Transcript QAV 404

Episode name: QAV 404 Club

Dura­tion: 1:19:05

Cameron Reil­ly [00:05]: Alright, well let’s get into it. Wel­come back to QAV episode 404, record­ed on the first of Feb­ru­ary 2021. You’re back in Syd­ney, TK.

Tony Kynas­ton [00:18]:  I am yep. The first day, well first work­ing day back. Got back on Fri­day night.

Cameron Reil­ly [00:23] : Am: That’s good. How is the rest of your stay in wac­ka wac­ka wac­ka?

Tony Kynas­ton [00:28]: No it was good fun. Yeah, but it just rained the whole time. 

Cameron Reil­ly [00:33]: Hot and wet, which is?

Male voice [00:36]: That’s nice if you’re with a lady, but it ain’t no good if you’re in the jun­gle.

Tony Kynas­ton [00:43]: We did­n’t play golf. So we jumped in the car and did a bit of a tour around the local coun­try­side.  Vis­it­ed the Ger­man choco­late licorice fac­to­ry and the cheese fac­to­ry. The time was cool. [cross talk­ing 00:58]

Cameron Reil­ly [01:06]: And you got back home, and every­thing was good, that house was still there? 

Tony Kynas­ton [01:09]: Yeah. All good. Good to be home. It’s wet here though. Today is falling up, but it’s still wet here too. Well nice, it’s nice to be home.

Cameron Reil­ly [01:19]: That’s good. Let’s talk about the week in the stock mar­ket, Tony. Of course, we need to start, we need to start with GameStop. Peo­ple who have nev­er heard of short­ing before. Now know every­thing about short­ing. I’m assum­ing every­one lis­ten­ing to this knows the sto­ry. But if you don’t, quite pricey, last week, a bunch of peo­ple in red col­lapse the stock mar­ket. Here in the Unit­ed States. Basi­cal­ly, there’s a sub­red­dit called Wall Street Bets. And one of the guys on the, his name is deep fuck­ing val­ue. It’s the user­name. 

Had this idea a while back. He real­ized that GameStop which is a brick-and-mor­tar retail­er of games like elec­tron­ic bou­tique here in Aus­tralia. The busi­ness has been strug­gling because peo­ple tend to buy stuff online these days. This guy real­ized some time ago that there was a bunch of hedge funds that were short­ing the hell out of this stock. And in fact, they’ve short­ed it to I think 140% of the avail­able liq­uid­i­ty of the stock. And so he and a bunch of busi­ness. And this sub­red­dit had a cou­ple of mil­lion peo­ple on it before last week. Now, last I checked, it was like 6 mil­lion peo­ple that joined this sub­red­dit. 

But he basi­cal­ly said some time ago, you know what, if we just buy all of the stock that’s out­stand­ing, we push the price up. And these guys are going to be you know, strug­gling. Obvi­ous­ly, it’s not going to go down to where they think when they sold it out with their shorts. And they’ll have to buy off of us. Which if we don’t sell will push the price up and up and up. And even­tu­al­ly, they’ll have to buy. It’s going to cost them an absolute for­tune. And this is what tran­spired. A bunch of peo­ple, mil­lions of peo­ple pun­ters on this sub­red­dit, bought GameStop. GMV is the code in the US for GameStop. 

Not the GMA and the ASX, which got a nice bike as a result by an acci­dent. A lot of peo­ple bought, and if you jump into the Red­dit forums. As I was, spend a lot of time in there last week. They just go hold the line, hold the line. Don’t sell, there were no shares to sell. And these guys had to cov­er their posi­tion.  I’ll get Tony to do a recap on short­ing. Which we’ve talked about before on the show. They had to buy the stock to cov­er the shorts that they’d sold. And the price went up and up. And last I looked at it, it gone up 19% in a cou­ple of days. It fell back a bit and then it went rebound­ed on Fri­day. 

And in order to get, this one, the hedge fund that was at the front of this Melvin cap­i­tal lost $3 bil­lion last week. Then I think they brought in some invest­ment for some oth­er bil­lion­aire hedge funds. And they lost anoth­er few bil­lion the next day when they could­n’t cov­er this. They had to sell all their oth­er posi­tions, had to liq­ui­date in order to get cash. And of course, it just meant a whole bunch of stock got dumped on the mar­ket in the US and here. And it pan­icked every­one. Is that a fair price here, of what went on, Tony?

Tony Kynas­ton [04:46]: It is yes, a fair price. But it’s worth­while dig­ging into a few of the points. Because there are a few things out there, which have been set­tled by a lot of the com­men­ta­tors, I think. But they’re worth focus­ing on. And I think you said that. Just want­ed to point out that GameStop I think owns EB Games, in Aus­tralia. 

Cameron Reil­ly [05:05]: Oh, real­ly? I did not know that. Well okay.

Tony Kynas­ton [05:09]:  Pret­ty sure I read that some­where over the week­end. That’s what it is. If peo­ple want­ed to know what the game stop shop looks like. It’s in EB games shop over here. I think in the case of the short-sell­ers. I think there may be some rules par­tic­u­lar today. Or it might be dif­fer­ent in the states. But I’ve nev­er short­ed the stock. Speak­ing from just things that I’ve read. They had to post col­lat­er­al with the peo­ple they bor­row the stock from. So just the price of short sell­ing. If I think, for exam­ple, Maya is going to go down because depart­ment stores are dinosaurs and the bricks and mor­tars. And their online pres­ence isn’t that great, which is basi­cal­ly the the­sis behind GameStop. 

Then I go into a large super fund or a large invest­ment bank. And I say can I rent some stock from you. And they do that, and they’ll rent it to me. And I imme­di­ate­ly sell it. And I hope that short peri­od of time, maybe a year, mine is worth a lot less than what it is now. And I can buy that stock back in the mar­ket and return it back to the super fund I bor­rowed it from. And stop pay­ing the rent. But the thing that did­n’t get much cov­er­age with the com­pa­ny that short­ed GameStop. Was that they had to post col­lat­er­al, with the funds, they bor­rowed the stock from. So the funds said sure we’ll rent you the stock. 

But we want to make sure that you have mon­ey to buy it back and give it back to us when, when it’s all said and done at the end of the day. So they had to post col­lat­er­al. And that’s the share price went up, they had to post more col­lat­er­al or find stock and sell it and return it. And so it was­n’t just the fact that they had to pay a lot more for this stock, they could eas­i­ly have just said, we’ll keep pay­ing the rent on the stock. And we’ll haul. Because GameStop is prob­a­bly going to come down at some stage when the Red­dit peo­ple start to sell it. And then they can close it out for a low price. 

But the prob­lem was they had to keep find­ing more and more col­lat­er­al for the invest­ment banks they bor­rowed the shares from. And that’s what real­ly sent them broke. That forced them to cov­er the short posi­tion, which also made a big loss for them. And return the shares. It was kind of a dou­ble wham­my for them. So I had­n’t heard about that ris­ing col­lat­er­al prob­lem. Before for short-sell­ers. But that just mul­ti­plies the risk that you take on when you’re short­ing a stock. If you’re forced to do that as well. I’m not sure if it’s the case in Aus­tralia, but it was­n’t the case of this com­pa­ny that was bor­row­ing stock to short GameStop. So that’s the first thing. 

The sec­ond thing, which I found inter­est­ing was that this I mean, this whole sit­u­a­tion reminds me exact­ly of the whole boil­er rooms, 20 years ago. Lead­ing up to the .com crash in par­tic­u­lar. If you pic­ture The Wolf of Wall Street, ring­ing a bell, in the morn­ing and get­ting 50 or 100 traders togeth­er, and say, right. I want you to push GameStop to every one of your clients today. We earn some, we’re going to make out like ban­dits. And then they’ll get on their phones and they ring up maybe 10 peo­ple each.  Say about 10,000, 1000 peo­ple buy­ing shares in GameStop. And then The Wolf of Wall Street sell­ing out when it ris­es. 

And that’s pret­ty much what’s hap­pen­ing with Red­dit. In fact, there are long funds that are in GameStop. So there are hedge funds that are short­ing it. But they’re also hedge funds that have been in it for a long time. And GameStop the invest­ment the­sis behind buy­ing GameStop. As it was laid out in an arti­cle, I read in the week­end was that. Yes, it was a brick-and-mor­tar retail­er. But there was an activist investor who had run an online pet food com­pa­ny suc­cess­ful­ly in the US. Who had bought enough shares in the com­pa­ny to get a board seat? And he’d writ­ten to the com­pa­ny and said, lis­ten, you idiots, I know about sell­ing online. I just bought some shares in your com­pa­ny, you bet­ter lis­ten to me, we’re going to turn this around. And it start­ed to, so the way peo­ple legit­i­mate­ly buy­ing on the rebound sto­ry. And the GameStop, includ­ing hedge funds. 

To me, if you use the Quim­baya prin­ci­ple, it’s not a long bow to sug­gest that maybe there are some hedge fund oper­a­tors in that cred­it Wall Street bub­ble. Stir­ring things up. To talk up, they’re just like there was­n’t the pump and dumps with the boil­er rooms. In the past. I’ve seen this guy or this pic­ture before. It’s just it’s got, it comes in a dif­fer­ent guy. It’s on a Red­dit sub-post, rather than tele­phones and peo­ple active­ly coor­di­nat­ing traits. But oth­er­wise, it nev­er ends well. I would­n’t want to be hold­ing GameStop or hold­ing the line for GameStop. Because I think a lot of peo­ple on the wall street bub­ble, Red­dit sub­page, you’re going to get burned. When it even­tu­al­ly col­laps­es again.

