QAV 409 Transcript

Episode: QAV 409 David Wal­dron

 

Length: 52:53

 

Tony Kynas­ton [00:06]: Where are you based, David?

David Wal­dron [00:08]: I’m in South­cen­tral Penn­syl­va­nia out­side of that state Cap­i­tal of Har­ris­burg.

Tony Kynas­ton [00:13] Oh, wow. Okay.

David Wal­dron [00:14]: About, three hours from New York city.

Tony Kynas­ton [00:16]: And where is that?

David Wal­dron [00:18]: Hours from Philadel­phia. I’m sor­ry?

Tony Kynas­ton [00:21]: Pitts­burgh down that way.

David Wal­dron [00:22]: Yes. Pitts­burgh is about three hours West.

Tony Kynas­ton [00:25]: Right, okay.

David Wal­dron: [00:25]: Philadel­phia is about two hours east.

Tony Kynas­ton: [00:28]: So you’re right in Man­hat­tan. I’ve been to Pitts­burgh, it’s a nice city.

David Wal­dron [00:33]: Oh, it’s a great city.

Tony Kynas­ton: [00:33]: Yes.

David Wal­dron [00:35]: By the ver­nac­u­lars, up and down the moun­tains.

Tony Kynas­ton [00:37]: I did. Yes.

David Wal­dron [00:38]: A lot of fun right?

Tony Kynas­ton [00:40]: I find the great muse­ums there as well.

David Wal­dron [00:42]: Yes, absolute­ly.

Cameron Reil­ly [00:43]: And have you been hav­ing a snow­poca­lypse there like they’re get­ting in Texas?

David Wal­dron [00:48]: We’ve prob­a­bly had more snow here than we nor­mal­ly have this win­ter, out­side where the Val­ley where it’s kind of one inch or less kind of area, but we’ve had

some pret­ty big storms this win­ter.

Cameron Reil­ly [01:00]: Yes, well.

David Wal­dron [01:01]: You just nev­er know any­more what you’re going to get with.

Cameron Reil­ly [01:03]: Yes.

David Wal­dron [01:05]: It’s pre­dictable, just like invest­ing right?

Cameron Reil­ly [01:10]: Well, invest­ing is pret­ty pre­dictable, isn’t it?

David Wal­dron [01:14]: I should say just like stock trad­ing, it’s unpre­dictable.

Cameron Reil­ly [01:17]: Yes. Well, it’s.

Tony Kynas­ton [01:20]: Not pre­dictable in the long-term, it’s pre­dictable.

David Wal­dron [01:22]: Exact­ly. There you go, per­fect.

Cameron Reil­ly [01:25]: Let’s get into it. Obvi­ous­ly, for peo­ple tun­ing in, we’re talk­ing today, wel­come back to QAV by the way, episode, I think this is 409, our guest today com­ing to us as you’ve just heard from Penn­syl­va­nia, David Wal­dron; author of Build Wealth With Com­mon Stocks. Wel­come to the show, David.

David Wal­dron [01:46]: Thank you. Cameron and Tony. It’s great to be here. Thanks for hav­ing me.

Cameron Reil­ly [01:50]: Why don’t you start by telling us a lit­tle bit about your invest­ing jour­ney. When did you start and how did it devel­op?

David Wal­dron [02:00]: I start­ed, I would guess at 23 years ago, 1998 work­ing in my field, my for­mer career, which I retired from was in Post-Sec­ondary Career Edu­ca­tion. I read cam­pus as a cam­pus pres­i­dent and of course, in the states, we call them the 401k, but the retire­ment plan and it was kind of thrown at us and it’s up to you to work the mutu­al funds and even­tu­al­ly the ETFs to fig­ure out how to make some­thing of it, and that’s where I start­ed get­ting involved in invest­ing and at that time, most­ly mutu­al funds and I had a lot of hits and miss­es. I even­tu­al­ly start­ed invest­ing in stocks maybe after the.com crash of 2000 and did all the wrong things; Macro invest­ing, Top-down Invest­ing, put togeth­er my own Debt Index as a biotech­nol­o­gy fund, and this trend and that trend, prob­a­bly paid my tuition in stock loss­es as I call it.  But even­tu­al­ly, I start­ed read­ing the quar­ter­ly reports that you get from mutu­al funds or when they were pop­u­lar back then from investors in the state, such as Mar­ty Whit­man and Charles Royce from the Royce funds, William Brown from Tweedy Browne Glob­al Val­ue, pret­ty pop­u­lar

fund, and these guys were talk­ing about in their quar­ter­ly reports, very enter­tain­ing pre­sen­ta­tion on val­ue invest­ing, which kind of struck me for the first time. They talked about War­ren Buf­fett and Char­lie Munger and Ben Gra­ham, and it just caught my atten­tion. So, it was one of those things that I just nat­u­ral­ly absorbed the infor­ma­tion, where­as I think a lot of the oth­er invest­ing infor­ma­tion was kind of like whether it made sense to me or not, I just tried it. So even though I was pay­ing too much for the mutu­al funds in the form of fees, I learned a lot from the quar­ter­ly reports and even­tu­al­ly start­ed apply­ing it.

And I guess around read­ing books, I read all the books, Gra­ham and Buf­fett and Peter Lynch and all those guys and even­tu­al­ly about 12 years ago, it start­ed click­ing for me. I got out of buy­ing and sell­ing stocks on dues and that kind of crazy stuff and start­ed apply­ing val­ue invest­ing 100% and before I knew it, I was beat­ing the mar­ket, not that I was try­ing to, but as I mea­sured, it’s like, wow, this is actu­al­ly work­ing, noth­ing I invent­ed every­thing was learned. And then I start­ed writ­ing about it in some pub­li­ca­tions, like Seek­ing Alpha and Talk. Mark is kind of shar­ing my expe­ri­ences with the pub­lic, I just felt that was an oblig­a­tion and then that led to the book, which just came out last month. So, it’s just my expe­ri­ence in val­ue invest­ing and that it real­ly does work if you buy into it, you believe in it and you stick with it, It’s def­i­nite­ly a very pow­er­ful invest­ment par­a­digm.

Tony Kynas­ton [04:42]: But David

David Wal­dron [04:46]: [inaudi­ble 04:46] to acquire so.

Tony Kynas­ton [04:48]: Val­ue invest­ing, it’s meant to be dead, isn’t it?

David Wal­dron [04:51]: Of course, but it’s nev­er dead.

David Wal­dron [04:56]: It’s just over­tak­en by short-term growth sto­ries, right?

Tony Kynas­ton [04:58]: Yes, exact­ly.

David Wal­dron [04:59]: Or beau­ti­ful short term growth sto­ries.

Tony Kynas­ton [05:01]: Your sto­ry sounds exact­ly like my sto­ry, sim­i­lar sort of thing, sim­i­lar sort of peri­od as well, sim­i­lar sort of com­ing to Jesus’ moment with War­ren Buf­fett and his writ­ings and Char­lie Munger’s writ­ings, but Yes, very sim­i­lar. So, I guess the ques­tion is what attracts peo­ple like us to val­ue invest­ing, over­growth invest­ing if there’s mon­ey to be made in growth, why would­n’t you buy growth stocks?

