Transcript #434

QAV 434 Club Tran­script

Cameron 00:05

Wel­come back to QAV Tony K. Ciao! Ciao tut­ti e ciao Tony.

Tony 00:11

Ciao!

Cameron 00:12

I did think this after­noon I was going to do the entire pod­cast in Ital­ian but maybe not. How are you doing up there?

Tony 00:22

You need spe­cial train­ing for that.

Cameron 00:24

Yes, in orig­i­nal Ital­ian. Yes, I got stuck. I was in the car and I was going through it on my head. And then I real­ized I did­n’t know how to say invest­ing in Ital­ian. So it all sort of fell there [laugh­ing].

Tony 00:25

Yes. Yes, oper­at­ing cash flow.

Cameron 00:39

How you doing? How are you sur­viv­ing lock­down until at least at the end of Sep­tem­ber Gladys is say­ing now?  [laugh­ing]

Tony 00:39

[laugh­ing] She’s been say­ing that just a bit more. Just a bit more. She thinks we’re kids.

Cameron 00:53

[laugh­ing] I hear that she final­ly in the last week made masks manda­to­ry. So it’s pret­ty seri­ous.

Tony 01:05

Let’s be clear.

Cameron 01:06

Are they not?

Tony 01:06

No.

Cameron 01:07

I thought they were.

Tony 01:09

They are in the 12 LGA’s where it’s spread­ing. But there’s still cas­es in the rest of Syd­ney and all you have to do is car­ry a mask in the rest of Syd­ney.

Cameron 01:18

They’re not manda­to­ry right across New South Wales, right across Greater Syd­ney.

Tony 01:22

No. [laugh­ing. Like every­thing she intro­duces has a loop­hole. You can dri­ve a truck through. It’s just ridicu­lous. It did get tired on the week­end. There’s now a night­time cur­few and the cops are pulling up peo­ple includ­ing 60 peo­ple who went to mass on Sun­day night. So that’s good. But now if you’re out­side the 12 LGA’s, which is the major­i­ty of Syd­ney, it’s pret­ty much busi­ness as usu­al. Just don’t get caught [laugh­ing].

Cameron 01:51

And vio­lent protests in Mel­bourne police shoot­ing peo­ple with rub­ber bul­lets.  Yes. So it’s all going to hell in a hand bas­ket.

Tony 02:01

It is very apoc­ryphal, isn’t it? Now there’s a big storm com­ing in [laugh­ing].

Cameron 02:05

It’s like end of days. Near­ly as bad as our port­fo­lio’s per­for­mance this finan­cial year. It’s all going to hell.

Tony 02:13

I’m [crosstalk 02: 16] still try­ing to work that out.  Yes [laugh­ing]. Yes, we had the iron ore price dropped by what? 35%. So that hit us. But yes, I need to just under­stand that a bit more.

Cameron 02:29

I tried to get my head around it for a while this morn­ing. And then my brain start­ed to melt- ‑out of my ears. So I gave up and just decid­ed to take it at face val­ue. Speak­ing of stuff, if you’re not already fol­low­ing the new QAV Twit­ter accounts, I don’t know if any­one uses Twit­ter still. I know you don’t. Because I went-

Tony 02:33

[laugh­ing] No.

Cameron 02:41

I went and had a look at your account. I don’t either real­ly. QAV pod- @QAVpod on Twit­ter. Just go fol­low us there. Give us a retweet every now and again. If you’d be so kind, maybe try and do a bit of brand build­ing. Well, let’s get into news of the week. We got quite a few ques­tions and we do have a guest com­ing on. Young lucky Dun­can is com­ing on for a chat a lit­tle bit lat­er. So let’s get into news of the week. Tony, where do you want to start? stock of the week?

Tony 03:22

Well, yes, you have a stock of the week is a Eme­co Hold­ings. Code is I think EHL yes, EHL earth­mov­ing equip­ment, renter or sup­pli­er, I guess to the min­ing indus­try. And announced its results and the share price plum­met­ed. I think it went down about 16%. But it’s up today.

Cameron 03:45

So that was my day after I bought them. I bought them for my super…  Well at least they went down before you made them your stock of the week.

Tony 03:51

[laugh­ing] Well now I know why your [unin­tel­li­gi­ble 03:56] is look­ing so bad [laugh­ing].

Cameron 03:58

I bought them on like Thurs­day and Fri­day. They dropped like 15, 16%. And I was like oh my god. What?

Tony 04:04

Yes.

Cameron 04:07

So why? What hap­pened?

Tony 04:08

Oh, well, it was the results. So-

Cameron 04:12

Right.

