times they put out press releas­es at the same time say­ing here’s why we think they’re wrong. At the AGM, they’ll often come out and say we’ve addressed the con­cerns and it’s all fixed but on the bal­ance of prob­a­bil­i­ties, the com­pa­nies that have a qual­i­fied audit of that kind of mate­r­i­al and going con­cern nature either don’t make it or the share price suf­fers detri­men­tal­ly.

Cameron Reil­ly [1:01:41]: And so there might be qual­i­fied audits that rel­a­tive­ly benign and you would­n’t sell.

Tony Kynas­ton [1:00:05]: No, I take the point that Jamie’s made. It can be split­ting hairs and so I would­n’t take the risk if it’s qual­i­fied, it’s qual­i­fied then I would sell. And I guess, to that point you just made, I’m think­ing of Z‑implats, which there was all that mat­ters raised about the car­ry­ing val­ues of assets on the books and they did­n’t use the form of words that would there­fore impede the going con­cern nature of the com­pa­ny but we did see the share price come off because of that sort of cloud over the com­pa­ny so it was a good enough rea­son to sell, I think. So, Jamie’s right. Things have to be real­ly bad if an audi­tor for a com­pa­ny rais­es an issue like that because turn the sit­u­a­tion around, you’re in the busi­ness of doing audits, and you want to keep doing audits and one of your cus­tomers, you may have done audits for the last five to 10 years, sud­den­ly you just can’t stand it any­more.

1:02:50 [Laugh­ter].

Tony Kynas­ton [1:02:32]: Skat­ed close to the wind, you’ve tak­en the mon­ey every year, you’ve been con­vinced by them that it should­n’t be qual­i­fied audit and you’re just gone no, I have to qual­i­fy this. You won’t be able to go for­ward so it’s pret­ty bad.

1:03:04 [Laugh­ter].

 Cameron Reil­ly [1:03:08]: So basi­cal­ly, say­ing that makes him a bit of a bun­ny boil­er. It’s just too hard. You don’t want to.

Tony Kynas­ton [1:03:15]: Yeah.

Cameron 1:03:16]: You don’t want to get in. By the way, we sold Zim in late May at $9 65.

Tony Kynas­ton [1:03:26]: Hmm, mm.

Cameron Reil­ly [1:03:05]:  We’re cur­rent­ly $11.36 so.

Tony Kynas­ton [1:03:29]:   Quite an exten­sion.

1:03:30 [Laugh­ter].

Cameron Reil­ly [1:03:33]:  Audit Smawdit, there you get it.

Tony Kynas­ton [1:03:35]: Okay. Yeah, like I said, it’s a bal­ance of prob­a­bil­i­ties that hap­pen and anoth­er one I’m think­ing of is what’s it called now the cred­it com­pa­ny. I’ve for­got­ten prime, I think it’s called prime, let me have a look quick­ly if I can find it. Prime Finan­cial Group [PFG] again, they did­n’t have an audit say­ing that they may have prob­lems as a going con­cern. They have one again, about the car­ry­ing val­ues that they held their debt ledges on their books for, and the reverse has hap­pened with them. They’ve dropped from Sep­tem­ber 17 at a high of 21 cents down to nine and a half cents today. So, it’s a bal­ance of prob­a­bil­i­ties thing if Zim­plats has come good, I’ll go back and have a look at their audit. I think for me, the last time I had looked at Zim­plats, there was still some men­tion of the car­ry­ing val­ue issue and the cur­ren­cy issue that went with that on their audit state­ment but per­haps peo­ple have tak­en the view that’s not mate­r­i­al but any­way, I’ll wait for it to be cleared up. I mean if it con­tin­ues to be on the audit books or any audit report, I’d still feel uncom­fort­able own­ing it.

 Cameron Reil­ly [1:04:57]: Yeah, I mean like peo­ple invest in things that we’re uncom­fort­able in invest­ing in all the time, right so part of your sort of process is to min­i­mize the risk and by what look like pret­ty safe bets. You’re going to get some wrong to along the way but basi­cal­ly, it’s buy­ing safe bets, under­val­ued com­pa­nies that seem to be per­form­ing well and get­ting rid of any along the way that seem to hit snags.

Tony Kynas­ton [1:05:29]:  Cor­rect, yea heat chop­ping water.

Cameron Reil­ly [1:05:32]: Yeah, bun­ny boil­ers.