Cameron Reil­ly [10:16]: I’ve read. So one of the oth­er things that hap­pened is a lot of these peo­ple on the sub­red­dit were exe­cut­ing the trades via Robin Hood. Which has been the dar­ling of the day trad­er move­ment because they had like zero fees. They’re like super­heroes here, or that oth­er one that launched recent­ly I can’t recall. And self-wealth, and super­hero. And low fees and but then Robin Hood stopped allow­ing peo­ple to buy. And then after that, they lim­it­ed their abil­i­ty to buy I think to one or two shares. And they got a ton of crit­i­cism. A lot of peo­ple on the sub­red­dit have just said that’s it. Robin Hood is dead to us after this. Robin Hood came out and said Well, we had, they had to post col­lat­er­al as well for trades going through their plat­form.

Tony Kynas­ton [11:11]: With the Clear­ing­house. So, again, there’s a, there’s a murky side to the stock mar­ket that most peo­ple don’t real­ize. But there’s a cou­ple of maybe three or four com­pa­nies that actu­al­ly do the trade process. And even if you’re using a bro­ker, or if you’re using Robin Hood, or if using com­sec, or what­ev­er. They still have to go through a clear­ing­house. Which mar­ries up one side of the trade with the oth­er. Until then it’s all just Bits and Bytes mov­ing around the inter­net. But that’s when the rub­ber hits the road, you’ve got to have the funds to back up that buy or sell. And that’s what Robin Hood was being asked to step up more col­lat­er­al for trades in this com­pa­ny as well. And they fell short. So they had to raise mon­ey, and they raised $1 bil­lion. Which brought them to start allow­ing trades again. 

But the inter­est­ing thing about Robin Hood. Remem­ber we talked about it after we spoke to the super­hero guy here. And that was Robin Hood is mak­ing a large part. I think almost the major­i­ty of its income from front run­ning trades. So it sells the trad­ing data of its trades to hedge funds. So again not a long­bow. To see who’s ben­e­fit­ing from the Red­dit bub­ble, Red­dit, sub­red­dit, Wall Street beds bub­ble, what’s going on?

Cameron Reil­ly [12:37]: Well, the flip­side to that is that if Robin Hood makes its mon­ey out of hedge funds and users on its plat­form, a col­laps­ing hedge fund. It’s gonna want to shut that shit down, pret­ty quick­ly. The oth­er part that did­n’t get a lot of cov­er­age in this. Is the Elon Musk. The rich­est man in the world now. Start­ed telling his 42 mil­lion fol­low­ers on Twit­ter. To jump on the band­wag­on. Alleged­ly. Part of that is because Melv­in’s cap­i­tal was short­ing Tes­la. A while back. And so he was like yeah, okay. It pay­back time bitch­es. And he jumped in.

Tony Kynas­ton [13:26]: Melv­in’s cap­i­tal would have gone ter­ri­bly out of the Tes­la show, as well. 

Cameron Reil­ly [13:33]: And the oth­er sto­ry. This, it was­n’t just GameStop that the Wall Street bed sub­red­dit was talk­ing about. Was exe­cut­ing what they call short squeeze, or these call short squeeze, as I under­stand it. AMC big cin­e­ma chain in the US that was going broke. They also were plug­ging that. Because it was being short­ed as well. And I remem­ber see­ing sto­ries a cou­ple of months ago. My son hunter wants to be an actor. And he sent me a link. Some sto­ry a cou­ple of months ago say­ing AMC was going to go out of busi­ness, the biggest or one of the biggest cin­e­ma chains in the US. And talk­ing about what would that mean for the movie indus­try mov­ing for­ward. Cin­e­mas obvi­ous­ly COVID, put a big, I think 600 mil­lion in debt. COVID put a big hole in their rev­enues, and no one want­ed to bail them out. Because no one knew how long was gonna last for. Appar­ent­ly, the invest­ment bank or who­ev­er it was, that owned most of the AMC debt. Had an option where they could trade it for stock. And when the Wall Street bids peo­ple start­ed to push it up. They trad­ed that debt for stock. And so AMC is back in busi­ness because they just cleared all of their debt.

Tony Kynas­ton [14:53]: And the banks hap­py because they got mul­ti­ples on their debt repaid.

Cameron Reil­ly [14:57]: I’m not exact­ly sure how that played out. The sto­ry that I read said that the share price did­n’t cov­er that debt, that they had. But that was on the week­end. Not exact­ly sure what they, what they trad­ed it for, or what­ev­er. But any­way, yeah.

Tony Kynas­ton [15:18]: The next thing I want to men­tion too was that. Well, two more things actu­al­ly. Inter­est­ing side sto­ry. So in the States, as there are sim­i­lar reg­u­la­tions in Aus­tralia, if a com­pa­ny wants to buy back their own stock, they have to announce it to the mar­ket, but it can be fair­ly vague and wide-rang­ing. So like quan­tos, for exam­ple, came out last year and say that stocks going down we think it’s good val­ue, we’re going to buy up to let’s say $100 mil­lion worth of stock. In the next 12 months. And they can buy some or all of that. At any time with­out dis­clos­ing it to the mar­ket. Now they’ve told the mar­ket upfront, they’re doing. A sim­i­lar thing hap­pens in the US. And fun­ni­ly enough, GameStop had issued, I think it was $100 mil­lion notice ear­li­er in the year. That they may buy the stock. Oh sor­ry, they might sell new stock to the mar­ket. 

So it’s quite pos­si­ble that they had issued new stock and sold it at a very high price which is also going to help them achieve as well. In the arti­cle, I read about that. They talked about anoth­er case. Which we have spo­ken about last year, Hertz. The rental car com­pa­ny that was in admin­is­tra­tion, so it was some, it was still oper­at­ing. But run by admin­is­tra­tors, and in the courts try­ing to sort out how much the cred­i­tors would get paid. And some­thing sim­i­lar hap­pened there. Where peo­ple start­ed to buy Hertz stock. And it rose like crazy. So Hertz went to the judge of the bank­rupt­cy court and peti­tion them to allow them to sell new shares. And the judge said does it mean more mon­ey for the cred­i­tors? And they said you bet. So he said sure go ahead. So Hertz was able to sell new shares to unsus­pect­ing buy­ers, basi­cal­ly when they were in bank­rupt­cy court. Just because they could. This kind of frothy mar­ket is to me a sign that it’s 2000 all over again.

Cameron Reil­ly [17:14]: On top of Howard Marks, capit­u­la­tion. Investor Michael bur­ry, who was fea­tured in the book in the film, The Big Short. Is one of the guys that short­ed what­ev­er those weird hous­ing mort­gage stocks were. CDO’s Yeah, he tweet­ed last week around this GameStop thing. That it was the trad­ing, and it was unnat­ur­al, insane, and dan­ger­ous. And there should be legal and reg­u­la­to­ry reper­cus­sions. There’s been a lot of gnash­ing of teeth. A lot of Amer­i­can politi­cians have come out and com­men­ta­tors have come out. Mar­ket com­men­ta­tors, say­ing this is ter­ri­ble, hor­ri­ble, what these crazy Red­diters are doing. I don’t see any­thing moral­ly wrong with this. And then I saw oth­er peo­ple post­ing on Face­book over the last few days say­ing just shows you what a scam the whole thing is. I’m like, Well, hold on. This is the mar­ket, right? I mean, this is just a bunch of peo­ple, they saw an oppor­tu­ni­ty to prof­it from this and they jumped on it. Do you see any­thing moral­ly or eth­i­cal­ly devi­ous about this whole thing?

Tony Kynas­ton [18:26]: Yeah. I think it’s sell­ing pret­ty close to the wind. It’s a pump and dump oper­a­tion. Like I said, just insert Bob­by Axel­rod into the Red­dit sub­group. And he’s in there under a false name. Val­ue trad­er of the cen­tu­ry or what­ev­er. Egging them all on. Just to ben­e­fit his own book. Then once the price gets high enough, he sells. That’s a clas­sic pump and dump.

Cameron Reil­ly [18:50]: Right, but Okay, so if some­body like that is caught doing that. Then that would be ille­gal, but assum­ing that that’s not what’s hap­pen­ing for a sec­ond. And it’s just a bunch of investors who saw an oppor­tu­ni­ty to stick into a hedge fund. Noth­ing wrong with that. Sure­ly.

Tony Kynas­ton [19:06]: Yeah, like I said, it’s sell­ing close to the wind. And whether it’s a ques­tion of who start­ed and what their motives were. And whether they have prof­it­ed from the whole ven­ture and

Cameron Reil­ly [19:17]: Deep fuck­ing val­ue start­ed it and yeah, he just made $42 mil­lion out of it. [cross talk­ing 19:24]. He’s just, he’s just a punter who has an invest­ing YouTube chan­nel, he said, Hey, I reck­on we can prof­it from this every­one jumped on board.

Tony Kynas­ton [19:33]: How is that dif­fer­ent than Bob­by Axel­rod doing it? As a hedge fund man­ag­er? It’s the same thing.

Cameron Reil­ly [19:38]: Well, well, he’s not doing it secret­ly, or, you know, it’s not like he held a posi­tion and then secret­ly did­n’t tell every­one he held a posi­tion. And then pumped it to dump it. He put it on a Red­dit forum. Hey, you know what, if we all jump in and buy this thing, we can push the price up and make some mon­ey? How’s that? any dif­fer­ent from any­one say­ing buy any stock on any inter­net forum?