Tony 04:13

Net prof­it was down. I read some­where today when I was research­ing this. It was down quite a bit but I don’t think nec­es­sar­i­ly was. The num­bers I read was it was down 10, 15%. So that’s nev­er good because the ana­lysts always expect it to rise. But Eme­co has been going through a bit of a restruc­ture over the last 12 to 18 months recap­i­tal­iza­tion pay­ing down debt, all that kind of stuff. So plus, a lot of the equip­ment rental has been slowed down by COVID, par­tic­u­lar­ly in West­ern Aus­tralia where it’s been dif­fi­cult get­ting fly in fly out work­ers to get in there.  So I think yes, so there’s the fleet uti­liza­tion, which is the amount of equip­ment that they rent out. was down from 64%, which is kind of usu­al down to about 59%. So it’s been a drop-off in activ­i­ty with a com­pa­ny. So that’s why the share price dropped on results. But I think the num­bers are real­ly good. And in fact, I’m just sort of think­ing about this today. I’m not sure when it hap­pened. But I’m pret­ty sure there was a bit of con­sol­i­da­tion going on in this indus­try maybe five years ago, maybe a lit­tle bit longer. And I think Ker­ry Stokes, who owns Wes­trac, which is a big equip­ment sell­er, to the min­ing indus­try, he ran his ruler, I think over at Eme­co, I think he fin­ished up buy­ing a com­pa­ny called Boom logis­tics. Not real­ly, he bought one of these equip­ment rental com­pa­nies any­way.  So all those things have hap­pened. And I’m going to go through the QAV num­bers. The price I did that was $1.18 this morn­ing, and that’s the 23rd of August, the com­pa­ny has a low price to oper­at­ing cash flow of three times. And it has an NTA. So net tan­gi­ble assets.

So we use NEPS net earn­ings per share of 97 for net tan­gi­ble assets and 98 for NEPS. If the share price is $1.18, it’s basi­cal­ly being val­ued at the cost of the equip­ment that’s on the books. So you’re not pay­ing much for the busi­ness side of things. It’s almost entire­ly the val­ue of the graders and the bull­doz­ers and the dump trucks and things it has on the books.  So it’s anoth­er sign that it’s prob­a­bly right for a takeover, because you’re not pay­ing much for the busi­ness side of things. Even though it’s been restruc­tured and should do well going for­ward. That means though it is trad­ing on a high PE of about 25 times. And that’s because the share price is being sup­port­ed by the net tan­gi­ble assets, and not by the oper­at­ing side of the com­pa­ny.

How­ev­er, most peo­ple are call­ing out a lot of growth next year. And the growth, the met­ric we look at is the growth over the PE ratio even though the PE ratio is high, we’re still scor­ing it at more than 1.5 times so that that’s telling me that we’re get­ting growth in excess of 30%. Maybe 35 40% is expect­ed next year. And I’m test­ing my mem­o­ry here with what he did. And I would­n’t be sur­prised to see, giv­en all the merg­er and acqui­si­tion activ­i­ty in the mar­ket with a com­pa­ny with these kinds of char­ac­ter­is­tics might get snapped up as well. I could be wrong, it’s just that’s a bit of a pre­dic­tion. And who knows, but if you are inclined to buy this kind of com­pa­ny and bolt­ed on to an exist­ing sell­er of equip­ment or lessee of equip­ment, now’s the time to do it, because the restruc­tur­ing has been done. The num­bers even though growth isn’t look­ing that great in the last 12 months for this com­pa­ny. And if COVID still keeps going, it won’t be look­ing good going for­ward, or they’re call­ing out good growth num­bers. It’s a good time to buy it because the num­bers are depressed based on that lat­est result.

But if we walk through the num­bers and the pull apart, they’ve paid down a lot of debt. And that frees up cap­i­tal. So they’ve start­ed pay­ing a div­i­dend again, which is always a sign that man­age­ment are con­fi­dent that the prof­it’s here to stay, they’ve they’re going to do a share buy­back. So that will sup­port the share price as well. But they’ve also with pay­ing down a lot of inter­est in the last 12 months, 12 months, that’s real­ly sup­port­ed net prof­it going for­ward, because the inter­est bill is much low­er.  And that makes sense because they pay down lots of debt, which would take lots of costs out of the busi­ness, which means prof­it has to go up IV two, which is our cal­cu­la­tion of val­ue based on the future expect­ed earn­ings per share is at $2.30.