Tony Kynas­ton [1:05:33]: Hmm, mm [Inaudi­ble 1:03:33].

Cameron Reil­ly [1:05:34]: They may look excit­ing but you come home one day, and you find that she’s let her­self into your apart­ment and sliced up all of your bed linen and your suits with the carv­ing knife while you’re out because she found anoth­er girl’s ear­ring on the floor in the bed.

1:05:55 [Laugh­ter].

Cameron Reil­ly [1:05:56]: It does­n’t mat­ter that she left you.

Tony Kynas­ton [1:05:57]: Hypo­thet­i­cal­ly.

Cameron Reil­ly [1:05:58]:  A week ear­li­er ran off with anoth­er guy that she met it in AA meet­ing. You went out and jump straight back on the horse. You’re like were like the fact she went out the same night to the local bar, picked up a nurse took him back home. That’s beside the point. She still feels slight­ed. I don’t know this sto­ry. I’m just mak­ing this sto­ry up. It’s not I don’t know where I’m get­ting it from. [Laughs].

Tony Kynas­ton [1:06:23]:  You dropped out there for a minute. It sounds like you went to a bar and picked up a whore. Is it a horse or a whore, get back on the horse?

1:06:31 [Laugh­ter].

Cameron Reil­ly [1:06:33]:  Back on the nurse.

Tony Kynas­ton [1:06:34]: Back on the nurse okay.

Cameron Reil­ly [1:06:35]: Yeah.

Tony Kynas­ton [1:06:36]: Some­thing says you do.

Cameron Reil­ly [1:06:38]: What makes you think it was me? Hypo­thet­i­cal­ly, a friend of mine that may have hap­pened to.

Tony Kynas­ton [1:06:44]: Yeah.

Cameron Reil­ly [1:06:45]: 20 years ago.

Tony Kynas­ton [1:06:48]:  Get­ting back the shares. I’m just look­ing at Zim­plants, when did we sell it?

 Cameron Reil­ly [1:06:51]: 25th of May.

Tony Kynas­ton [1:06:54]: Right. Yeah, it went down from there did­n’t and it went right down to 8.99.

 Cameron Reil­ly [1:07:01]: Yeah. [Cross-talk­ing 1:07:02].

Tony Kynas­ton [1:07:02]:  I’m going to go back and have a look at its annu­al report and just have a look yep.

Cameron Reil­ly [1:07:08]: Last ques­tion, this is from Elma over in WA, not huge impor­tance, but I’d like to under­stand regres­sion test­ing how it’s done? What do you need and just where would you find any kiss­ing data?

Tony Kynas­ton [1:07:20]:  Is that miss­ing data?

Cameron Reil­ly [1:07:21]:  No, I think kiss­ing data is what he meant. He wants data on kiss­ing.

Tony Kynas­ton [1:07:25]:  Let’s start with you.

1:07:27 [Laugh­ter].

Tony Kynas­ton [1:07:28]:  Tell us about 20 years ago.

 Cameron Reil­ly [1:07:30]: He’s hav­ing a slow patch over in WA Elma. Lis­ten kiss him data.

Tony Kynas­ton [1:07:34]: [Laugh­ter] oh dear. Yeah, so I mean the first point that I’d like to make is that I use the term regres­sion test­ing, but it’s not in any way sort of for­mal­ly, sta­tis­ti­cal analy­sis, I don’t use SAS or any oth­er tools to look at coef­fi­cients and ask what it means and all that kind of stuff so a sta­tis­ti­cian lis­ten­ing to what I’m going to say would scoff and say that’s not regres­sion test­ing, and they right, it’s not regres­sion test­ing. What I’m doing is test­ing hypoth­e­sis. And so typ­i­cal­ly what I do is if I have a thought that maybe I should be chang­ing some­thing in the check­list, I’ll go back and have a look at as many years’ worth of data as I have in my old spread­sheets and I’ll see if I can use that data to alter some­thing. And the exam­ple that springs to mind was  whether 20 stocks was too many to hold, and whether I should be hold­ing two or three because after I did some K analy­sis, it came out at two stocks, I think from mem­o­ry sell­ing  back and I still had all the QAV scores from the last five years, which I think I post­ed on at some stage in the Face­book group or maybe you send it out, but any­way and instead of buy­ing the port­fo­lio I had, I bought a port­fo­lio of a cou­ple of stocks and just saw how that would have gone now. 