Tony Kynas­ton [20:03]: Yes, it’s not. But there’s been cas­es like this before, like on hot cop­per, where they’ve, in a Pen­ny Dread­ful they’ve col­lud­ed to push the price up. And as always ends in tears, because the last per­son that buys, gets stuck with the rapid in the loss. Almost like a stone. Which I think will hap­pen with GameStop, as well, by the way. So it’s dan­ger­ous. Did the deep fxxxing val­ue sell the stock? Has he actu­al­ly made $42 mil­lion, or is it just on paper?

Cameron Reil­ly [20:33]: Yeah, I don’t know. It’s all paper, as far as I know, well, he’s one of the guys telling every­one not to sell.

Tony Kynas­ton [20:36]: Well that’s dif­fer­ent then. If he sells, I think it’s a pump and dump. [cross talk­ing 20:42] But it’s a bit like us Cam. If I tell every­one of our lis­ten­ers. Hey, stock of the week is XYZ. I think you should all buy it. And I already own a posi­tion and next week because it’s thin­ly trad­ed, it goes up a lot. And I sell it. That’s ille­gal.

Cameron Reil­ly [20:55]: Yeah, but we don’t do that. 

Tony Kynas­ton [20:59]: I’ll change my name to deep fxxxing val­ue and put it on the radio. 

Cameron Reil­ly [21:07]: It’s one of the rea­sons we do your jour­nal entries. To be com­plete­ly trans­par­ent about what you’re doing. You can’t be accused of that. But yeah, but if he did do that, that would be wrong. And as I said, if peo­ple aren’t doing that, if they’re using it to prof­it ille­git­i­mate­ly. Through lack of trans­paren­cy, then they should be held account­able. But out­side of that I have I don’t see any issue with a bunch of peo­ple in a nor­mal inter­net forum jump­ing on and buy­ing stock. I mean, hedge funds got whacked, but that’s what comes with short­ing some­thing right. That’s, the fun­ny thing is I saw these com­plaints that the Red­di­tors were manip­u­lat­ing the mar­ket? I was like. What the hell do you think these short­ing hedge funds are doing?  That’s exact­ly what they try to do. They try to manip­u­late the share price down­wards. These guys are try­ing to manip­u­late it upwards. What’s the dif­fer­ence?

Tony Kynas­ton [22:01]: Yep, there is no dif­fer­ence. And the hedge funds are not the same sorts of tac­tics. All go out and pub­lish reports about how bad the accounts are, and what looks wrong in them and sus­pi­cious and how cor­rupt the man­age­ment is, and blah, blah, blah, to try and dri­ve the price down. The same thing reversed.

Cameron Reil­ly [22:19]: It’s beat­ing our port­fo­lio up this week. And there are ques­tions about well, what does this mean for the stock mar­ket in gen­er­al, if 6 mil­lion peo­ple in an inter­net forum can get in and just dri­ve stuff up and down. But I don’t know, to me, that’s just the free mar­ket man. That’s the stock mar­ket. That’s cap­i­tal­ism. If you don’t like it, let’s pull out Karl Marx. And we can have a seri­ous dis­cus­sion about the many, many forms of cap­i­tal­ism, hap­py to do that. But while we live in a cap­i­tal­ist econ­o­my, then this is cap­i­tal­ism.

Tony Kynas­ton [22:54]: Yeah. I think I won­der how many of those new addi­tions to the Red­dit sub­page are actu­al­ly wear­ing braces and smok­ing cig­ars in Wall Street? I’ve been think­ing about why they manip­u­late it to their advan­tage. For sure. 

Cameron Reil­ly [23:06]: Of course, they were. 

Tony Kynas­ton [23:09]: Yeah. So I think you’re right, this one-off cross roots, Occu­py Wall Street, thought move­ment is fine. But once it becomes a pump and dump, which you prob­a­bly which it real­ly is. That’s the end of it. The oth­er point I need­ed to make. I want­ed to make too is. That also shines a light on options we did­n’t speak about. So we talked about short­ing. But a lot of the peo­ple from what I’m read­ing about this did­n’t buy shares in GameStop, they bought call options on GameStop. Which meant that they bought the right to buy the shares at some point in the near future, at a cer­tain val­ue, and they just punt­ed that val­ue was going to be less than what the shares were worth. 

And that in a fun­ny sort of way, also drove the share price up. Because the per­son who bought the options say they bought 1000 options. Which gave them the right in a week’s time to buy GameStop at 50 bucks and the shares were at 40. Then it’s just as a way of risk mit­i­ga­tion, the per­son that sold them that option. Had to go out and buy shares at GameStop. So that if the options went above, if the share price went above $50, and the options made mon­ey, and they had to deliv­er the 50, you know the shares, the 1000 shares to this per­son at 50 bucks, they weren’t going to bleed. So they go out and buy them at 40. So they are in the mar­ket as well. Buy­ing shares to mit­i­gate the option expo­sure. 

So all these things are work­ing behind the scenes to dri­ve the price up because you haven’t just got some­one buy­ing an option on 1000 shares. You’ve got the per­son sell­ing the option buy­ing the shares, then we just got some­one short­ing. They’ve got to also find the col­lat­er­al, and then buy it back when they squeeze. So there are a lot of mov­ing parts. In this whole saga. And it reminds me of again once the retail investor starts get­ting into options and short­ing. It’s like fire­crack­er night. Which is now banned in Aus­tralia, right. Because peo­ple don’t use it. And as Buf­fett said, all these things are weapons of mass finan­cial destruc­tion. They real­ly are. You start mess­ing in options and shorts and lever­ages, CDO’s. You just blow things up. That’s where we’re head­ed. Well, we’re already.

Cameron Reil­ly [25:25]: Speak­ing about con­tin­u­ing signs of the apoc­a­lypse. Ray Dalio, not only as Howard Marks talk­ing about capit­u­la­tion. Ray Dalio has called Bit­coin one hell of an inven­tion. And con­sid­ers it for the new fund. Bridge­wa­ter Asso­ciates founder Ray Dalio said he’s con­sid­er­ing cryp­tocur­ren­cies as invest­ments for new funds. Offer­ing clients pro­tec­tion against the basis with fiat mon­ey. To have invent­ed a new type of mon­ey via a sys­tem that is pro­grammed into the com­put­er and that has worked for around 10 years and is rapid­ly gain­ing pop­u­lar­i­ty. As both a type of mon­ey and a store hold of wealth is an amaz­ing accom­plish­ment, Dalio wrote. A con­gress­man Dalio wrote in a note to clients and lat­er post­ed on Bridge­wa­ter his web­site.

There are many alter­na­tive golds like assets at this time of ris­ing need for them. What do you make about those? [cross talk­ing 26:23] His son trag­i­cal­ly passed away in a car acci­dent a few weeks ago. Maybe he’s still just in the grief process and this got him in a weak moment. But the arti­cle Bloomberg also says like oth­ers, how­ev­er, Dalio said he found it chal­leng­ing to put a val­ue on dig­i­tal assets. While Bit­coin has the poten­tial to make investors very rich. As well as dis­rupt the exist­ing mon­e­tary sys­tem there are risks. No kid­ding. He said the cryp­tocur­ren­cies are prob­a­bly vul­ner­a­ble to being hacked and sub­ject to restric­tions by gov­ern­ments that want con­trol over the mon­ey sup­ply. Which is the thing I keep point­ing out to our friend Torsten Hoff­man. Pro­duc­er, of the end of mon­ey Bit­coin doc­u­men­tary. What hap­pens, it’s beyond the reach of gov­ern­ments. Real­ly? What hap­pens when the gov­ern­ment just go no you can’t use that shit any­more? It’s ille­gal. And if you use it, we’ll put you in jail. What hap­pens then?

Tony Kynas­ton [27:21]: Well they’ll reg­u­late it. Get it tied or peg to the US dol­lar or some­thing. I don’t know if you got to go on with that Dalio arti­cle, but he did say some­where else that if you’re going to invest in Bit­coin, be pre­pared to poten­tial­ly lose 80% of your cap­i­tal.

Cameron Reil­ly [27:37]: That’s noth­ing. Yeah. It’s 80%. What’s 80% between friends, Tony?

Tony Kynas­ton [27:43]: I mean, this is, this all smells of almost group­think to some respects. So these guys are invest­ing 10s if not hun­dreds of bil­lions of dol­lars in funds. So he’s prob­a­bly dip­ping a toe in the water with a few mil­lion bucks. Which will have no effect on his port­fo­lio just because every­one else is. You know, he was there last week, and they said. Hey, have you tried this Bit­coin stuff? It’s been real­ly good in the last 12 months. So that’s all this is. I think he’s not gonna put. Well, he can’t put sig­nif­i­cant sums of mon­ey into bit­coin. Because the mar­kets aren’t that big.

Cameron Reil­ly [28:19]: Anoth­er cryp­to that my boys were talk­ing to me about last week was Doge­coin. Are you famil­iar with Doge­coin?

Tony Kynas­ton [28:27]: Nev­er heard of it. 

Cameron Reil­ly [28:30]: It was cre­at­ed in 2000.

Tony Kynas­ton [28:32]: Is there a Red­dit sub­page for it?