David Wal­dron [05:26] Well, I guess from my expe­ri­ence you have to fail at growth invest­ing and then suc­ceed at val­ue invest­ing to come to that con­clu­sion. But I think a lot of peo­ple are either suc­ceed­ing at growth invest­ing or think they are and I’ve heard you say Tony, and it’s said many times before is that, all invest­ing is val­ue invest­ing ulti­mate­ly, every­body is try­ing to buy some­thing that’s going to go up in price that’s val­ue and price. But I think to me, the ten­ants of val­ue are not just val­ue, it’s also about dis­ci­pline, it’s also about patience, it’s also about long-term ver­sus short-term. To me there’s a lot of ancil­lary things that go with val­ue invest­ing that makes it so pow­er­ful.

Tony Kynas­ton [06:07]: Yes. I agree. For me, growth invest­ing tends to be about the sto­ry because you just can’t make a deci­sion based on the num­bers where­as val­ue invest­ing is more sci­en­tif­ic, it’s based on the num­bers. And I think you make a good point that peo­ple get drawn to growth invest­ing until it stops. It’s like I remem­ber a prop­er­ty devel­op­er telling me that the last devel­op­ment prop­er­ty devel­op­ers do is the one that fails and then they get out of the busi­ness and same with growth invest­ing. Right?

 

David Wal­dron [06:38]: That’s right.

Tony Kynas­ton [06:38]: Yes.

David Wal­dron [06:40]: Yes, they would say when con­dos are being built left to right, you know it’s the end of the real estate world.

Tony Kynas­ton [06:47]: Yes, that’s right. Don’t buy a con­do, Yes exact­ly. Speak­ing of the sort of sci­en­tif­ic approach, do you use a check­list at all when you’re decid­ing to buy a stock?

David Wal­dron [06:57]: Yes, I have a check­list, not as exten­sive as yours Tony, yours is a very impres­sive one, I may add. I basi­cal­ly fol­low five strate­gies, which of course I have a lot of check­lists with­in each strat­e­gy, but define the val­ue propo­si­tion of the com­pa­ny, quan­ti­fy the share­hold­er yields, mea­sure the returns on man­age­ment, weigh the val­u­a­tion mul­ti­ples, and then also assess the down­side risk. And once I’ve done all five and all the check­lists with­in that then I deter­mined whether in my view, the stock of that com­pa­ny is a bull sit­u­a­tion right now, a neu­tral sit­u­a­tion or a bear sit­u­a­tion, and then make invest­ment deci­sions based on that.

Tony Kynas­ton [07:42]: What kind of met­rics do you use to do that? Like par­tic­u­lar­ly on the, how do you val­ue man­age­ment? Are you using a return on invest­ment for exam­ple, or some­thing else?

David Wal­dron [07:51]: Yes. Man­age would look at a return on equi­ty, return on invest­ed cap­i­tal are two of my favorites. Return on equi­ty of course and I’ve heard Cameron talked about this on your pod­cast is there’s caveats with all these for­mu­las, return on equi­ty, you got to be care­ful with stock buy­backs, inflat­ing return and equi­ty and things like that. But I think over­all return on equi­ty does give you a good pic­ture if you’re look­ing at over long-term of what man­age­ment is doing.

Return on invest­ed cap­i­tal is prob­a­bly num­ber one from Ben­jamin Gra­ham and I agree with that. I like to read the 10Ks; the annu­al reports of the com­pa­nies, I like to lis­ten in on con­fer­ence calls. When I look at a con­fer­ence call, I’m think­ing of the ana­lysts and a lot of investors lis­ten­ing to the con­tent, they want to hear the num­bers and where are they going to go next year with the com­pa­ny?  And what I’m doing is I’m lis­ten­ing to the con­text; did they sound like they real­ly believe? I’m lis­ten­ing for the EQ; the Emo­tion­al Quo­tient of the exec­u­tives to see if they real­ly sound like they believe in what they’re pro­mot­ing and pre­dict­ing and fore­cast­ing.

Tony Kynas­ton [09:05]: So, do you some­how fac­tor that into a check­list? Do you score man­age­ment based on their EQ for exam­ple?

David Wal­dron [09:11]: Good ques­tion. It’s prob­a­bly some­thing that’s hard to put in a check­list, but it’s some­thing I cer­tain­ly have on the check­list, drop onto a con­fer­ence call, lis­ten to not what they’re say­ing, but how they’re say­ing it and why they’re say­ing it. But I would say going back to your orig­i­nal ques­tion return on equi­ty, return on invest­ed cap­i­tal are my two big return on man­age­ment num­bers. I also look at pre­vi­ous growth in rev­enue and earn­ings. I stay more into fac­tu­al num­bers as opposed to pre­dictable kind of things, try­ing to pre­dict things I should say.

Tony Kynas­ton [09:45]: Yes, that’s hard, isn’t it? Get­ting back to the man­age­ment side of things, I find that fas­ci­nat­ing that you’re fac­tor­ing in that kind of soft side I’ll call it, your con­text as you call it. Who would you say, in your invest­ing uni­verse would be the best man­ag­er or a good man­ag­er that we could look at as a pro­to­type?

David Wal­dron [10:08]: Well, the ones that score high on my quote unquote check­lists would be Tim Cook at Apple.

Tony Kynas­ton [10:13]: Okay.

David Wal­dron [10:13]: For exam­ple, I think here’s a sit­u­a­tion where a lot of investors, this investor includ­ed, sold Apple after Steve Jobs passed away. I fig­ured how can a com­pa­ny get bet­ter than Steve jobs? Then real­iz­ing that Tim Cook was hand­picked by Steve Jobs, I could’ve done bet­ter research there and Steve Jobs actu­al­ly groomed Tim Cook to even­tu­al­ly be a suc­ces­sor, prob­a­bly not as soon as he want­ed it to be and Tim Cook, it’s incred­i­ble, he’s done more for that com­pa­ny than Steve jobs did as far as out­comes, so when I look at Tim Cook, I think of a very pow­er­ful man­ag­er. I think a lot of peo­ple say that about Jeff Bezos of Ama­zon, just strong man­agers, but at the same time, I also agree with War­ren Buf­fett, CEOs come and go, don’t buy and sell stocks based on the CEO, because they’re going to come and go. Look for com­pa­nies that have an endur­ing qual­i­ty of man­age­ment and those are the com­pa­nies that you want to invest in and stick with.

Tony Kynas­ton [11:20]: Yes. He has spo­ken a lot about that has­n’t he? About the com­pa­ny has to be good enough to be run by an idiot because one day it will be. He’s famous say­ing about that. Yes.

 

David Wal­dron [11:30]: Absolute­ly. That’s a great one. One of my favorites.

Tony Kynas­ton [11:34]: Yes. Although I mean, there’s cer­tain­ly evi­dence for and against that. I remem­ber read­ing Good to Great by James Collins 30 years ago.

David Wal­dron [11:42]: One of my favorite books.

 

Tony Kynas­ton [11:42]: And then I think it was about 20 years ago, some­one came along and looked at those com­pa­nies that were in good to great and I think all but one had been bank­rupt­ed in the inter­ven­ing peri­od so, some­times things don’t last for­ev­er.

David Wal­dron [11:59]: It works both ways.

Tony Kynas­ton [12:00]: Yes, it does. Yes. Okay. So, you’ve been invest­ing for a long time. Tell us about what kind of returns are you get­ting in the mar­ket?