So just under dou­ble the cur­rent share price. So it’s not pick­ing up an extra point in our score. But it’s still a pret­ty good expec­ta­tion of where the share price might get to. That’s a pre­dic­tion.  How­ev­er, if you look at it on a long term basis, say the last three or four years it’s actu­al­ly come from a finan­cial score of dis­tress up to strong and then back to sat­is­fac­to­ry with the lat­est results. So it’s actu­al­ly been improv­ing over the medi­um to longer term, which is a good thing. So yes, inter­est­ing com­pa­ny, do your own research, take a look. I think my gut feel says that the sell off after the results is over­done. And out­side chance that some­one will have a bid at the com­pa­ny at the moment. So who knows, but based on where peo­ple think earn­ings per share will be next year. That’s a pret­ty good rise in the share price. I think that’s prob­a­bly about all the QAV qual­i­ty score for those eight out eight out of 14 or 57%. So not over­ly high. And the QAV score over always is 0.18, and just one men­tioned about that qual­i­ty score, the finan­cial health and Stock Doc­tor is sat­is­fac­to­ry. So it’s actu­al­ly gone down from stronger sat­is­fac­to­ry with the lat­est results. So that’s dropped a score out of our qual­i­ty score.

Cameron 10:27

Well, from your mouth to God’s ears.

Tony 10:33

[laugh­ing] [crosstalk 10:32 10:34] [crosstalk 10:32 10:34]

Cameron 10:34

The day before the results the day the results came out. I bought it on the 18th, the same day there was… I did my analy­sis on the 17th bought it on the morn­ing of the 18th then the results came out. Is that I mean was that a stu­pid thing to do? Should I have not bought it until the results came out?

Tony 10:54

It’s a hard one. Yes, if it was on the same day prob­a­bly should have wait­ed. But it’s tough.

Cameron 10:59

I did­n’t. That does­n’t show up in my check­list. What day the results are com­ing out.

Tony 11:04

Cor­rect. So I tend to ignore it. I think sta­tis­ti­cal­ly, if the com­pa­ny was good before the results come out, it’s prob­a­bly going to be as good or bet­ter. But there are cas­es where we’ve seen them go down like I’ve had some wins buy­ing Sun­corp before its results came out. And I’ve had some loss­es by and Bendi­go Bank before its results come out. I don’t own Amiko, but you know would it been in a case of a neg­a­tive here, but yes, it swings and round­abouts.

Cameron 11:33

Well, so I was going to sell it on Fri­day then I thought I’d wait till I talk to you about it today. Yes, I think you’ve talked me into hold­ing on to it. Still [crosstalk 11:40 11:43]

Tony 11:43

If it goes down anoth­er leg, I’d sell it. But I sus­pect it’ll start to make its way back up. But it’s just the guess I’m not pre­dict­ing. It’s up to you. I mean, look, just fol­low the share price if it keeps going up. Sure. Good. Hap­py Days.

Cameron 11:57

You’re right. Okay, well, there you go. JBH fell off the score­card.

Tony 12:08

Yes. So their results came out. And it’s down the list now. What’s JBH? A few com­pa­nies have done this. So with their lat­est num­bers, so JBH has dropped down to a QAV score of- let me just say ‑QAV score of 0.05 So it’s gone down quite low.

Cameron 12:33

I bought them last week, too.

Tony 12:35

Yes, but I don’t think the share prices has dropped back, has it?

Cameron 12:40

I don’t think so. Not that I’ve noticed any­way.

Tony 12:43

No, I think it’s actu­al­ly gone up a lit­tle bit. So yes, again, this will be the case if we hold it until it becomes a three-point sale or there’s bad news or some­one leaves or what­ev­er.

Cameron 12:54

Yes. Right.

Tony 12:54

Right. It does­n’t wor­ry me that some­thing drops off the buy­er list and drops down. I kind of in some ways, like I don’t like it, but I’m hap­py to have bought it when it made it onto the buy list because that was the only half where it you know, had real­ly strong oper­at­ing cash flow.  I buy into it. So that’s hap­pened with a cou­ple of shares that we nor­mal­ly would­n’t see on the buy list. We are this time round, I think QB came and went like in a day. Again, a com­pa­ny we would­n’t nor­mal­ly see on the buy list, it’s sit­ting at about .09 now. So it has­n’t dropped too far down. And if the price drops off a lit­tle bit, it’ll come back onto the buy list JBH has dropped off. Yes, there are a few oth­er ones there too. I don’t want to get ahead of myself but ASX has jumped onto the buy list as well which could be because of an abnor­mal rea­son. But that’s anoth­er exam­ple of a com­pa­ny which I sus­pect may be on for 6 months only, and then will next time, you know deliv­ers a result that may not be there.

Cameron 13:59

Okay, now you want­ed to talk about the strug­gles you’re hav­ing giv­ing advanced notice of your trades? [laugh­ing]

Tony 14:05

Oh, yes, it just became dif­fi­cult dur­ing the com­pa­ny report­ing sea­son to let peo­ple have 24 hours notice, because the share price has moved quite a bit. I think the exam­ple was Cho­rus, which jumped 15%. And the day I was going to buy it and I wait­ed 24 hours and bought it at a dear­er price. So rather than give peo­ple that kind of notice, I think maybe what we should do is just to when you send out your week­ly email list of stocks that we both own. So peo­ple know what our port­fo­lios are not nec­es­sar­i­ly what how much we’re hold­ing in them, but what the stocks are. And if we talk about a stock on the pod­cast, then we won’t trade it for 24 hours after it goes out. So we put the pod­cast out a cou­ple of days lat­er, after the record­ing. What’s the timetable?