Cameron Reil­ly [28:35]: Of course there is. It was, it came out in 2013 as a joke. And then actu­al­ly became a real cryp­to coin, an old coin. And its share price went last week. It’s priced not the share price. Its price last week went from 2.8 cents US to 4.3 cents US. In like days, and then it came back to 3.6 and now it’s cur­rent­ly at 3.9. Hunter called me guys. I got to put all my mon­ey in Doge­coin. Both of them are call­ing up guys. Tell Tony to get in Doge. You call Tony and tell him to go into Doge. Good luck with that. Let me know what hap­pens. Sor­ry, it went as high as 8 cents last week. 8 cents from, no shit. Check this out on the 27th of Jan­u­ary. It was trad­ing at .008 dol­lars. .08 of a cent. Then it went up to eight cents and then it came back to where it is today. 3.9 cents. Yeah, I think that was anoth­er Wall Street bits one.

Tony Kynas­ton [30:08]: This just reminds me so much of the .com boom. When there was a com­pa­ny, I for­get what it was called. I think it was called some­thing like bucks. And they raised 100 mil­lion dol­lars. Its IPO said. We’re rais­ing mon­ey, we don’t have a use for it yet, the com­pa­ny does­n’t man­u­fac­ture any­thing. Does­n’t buy or sell any­thing. You know they list it, and they put .com after its name about 10 times. The week that fol­lowed. 

Cameron Reil­ly [30:35]: I’ve got this sto­ry here. Yeah. Bucks.net. In July 2012 bucks secured 125 mil­lion in a fund­ing round. This must be a dif­fer­ent one.

Tony Kynas­ton [30:49]: Not a dif­fer­ent one. What note has been called bucks, sor­ry? An Ocu­lus com­pa­ny raise mon­ey had no use for it, and they change this thing to company.com. Went up 10 times. Same thing. That’s also hap­pen­ing, it’s an inter­est­ing devel­op­ment as well. The SPAC vehi­cles are list­ing in the states. Have you heard of those? The spacs?

Cameron Reil­ly [31:16]: SPAC no. What a spac? 

Tony Kynas­ton [31:19]: Be care­ful here.

Cameron Reil­ly [31:22]: Yeah. I know where you are going.

Tony Kynas­ton [31:25]: Nev­er go full retard. Spe­cial Pur­pose Acqui­si­tion Com­pa­ny. They basi­cal­ly cash box­es that are list­ing in the states. With the rais­ing mon­ey list­ing. And they don’t have any use for the mon­ey. But the idea is that when the time is right, they’ll buy some­thing. 

Male voice 1 [31:45]: Every­body knows you nev­er go full retard. 

Male voice 2 [31:47]: What do you mean?

Male voice 1 [31:50]: Check it out, does often a man look retard­ed, act retard­ed. Not retard­ed. Cant too pic­ture your cart autis­tic ship. Not retard­ed. You know Tom Han­ks, For­rest Gump. Slow yes, retard­ed maybe, braces on his leg.  But he churns the pants off and won a ping pong com­pe­ti­tion. That ain’t retard­ed, he was a God damn war hero. You know he retired a war hero. He wasn’t a full retard man. Nev­er go full retard. You don’t buy that. That’s Sean Penn 2001, I am Sam. Remem­ber went full retard, went home emp­ty-hand­ed.

Cameron Reil­ly [32:22]: Robert Downey Jr play­ing an Aus­tralian play­ing an African Amer­i­can man. In a Ben Stiller film.

Tony Kynas­ton [32:29]: Good stuff. Yeah. So the spacs. Again this is just like it was in the .com boom. Peo­ple are rais­ing mon­ey, list­ing on the stock mar­ket with no use for that mon­ey until a spe­cial oppor­tu­ni­ty comes along. And peo­ple are hap­py to put some mon­ey in that com­pa­ny. It’s crazy. 

Cameron Reil­ly [32:47]: Yeah. Well, it’s been a crazy week, and this is on top of what we talked about last week. Which was the US mar­ket com­ing back on the face in a bub­ble. I think this week has just dri­ven that home. I want to give a shout out to Andy and the oth­er guys in Mel­bourne. On the back of your event, you did with them last month. They decid­ed to keep get­ting togeth­er and they got togeth­er last week. For Japan­ese again, for sushi, and they linked me in over zoom call. Because I felt like, they obvi­ous­ly real­ized after spend­ing a few hours with you that the real mag­ic behind the show. So they want­ed to bring me in to see if I could help them make some sense. And they asked me a cou­ple of ques­tions and I said, you need to ask Tony that. I’m not the guy to ask those ques­tions. I’m just the good look­ing one. But it’s nice, they got a lit­tle QAV club down there, now which is great. I think that’s fan­tas­tic, they are catch­ing up and going through the check­list and ana­lyz­ing stuff togeth­er and swap­ping notes, which is great.

Tony Kynas­ton [34:02]: We should just start a sub­red­dit post for them as well. 

Cameron Reil­ly [34:06]: For the stocks and the QAV port­fo­lio. Let’s talk about jour­nal entries. Entry for last week, Tony, and we can do your stock of the week, you did one entry last week. Two stocks you talked about Cog finan­cial COG came out with a prof­it upgrade recent­ly and you put it on the buy list.

Tony Kynas­ton [34:30]: Yep. That one and the oth­er one was APE. Which was kind of like stock of the week, but I had a look at it today. And I think it’s actu­al­ly a bit of an upward trad­ing site. Let me call up cog first. And I think cog may have been on our buy­er list once before. Not sure I’m just going to call up. It’s only a small stock it’s a finan­cial ser­vices com­pa­ny.

Cameron Reil­ly [34:58]: ADT 5000, I think you said.

Tony Kynas­ton [35:02]: Yes, that’s right. It’s $5,133 trad­ed every day on aver­age. Until Wall Street bits. Yeah, finance, broking aggre­ga­tor, I guess. Focused on the aggre­ga­tion of bro­ker vol­umes to encour­age prof­itabil­i­ty through scale and finance broking. Focused on motor and equip­ment finance. Under this busi­ness unit cog has estab­lished a nation­wide dis­tri­b­u­tion hub. Through its inde­pen­dent aggre­ga­tion plat­form mem­bers. And equi­ty bro­kers and as an advi­sor to the Aus­tralian small to the medi­um enter­prise sec­tor. And then there’s also a com­mer­cial equip­ment leas­ing busi­ness, and the HAL group, which pro­vides IT ser­vices. Although it’s kind of sell that unit. Yeah, so well if equip­ment leas­ing and affil­i­at­ed busi­ness­es. And just look­ing at it share chart.

Cameron Reil­ly [36:11]: Looks like it was going up until the end of the month and then it dropped back along with lots of things that dropped back at the end of last month.

Tony Kynas­ton [36:20]: So it’s actu­al­ly a bit of an upward trend. It just touched that sell line again, just above its sell line now.

Cameron Reil­ly [36:27]: So, the high point is obvi­ous sort of Jan­u­ary 2017, you’re tak­ing the end of. Would you take as the sec­ond point on this?

Tony Kynas­ton [36:41]: I’m tak­ing the, just before the COVID call, so Feb­ru­ary 20.

Cameron Reil­ly [36:47]: Right. Not the end of Jan­u­ary now?

Tony Kynas­ton [36:51]: End of Jan­u­ary, no we sim­ply walk down. Is just to put the ruler on the high point and then swing it down until it hit the next peak. And that was the Feb­ru­ary one.

Cameron Reil­ly [37:00]: Yeah. But now the end of Jan­u­ary 21 is the next peak. The last peak, it’s above that line.

Tony Kynas­ton [37:06]: It’s the last peak yeah. But the bar, I’m look­ing at occurred in. If I use that end of Feb­ru­ary 2nd Peak, then that was a buy-in Novem­ber 2020. And since then, there has­n’t been a sale. It’s for that with the sell, as it is now. Yeah. So I’m not using the right-hand peak at the moment. 

Cameron Reil­ly [37:32]: So it’s, it’s just cross­ing the sell line now. By the looks of it. I’ll put that chart up on our web­site so peo­ple can have a look at what we’re talk­ing about. Well, sor­ry Cog, your moment in the sun was all too rough, rip cog.

Tony Kynas­ton [37:50]: Well I think it’s just touch­ing the sell on it. I want to see a break­through first.

Cameron Reil­ly [37:55]: Oh okay break on through to the oth­er side. Okay,

Tony Kynas­ton [37:59]: I think it’s slight­ly above it. Not by much though. [cross talk­ing 38:07] It was the stock of the week, and even lis­ten to a fas­ci­nat­ing inter­view with the man­ag­ing direc­tor. Which was not fas­ci­nat­ing because of the indus­try. It was in which is buy­ing and sell­ing new and used cars but just is. Obvi­ous­ly, the biggest deal­er net­work in Aus­tralia. He’s quite inter­meshed with the big play­ers around the world. And he was giv­ing his views on elec­tric vehi­cles and their take-up rates and autonomous vehi­cles. And basi­cal­ly, he thinks that gov­ern­ments will man­date more and more elec­tric vehi­cles on the rise. And it will still only be sort of 30% of the pop­u­la­tion. With­in the next vehi­cle pop­u­la­tion with­in the next 10 years. But he thinks noth­ing of autonomous vehi­cles, he does­n’t think there’ll be a thing in our life­times. So that was inter­est­ing.

Cameron Reil­ly [38:56]: Real­ly. Wow, that’s a huge call. 

Tony Kynas­ton [39:00]: Yeah, he blames the fact that road net­works are gonna make it hard for any­one to do a tru­ly autonomous vehi­cle. And our road net­works are just so enmeshed in our soci­eties. That it real­ly won’t change in our life­times, was his point. So that was inter­est­ing, but the com­pa­ny suf­fered bad­ly dur­ing COVID. And last year, you may record. We talked about your lack of vehi­cle buy­ing by the pub­lic.