David Wal­dron [12:09]: Well, actu­al­ly when I dis­closed pub­licly is more of the aver­age return per hold­ing ver­sus the S and P 500 or the Amer­i­can index. But I do have to get that ques­tion from you, Tony, so I’m pre­pared for it so I did my crunchy today. So, at the close of yes­ter­day’s mar­ket, I first start­ed inves­ti­gat­ing in com­mon stocks based on what I tell about the book, the auto port­fo­lio in June of 2009. So, what I did is I took all 17 hold­ings the day of the pur­chase, what I pay for are just for splits and div­i­dends cost basis, also looked at on the same day if I spent using a thou­sand-dol­lar bench­marks. So, let’s say we put a thou­sand dol­lars into the stock on that day, and also put a thou­sand dol­lars into the index on the same day and I did that for all 17 stocks based on all the 17 dif­fer­ent entry points and the port­fo­lio has returned an annu­al­ized aver­age of 17.21% ver­sus 9.2% for the mar­ket. So almost twice, not as high as your close to 20% and I think your very detailed check­list, I think gets you that extra two points, con­grat­u­la­tions but I’m very hap­py with my results as well.

 

Tony Kynas­ton [13:27]: Absolute­ly. Yes. I think once you’re get­ting, so that dou­ble mar­ket, Yes, some years you’ll be above that, some years will be below it, but I think rel­a­tive­ly it’s a good space to be in, that’s great so we’re all done. So, you’ve got a port­fo­lio. Are you say­ing, or you’re sug­gest­ing that you’ve held those 17 stocks since that 2009 time? Or have you?

 

David Wal­dron [13:48]:  Yes, I’ve actu­al­ly had the 17. I actu­al­ly had 20, that was three that I did sell, so I did not include that here but one of them I sold above. One was even, one was a lit­tle below, so I’m not sure what it made a big dif­fer­ence. So that was Bec­ton Dick­in­son, IBM and Exxon­Mo­bil are three stocks I sold dur­ing that time, but that’s it. I haven’t sold a stock in over four years.

Tony Kynas­ton [14:12]: That’s great. Well, what caused you to sell those stocks? Do you have a check­list for sell­ing as well?

 

David Wal­dron [14:20]: Not prob­a­bly a big one I should have, but Bec­ton Dick­in­son, prob­a­bly one of my regrets on a sale I think that’s one of those where I was on a con­fer­ence call and just was not impressed at all and the num­bers on my sheets were not look­ing good either.

So, I got out think­ing I was ahead of the curve, but one thing that Bec­ton Dick­in­son has gone for is pre­dictable rev­enue and that’s tiered as four years lat­er, that pre­dictable rev­enue is still work­ing for him.

Tony Kynas­ton [14:50]: Yes.

David Wal­dron [14:50]: So, stock has actu­al­ly done bet­ter since I’ve sold it, but that’s okay, les­son learned. Exxon­Mo­bil, actu­al­ly I wrote an arti­cle about this and I said, I bet­ter prac­tice what I preach and my arti­cle was called, Ener­gy Stock Prices go up and down with ener­gy prices, not the qual­i­ty of the com­pa­ny.

Tony Kynas­ton [15:09]: Yes.

David Wal­dron [15:09]: I’ve learned that a lot. If you want to own ener­gy stocks in my book, just buy an Ener­gy ETF and you get the same result.

Tony Kynas­ton [15:15] Okay.

David Wal­dron [15:15]: And then the oth­er stock was IBM. I just got tired of the flat-lin­ing and on their oth­er quar­ter­ly reports even though I tend not to buy or sell on quar­ter­ly reports, it just got to the point where I did­n’t see any more hope for the com­pa­ny, I decid­ed to get out.

Tony Kynas­ton [15:36]: Right.

David Wal­dron [15:36]: That’s it. That’s the last one I sold them, had to be four years ago.

Tony Kynas­ton [15:39]: Yes. It’s inter­est­ing, isn’t it? You’re doing well through that strat­e­gy, I’m doing well through that strat­e­gy, and yet I often feel like I’m the only per­son that’s using that kind of strat­e­gy and now that there’s you as well. Why do you think that more peo­ple aren’t embrac­ing a long-term approach to A) Do it them­selves and B) Take a more tech­ni­cal or val­ue approach to invest­ing?

David Wal­dron [16:09]: My top of my heads on that is Wall Street, as I call it Wall Street, to me as any pro­fes­sion­al invest­ing any­where in the world, I just call it Wall Street in the book, is very good at pro­pa­gan­diz­ing the invest­ment par­a­digm towards fees, as opposed to per­for­mance. Now, of course, nobody out there invests based on I want to pay fees so let me invest. That’s like some­body say­ing, I want to smoke a cig­a­rette because I want to get can­cer. But I think the pro­pa­gan­da between the talk­ing heads and all the arti­cles of which I was part of too as a writer or arti­cle writer on seek­ing out from talk mar­kets, after a while, peo­ple start buy­ing into the notion of, hey it’s the quar­ter­ly report that mat­ters, it’s the CEO that mat­ters, it’s the trends that mat­ter, where the prod­uct is trend­ing towards and that’s what peo­ple are buy­ing and sell­ing on. And when you get caught up in that trap, it becomes a short-term game by acci­dent almost then on pur­pose in my view.

 

Tony Kynas­ton [17:16]: Yes, look I tend to agree with you. I think Wall Street and Mac­quar­ie Street in Aus­tralia or Collin Street in Mel­bourne, often treats investors like prey, it’s how can we squeeze some more funds on the man­age­ment from these peo­ple rather than what’s in the best inter­est of these peo­ple and that’s where the gov­ern­ment strug­gle here is to try and set up a series of codes and laws that can gov­ern the wealth man­age­ment indus­try when they should be act­ing for the best inter­est of their clients, but they’re real­ly act­ing for the best inter­est of their com­pa­nies and that’s the dilem­ma, isn’t it?

David Wal­dron: [17:48]:  That’s right Tony, because if you believe the sta­tis­tics that say less than a minor­i­ty of pro­fes­sion­al investors actu­al­ly con­sis­tent­ly out­per­form their bench­mark, obvi­ous­ly if they lever­aged their busi­ness based on that per­for­mance, they wouldn’t last very long. So, what they do have to do with, they have to spin oth­er things in order to cre­ate the fees and I’m a skep­tic when it comes to that, but that’s how I see it.

Tony Kynas­ton [18:14]: Look, I agree with you, but it begs the ques­tion. If as indi­vid­u­als we’re doing this and I’ll speak for myself, I kind of stum­bled into it and then saw it as a great way to set up an inde­pen­dent life, but why haven’t the pro­fes­sion­als been taught how to do this and why aren’t they doing this? Why are they always tend­ing to at least per­form the index, if not under­per­form­ing index, why haven’t they cot­toned on to a style of invest­ing? I don’t get that.

David Wal­dron [18:43]: Buy and hold val­ue, but also it does­n’t make mon­ey.

Tony Kynas­ton [18:49]: Buy and hold val­ue, but also more val­ue approach rather than a growth approach or a sto­ry approach.

David Wal­dron [18:54]: For some rea­son they’re con­vinced val­ue is dead. As you said before.

Tony Kynas­ton [18:58]: Yes.