That gave me a sim­i­lar result. So, it did­n’t sort of strike my fan­cy as being some­thing worth going fur­ther into the inves­ti­ga­tion but that’s what I mean by test­ing. The sta­tis­ti­cian will look at that and say well it’s only one exam­ple over one time peri­od and you could have a dif­fer­ent result if you use dif­fer­ent data in dif­fer­ent time peri­ods, and they’re absolute­ly right, but it’s enough. For me, I’m look­ing for the smell test. It’s enough for me to say that in that par­tic­u­lar case, the last five years; there was­n’t much dif­fer­ence in doing it one way or the oth­er so I’m not going to make a change. That’s how I gen­er­al­ly approach it. I have writ­ten off the stock doc­tor, haven’t had the reply yet to see if we can some­how get access to the past data in detail because even though you can see things like past PE ratios, past oper­at­ing cash flow num­bers, we can’t query on that so I’m hop­ing that with a bit of nego­ti­at­ing with stock doc­tor, we can get access to that data, which would be a great data set to use to do this kind of test­ing on. Then the last thing that I do is, and I can use stock doc­tor for this is if I don’t have access to enough pri­or data and I want to test some­thing, I’ll run a fil­ter in stock doc­tor and drop it into their port­fo­lio prod­uct or the port­fo­lio. What’s it called the fea­ture they have which we actu­al­ly cre­ate dif­fer­ent port­fo­lios and then I’ll just come back and look at it after six months or 12 months and see if it has had a bet­ter run than what I’ve been doing with my nor­mal invest­ments.

So it’s real­ly a sci­en­tif­ic method, I guess it’s like, I’ve got a thought, it’s a hypoth­e­sis and I’ll set up a tri­al to test that hypoth­e­sis and I’ll use the old odds and I’ll use my own port­fo­lio as the counter points to those as the con­trol groups, and I’ll see whether I did bet­ter or worse, and if I did bet­ter, I’ll think about what that means and I will start to think about, did I do bet­ter in that case just because the mar­ket was bet­ter for those par­tic­u­lar stocks at that time, like maybe they were resource stocks or maybe they were growth stocks. And I’ll think of fur­ther about oth­er tests I might be able to run but often­times that I just run into dead ends and don’t change the check­list. And an exam­ple of that was last year, we talked about using oper­at­ing cash flows to price ratios of over 100 to see whether that was a good val­u­a­tion met­ric for growth stocks. And I just ran a sim­ple fil­ter at that prod­uct about the mid­dle of last year after those num­bers were out, and dropped it into a stock doc­tor port­fo­lio, and then looked at it for the next six and 12 months, and it was­n’t out­per­form­ing what I was doing with QAV, so I did­n’t go any fur­ther with it. So that’s a cou­ple of ways of doing it. There are some tools out there which are aren’t bad to look at, I know Yahoo Finance, for exam­ple, you can go and down­load his­tor­i­cal price data for a large num­ber of years which I’ve used in the past. But you can’t get access to much more than that but it is still help­ful if you want­ed to go back and check what hold­ing a port­fo­lio of one par­tic­u­lar type of stock or anoth­er would look like the price data is avail­able.

Yeah, so that’s pret­ty much how I do it.  I use the term regres­sion test­ing.  It’s more of a sort of a sci­en­tif­ic or qua­si sci­en­tif­ic approach to it, of set­ting up hypothe­ses and try­ing to test them.

Cameron Reil­ly [1:12:20]: Hmm, just asks your intern Elma is my answer to do it for you. That’s all you need to do. Get an intern.

1:12:25 [Laugh­ter].

Tony Kynas­ton [1:12:27]: Yeah.

Cameron Reil­ly [1:12:28]: By the way, if you want to see those spread­sheets, Tony men­tioned with his his­tor­i­cal data, just go to the Bible, TPM Bible, look up his­tor­i­cal data. It’s right down the bot­tom of the Bible page. No page num­bers on it, but right down the bot­tom, like third or fourth last page, and you’ll be able to see the link to that. Thank you, Elma, and if you still need kiss­ing data, get back to me. I’ve got some sites where I can send you.

Tony Kynas­ton [1:12:56]: [Laugh­ter].

Cameron Reil­ly [1:12:59]: Here’s a lit­tle bit of kiss­ing.

1:13:01: [Laugh­ter].

 Cameron Reil­ly [1:13:05]:  Final­ly, Ozbiz, you’re going on Ozbiz Tony. They final­ly have real­ized that you’re the man, and they’ve invit­ed you to come on.