Cameron Reil­ly [39:32]: Don’t men­tion, no you’re not allowed. That com­pa­ny that shall not be named on this pod­cast fourth wave forever­more.

Tony Kynas­ton [39:44]: So, we were talk­ing about them and how they could­n’t sell their RVs. But then it was the same for AP’s and that crashed. But it’s been climb­ing up again steadi­ly since then. And it’s done quite well. Appar­ent­ly, in the last few months, the mar­ket for vehi­cle sales has picked up again. Which was their the­sis behind com­pa­nies like Eclipse as well. Which is on their buy list before. But I looked at AP’s again today as I was prepar­ing. And it’s real­ly one of those upwards rid­ing. As it cross­es the sell line, as well as cross­ing its buy line. At the same time. So I think I’d want to, just be a bit care­ful and look for the trained to be even more estab­lished. That is pret­ty impres­sive tran­sits since Feb­ru­ary, March last few years, sor­ry. Since the COVID cough, but it is start­ing to flat­ten off a bit in the last few months.

Cameron Reil­ly [40:35]: Let’s talk about the chart then. So it reached the high on Sep­tem­ber 19 at $14.29. Drop down in the COVID cough to $3.04. Cur­rent­ly trad­ing at 13.56. Obvi­ous­ly, that peak in Sep­tem­ber is the first high point. What’s the-sec­ond-high point, is it Novem­ber 2020? Or low­er than that? because it seems. 

Tony Kynas­ton [41:02]: I’m using Feb­ru­ary 2020. And so, I real­ly should have picked this up ear­li­er. As a buy prob­a­bly around June 2020. And they got one of those upward lines which keep test­ing its sell line. On the way up as well, so it’s been buy­ing and sell­ing all the way back up again.

Cameron Reil­ly [41:22]: So what would you use as the sec­ond low point?

Tony Kynas­ton [41:26]: At the moment I’m using Sep­tem­ber, at the moment. 

Cameron Reil­ly [41:30]: Sep­tem­ber $9.08. Yeah. Okay, why that one in par­tic­u­lar?

Tony Kynas­ton [41:38]: Again, the same thing in reverse. I’ve just tak­en a ruler to the low point and then swung it up until it’s hit the trough. And that’s that point there, in Sep­tem­ber. And you can see the cur­rent share price. When I put up the stock jour­nal last night, last week sor­ry. The share price was above that sell line, but it’s dropped a bit.

Cameron Reil­ly [41:59]: Right. Right. Okay. Well, sor­ry APE you too. Your time has passed.

Tony Kynas­ton [42:05]: So no stock of the week, except for GameStop, I guess.

Cameron Reil­ly [42:09]: Or the Aus­tralian GME. What’s the Aus­tralian GME? I’m just look­ing it up.

Tony Kynas­ton [42:19]: It’s a resource com­pa­ny.

Cameron Reil­ly [42:22]: Right. GME resources. Wow. It’s still up too. On the 31st like, well, let’s say, the 27th of Jan­u­ary it was trad­ing at 6.6 cents it’s cur­rent­ly trad­ing at eight cents.

Tony Kynas­ton [42:42]: Hold the line broth­er, hold the line.

Cameron Reil­ly [42:46]: I did read some­thing from this a year ago. Yeah, like noth­ing to do with us. Thank you, I guess, the Sul­li­van broth­ers. Peter and James Sul­li­van on there. That’s fun­ny. Their response to, the response to the ASX price query. They put out on the 29th of Jan­u­ary. It’s fun­ny. How do you respond to some­thing like this? Why is your share price going up so much recent­ly they’re going I don’t know idiots? The com­pa­ny notes recent media reports con­cern­ing trad­ing activ­i­ty in a US-list­ed tech­nol­o­gy com­pa­ny called GameStop. Which also has an exchange to decode GME, but note this com­pa­ny is not relat­ed in any way to GME resources lim­it­ed. It’s very bor­ing, they could have at least had some fun with it.

Tony Kynas­ton [43:41]: Yeah, in the arti­cle I read the guy said look we haven’t announced it in terms of min­er­al dis­cov­er­ies or what­ev­er, but we are a good com­pa­ny.

Cameron Reil­ly [43:47]: Yeah, so that sell, you’ve bought it just keep it. It’s good, we’re in val­ue. Lis­ten to QAV. We should do an analy­sis. Have you done any analy­sis on GME? Are they on the buy­er list?

Tony Kynas­ton [43:57]: No they are not on the buy­er list, haven’t looked at them.

Cameron Reil­ly [44:01]: Oh well, let’s talk about our port­fo­lio then, before we move on to ques­tions. We took a beat­ing. Last week, went down. We took more of a beat­ing than the old lords did. Why do you think that might be?

Tony Kynas­ton [44:19]: I think it’s our resources stocks. The oil price dropped to $20. So that’s a force for the skew down. And gold is still sort of around that 1800, 1850 mark. So they’ve been sort of up and down. And large­ly down I guess in the last few months. So I think resources have done, have come off the boil, I think. In what was a pret­ty inflat­ed mar­ket for any­one any­way. 

Cameron Reil­ly [44:45]: Right, CXC has come down as well. CX would no, C6C, I can nev­er say that C6C. It’s a tongue twister. See Cop­per Moun­tain has come back too. I mean we’re still 91% up from where we bought it in Octo­ber. But it was up like 120 last week, any­way yeah. And FMG is back as you said. Any­way, so we’ve, we’ve dropped back I think like last week when we record­ed. We were like 36% up, for the finan­cial year. Now we’re only 27% up, depend­ing on what you look at. Yeah, but it’s okay, we’re doing alright.

Tony Kynas­ton [45:28]: Yeah. And that’s 27% up for QAV and 12% up for the O lords.

Cameron Reil­ly [45:34]: Yeah, well that fig­ure, you’re look­ing at, it’s not the total return. But I haven’t, I got to do the end of month total return. I for­got to do that this morn­ing. I’ll do that and we can report on it lat­er.

Tony Kynas­ton [45:46]: But even so, it’s usu­al­ly about 2%. So it’s going to be 26 ver­sus 14%. Which is about where we should be.

Cameron Reil­ly [45:53]: Well, I don’t actu­al­ly need to do it now because I’m using the VIX as anoth­er port­fo­lio tool. The Vex guys are gonna come on the show. Maybe next month for an inter­view. Novire and Tom I have a chat with them. Last week, but one of the inter­est­ing things is, they do a com­par­i­son on their web­site against the total return index, some­how. Let me see if I can.

Tony Kynas­ton [46:31]: On a day-to-day basis?

Cameron Reil­ly [46:33]: I think so yeah, it seems it seems to be. I need a paid plan, I’ve come off the paid plan. I need a paid plan to be looked at the bench­mark. They do that which is kind of handy. I can’t see it. Any­way,

Tony Kynas­ton [46:53]: So not handy.

Cameron Reil­ly [46:59]: Not right now. I need to upgrade actu­al­ly gives you the most sim­ple mon­ey, I did­n’t see the point of pay­ing for 2 online port­fo­lio ser­vices. There’s data, they do that, which means I can stop doing it on the spread­sheet, which would be good. Because it’s a pain in the ass, alright. On to ques­tions. Where are we at?

Tony Kynas­ton [47:24]: A bunch of ques­tions this week. Inter­est­ing. Again, the mar­ket psy­chol­o­gy that sup­plies a lot of the ques­tions are about, tell us about what the last bub­ble was like.

Cameron Reil­ly [47:34]: A lot of those ques­tions have come in this week yeah, which is inter­est­ing. Let’s start with Daniel though. Daniel asks. I want to know if Tony’s ever regres­sion test­ed any of Tobias Carlisle’s meth­ods from his book, The acquir­ers mul­ti­ple. And how it failed. And I think he said that he saw on one of the videos that you had that in stock doc­tor as a fil­ter.

Tony Kynas­ton [48:01]: Yeah. So, in the book, I think, from mem­o­ry, Tobias talks about get­ting a 16, 17% return. So it’s pret­ty good. You know I was get­ting 18 to 20%. So that’s why I stuck with the QAV method­ol­o­gy. As for the fil­ter. There’s a fair­ly sim­ple cal­cu­la­tion in the acquir­ers mul­ti­ple. Which I was able to put into a fil­ter in the stock doc­tor. About a year or two before I built the QA‘V check­list fil­ter. Which is a lot more detailed. And I did that because there’s a, there is a cor­re­la­tion between stocks that come up on the acquir­ers mul­ti­ple and stocks that come up on the QAV fil­ter. And dur­ing com­pa­ny report­ing times I was able to use the sim­ple cal­cu­la­tion from the acquir­ers mul­ti­ple runs a fil­ter. And that will give me a start­ing point to go into the QAV check­list research man­u­al­ly, on those com­pa­nies first. So I was­n’t wad­ing through two and a half 1000 com­pa­nies on the mar­ket. I was using the cores and mul­ti­ples as a pre-check forum, which ones to do a detailed QAV analy­sis man­u­al­ly on. So that’s why it’s in the video. 

Cameron Reil­ly [49:07]: Right. So, but not use­ful. 

Tony Kynas­ton [49:10]: Yeah, because I think if some­one finds KAV more com­plex than they want or more time-con­sum­ing. Yeah, the show uses the acquir­ers mul­ti­ple of the returns are slight­ly less and of course, even being 2% less makes a huge dif­fer­ence at the end of life. But it is a sim­ple cal­cu­la­tion to be done.