David Wal­dron [18:58]: Con­stant­ly, that’s not a new sto­ry; that sto­ry has been going on for years. It just comes out every once in a while, I think the Wall Street Jour­nal of our polls their val­ue invest­ing is dead arti­cle out and shakes the dust off. It does a lit­tle edit­ing to update it and reprints it. It’s just a belief sys­tem, I guess and I guess it real­ly goes down to tak­ing respon­si­bil­i­ty. I think we just have to take respon­si­bil­i­ty and know that any­thing we buy in life, whether it’s a car or a house or what­ev­er; we’re always plac­ing val­ue on it, so why are we not doing that when we’re invest­ing?

Tony Kynas­ton [19:30]: Yes right.

David Wal­dron [19:31]: So it’s a dif­fer­ent way of invest­ing.

 

Tony Kynas­ton [19:33]: When it comes down to us, it does­n’t as end users to apply that sort of dis­ci­pline and we’re not taught to, I don’t know about Amer­i­can schools or col­leges, but we’re not taught to do that with our finances. We’re not taught how to invest well, talk to what to camp for cer­tain things like short-term quar­ter­ly earn­ings or what­ev­er, or the fees that the being paid. It’s almost liked the debt gets stacked against the indi­vid­ual from the start and it’s prob­a­bly stacked there by peo­ple who prof­it from that, which is the peo­ple who should be teach­ing peo­ple how to invest prop­er­ly, and doing it them­selves by the way.

David Wal­dron [20:06]: Yes. Good his­tor­i­cal exam­ple in my for­mer career as an exec­u­tive, one of my roles was to host finan­cial ana­lysts and hedge fund man­agers at a cam­pus in Boston, Mass­a­chu­setts for them to kick the tires as they call it. So these, ana­lysts and some are pret­ty well-known super­stars now, not because they vis­it­ed me, but for oth­er rea­sons, and they focused on the now, what are you guys doing right now?

Tony Kynas­ton [20:37]: Yes.

David Wal­dron [20:37]: What are you going to deliv­er tomor­row? And what are you going to deliv­er next month? And I kind of fol­lowed some of them and we host­ed, we had big annu­al events with South­side ana­lysts had break­fast forum, big bread, all my peo­ple had to do these pre­sen­ta­tions for them and one thing I noticed back then, I think I, I’m not sure I was real­ly aware of it then, but when I start­ed look­ing back, when I real­ly got into val­ue invest­ing, I real­ized the short-term men­tal­i­ty of what they’re doing. What are you guys going to deliv­er next month? Next quar­ter is next year, it does­n’t mat­ter to our clients. Our clients want to know what you’re going to do now.

 

Tony Kynas­ton [21:08]: It’s not what have you done, it’s what have you done for me late­ly.

David Wal­dron [21:10]: It’s the machine.

Tony Kynas­ton [21:11]: And that’s bring­ing an oper­a­tional busi­ness men­tal­i­ty to an invest­ing sit­u­a­tion, which real­ly should be look­ing at the long term, not the short term.

David Wal­dron [21:21]: And by the way, these are great peo­ple. These are great group of peo­ple. I had no issues with them per­son­al­ly, but the short-term think­ing is how they’re trained and they’re just doing their jobs.

Tony Kynas­ton [21:30]: It’s kind of iron­ic that kind of cap­i­tal­ism leads us to that sit­u­a­tion and we’re invest­ing in cap­i­tal­ism, but it’s the worst way to invest in cap­i­tal­ism. So it’s kind of iron­ic.

David Wal­dron [21:40]: I nev­er heard of it put that way. That’s bril­liant.

 

Tony Kynas­ton [21:42]: But I get it and I guess also too, Wall Street, and Invert­ed Com­merce make this mon­ey by churn. So, they love the fact that mar­kets will move from val­ue to growth because that means you’ve sold some of your port­fo­lios or all of your port­fo­lio, and that gives them a fee.

David Wal­dron [21:56]: It’s the fees.

Tony Kynas­ton [22:00]: Yes. Any­way, enough of that sort of phi­los­o­phiz­ing about what’s wrong, we’re both doing well, so we should focus on that instead. You talk in your book about ETFs and how you hedge your port­fo­lio. Could you expand on that, please?

David Wal­dron [22:16]: Yes. At one time, I had ETFs as from a pas­sive stand­point mutu­al funds, I guess you could say too and what I’ve kind of tran­si­tioned to when I real­ly start­ed get­ting con­fi­dent about invest­ing in com­mon stocks is hedg­ing is impor­tant. I’m not a short sell­er, I’ve nev­er short­ened a stock in my life, I nev­er will, It’s just not for me. I have a tongue twister to be short, sell­ers are left short until they lose their shirts. So, for me, how can I hedge it? We’re not going to short a stock on the oth­er side, how can it hedge it to me? The best approach would be tak­en ETF either of your bench­marks. So, my par­tic­u­lar port­fo­lio has bench­marked the S and P 500 so I want­ed to do a direct hedge obvi­ous­ly, an S and P 500 index, like VU from Van­guard, would work. I kind of take more of a con­trar­i­an approach to that.

So, my pri­ma­ry, even though I have used the bench­mark in the past, I’ve also used, tips, to which infla­tion prac­tice car­ries because the num­ber one threat to stocks is infla­tion of course but by now my pri­ma­ry hedge is Van­guard, FTSE all world, XUS, so all inter­na­tion­al stocks out­side of the Unit­ed States in my par­tic­u­lar sit­u­a­tion. And I find even though a lot of times, Tony, as you know, some­times inter­na­tion­al stocks and Aus­tralian stocks, inter­na­tion­al stocks, Amer­i­can stocks go up and down togeth­er, but some­times they don’t and we got to be pre­pared, to have some kind of hedge it to me, that’s the eas­i­est sim­plest way for a do-it-your­self investor to hedge is through ETFs.

Tony Kynas­ton [23:50]: So, when you say hedge, what do you mean by that? Because typ­i­cal­ly in my mind a hedge means I’m buy­ing air­lines and I’m buy­ing oil and, you know they both, one goes up and one goes down, if your price ris­es, the air­line stock goes down because their major cost is fuel and vice ver­sa. So, is that what you’re doing or are you doing some­thing else?

David Wal­dron [24:10]: Yes, it’s a hedge maybe from a broad­er stand­point and that’s def­i­nite­ly an excel­lent hedge with­in that indus­try. From a broad­er stand­point, if I have a bas­ket of stocks on the S and P 500 or all in the ACX, what can I hedge that against that’s con­trary to that over­all, on a broad mar­ket stand­point, that if this mar­ket goes down for the next three months or four months or five months or six months, it takes every­body with it, what might be on the oth­er side that might be going up to kind of keep the port­fo­lio sta­ble? So, I’m look­ing at it more from a broad­er stand­point.

Tony Kynas­ton [24:42]: Is that a 50/50 hedge, or how do you rate that?

David Wal­dron [24:47]: No, the hedge would be more like 25–30%, much less. I don’t go 50/50, even though as I got old­er, I might con­sid­er that.

Tony Kynas­ton: [24:58]: So, don’t you find that even though you’re smooth­ing out the volatil­i­ty, you might be reduc­ing your over­all returns because one’s going up and the oth­er one’s going down, so the aver­age is kind of flat-lin­ing?