Cameron 14:56

Yes, nor­mal­ly the next day.

Tony 14:58

Next day, yes, that’s fine.

Cameron 15:01

Right. So if we don’t talk about on the pod­cast, you can just trade

Tony 15:07

Cor­rect.

Cameron 15:07

You’re say­ing you’ll just trade real time.

Tony 15:09

Yes. But we’ll declare it in the email that goes out. We’ll say, this is the stocks, I’m hold­ing, this is the stocks you’re hold­ing. We’ll prob­a­bly just mix them all up. So we don’t nec­es­sar­i­ly attribute it to your eye. But these are the ones that we hold. Peo­ple can work it out. I hold the large cap and you hold the small cap. But any­way.

Cameron 15:26

No, not in my super fund. My super fund is lim­it­ed to ASX 300. So I had to buy all big cap stocks. Okay. Yeah. My oth­er port­fo­lios, lots more obvi­ous­ly.

Tony 15:39

OK.

Cameron 15:40

Yes. My oth­er port­fo­lio is a lot small­er obvi­ous­ly.

Tony 15:40

Yes, sor­ry, that pol­i­cy is based on what oth­er peo­ple do like Stock Doc­tor, that’s how they do it. Right.

Cameron 15:45

Right. Yes. Well, we don’t want you to be penal­ized for doing the pod­cast. That’s not good. [crosstalk 15:53]

Tony 15:55

It’s been swings and round­abouts up until the report­ing sea­son. And this has been a very inter­est­ing report­ing sea­son with that big rota­tion out of resource stocks in par­tic­u­lar. I’ve prob­a­bly turned over a vast major­i­ty of the port­fo­lio. I haven’t worked out how much but a large part of it. So it’s been an active report­ing sea­son, some­times we just slide through and sell one stock and buy anoth­er one but this one I’ve sold a lot.

Cameron 16:22

And not real­ly because it’s report­ing sea­son, just because com­mod­i­ty prices have been smacked around the head last year.

Tony 16:29

Cor­rect, yes.

Cameron 16:30

Just coin­ci­den­tal that it hap­pens to be hap­pen­ing in August, right?

Tony 16:34

Yes, cor­rect. Yes.

Cameron 16:34

Speak­ing of com­modi­ties, cop­per, you decid­ed that we should get out of cop­per final­ly the oth­er day.

Tony 16:44

Yes, well, its under­ly­ing com­mod­i­ty, the phys­i­cal cop­per graph went through its sell line. So I think it was time to take C6C in the dum­my port­fo­lio off the table. And I sold my shares in sand fire resources, which is part­ly a cop­per mine as well.

Cameron 17:01

Right. Okay, talk to me about AMP.

Tony 17:08

Well, there is a cou­ple of stocks, which are on the watch list. So AMP has scored well, but it’s still in a looks like a falling knife type trend. But even­tu­al­ly it will boil them out and start to get some sup­port and again that I sus­pect there’ll be peo­ple cir­cling to break up the busi­ness and buy parts of it too. And yes, full dec­la­ra­tion, my wife used to work there, she does­n’t now so I don’t have any insights, in par­tic­u­lar, about what will hap­pen with the com­pa­ny. But at the moment, it’s just turned up from the bot­tom. But we only have we don’t have enough points to look for a trend. But it’s pos­si­ble in our next cou­ple of weeks that we start to see a trend emerg­ing a stock like AMP.  So that may well come onto the buy list, I always get this name wrong URW Uni­bail-Rodam­co-West­field. There is anoth­er one like that, the num­bers look good, but the stock is still slid­ing. So that may well come on to the buy­er list. At some stage in the next few months, or a few weeks even per­haps. And that’s been depressed, the num­bers have been good. And it’s been depressed because the shop­ping cen­ters have tak­en a hit with COVID as it goes through Europe. But if Europe comes out of lock­down, which it seems to be doing and there’s peo­ple shop­ping and mov­ing around, then I expect you URW to to start get­ting sup­port again. So that was anoth­er one. What else was there?

Cameron 18:37

Before we move on, can we go back to AMP? Like, I don’t fol­low that close­ly. I just see the head­lines and the fin read the arti­cles from time to time but it sounds like it’s in a huge mess. As a busi­ness, a lot of issues, not just the Hanes com­mis­sion stuff, that sex­u­al harass­ment issues, etc, etc. as an invest­ment, though, you got to just ignore all of that kind of stuff. Again, you’re just look­ing at the num­bers and ignor­ing all the noise about it.