Cameron Reil­ly [49:32]: Okay, cool. Well there you go, we should maybe add that to the invest­ing lad­der. 

Tony Kynas­ton [49:36]: Yeah sure.

Cameron Reil­ly [49:38]: Next one Li asks. I’d love to hear TK’s war sto­ries of the 99, 2000 bub­ble. I’m sure he sim­ply fol­lowed the process. How­ev­er, for those of us who weren’t invest­ing or even pay­ing atten­tion, then I was 16 and chicks are more impor­tant than stocks. It would be inter­est­ing to hear TK’s reflec­tions. The bounce back from COVID has been so quick and I’d like to know about TK’s expe­ri­ence. When things are slow to recov­er and or side­ways for long peri­ods of time. I think you’ve talked about this before and I think if I recall cor­rect­ly you said you did­n’t have the three-point trend­lines sell rule in place at the time is that right?

Tony Kynas­ton [50:16]: That’s cor­rect. yeah, so talk­ing about the 99’s tech bub­ble online 00. Real­ly, I was invest­ing but I was using like a pro­to­type of the QAV method so. Still using stock doc­tor, still using the finan­cial health ratios. Still cal­cu­lat­ing the future IVs and the cur­rent IV’s. Still look­ing for or wait­ing towards own­er founders. Look­ing for the low, low SP. In the recent peri­od, all those kinds of things were in there. But they just weren’t coor­di­nat­ed in a check­list, so to speak. So that was a pro­to­type QAV method­ol­o­gy but very much val­ue-based. And sim­i­lar to what we’re doing now, in some respect, a lot of respects. But yeah, did­n’t have the three-point trend lines. Which I did­n’t real­ly adopt till 2009, I guess. So 10 or 11 years ago. 

And, but yeah so, I was doing things like most val­ue investors would do if they found the stuff that they liked. And it was cheap. But the stock was going down, I might sort of start to aver­age, the dol­lar cost aver­age my pur­chas­es into it. So maybe by 25%. This week wait to see if it was still going down. If it did buy some 25% more, maybe sit on that for a while in case it kept going low­er. But if it turned up again, buy anoth­er 25%, and then if it kept going up by the last 25%. So you did­n’t pick the bot­tom, but you kind of pick the trough if that makes sense. You got the sort of bot­tom of the mar­ket on an aver­age basis. But it was­n’t until the GFC came along when I went down at least half the port­fo­lio. The port­fo­lio val­ue, the last year, cost around to look for some way of improv­ing on the process. And came across a three-point trend line. Buy­ing and sell­ing. 

But to go back to the 99, 00 bub­ble. As we’ve said before, this mock-up reminds me very much of that, that peri­od of time. And I want to point out that I remem­ber, I remem­ber play­ing golf with a friend of mine who was work­ing in IT. Which start­ed off in IT togeth­er, but I moved, into gen­er­al man­age­ment. And he said he looked at me with like one of those sort of 1000 yards stares. You occa­sion­al­ly see in some­one and said. Did you real­ize the NASDAQ has gone down, 80%, in the last month or two? And it went down from 5000 to 1000. And that was just an amaz­ing turn of events. And peo­ple who haven’t been through that, are prob­a­bly the ones who are get­ting all excit­ed about growth com­pa­nies at the moment. And don’t have the val­u­a­tions.

And to put some con­crete, oth­er con­crete num­bers around that. I remem­ber going to Seat­tle for a World Con­fer­ence on data­base mar­ket­ing, which was, I was run­ning a com­pa­ny called My Direct. Which was basi­cal­ly a data­base, mar­ket­ing com­pa­ny, or a cat­a­log retail­er. Went across to Seat­tle. And I remem­ber the keynote speech was giv­en by a guy called Seth Godin, who had writ­ten lots of books and made lots of appear­ances. Well, the pur­ple cow came lat­er and that’s how he rein­vent­ed him­self. But before that. He was a real go-go inter­net stock boost­er. And he made a pre­sen­ta­tion in 2000, right at the very end of, before the bub­ble burst say­ing that this is why Ama­zon is worth $400 a share. 

And I think at the time, it might have been like 100 and you’re scratch­ing your head say­ing how can you pay that much for Ama­zon. But he was boost­ing it up to $400 a share. And then like with­in a cou­ple of months it was back to $14 a share. So, that’s kind of how much these high growth com­pa­nies can, can, can hit the down­side. When the egg is tak­en out of the mar­ket, and it real­ly feels like that’s on the cards at some stage, in the future again, right now. In terms of my invest­ing, per­for­mance, it did­n’t real­ly affect me at all. In fact, in the years fol­low­ing the bub­ble, I actu­al­ly had some of my best years in a row. When val­ue Invest­ing came back in the style. 

Anoth­er sim­i­lar thing to that time that we’re see­ing now. There are so many arti­cles around in the last 12 months say­ing, val­ue invest­ing is dead. And I remem­ber you know they’ve been lots of, lots of arti­cles in prob­a­bly the two or three years lead­ing up to the.com bub­ble burst­ing. Inter­view­ing War­ren Buf­fett say­ing are you still the mas­ter, you’re still the guru. Isn’t val­ue invest­ing dead? Why aren’t you buy­ing inter­net stocks? And he just kept say­ing the same thing, we’ll do okay, wait for them to burst. And there was a guy in Aus­tralia called Maple Abbot from mem­o­ry. He was like the Aus­tralian ver­sion of War­ren Buf­fett ran the val­ue fund here. And for prob­a­bly three years before the 2000 bub­ble burst. He was under the same sort of pres­sure, he spun was under­per­form­ing, you know when you’re going to capit­u­late? When you’re going to accept val­ue invest­ing is dead? He kept say­ing no it’s not, it will come back. And it did. And it’s just like what’s hap­pen­ing now as well.

Cameron Reil­ly [55:25]: Yeah. Well, thanks. Lee Mark, Hi Cam, Tony a CCV on the watch list of three PTL sen­ti­ment con­firmed as no. Looks like across the buy line in Novem­ber or am, I miss­ing some­thing?

Tony Kynas­ton [55:42]: No, he’s not. Thank you for that Mark, tick, big tick. I don’t have time to go through the watch list and check the three-point thread line reg­u­lar­ly. So I was real­ly hop­ing that our lis­ten­ers would pick up some of these buy trends that have occurred. That I’ve missed and so that’s great that Mark has. But yeah, I agree with him, CCV has crossed the buy line. And its share price grow.

Cameron Reil­ly [56:10]: Good one there, that’s your new nick­name Mark, big tick mark.

Tony Kynas­ton [56:13]: So CCV is cash con­vert­ers, the com­pa­ny that you go to and if you steal some­one’s gui­tar. You go and take it to them and pull it and they sell it for you. I should­n’t say that. I had my gui­tar stolen when I was liv­ing in North Colton and the cops say go down to cash con­vert­ers, you prob­a­bly see it there. But any­way, on either side I’m sure they’ve evolved since then. Yeah, but if you look at the chart, high points pret­ty obvi­ous way over on the left-hand side. March 2016. If I drop the ruler down it touch­es the-sec­ond-high point, which I think is March 2018. And that gives us a buy, buy line is right around Octo­ber or Novem­ber prob­a­bly Novem­ber 2020, just as Mark said.

Cameron Reil­ly [57:07]: Good, one big tick, that’s tick I say, big tick Mark. Just want to be clear on that. Yeah, as I said, I think I said to Mark when he sent the email. I replied say­ing yeah Tony does­n’t check all of the watch list sent to him. Every, because as we’ve explained recent­ly your port­fo­lio is most­ly full. You’re only doing that for our ben­e­fit. Putting out a buy­er list each week. You’re not real­ly going over it, with a fine-tooth comb, every week. Par­tic­u­lar­ly, par­tic­u­lar­ly ones on the watch list. 

Tony Kynas­ton [57:43] And I’m hop­ing that we’ll get to a stage where we can auto­mate the three-point tread line process and then we can just run it peri­od­i­cal­ly. And across the buy­er list and the watch list and look for changes. Yeah. 

Cameron Reil­ly [57:53] Alright, so good one big tick. Brett says I think we removed KRM from the buy list for the bad news. And he’s right back in Octo­ber we can because I think the CEO resigned. Is that right?

Tony Kynas­ton [58:10]: Indeed resigned, yep. And the found­ing direc­tor resigned. Which was prob­a­bly the thing I did­n’t like the most about it.

Cameron Reil­ly [58:20]: And you’ve got it on the buy list. Again, it was your stock of the week last week and so. Brett asked the ques­tion How long do we pun­ish a com­pa­ny for bad news before they allowed are allowed out of the naughty cor­ner.

Tony Kynas­ton [58:34]: Yeah, good ques­tion, dri­ven by sen­ti­ment on that one, a three-point trend­line so. King rose morn­ing. Kind of going along a lit­tle bit on the increase. It’s not any sort of real upturn but it has bro­ken through the buy line. So that’s a good enough sign for me, to put it back on the buy­er list. It’s like I say the trend isn’t real­ly strong there. But the gen­er­al answer to the ques­tion is that are mov­ing sen­ti­ment. And the oth­er one I think we also have a sim­i­lar ques­tion about although we kept it on the buy­er list. Was Kat­man­du KMD. [cross talk­ing 59:24] And the MD resigned from that. But sen­ti­ment has­n’t been too bad on that one. It’s con­tin­u­ing to go upwards.