David Wal­dron [25:12]: That’s pos­si­ble. The VU has been an okay return., it’s pos­i­tive for me,

but noth­ing fan­tas­tic. But again, that’s the invest­ment I make say­ing, this is the one that it’s there if I need it. So, if I’m diver­si­fy­ing in any way, that’s my diver­si­fi­ca­tion. I believe in a bas­ket that should be con­cen­trat­ed of stocks, but if I’m going to do any diver­si­fi­ca­tion, it’s going to be with the ETF hedges.

 

Tony Kynas­ton [25:42]: Okay. So, you spoke before about infla­tion and in your book, you spoke about the hid­den cost of infla­tion. Could you talk a bit about that and whether you’re hedg­ing against that or tak­ing into account in your port­fo­lio con­struc­tion please?

David Wal­dron [25:55]: Yes. I might take a look at it again with the inter­est rates appar­ent­ly ris­ing, we’ll see what hap­pens with that but I have hedged my port­fo­lio with the tips, tuition infla­tion-pro­tect­ed secu­ri­ties, which by design, whether it always works out the way or not is anoth­er ques­tion, but by design are designed to go up and when infla­tion ris­es. So that’s a good hedge against stocks, which tend to have trou­ble with infla­tion. So, I think tips of this infla­tion, if even­tu­al­ly with this whole bond thing that’s been going on for the past 30 years, if bonds come back and every­body gets back into bond yields again, obvi­ous­ly tips are going to make sense to hedge stock port­fo­lios in my book.

Tony Kynas­ton [26:41]: We prob­a­bly do have some­thing like tips in Aus­tralia, but could you just explain what that prod­uct is?

David Wal­dron [26:49]: Well, the one I’ve invest­ed in is the Van­guard tips, Tuition Infla­tion-Pro­tect­ed Secu­ri­ties is a bas­ket of gov­ern­ment secu­ri­ties that, and I tend to go on the short term, as opposed to inter­me­di­ate long-term tips. And, again I real­ly can’t get into detail of it as far as an under­stand­ing but I do know from study­ing the prospec­tus­es and that quar­ter reports and such from Van­guard, that it’s an excel­lent hedge against ris­ing infla­tion and ris­ing inter­est rates.

Tony Kynas­ton [27:24]: So, it’s basi­cal­ly a Van­guard pack­age prod­uct, which is some kind of fund?

David Wal­dron [27:29]: They’re all gov­ern­ment secu­ri­ties.

Tony Kynas­ton [27:30]: It’s all gov­ern­ment secu­ri­ties. Okay.

David Wal­dron [27:32]: Yes. [cross-talk­ing 27:32].

 

Tony Kynas­ton [27:32]: Again, in terms of hedg­ing your port­fo­lio, how much weight do you put into that kind of prod­uct?

David Wal­dron [27:40]: Again, it would­n’t be more than 10 to 25%.

Tony Kynas­ton: [27:43]: Okay.

 

David Wal­dron [27:44]: Yes. My port­fo­lio is major­i­ty com­mon stocks, com­mon shares how­ev­er, I have oth­er things out­side of the port­fo­lio that might be cash and things like that with­in the port­fo­lio itself, and that’s the way I look at it as a sep­a­rate inde­pen­dent bas­ket. There might be some ETFs in there at any giv­en time just to hedge poten­tial down­turns.

Tony Kynas­ton [28:08]: And the hedg­ing side of things is that because you’re now in a sit­u­a­tion where you’re liv­ing off the income from the port­fo­lio. So, you want to make sure you don’t suf­fer peri­ods of volatil­i­ty.

David Wal­dron [28:21]: Cor­rect, but I am an author, I am still work­ing as an author, so that’s my income, so for me per­son­al­ly, I still see, even though I may look like I’m a past retire­ment, I’m still look­ing for­ward to hav­ing my port­fo­lio grow. So, when I do actu­al­ly retire, it will be there for us.

Tony Kynas­ton [28:44]: Sor­ry, I did­n’t mean to.

David Wal­dron [28:47]: I’m self-dep­re­cat­ing Tony, no wor­ries.

Tony Kynas­ton [28:49]: What you’re describ­ing is kind of what peo­ple would do if they were in full retire­ment mode now, try­ing to make sure that they got a cer­tain lev­el of income every year, rather than being in growth mode, where over the long-term you can suf­fer peri­ods of volatil­i­ty because you’re going to get an increased income longer term.

David Wal­dron [29:10]: Absolute­ly what you make me think of too, what I’m try­ing to avoid with my approach, which is also your approach, War­ren Buf­fet­t’s approach that the best approach I think is avoid get­ting to that high div­i­dend deal trap that a lot of retirees are in right now. Now I talk about in the book or the chas­ing yield and I don’t know about you, I see it as a very dan­ger­ous escapade.

Tony Kynas­ton [29:32]: It is, and it’s plen­ty of bro­ken roads [inaudi­ble 29:34] with high yield shares and even schemes in Aus­tralia, whichev­er haven’t worked that well for peo­ple and in fact, the big one after the GFC was the bank­ing stocks in Aus­tralia, which start­ed to pay out up to 98% of their income in as div­i­dends and retirees fold­ed into them. And then they went through their down­turn because you can’t run a busi­ness if you’re invest­ing 10% back into the com­pa­ny and those peo­ple got caught there. And then just on a day or so ago, I was read­ing War­ren Buf­fet­t’s annu­al let­ter to the Berk­shire Hath­away share­hold­ers and he called out peo­ple who were chas­ing yield into low­er grade bonds and remind­ed peo­ple of how that did­n’t do well back in the eight­ies.

David Wal­dron [30:12]: That’s right.

Tony Kynas­ton [30:14]: Yes. But it’s inter­est­ing where we find our­selves in, where if you are a retiree, you’re left with very lit­tle option to gain some kind of income and [inaudi­ble 30:25] are pay­ing noth­ing, bank deposits are pay­ing noth­ing is, you real­ly have to take on the risk of own­ing a share and get­ting their sort of an index fund and get­ting the aver­age year from the mar­ket as the best alter­na­tive.

David Wal­dron [30:38]: Yes, absolute­ly. As con­tro­ver­sial as it is, I’m a believ­er in a yield on cost and then I try to remind my read­ers that, you know what, do not buy a great stock at a great price because it’s yield­ing 1.1%, because 10 years from now, if you do the yield based on what you paid for the stock 10 years ago, it might be yield­ing a 10, 12, 15%.

Tony Kynas­ton [31:00]: Exact­ly. Yes, that’s real­ly good.

David Wal­dron [31:02]: That’s the kind of high yield stocks I like.

Tony Kynas­ton [31:03]: Yes, I agree. Well, we spoke about one just recent­ly, an invest­ment bank in Aus­tralia called Mac­quar­ie Bank just recent­ly, wrote to its share­hold­ers, offered them a high yield hybrid. So, I don’t know if they have those in the States, but it’s a cor­po­rate bond, which can be con­vert­ed back into shares at 10 years’ time. Although all the con­ver­sion met­rics stacked in favor of the banks, they decid­ed when it hap­pens and whether you get cash or shares and all that kind of stuff, but the high yield­ing note that they are mar­ket­ing was about three-quar­ters of 1% high­er than the yield on the stock and the stocks are great invest­ments. They expect in 10 years’ time to receive mul­ti­ples of yield if you invest­ed in the stock rather than in the bond.