Tony Kynas­ton [1:13:17]: They have yes, yeah.

 Cameron Reil­ly [1:13:19]: So that’s excit­ing. So that was nice of Andrew page from Straw Man after we inter­viewed him last week. He said, hey, would Tony like to go on Ozbiz? That’s for those of you who don’t know, I think its Koshy’s busi­ness and a finance, TV/ web show. I think it’s on Chan­nel 7, as well as he does it online. So, Andrew broke it in intro­duc­tion. And they said, “Yeah, we’d love to have Tony on, set it up.” And then of course, we were intro­duced to Andrew by Phil Mus­cate­lo. So, I want to thank both Andrew and Phil Mus­cate­lo, who’s been very gen­er­ous in send­ing great guests our way. So, I know he’s a lis­ten­er. Thank you, Phil, I appre­ci­ate all of your gen­eros­i­ty in hav­ing Tony on your shows and send­ing good guests our way, good intro­duc­tions. It’s been very, very nice of you.

Tony Kyanston [1:14:14]: Yeah, thanks Phil and thank you Andrew yeah, and just try­ing to work out when I can go on and they want me to talk about check­lists and nom­i­nat­ed stocks so I’ll do that.

 Cameron Reil­ly [1:14:24]:   Oh- oh, awe­some.

Tony Kynas­ton [1:14:26]: Yeah.

Cameron Reil­ly [1:14:26]:  That’s excit­ing. I told Tyler that you were doing and he’s very impressed that you’re going to be on TV, not as impressed as he would be if you had a mil­lion fol­low­ers on Insta­gram.

1:14:44 [Laugh­ter].

 Cameron Reil­ly [1:14:44]:  But.

1:14:45 [Laugh­ter].

Cameron Reil­ly [1:14:46]: He said.

Tony Kynas­ton [1:14:47]: Well.

Cameron Reil­ly [1:14:47]: He’s just said make sure you coach Tony real­ly well on what to do when he goes on like you got to coach him when he goes on. I said man, what do you think I’ve been doing for the last two years- it’s get­ting him ready for this moment.

Tony Kynas­ton [1:14:58]: [Laugh­ter]. You’re like Burgess Mered­ith.

Cameron Reil­ly [1:15:03]:  Yeah, get out there, Rock.

[1:15:05]: [Laugh­ter].

 Cameron Reil­ly [1:15:06]: Get out there Tony. You can do it. Yeah, that’s great. No, I’m sure you do a great job. That’s very excit­ing.

Tony Kynas­ton [1:15:15]:  Yeah. Thank you.

 Cameron1:15:17   Alright. Well, I think that’s it for this week. Well, con­grat­u­la­tions. I believe Alex fin­ished grad­u­at­ed Uni­ver­si­ty last week.

Tony Kynas­ton [1:15:29]: Yeah.

Cameron Reil­ly [1:15:30]: That’s excit­ing.

Tony Kynas­ton [1:15:30]:  Yeah.

 Cameron Reil­ly [1:15:31]: The bor­ders are open up so you’re going down to Cape shank for a month. That’s excit­ing.

Tony Kynas­ton [1:15:35]: Yep.

Cameron Reil­ly [1:15:37]:  Got any hors­es run­ning that we should know about?

Tony Kynas­ton [1:15:40]:  No noth­ing at the moment. It’s spring car­ni­vals com­ing to a close and oth­er than being turned out. There might be some­thing in a cou­ple of weeks, but we’ll see.

Cameron Reil­ly [1:15:48]: So that’s it. No more horse rac­ing. There are no more oppor­tu­ni­ties for me to lose any more mon­ey to share.

Tony Kynas­ton [1:15:53]: [Laugh­ter]. There will be at some stage but not in the imme­di­ate future.

 Cameron Reil­ly [1:15:58]: Wow okay.

Tony Kynas­ton [1:16:00]: Yeah.

Cameron Reil­ly [1:16:00]:  Well, there you go.

Tony Kynas­ton [1:16:02]: How’s your port­fo­lio going by the way?

Cameron Reil­ly [1:16:02]: My share port­fo­lio?

Tony Kynas­ton [1:16:07]: Yeah.

Cameron Reil­ly [1:16:08]:  Ter­ri­ble [Laugh­ter].

Tony Kynas­ton [1:16:09]:  Real­ly.