Cameron Reil­ly [59:34]: And I like the look of this cur­rent chart I got to tell you, it’s a scary-look­ing chart.

Tony Kynas­ton [59:40]: Scary? In what way?

Cameron Reil­ly [59:42]: It’s a bit of a falling off, I think. Did we do this chart last week? It’s not on my list of charts.

Tony Kynas­ton [59:58]: I’m pret­ty sure we talked about it. 

Cameron Reil­ly [1:00:00]: Okay, well let’s do the chart. Just to be on the safe side. So high point is about to fall off the hedge. High points March 2016. Put my autho­rized QAV ruler up on the thing. It’s not long enough. What do you take as the sec­ond point there TK?

Tony Kynas­ton [1:00:26]: Yep, so I’m going, I’m tak­ing the sec­ond point towards the right-hand side there. I’m going to take it as Sep­tem­ber 2020. And I’m doing that one. I think it’s impor­tant to look for the sell line when we’re doing this one. Because it’s a bit. It’s a bit more obvi­ous if you have a sell line in their too. And the sell, the low point I’m get­ting is Decem­ber 2019. Point 029 and then it touch­back along with that price. Point 03 Feb­ru­ary and March 2020. So if you draw. That’s basi­cal­ly telling us it was a sale at that point. It has­n’t touched that line again. So I’m look­ing for the oth­er peak here either just before or just after that, prob­a­bly just after that, which is May 2020.

Cameron Reil­ly [1:01:26]: What about the point around June, July, August, Sep­tem­ber, no Octo­ber 2020. What about that dip? 

Tony Kynas­ton [1:01:39]: Yeah Octo­ber 2020, it was .033 so it’s prob­a­bly close to the buy line to the sell line there. But I don’t think it was always going to be around .03 or .031. So it stayed above it. I think around that sort of gonna be May or Sep­tem­ber, is that sec­ond peak. Prob­a­bly Sep­tem­ber.

Cameron Reil­ly [1:02:05]: So it was 23 cents back in March 2016 cur­rent­ly trad­ing at 4.2 cents.

Tony Kynas­ton [1:02:11]: It was a point, sor­ry?

Cameron Reil­ly [1:02:13] : 4.2 from 

Tony Kynas­ton [1:02:15]: Down from 23. You did say Sep­tem­ber 16. Did you?

Cameron Reil­ly [1:02:19]: No sor­ry March 2016, it was at 23 cents. Now it’s down to 4.2 cents. It’s a hell of a falling off. 

Tony Kynas­ton [1:02:27]: Yeah, could be. Has been.

Cameron Reil­ly [1:02:30]: Okay. So I bet the answer to the ques­tion is, sen­ti­ment. 

Tony Kynas­ton [1:02:35]: Cor­rect.

Cameron Reil­ly [1:02:37]: Good to know. That’s basi­cal­ly what I’ll say to Fox from now on when he’s sent to his room for a time­out. When can I come out? Got to look at the sen­ti­ment. We got to read the room. Are we still frown­ing? You can’t come out. Alright, thank you, Brett. Gary won­der­ing why there was such an incon­sis­ten­cy in the price to cash flow between the stock doc­tor and the spread­sheet for­mu­las. Does ST use a dif­fer­ent cash flow source than oper­at­ing cash flow? I always use spread­sheet cal­cu­la­tion to sort. Is this the whole thing we’ve talked about before the dif­fer­ent kinds of cash flow?

Tony Kynas­ton [1:03:18]: It’s not dif­fer­ent kinds of cash flow. I’m pret­ty sure it’s gonna be dif­fer­ent types of share num­bers. I’m not pick­ing on big dif­fer­ences in all the cas­es. But there are some and it rec­on­ciles in col­umn AH in the mas­ter spread­sheet. Which is the dif­fer­ence in our cal­cu­lat­ed priced oper­at­ing cash flow. And it’s dif­fer­ent from the stock doc­tor. So some­times there’s, there’s a large dif­fer­ence and some­times there might be one or 2%, and some­times they’re the same. And when I rec­on­cile this once before. The dif­fer­ence is that we use ful­ly paid ordi­nary shares. When we divide oper­at­ing cash flow by the num­ber of shares on issue. 

And stock doc­tor users dilut­ed weight­ed shares on issue. And I’ve had a looked at this before. Ful­ly paid, for ful­ly paid ordi­nary shares I think is the bet­ter num­ber per­son­al­ly. Because that’s the num­ber of shares in the mar­ket. Where­as the dilut­ed ones, try and take into account some of the shares which haven’t been issued yet. Which may be a bit like you said before, with AMC that there could be some­one out there who has a cred­it note which can con­vert to shares. For exam­ple, or it could be options that man­age­ment hold which might con­vert the shares at some stage. So I was try­ing to take into account some of those and do some cal­cu­la­tions. I think it tries to read all of them because not all of them will con­vert. But it does try to take some of that into account.

Cameron Reil­ly [1:04:46]: What col­umn did you say it is? Where were you rec­on­cil­ing? 

Tony Kynas­ton [1:04:48]: Yeah, col­umn AH. Dif­fer­ence to the stock doc­tor. So col­umn AG is my cal­cu­la­tion of, price to oper­at­ing cash flow. Which is sim­ply the oper­at­ing cash flow per share divid­ed by the num­ber of ful­ly paid ordi­nary shares. Which is so on the stock doc­tor. But I also haven’t, let’s see what col­umn is it. Col­umn Z  I think it is. Yeah, columns Z is stock doc­tor price to oper­at­ing cash flow num­ber. And then col­umn AH is the dif­fer­ence between them.

Cameron Reil­ly [1:05:20] : Right. Well, some of them are big, I mean. IN ZO last time you ran one and sent it to me. It’s a 114% dif­fer­ence.

Tony Kynas­ton [1:05:34]: Yeah, that’s right and that might get cleaned up as we get some of these num­bers from NZI. 

Cameron Reil­ly [1:05:38] : Right. 

Tony Kynas­ton [1:05:40]: It was unlist­ed for a long time and it’s done a recap­i­tal­iza­tion, so there will be cas­es where it’s dif­fer­ent. But in the mind. If you look at most of those, 0,1,2 or 3% dif­fer­ence. 

Cameron Reil­ly [1:05:52]: Yeah. Well, hope that helps. Who asked that? Gary If not, 

Tony Kynas­ton [1:06:00]: Good ques­tion Gary. If you are trou­bled by it. Then please do some more research your­self and have a look. Con­vince me that I should be using dilut­ed shares and not ful­ly paid ordi­nary shares. 

Cameron Reil­ly [1:06:11]: Eddie asks. I goa a query around TK using index Mun­di as it only goes to Novem­ber 2020. Mean­ing the trend you’re look­ing at, on the graphs could have changed by now. And I’ve also found dis­crep­an­cies in the fig­ures com­pared to stock doc­tor and oth­er plat­forms such as Yahoo Finance. As an exam­ple index, Mun­di has a nat­ur­al gas price in  Novem­ber of 2 dol­lars 61 ver­sus stock doc­tor and Yahoo Finance that have Novem­ber price of $2.88. I mean you’re look­ing at trends, but then Novem­ber 2020. I looked at goals the same as, is that a wor­ry, if it’s a lit­tle bit out of date?

Tony Kynas­ton [1:06:51]: I don’t think so. Again, if Eddie finds a bet­ter web­site to use then great, we can use it. I just like index Mun­di because they’re all there in the same spot. And we can quick­ly look up all dif­fer­ent com­modi­ties and have a look at the trends. Just a ques­tion for Eddie. He said he’s get­ting the nat­ur­al gas process in the stock doc­tor. I’m not sure where that would be found. Yahoo Finance I get. I don’t think stock doc­tor add com­mod­i­ty prices in there. Any­way small point. Yes, Eddie, I’m using it for con­ve­nience because it’s a one-stop-shop for all these charts. If there is a bit light in updat­ing with Decem­ber’s fig­ures. I don’t know if it’s just a par­tic­u­lar year-end prob­lem. I had­n’t noticed them being a month behind before. So it might just be this year’s end. But any­way, we are just look­ing at trends. 

Cameron Reil­ly [1:07:42] : Right. Okay, thank you, Eddie. I think this is the last one in. This is from Brent. This is just com­ing in very light, you might not have had a chance to look at this. 

Tony Kynas­ton [1:07:53]: No

Cameron Reil­ly [1:07:57]: Okay. 

Tony Kynas­ton [1:07:59]: Well, this is a big sur­prise ques­tion.

Cameron Reil­ly [1:08:01]: Yeah, I did say to Brent. Brent is a new sub­scriber and I said, look, Tony. Tony prob­a­bly won’t have a chance to look at this. We might need to bump it to next week. It’s about vir­gin, the UK, and their price to cash flow score. And why it’s bumped up recent­ly. So, do you want to bump that one to next week?

Tony Kynas­ton [1:08:16]: Yeah. I prob­a­bly do some research on that. Thanks.

Cameron Reil­ly [1:08:20]: Yeah. No wor­ries. Okay. Well that’s, that’s a full lead, I think. Unless you want to do those oth­er cou­ples from Daniel.

Tony Kynas­ton [1:08:28]: Yeah, I did pre­pare some­thing for one of the ques­tions from Daniel about the .com bub­ble peri­od and we’ve kind of touched on it before. But I just want­ed to read out how my funds per­formed around that time. And to make a point that the .com bub­ble hap­pened in 2000. Like 2000 from mem­o­ry. But don’t for­get that the GFC is not the GFC. The World Trade Cen­ter was hit on 9-11-2001. And then there was the Gulf War 2 that fol­lowed that. So there was a lot of neg­a­tive activ­i­ty hap­pen­ing in the US mar­kets any­way. And that sort of 2000, 2001, 2002 peri­od. 