David Wal­dron [31:50]: Yes. And one of the things I learned from War­ren Buf­fett is make sure when you’re invest­ing in stocks that you look at how the stock is yield­ing for the share­hold­er com­pared to the 10-year trea­sury or in Aus­tralia, the 10-year Aus­tralian bond and that could real­ly be a telling sto­ry of whether the stock is bet­ter than own­ing a bond right now, or whether the stock is worse than own­ing a bond right now.

Tony Kynas­ton [32:16]: And when you say yield, you’re talk­ing about the earn­ings yield there rather than the div­i­dend yields here?

David Wal­dron [32:21]: Yes, earn­ings I also look at free cash flow yield.

Tony Kynas­ton [32:24]: Yes, okay.

David Wal­dron [32:25]: Those types of yields and it com­pared to the ten-year trea­sury.

Tony Kynas­ton [32:27]: Yep.

David Wal­dron [32:28]: To see if the stock is sig­nif­i­cant­ly out­per­form­ing the trea­sury, if not, then why not just own the trea­sury, right?

Tony Kynas­ton [32:33]: Yes, exact­ly. Yes. [cross-talk­ing 32:34] a pret­ty low bar these days when trea­suries are yield­ing less than 1%, If your com­pa­ny can’t earn more than 1%, it should be prob­a­bly bought by some­body else who can make it run bet­ter.

David Wal­dron [32:50]: Yes. Most of those for­mu­las are when the yields were more like 3%, 4%.

Tony Kynas­ton [32:56]: Yes, exact­ly.

David Wal­dron [32:57]: Stock yield­ing 6, 8% on the cash­flow side, not the div­i­dend side.

Tony Kynas­ton [33:01]: Yes.

David Wal­dron [33:02]: Then you say, okay, now we’ve got some­thing that’s worth own­ing over at trea­sury.

Tony Kynas­ton [33:04]: Cam monop­o­lize con­ver­sa­tion here. Do you have any ques­tions for our inter­view guest?

Cameron Reil­ly [33:11]: Yes. I’ve got a few. I was just going to point out as a side note that I enjoyed see­ing that the title of your first chap­ter is Get Rich Slow, which was also the title of our very first episode back in 2019. So as soon as I saw that, I thought, okay, we’re on the same page as this guy. I noticed in the book, in your mod­el port­fo­lio, you includ­ed Microsoft then and ear­li­er you talked about own­ing Apple. That sur­prised me both of those because they are stocks that I think would strug­gle to get through Tony’s check­list and it also sad­dened me to see how much Microsoft share prices had grown and since you added them to the mod­el port­fo­lio, because as our lis­ten­ers know, I used to work there and I left there with a large sum of shares, and I sold them in 2004. And if I just held onto them, who knows, but any­way so I think you’re in the book, you men­tioned that your process for choos­ing Microsoft for the mod­el port­fo­lio was a lit­tle bit dif­fer­ent than you used for some of the oth­er subs. Can you talk us through how that end­ed up in there?

David Wal­dron [34:24]: Yes. Microsoft, I think I put it back in 2011, and at the time the CEO was under a lot of pres­sure.

Cameron Reil­ly [34:35]: Steve Ballmer?

David Wal­dron [34:37]: Steve Ballmer was the CEO, and he was under a lot of pres­sure from wall street and ana­lysts and investors. And your neigh­bor would say, why would you invest in Microsoft with him run­ning the com­pa­ny? And I was like, you know what, go back to War­ren Buf­fett, we were talk­ing just about what Tony, he said you nev­er know CEOs come and go and I fig­ured, my com­mon sense is, I think it was a com­mon-sense invest­ment.

Com­mon sense told me this is a great com­pa­ny Yes, peo­ple are not going to do a PC is dead, but I also knew that they were get­ting involved at oth­er things such as the cloud and they were just a qual­i­ty com­pa­ny that maybe due to lead­er­ship or what­ev­er it was, and it turned out to be true, but that was­n’t, I was­n’t pre­dict­ing that, but I expect­ed some­thing would hap­pen and a $25 a share and all the val­u­a­tion met­rics at the time, to me, it was a no brain­er. And if I had the moment back, I would have bought thou­sands of shares. And right now, I’d be hav­ing this pod­cast from an Island in the South Pacif­ic.

Cameron Reil­ly [35:44]: So back then, when you did your cal­cu­la­tions, you ran your process of it, you deter­mined that it was under­val­ued?

David Wal­dron [35:53]: Yes, I did.

Cameron Reil­ly [35:56]: Inter­est­ing.

David Wal­dron [35:57]: At $25 a share around the time, I think just announced adjust­ed, it might be more like $22 a share after div­i­dends it splits, but I’m sure they split. But Yes, I deter­mined it was my val­u­a­tion met­rics said it was under­val­ued by the mar­ket and the rea­son why is because the CEO and the PC is dead. And my bet, I hate to use the word bet would invest in, but I had to say to myself, I knew that CEO is going to change and I don’t think Bill Gates is going to let the com­pa­ny go any­where but up, that was my thought.

Tony Kynas­ton [36:28]: Only enough David and Cam, when I was liv­ing in Toron­to in 2013, Microsoft came up on my screens as well and I did­n’t do any invest­ing in North Amer­i­ca when I was liv­ing there, I stayed invest­ing in Aus­tralia. But when peo­ple would ask me what I would rec­om­mend, I would say Microsoft and it’s done well since then, too, but has the same response as you did, David, what Microsoft for­get about its dead.

Cameron Reil­ly [36:52]: Has Berk­shire ever added Microsoft to its port­fo­lio?

Tony Kynas­ton [36:57]: I don’t think so. It’s cer­tain­ly its biggest hold­ing now is Apple, but I don’t think it holds Microsoft. Yes. I won­der if that was stopped from doing that because of Bill Gates being on the board, I don’t know.

David Wal­dron [37:08]: Yes. They’re like good friends. Maybe like that could be a caveat for not own­ing it.

Tony Kynas­ton [37:13]: Yes.

Cameron Reil­ly [37:15]: I want­ed to, if I could, David just read it. I’ve been plug­ging your book in our club newslet­ter for the last month or so tak­ing just quotes from it that I enjoyed. I thought I’d just read a cou­ple of these out for our audi­ence most­ly and maybe you can pro­vide some com­men­tary on them after I read them out. This first one is about peo­ple who try and play the trends you wrote “From pure­ly an invest­ment stand­point.

There were just a few mar­ket timers in each event who got in with a lucky twist of fate or the rare, intu­itive sense of mar­ket con­di­tions prof­it­ed and got out, those are the ones who dom­i­nate the finan­cial news feeds and spon­sored con­tent, giv­ing a false appear­ance of the bull­ish­ness or bear­ish­ness in the mar­ket fad among the mass­es of well-inten­tioned investors.

The sober­ing truth reminds us the mon­ey­mak­ing head­lin­ers rep­re­sent a tiny per­cent­age of the active par­tic­i­pants, too many play­ers in the fad lose mon­ey and echo­ing the typ­i­cal casi­no gam­bler share only the rare win­ning bets. Just anoth­er reminder that mar­ket fads make mon­ey for a lucky few at the zero-sum expense of the silent investor major­i­ty that los­es out from the des­per­ate hope to make a life­time of cap­i­tal gains in a sin­gle mar­ket cycle. The list of house­hold names who’ve made for­tunes beat­ing the mar­ket by own­ing invest­ments with util­i­ty over extend­ed peri­ods is lengthy.  Yet. I am unable to name a celebri­ty investor off the top of my head who adds wealth year in and out on fast mon­ey mar­ket tim­ing, fads prices, what you pay val­ue is what you get” So talk­ing a bit about sur­vivor bias there, I think which we men­tioned from time to time on our show.