Tony 19:11

Yes, def­i­nite­ly just look­ing at the num­bers, and they’ve up for the first time in a long time they’ve become good num­bers on in terms of our QAV check­list. It just isn’t it’s close to show­ing signs of an uptrend. So we can draw a sell-line and a buy-line but at the moment, it’s still a bit of a falling knife. But all those things you’re talk­ing about, I mean, the Hein’s Com­mis­sion was two years ago now. So they’ve cer­tain­ly cleared ship after that.  The sex­u­al harass­ment cas­es are the same, they’ve cleared ship after that. So they have a new CEO, they’re work­ing through all those issues. Even­tu­al­ly with these kinds of com­pa­nies, I get a bit like my like it’s so bombed out but they start to become good val­ue and we’re not the only peo­ple to see that. We just tend to see it first because we focus on the num­bers and leave aside the sto­ries. But yes, I sus­pect ANP we will see some sup­port for the stock and I would­n’t be sur­prised again if we see some merg­er and acqui­si­tion activ­i­ty around it too, going for­ward with the num­bers it’s sit­ting on is com­pelling val­ue.

Cameron 20:16

So in some ways busi­ness­es that are strug­gling cul­tur­al­ly and have a taint about them are good for us cause we’re wait­ing for them to be bombed out husks, and then we buy them and wait for some­body to ren­o­vate them and put new fur­ni­ture in.

Tony 20:41

Clas­sic Buf­fett strat­e­gy, espe­cial­ly as a val­ue investor. You just want me to tell you the goat sto­ry, don’t you?

Cameron 20:50

Yes, yes. Tell me the goat’s sto­ry.

Tony 20:52

[laugh­ing] You don’t know it? There’s a book I read a lit­tle while ago, and I for­get the title. But it was writ­ten by a British jour­nal­ist who was accept­ed to Har­vard MBA on a schol­ar­ship, because Har­vard makes places avail­able to sort of non tra­di­tion­al entrance into the MBA pro­gram. And he was a jour­nal­ist. And I think it’s a one year or two-year degree. And at the end of it, you meant to present some­thing that you’ve made or built while you’ve been at Har­vard, right? So peo­ple gen­er­al­ly present a busi­ness plan or they show how they’ve trad­ed shares or what­ev­er.  So this guy writes a book on what it’s like to go to Har­vard and be an MBA stu­dent. Any­way, so there’s the rea­son why I bought the book was there’s one chap­ter on War­ren Buf­fett, because Buf­fett every year goes and does a half day q&a ses­sion with the under­grads at Har­vard. And so the long sto­ry short, the jour­nal­ist is gleaned from the lec­ture and q&a by Buf­fett and then doing some more stud­ies on him as part of the cur­ricu­lum, that the secret to invest­ing is to find a good com­pa­ny and wait for the CEO to sleep with a goat. And when the share price is depressed you buy it.

Cameron 22:15

[laugh­ing]

Tony 22:15

[laugh­ing] And of course that’s exact­ly what hap­pened with some of the stocks that Buf­fett bought. CEO slept with a goat? No, there’s no goats involved. But the clas­sic one is Amex. Back in the 60s, I think it was where there was a taint around Amex, because it got tied up with an olive oil scan­dal. So there was the Amex was some­one had had a debt to Amex and it was col­lat­er­al­ized around their olive oil stock. And this per­son was a bit of a shifty oper­a­tor. So he used to take the Amex per­son around to dip the tank. So just like when I was work­ing at Shell, you go around to a ser­vice sta­tion or dis­trib­u­tor and you put a long pole into a tank. And the poll would change col­or at the lev­el of the liq­uid. And you’d know how much vol­ume was in the tank by the amount of dis­col­oration on the stick.  So the same thing with olive oil. But this guy worked out if you put a tube in the olive oil tank and just put olive oil on the tube and dip the stick. It makes the unini­ti­at­ed believe the tank’s full of olive oil and it was­n’t. And even­tu­al­ly the guy was caught out next have a bad debt ride off and there was a huge scan­dal about it. But Buf­fett real­ized that peo­ple were still out there shop­ping with their Amex cards every day, at restau­rants and in shops. And so he bought the stock when it was bombed out based on the bad sto­ry.

Cameron 23:12

Right. Clas­sic psy­chopath maneu­ver. By the way, I just fin­ished writ­ing a blurb for a new book that’s com­ing out in the US writ­ten by the guy who is the pres­i­dent of the CFO Lead­er­ship Coun­cil over there that had like 2000 mem­bers of CFOs. And he’s just writ­ten a book on psy­chopaths. And he quotes the psy­chopath epi­dem­ic. sec­ond para­graph first chap­ter, and asked me to write a lit­tle blurb for his book, but it’s real­ly inter­est­ing. One part of his book, he actu­al­ly inter­views a guy who is anony­mous, but the guy is a CEO and is been clin­i­cal­ly diag­nosed as a psy­chopath.  And he has quite a lengthy inter­view with the guy about how he thinks and how he oper­ates and his career and the whole thing and it checked all the box­es that we talked about in how book it was fas­ci­nat­ing-

Tony 24:40

Yes.