Cameron Reil­ly [1:16:10]:  Yeah, yeah.

Tony Kynas­ton [1:16:11]:  Seri­ous­ly.

Cameron Reil­ly [1:16:11]: No, well, I had to sell some stuff because I need­ed some cash actu­al­ly.

Tony Kynas­ton [1:16:14]:  Oh okay.

Cameron Reil­ly [1:16:16]:   Actu­al­ly, it’s not so bad. I got to say it’s look­ing a lot bet­ter than it did the last time I checked, things are up. Grant resources I’ve held since Sep­tem­ber, it’s still down 7%.

Tony Kynas­ton [1:16:28]: Hmm, mm.

Cameron Reil­ly [1:16:28]: Image resources I’ve also held since ear­ly Sep­tem­ber, it’s down nine and a half per­cent. But Eclipse I’ve held since late August. It’s up 26%. Cred­it Corp I’ve held since Sep­tem­ber. It’s up 30%, and CWA I have only held since late Octo­ber. It’s up 3% but yeah, I had to sell the oth­er things that I held because I need­ed the cash Tony.

Tony Kynas­ton [1:16:51]:  It hap­pens yeah.

Cameron Reil­ly [1:16:51]:  I need­ed cash.

Tony Kynas­ton [1:16:54]: Yeah.

Cameron Reil­ly [1:16:54]:  And I think I need the rest of the cash that’s in that port­fo­lio too.

1:16:57 [Laugh­ter].

Cameron Reil­ly [1:17:01]:  To pay some extreme­ly large bills that I did­n’t have the cash to pay.

Tony Kynas­ton [1:17:04]: Yeah, yeah.

Cameron Reil­ly [1:17:05]: So, I might be dump­ing all of those, at least the ones that are in the green in order to pay off some bills. I look for­ward to the day when I can leave my shares in there long term and not get faced with life threat­en­ing bills.

Tony Kynas­ton [1:17:25]: [Laugh­ter]. Okay. Oh dear. It worked for you kind of help­ing to clear all those bills for you.

 Cameron Reil­ly [1:17:31]: Yeah, maybe but look at the real. I mean, the rea­son I’ve been invest­ing over the last cou­ple of years since we’ve been doing this is real­ly to put my mon­ey where my mouth is.

Tony Kynas­ton [1:17:42]:  Right.

Cameron Reil­ly [1:17:42]: It’s the psy­cho­log­i­cal and emo­tion­al exer­cise. I mean, I always kind of knew I was going to have to pull the mon­ey back out that I did­n’t have that amount of spare cash but the psy­cho­log­i­cal exer­cise of fol­low­ing the rules for myself, throw­ing stuff in, sell­ing when I have to sell, part­ing with the mon­ey, hav­ing faith in the sys­tem, and all of that kind of stuff and yeah look it’s up. So, I can’t com­plain. It’s doing okay.

Tony Kynas­ton [1:18:06]:  Yeah good, okay, good.

Cameron Reil­ly [1:18:09]:  Good. All right, take care, well, have a love­ly week. Oh, for those we haven’t men­tioned. So, we did a cou­ple of great inter­views also last week, which haven’t come out yet. Dami­an Park­er, we did an inter­view with that’ll come out talk­ing about his sto­ry, which was great. We had the CEO of Share site on as well. That was a great inter­view. And we’ve got a cou­ple of oth­er good inter­views com­ing up, includ­ing Cameron Williams Chan­nel Nine-star sports reporter com­ing on. She’s always a hoot to chat with. So that should be fun. We’re going to talk to Cameron in a cou­ple of weeks.

Tony Kynas­ton [1:18:49]: Yep.

Cameron Reil­ly [1:18:49]: And Steven Bruce from Peren­ni­al. We’re just try­ing to work out a date with him so lots of good inter­views com­ing up over the next cou­ple of weeks as well; look­ing for­ward to those.

Tony Kynas­ton [1:19:01]:  Yeah, I agree with you. The last ones have been par­tic­u­lar­ly good.

 Cameron Reil­ly [1:19:04]: Yeah, a lot of fun.

Tony Kynas­ton [1:19:05]: Yeah.

Cameron Reil­ly [1:19:06]: Okay. Have a good one.

Tony Kynas­ton [1:19:08]:  Vio­lins boot­ing up behind me I should go.

 Cameron Reil­ly [1:19:10]:  Okay take care. Thanks. Bye.