David Wal­dron [39:02]: Well, I think that quote and I appre­ci­ate you read­ing was real­ly based on my obser­va­tions. Some peo­ple do have the intu­itive sense, I’ve wit­nessed a few peo­ple, I’m not going to name them, I would­n’t name them in the book either that just seem to have an intu­itive sense to time the mar­ket, but there’s such a small minor­i­ty of the pop­u­la­tion and so that is good for them. But the neg­a­tive of it is, for­get when you say the 20/80 rule now it’s the 2 and 98 rule. So, you have 2% that have this they’re wired DNA wise to do this and the oth­er 98% say, wow, I could do that too, and the truth is no, you can’t. And they try it and they fail and unfor­tu­nate­ly, as long as those peo­ple exist, the 2% we’ll call them, they’re going to get peo­ple’s

atten­tion because fast mon­ey is palat­able for a lot of peo­ple. And I have to say this Cameron as far as the full dis­clo­sure, I saw that get rich slow for the first time yes­ter­day, slow­ly your pock­et gets rich slow­ly first time yes­ter­day. When I named the chap­ter, the first line is informed investor. An informed investor has a far greater chance of get­ting rich, slow than get­ting rich fast, but get­ting rich slow­ly is bet­ter than not at all, had a lit­tle back and forth my edi­tor, so you guys will scroll my edi­tor on this one. She says, it’s not slow, it’s slow­ly, it’s get rich slow­ly and I answered her as well. I under­stand that gram­mat­i­cal­ly, but we don’t say get rich fast­ly, we say, give her a slow. So, I com­pro­mise whether we have slowed in the title is slow­ly in the lights. I just had to throw it in there.

Cameron Reil­ly [40:48]: Well, I was lis­ten­ing to.

Tony Kynas­ton [40:50]: Sor­ry. Good point. You’re back though, David, about those 2% who are hard­wired to ride the trends, the oth­er thing which I think is lost in that kind of anal­o­gy too, is it those 2% tend to be 100% focused on the mar­ket all the time. They’re net­work­ing their butts off, they’re in the mid­dle of things, they’re prob­a­bly liv­ing and work­ing on Wall Street or some­thing sim­i­lar. They’re not like you and I who are sit­ting at home and we have lives out­side of that, and we’re invest­ing is just to facil­i­tate those lives that. It’s very hard to go from zero to a hun­dred with the MBA at 2% with­out devot­ing your whole life to it too.

David Wal­dron [41:31]: Absolute­ly. Yes. I hun­dred per­cent agree.

Cameron Reil­ly [41:35]: And I appre­ci­at­ed that I think it was in the last pages of your book, you remind every­one that health and hap­pi­ness are the most impor­tant things not mon­ey and to put your health and hap­pi­ness first.

David Wal­dron [41:47]:  Yes. My beau­ti­ful wife of 29 years now is a type one dia­bet­ic with end stage kid­ney dis­ease on home dial­y­sis, I’m her care­giv­er. So, I’m very in tune with health being much more impor­tant than mon­ey. All the mon­ey in the world, can’t get your kid­ney unless you get a kid­ney.

Tony Kynas­ton [42:13]: I’m sor­ry to hear that, I wish her well.

Cameron Reil­ly [42:15]: Yes.

David Wal­dron [42:17]: Oh Yes, she’s doing great. She’s in the med­ical books as one of the best patients ever in the his­to­ry of kid­ney dis­ease. She went 30 years. When she first got diag­nosed, they gave her five to eight years for dial­y­sis, she went almost 30 years before she had to do dial­y­sis.

Cameron Reil­ly [42:35]: Wow.

David Wal­dron [42:36]: She’s a great patient and a great per­son but I appre­ci­ate that.

Cameron Reil­ly [42:39]:  Yes. Well, in terms of sim­i­lar titles to things, we had an episode come out a while back called Diwor­si­fi­ca­tion, which I thought Tony had made up and then I was watch­ing Char­lie Munger’s speech last week and he said he calls a diwor­si­fi­ca­tion, I was like, there you go, Munger is steal­ing Tony stuff again, it’s scan­dalous at his age, 97 still steal­ing Tony stuff and not giv­ing attri­bu­tion. Let me read anoth­er quote here. Part of your invest­ing wis­dom, “Despite the inevitable volatil­i­ty, I have no idea and for­ev­er dis­miss expert pre­dic­tions on mar­ket trends, stock prices and inter­est rate move­ments as no more depend­able than the enter­tain­ing Oui­ja board remained stead­fast in buy­ing and hold­ing the stocks of qual­i­ty com­pa­nies to out­per­form the roller coast­er move­ments of the mar­ket over time. On the con­trary trad­ing stocks and cur­ren­cies on spec­u­la­tion in the quest for fast mon­ey is fleet­ing and the house wins most of those wages any­how” I just thought that was nice­ly put.

David Wal­dron [43:57]: Thank you.

Tony Kynas­ton [43:58]: Let’s talk about Bit­coin before we wrap up. Tony sent me an email today say­ing we had to get some­one on to talk about Bit­coin and I was­n’t sure if he was pulling my leg, he said, no, I’m seri­ous, we should prob­a­bly do it. Do you have any thoughts on invest­ing in Bit­coin David? Because I have a lot of friends who are telling me get in on bit­coin, it’s going to be worth $500,000 a coin.

David Wal­dron [44:25]: Well Cameron, I received an email yes­ter­day say­ing that I’ve been grant­ed 1.9378754, bit­coins. I guess you’ve round­ed up that’s two bit­coins’ coins, a hun­dred thou­sand dol­lars.

Cameron Reil­ly [44:39]: You just have to say [cross-talk­ing 44:41] pro­fes­sion­als to some­body in Kenya?

David Wal­dron [44:43]: Oh Yes. Very pro­fes­sion­al look­ing email what I do is hit the lit­tle square box in order to claim my free 1.937543 bit­coins and to me.

Cameron Reil­ly [44:55]: Such a spe­cif­ic num­ber.

David Wal­dron [44:55]: That was how I feel about bit­coins. I delet­ed the email imme­di­ate­ly.

Cameron Reil­ly [45:03]: What was War­ren’s quote we used recent­ly? Rat poi­son squared?

David Wal­dron [45:08]: Yes. Again, some of the two per­centers are mak­ing a killing a bit­coin, but we’ll see how long that lasts.

Cameron Reil­ly [45:17]: Yes.

Tony Kynas­ton [45:19]: Yes, feels like a trend.

Cameron Reil­ly [45:20]: And what about the GME sto­ry from your coun­try in the last few weeks? Have you been pay­ing much atten­tion to that?