Cameron 24:41

But it was great to see like a real inter­view with a real CEO psy­chopath.

Tony 24:46

Yes.

Cameron 24:47

So this guy, who has writ­ten the book, Jack McCul­lough his name is. It’s all about for CFOs most­ly, how do you sur­vive in an orga­ni­za­tion if you think your CEO is a psy­chopath? Or how do you tell what do you do? You know, etc, etc.

Tony 25:03

And what’s the strat­e­gy? What do you do? Get out?

Cameron 25:06

Get out [laugh­ing]. That’s pret­ty much it.

Tony 25:12

Yes. [laugh­ing] It sounds amaz­ing, does­n’t it?

Cameron 25:12

Sor­ry, he talks about-in our book at the end, I talked about screen­ing process­es for psy­chopaths in orga­ni­za­tions. He said, he’s spo­ken to quite a few HR direc­tors and peo­ple like that. And they’re all like, no, it’s nev­er going to hap­pen. They don’t think that there’s any need to do it because they don’t think they ever see any psy­chopaths. And he’s quot­ing the lat­est num­bers, which says that up to 4% now… When we wrote the book, the num­bers that peo­ple would quote, psy­chi­a­trists who work in the field would say about 1% of adults are prob­a­bly, get a high rat­ing on the psy­chopath scale.  Now, there’s new research now sug­gest­ing it could be as high as 4 or 5 or 6% of adults, but he’s talk­ing about how stud­ies say that about 15% of CEOs, prob­a­bly high rank­ing psy­chopaths. So he said, like the HR peo­ple, if you’re inter­view­ing for a CEO posi­tion, you’ve got rough­ly one in four, one and five chance that the peo­ple you’re inter­view­ing are psy­chopaths, high rank­ing psy­chopaths in but they don’t see any need to imple­ment a psy­chopath screen­er. So yes fas­ci­nat­ing. It’s just good to have a book writ­ten by a guy who’s been CFO for 30 years. And he Said‑I had him on my psy­chopath epi­dem­ic pod­cast last year — and he said he’s worked for psy­chopaths, every CFO he knows, has worked for psy­chopaths, either as CEOs or some oth­er senior rank­ing posi­tion in the busi­ness. So yes.

Tony 26:49

And that makes sense. Because psy­chopaths make great CEOs, right? They’re just deter­mined to get their bonus­es and make the num­bers work and take no pris­on­ers and get the job done. And make sure the insti­tu­tion sur­vives and all that kind of stuff, so…

Cameron 27:04

He asked this guy if he’s ever fired any­body, said he’s fired 1000s of peo­ple, and they all deserved it.

Tony 27:29

[laugh­ing]

Cameron 27:29

And he literally…the guy asked him some­thing about being a psy­chopath and how he feels about it if peo­ple know that he’s a psy­chopath. And he says, again, this is what I said they would say in the book, but look, I’m smarter than them. And I’m smarter than you. I’m smarter than every­body. It does­n’t real­ly mat­ter what you think. He lit­er­al­ly said, I own you, you just don’t know it yet. You bet­ter just, you know, do what I tell you and fall into line. If you don’t like the way I run the com­pa­ny, get out of the com­pa­ny. Because I’m the guy [laugh­ing] and all this kind of stuff. It’s just text­book psy­chopath stuff.

Tony 27:54

Right. Well, don’t talk to my wife because that’s what I’ve told her. I say when I walk into a room. I’m the smartest guy in the room [laugh­ing].

Cameron 28:02

Right? I own you, you just don’t know that.

Tony 28:07

No, I don’t say that. [laugh­ing]

Cameron 28:09

Do you actu­al­ly say out loud? I’m the smartest guy in the room.

 

Tony 28:10

No, I’m just think­ing but she always plays it back to me. Because she does

Cameron 28:15

Of course she does, that’s what is the job of wives is to play this stuff back to it. I was say­ing to Chris­sy when I was read­ing the inter­view with this guy. What shocked me how much of the stuff that he said about him­self. I could say about myself. But for dif­fer­ent rea­sons. I think I have a lot of the same char­ac­ter­is­tics as psy­chopaths. I just don’t think I’m a psy­chopath, but like he does­n’t care.

Tony 28:34

Alright. That’s the only thing sav­ing you from being a psy­chopath. Yes, that’s right. [crosstalk 28:46]

Cameron 28:52

No, I have empa­thy for peo­ple. I care about peo­ple. I go out of my way. I do nice things for peo­ple all the time, just to be nice, but yes I think so because well, I don’t care what peo­ple think about me. I don’t care what peo­ple think about me.