And it actu­al­ly feels a bit like now Cam in some respects. In that there was a lot of, there was a big hit to Amer­i­can con­fi­dence. And the Amer­i­can excep­tion­al­ism idea around that time. The wind was tak­en out of the sales when the .com bub­ble hap­pened. And then the World Trade Cen­ter was a hit. So there was a lot of, a bit of soul search­ing going on about just how vul­ner­a­ble they were. So the mar­kets reflect­ed that for a time. So it was­n’t just the .com bub­ble that hap­pened. I think the World Trade Cen­ter I think was a big impact on mar­kets too. Any­way, that’s a long-wind­ed answer to say that. From 2000, 2001, and 2002 the mar­kets were fair­ly flat and side­ways, but then from 2003 onwards until the GFC they took off like a rock­et. 

And even­tu­al­ly proved to be anoth­er bub­ble which then col­lapsed into 2007, 2008. But if I look at the per­for­mance of my invest­ments in the finan­cial year 99, 2000. So that was before the .com bub­ble. My per­for­mance was up 22%. In the finan­cial year 0001 so this is June 2001. I only man­aged a 2% improve­ment, where­as the mar­ket had 5.5% so under­per­formed. In 01, 02 The mar­ket went back­ward 5%. But I was up 10. And then when all that sort of mis cleared after the Gulf War. The vic­to­ry was declared on the air­craft car­ri­er by George W Bush. And things start­ed to hope again. 2002, 2003 I was up 23%. The mar­ket was down 3%. 03, 04 up 25% the mar­ket was flat. By 04, 05 29% the mar­ket up 25 by 05, 06 up a whop­ping 42%. Mar­ket up 25. And then, of course, 06 and 07  it start­ed to hit again. I was down 4% sor­ry, up 4%. And the mar­ket was actu­al­ly up 28%. So I  under­per­formed the mar­ket in 06, 07. And in 07, 08 was the full GFC I was down 40%. At that time, and the mar­ket was down 13. So, that was the wild ride that led me to the three-point trend­line. But cer­tain­ly if you look at the .com crash. Came through pret­ty well as a val­ue investor. 

Cameron Reil­ly [1:11:33]: Well, it’s inter­est­ing all these ques­tions. How do you per­form dur­ing a crash? With all the capit­u­la­tion that’s going on, and the GME thing. We just came through a crash. And it looks like we’re going into anoth­er one. Two crash­es in a row Tony. That will be some­thing new, would­n’t it? 

Tony Kynas­ton [1:12:01]: Yeah, there’s always some­thing dif­fer­ent in the mar­ket. 

Cameron Reil­ly [1:12:03]: This time it’s dif­fer­ent. Two crash­es in a row.

Tony Kynas­ton [1:12:07]: I did­n’t know that’s what he meant by that. 

Male voice [1:12:10]: It’s dif­fer­ent every time. It’s always dif­fer­ent Tony. It’s nev­er the same.

Cameron Reil­ly [1:12:14]: Thank you Allen caller. Sor­ry, Tony what were you say­ing? 

Tony Kynas­ton [1:12:19]: It does beg the ques­tion with all this going on, why don’t we just sell every­thing, and go and sit on the beach for a while. And that would be a valid strat­e­gy if we did­n’t have a plan to con­tin­ue buy­ing and to use the 3‑point thread lines to guide their sell­ing. Because what I noticed in that .com era. Was that the mar­ket, even though peo­ple were call­ing it a bub­ble, even in 99. The mar­ket still went up a heck of a lot before it crashed. And the same with, before the GFC the mar­ket in 06, 07 was up, 29%. Before it crash­es. So get­ting out of the mar­ket ear­ly can miss out on all the upsides. And then the retreat isn’t as bad So, espe­cial­ly if you use a 3‑point thread line. So that’s why I stay, invest­ed and use this sen­ti­ment to guide me. 

Cameron Reil­ly [1:13:07]: You know what I have to say about all this capit­u­la­tion talk.

Male voice [1:13:11]: Don’t hit me with all of the neg­a­tive ways so ear­ly in the morn­ing. The big bad bridge will be there, and it will be there. The moth­er beau­ti­ful bridge. And it’s gonna be there.

Cameron Reil­ly [1:13:22]: I also pre­pared this one for you this week too.

Male voice [1:13:26]: Shame, shame, shame. 

Cameron Reil­ly [1:13:28]: There you go. That’s what I think of capit­u­la­tion. Well, good stuff. For the peo­ple, whose ques­tions I did­n’t get to or tell you we did­n’t get through this week, apolo­gies for that we’ll get to them, next week. And I did post some­thing on our QAV club Face­book group. Dur­ing the week ask­ing peo­ple if they could be so kind only to send us one ques­tion a week. So we don’t run out of time. Like last week we went extreme­ly long. Don’t get scared off. Keep send­ing the ques­tions. Great ques­tions just one a week. If you can, if you send more than that, that’s fine, I’ll just split them up over weeks. That’s cool. 

Wel­come to all the new sub­scribers we’ve had a ton of new sub­scribers to the QAV Club over the last month or so. Feel free if you haven’t already, to send me an email, intro­duce your­self. Tell us a lit­tle bit about your­self, where you’re from, what you do. What’s your back­ground with invest­ing, ask any ques­tions. Don’t feel embar­rassed about ask­ing ques­tions that may have been asked before. Does­n’t mat­ter that that’s what we’re here for. If you have a ques­tion oth­er peo­ple will prob­a­bly have the ques­tion as well. So feel free to shoot it through, if I can answer it eas­i­ly and sim­ply by point­ing you to a pre­vi­ous episode or some­thing in the Bible, I will. If not, I will add it to the show notes. But feel free to send it. Either way, it’s all good. 

Tony Kynas­ton: [1:15:02] : Yep. Wel­come to the new mem­bers. I know that the Mel­bourne QAV club won’t be hap­py they were, they were beg­ging me to stop new mem­bers from join­ing. So they can have the ground all to them­selves.

Cameron Reil­ly [1:15:10] : Right. Yeah. Yeah, well, you know, wait until the sub­red­dit. We cre­ate a sub­red­dit. 6 mil­lion peo­ple that are just around the cor­ner join­ing QAV. By the way, remem­ber Austin? I saw him tweet that over the week­end, some­thing about. When I was on that QAV pod­cast a year ago and they mocked me. Blah blah blah blah blah. I was like dude I’m real­ly sor­ry that you feel that way, we did­n’t mock you, we did­n’t total­ly agree with your strat­e­gy. But I don’t think we mocked him. I think what we said was, my rec­ol­lec­tion, as we said if we find that any­thing that he said was use­ful in terms of help­ing us val­ue growth stocks, tech stocks and we deter­mined. No, not real­ly. 

But that’s not mock­ing him, that’s just we dis­agree respect­ful­ly. In a gen­tle­man­ly kind of way. Any­way, he’s still unhap­py about it so I don’t think you’ll become. I did say that you sug­gest­ed we should get him back on for an update. And I see on Twit­ter that he’s leav­ing the invest­ment firm that has been part of for the last year. He’s gone on to do some­thing else. But any­way, that’s a shame that he’s not the only per­son we’ve had on as a guest and dis­agreed with them and they’ve got real­ly upset about the fact that you dis­agree with them, Tony.

Tony Kynas­ton [1:16:44]: Yes, they popped up in my pod­cast yes­ter­day. And I skipped over.

Cameron Reil­ly [1:16:47]: Who was that?

Tony Kynas­ton [1:16:50] : Mr. Mori­ar­ty. 

Cameron Reil­ly [1:16:52]: Oh. Yes. Yes. Your arch-neme­sis? Any­way, 

Tony Kynas­ton [1:17:00]: Just like the stock mar­ket we’re always tak­ing dif­fer­ent points of view and it’s a mix­ture of all those points of view that makes a good invest­ing.

Cameron Reil­ly [1:17:10]: Yeah. But to any­one that we’ve inad­ver­tent­ly upset by not agree­ing with you 100%. We’re sor­ry. Tough it up [cross talk­ing 1:17:20].

Tony Kynas­ton [1:17:21]: It’s not like we’re talk­ing about it a year lat­er. A lot hap­pened to the guy in between. He’s still car­ry­ing the QAV scar. 

Cameron Reil­ly [1:17:27]: And he did­n’t like, copy me in on the tweet. So I don’t think he expect­ed me to see it. But I did. I only look at Twit­ter like once in a blue moon. And I hap­pened to see it. And I was like dude. Seri­ous­ly, get over it man. Any­way, thank you, Tony. Thank you, every­body. Good luck with your invest­ing. Looks like it’s gonna be a rocky week. But who knows. We’ll see what hap­pens.

Tony Kynas­ton [1:17:49]: Com­pa­ny report­ing sea­son two peo­ple. So stay tuned.

Cameron Reil­ly [1:17:52]: Oh yes there will be a flur­ry of stuff com­ing from Tony in the next cou­ple of weeks.

Tony Kynas­ton [1:17:58]: Yeah, prob­a­bly next week. But yeah, it will start hap­pen­ing.

Cameron Reil­ly [1:18:01]: Take care bud­dy.

Tony Kynas­ton [1:18:03]: Okay you too, bye.