David Wal­dron [45:28]: I’ve read about it of course, like every­body else, I find it fas­ci­nat­ing that, I’m a fan of a pro­po­nent of retail invest­ing. So, on one hand it was great to see retail investors kick­ing the pro­fes­sion­al investors, but for a change. But the way it was han­dled by Robin Hood of course that’s con­tro­ver­sial and then you look at Robin who was sup­posed to be the, Robin Hood Mar­kets in Amer­i­ca, I don’t know if you’re famil­iar with in Aus­tralia, I guess for the sto­ry, maybe you are, but they’re sup­pos­ed­ly the favorite of mil­len­ni­als and the favorite stock bro­ker for the young crowd today and maybe they just remind­ed us that they’re also con­trolled by the pro­fes­sion­als, whether will­ing or not, they might not have a choice. I’m not knock­ing Robin hood. I’m just say­ing that it kind of exposed what goes on behind the scenes and Tony prob­a­bly have a bet­ter idea of what goes behind the scenes that I do as far as how stocks are trad­ed on the back end, but It’s crazy.

Tony Kynas­ton [46:36]: Do you think the retail­er real­ly kicked the wall straight with that one?

David Wal­dron [46:40]: The retail investors?

Tony Kynas­ton [46:43]: Yes.

 

David Wal­dron [46:44]: Well, maybe on the front page of the news, they did. I think a lot of them were prob­a­bly made aware of it and got out in time or what­ev­er.

Tony Kynas­ton [46:54]: Hope so.

David Wal­dron [46:56]: But it made for a good news sto­ry, I guess. Good head­line.

Tony Kynas­ton [46:58]: The only head­line I’ve read of some­one who made mil­lions out of the GME saga was a per­son who’s now fac­ing charges for pump­ing and dump­ing it. So Yes.

David Wal­dron [47:09]: Yes. Pump­ing it up and is not good. So Yes, we don’t want to be pro­mot­ing that.

Tony Kynas­ton [47:12]: Yes.

Cameron Reil­ly [47:13]: Well, maybe we’ll just wrap up with your def­i­n­i­tion of val­ue invest­ing from the book, which I thought was nice­ly put “Buy and hold the com­mon shares of US exchange trad­ed div­i­dend pay­ing well-man­aged finan­cial­ly sound busi­ness­es that pro­duce easy to under­stand prod­ucts or ser­vices have endur­ing com­pet­i­tive advan­tages from wide eco­nom­ic moats, enjoy steady free cash­flow and are trad­ing at a dis­count to the investors per­ceived intrin­sic val­ue at the time of pur­chase. Next of utmost impor­tance and per­haps the biggest chal­lenge prac­tice patients in wait­ing for the invest­ment the­sis to play out as pro­ject­ed over a Longterm hori­zon” Nice­ly put sir!

David Wal­dron [48:03]: Thank you. I believe patients is the scarcest com­mod­i­ty in invest­ing, what­ev­er you hold the scarcest com­mod­i­ty, you’re prob­a­bly going to do well with it, so patients work.

Tony Kynas­ton [48:14]: That’s always the thing War­ren Buf­fett says, does­n’t it?

David Wal­dron [48:16]: Yes.

Tony Kynas­ton [48:17]: Don’t need a high IQ, you need patients to be an Investor.

David Wal­dron [48:20]: And I got it, I’m sor­ry, go ahead.

Cameron Reil­ly [48:25]: No, after you.

David Wal­dron [48:26]: Now speak­ing of War­ren Buf­fet, I’ve quot­ed him six times in the book and I hope he does­n’t mind me say­ing this, but when you write a book, of course, as you go as Cameron, you have to send out per­mis­sion to request, to use any quotes for using them in your book. And I sent the six quotes to War­ren Buf­fet­t’s assis­tant in Oma­ha, Nebras­ka, not expect not know­ing what was going to hap­pen and he’s going to come back and say thanks for try­ing, but no thank you or what­ev­er. And the next day with 24 hours now, the big pub­lish­ing com­pa­nies, I’ve been wait­ing weeks for their respons­es. 24 hours lat­er, War­ren Buf­fet­t’s assis­tant sends me an email explain­ing to me that she print­ed out all six quotes. I have in the book in the man­u­script at the time, you know, as we famous­ly know, War­ren does­n’t use email, he does­n’t use com­put­ers. She pre­sent­ed him the print­ed emails, he read each one of them signed off on each one of them gave them to her and said, wish Mr. Wal­dron the best on his book.

Tony Kynas­ton [49:21]: Wow!

David Wal­dron [49:23]: 24 hours lat­er. In 24 weeks lat­er, I got some of the major pub­lish­er’s per­mis­sions or not.

Tony Kynas­ton [49:32]: And we need to write a book and put a hun­dred dol­lars bucks in it.

David Wal­dron [49:37]: I share that sto­ry because it was a won­der­ful expe­ri­ence because his rep­u­ta­tion does­n’t pro­ceed him, his rep­u­ta­tion is who he is.

Cameron Reil­ly [49:46]: The sto­ry I’ve told too many times. David is about 16 years ago in the ear­ly days of pod­cast­ing, Steve Jobs got up on stage at Mac­world and said that they were going to put a pod­cast direc­to­ry into the next ver­sion of iTunes and I did a blog post that day say­ing, well, that’s nice Steve, but how the hell do we get our pod­casts into it? You did­n’t tell us that. And I woke up the next morn­ing with an email from Steve Jobs say­ing, Cameron talked to Eddie Q and I sent Eddie Q an email, he’s now senior vice pres­i­dent at Apple, I sent him an email say­ing, I’m not sure if this is real or not and he replied right back say­ing, oh no, that’s real and here’s what you need to do. So Yes, guys like Steve Jobs and War­ren Buf­fett, impres­sive their atten­tion to that kind of thing.

David Wal­dron [50:41]: Cameron, I’m won­der­ing if you might’ve spurred Steve Jobs to real­ize that pod­cast­ing was one of Apple’s best kept secrets. Right? The pod­cast was invent­ed by Apple and they nev­er real­ly pro­mot­ed it until recent­ly. They kind of hid it behind the scenes.

Cameron Reil­ly [50:54]: Yes.

David Wal­dron [50:55]: You got his atten­tion on that one. He said, what are we doing with this pod­cast? So, let’s get it out there.

Cameron Reil­ly [50:59]: And I’ve been wait­ing for them to fig­ure out a way to help us mon­e­tize it ever since and they’re not inter­est­ed.

David Wal­dron [51:05]: I guess it’s still there hid­ing in the back­ground.

Cameron Reil­ly [51:08]: Any­way, David, we should let you go, thank you so much for tak­ing time to come out and chat with us today and con­grat­u­la­tions on the book again. For the lis­ten­ers it’s, Build Wealth With Com­mon Stocks, you can get it on Ama­zon and every oth­er online book­store, I guess. I’m not sure if it’s in book­stores in Aus­tralia, but we can order it online here. A great book, I thor­ough­ly enjoyed it and con­grat­u­la­tions on your suc­cess as well.

David Wal­dron [51:34]: Thank you very much, Cameron and Tony. I appre­ci­ate it. Thank you both for being a new source of val­ue invest­ing wis­dom for me much appre­ci­at­ed.

Tony Kynas­ton [51:40]: Thanks David. Real­ly enjoyed the book and good luck, mate.

David Wal­dron [51:42]: Thank you very much.

Tony Kynas­ton [51:44]: Okay

David Wal­dron [51:45]: Thank you mate.

Tony Kynas­ton [51:45]: Bye.