Tony 29:14

Yes, I don’t care either.

Cameron 29:15

I don’t care but I don’t think that makes us… I care what my fam­i­ly think and stuff like that.

Tony 29:18

Yes. [crosstalk 29:18]

Cameron 29:18

I think gen­er­al­ly speak­ing, right [laugh­ing].  Mov­ing right along price alert for SWM sin­gle white males.

Tony 29:29

Yes. And anoth­er one Sev­en West Media, which has been again a peren­ni­al declin­er in the stock mar­ket. But again, good num­bers and it’s get­ting near its buy price. So it’s buy-line. So anoth­er one to watch for peo­ple.

Cameron 29:44

Yes, I think I have a look at the chart for that. Late last week. I’m just bring­ing it up. I seem to recall it not pass­ing my sen­ti­ment check. Do you think it’s get­ting close?

Tony 29:54

No, I did­n’t the last time I looked at it. Yes.

Cameron 29:57

So it’s not get­ting close. Well, it’s in a bit of a down­turn too. I think that’s what’s a bit of a Josephine. That’s why I right gave it a no.

Tony 30:06

Yes. Speak­ing of those, HUM came back on the pay list too this week.

Cameron 30:13

So, I heard. I think we got a ques­tion in a Q&A.

Tony 30:18

Yes, OK.

Cameron 30:19

Yes, I think I had to sell but it’s popped its head up again above its byline.

Tony 30:24

Yes.

Cameron 30:26

Well above it, yes any­way. It’s above the byline too.

Tony 30:32

Yes, I’m look­ing at Sev­en West Medi­a’s graph. It’s just I think it’s just below it’s by price. Whether I put an alert in Stock Doc­tor at 46 cents and it’s cur­rent­ly 43 and a half.

Cameron 30:49

Right. But it was 47 at the end of July so that makes it a Josephine in my book.

Tony 31:00

Right yes, it’s cur­rent­ly in a short term down­trend, so we’ll see what hap­pens.

Cameron 31:03

Right?

Tony 31:04

It’s not the buy yet but if it turns up it will be.

Cameron 31:07

1. RMS is get­ting close to a sell you think?

Tony 31:13

I think it is yes. Again raised anoth­er alert I don’t know if we have new num­bers for RMS you know just check that what we’re talk­ing now we still we still have our ones in stock Dr. Price has gone up a lit­tle bit since I raised the alert but it’s still down a bit from its high.

Cameron 31:34

Yes.

Tony 31:36

Yes. So I have an alert to the dol­lar 46 and it’s just gone back up to $1.52  so but it keeps going down though it’ll be a sale.

Cameron 31:46

so it’s get­ting caught up in the resources?

Tony 31:50

I think so, well gold prices has gone down and that’s get­ting close to a sell as well. But it’s gone down and it’s been bounc­ing around above it sell price so and gold isn’t real­ly linked to cop­per in an iron ore and the oth­er ones that are going down so nor­mal­ly it goes up in tur­bu­lent time so we’ll see what hap­pens with gold.

Cameron 32:16

OK, you want to talk about BHP and ASX’s oper­at­ing cash flow. You want to do that?

Tony 32:22

Yes, so BHP was anoth­er one that came on to the bar list but I’m not going to buy it because of the iron ore prices has dropped so we’ve seen both Rio Tin­to BHP for the skews still ear­li­er I’ll stocks are still there. But I want to see an upturn in the iron ore price, or at least get back above its buy-line before I’d be buy­ing those stocks. ASX we had a ques­tion a cou­ple of ques­tions about it actu­al­ly.

Cameron 32:49

Yes.

Tony 32:50

I’ve got a zoom call tomor­row that val­ues have orga­nized with the CEO of ASX. So if I can I’ll ask the ques­tion. But if you look at… again, this is one of those com­pa­nies which don’t nor­mal­ly appear on our top scor­ers list. Because the price the cash flow is usu­al­ly a lot worse than what it is now. I jumped on it when it came on the list, which I often do, because some­times these things don’t last, espe­cial­ly if the price is ris­ing.  And then peo­ple point­ing out, well, why’d you buy it for because there’s this big, almost, I think it’s $4.9 bil­lion on the oper­at­ing cash flow line, which no one can work out what it is, and I can’t work out what it is I went through the finan­cial state­ments and the finan­cial notes to the state­ments. I’m not even sure if it should be an oper­at­ing cash flow item. So it’s one of the things I want to ask about, but if I call it up and have a look, it’s called some­thing like a reverse pur­chase. Which does­n’t make much sense. Real­ly. Look at that share price. Well, it’s doing well.

Cameron 34:01

Yes.

Tony 34:02

Peo­ple want reverse pur­chas­es.

Cameron 34:06

[laugh­ing] Well, I’m look­ing at it’s the last cou­ple of years of oper­at­ing cash flow, you get June 19, 89 mil­lion Decem­ber 19, 291 mil­lion June 21, 0.3 bil­lion Decem­ber 20, 929 mil­lion. June 21, 5 bil­lion. That’s…

Tony 34:29

Yes, so some­thing’s going on there. OK. So I think my ini­tial reac­tion to it and I don’t know what this is, is that I know that the ASX has to hold assets because it acts as a clear­ing­house so it if you buy shares, you’ve got two days to pay for it. And the mon­ey has to go through the SEC. So I think it has to hold a cer­tain amount of secu­ri­ty to allow those trans­ac­tions to be done. With some kind of sure­ty and safe­ty, so if they fall over, for exam­ple, there’s some mon­ey there to, to make good if there’s a prob­lem or to extend for a day if some­one’s like pay­ing that kind of thing.  And so I think it’s going to be tied up. And now I’m just try­ing to find the oper­at­ing cash flow state­ment, which is, oh, my god annu­al reports, some­one should take a knife to them, should­n’t they? Where are the frick­ing num­bers, I’ll just do a search. Okay. There’s only one match in the whole light pole annu­al report for oper­at­ing cash flow, and it’s not the cash flow state­ment. Let me just call up cash flow. Here we go. Page 68. I should have start­ed with back cap instead of the front.

Cameron 35:46

That’s what my wife always tells me.

Tony 35:49

OK, so that. So that item of $4.9 bil­lion sit­ting in the oper­at­ing assets in line with changes in oper­at­ing assets and lia­bil­i­ties, which is part of the oper­at­ing cash flow state­ment is called decrease increase in oth­er finan­cial assets at amor­tized cost. So that typ­i­cal­ly, and I’m not an accoun­tant, that typ­i­cal­ly would be like a mark to mar­ket of a share port­fo­lio, some­thing like that, which I’m sure the ASX does­n’t do. But like I said, it does have secu­ri­ties, which it holds to make sure the mar­ket works prop­er­ly. For set­tle­ments and clear­ing and the finan­cial note two that says rec­on­cil­i­a­tion of this line on the state­ment of cash flows on page 68 includes inter­est from dis­count secu­ri­ties, reflect­ed with­in net prof­it after tax. So got no idea what that means.

Cameron 36:49

is wait­ing for you to explain it to me. I was

Tony 36:52

like what? Well, it’s an it’s an inter­est pay­ment. And it’s from dis­count secu­ri­ties. But I don’t know what that means. But it’s some kind of inter­est amor­ti­za­tion. Now, I don’t know why it’s in the oper­at­ing cash flow state­ment. Typ­i­cal­ly, that kind of income would be in the financ­ing state­ment or in the invest­ing cash flow state­ment. So you know, that’s the oper­at­ing cash flow state­ment is meant to be for receipts from cus­tomers. So I don’t know what’s going on there. And I’ll try and find out. If I can’t get a ques­tion in tomor­row, I’ll just email the investor rela­tions peo­ple and ask them.

Cameron 37:28

I’m just sort of scrolling through the CEOs pre­sen­ta­tion deck that came with this, because I was pret­ty sure they’d have to men­tion it in here some­where.

Tony 37:38

No, they don’t.

Cameron 37:39

[laugh­ing]

Tony 37:41

There was anoth­er men­tion on it some­where else in the finances, and it talked about some kind of reverse pur­chase agree­ment. So I don’t know what that meant. But I can’t find that. I’ll see if I can, OK, it says reverse pur­chase agree­ments are mea­sured at the amount of the cash con­sid­er­a­tion paid for secu­ri­ties pur­chased Under the agree­ment are not rec­og­nized on the bal­ance sheet is sub­stan­tial­ly all the risks and rewards of own­er­ship are retained by the coun­ter­par­ty to the agree­ment. So that’s the oth­er men­tion of what that for was say­ing 4.7 bil­lion fur­ther down in the annu­al report. So that’s real gob­bly, gook finance financ­ing word­ing there. But again, that kind of word­ing to me sug­gests that they’ve done some kind of loan, or some kind of short term financ­ing deal, which allows them to do some kind of trans­ac­tion or to allow the clear­ing oper­a­tions to oper­ate, some­thing like that. So I’ll need to dig into that.

Now, the ques­tion is, if you look at that, that line item. And I’m not in the cash flow state­ment here, I’m fur­ther down in the risk man­age­ment notes in C three finan­cial risk and the annu­al report. And I’m there because it’s talk­ing about the finan­cial assets of amor­tized costs, which that 4.9 bil­lion was list­ed as, and it’s again, here as a reverse pur­chase agree­ment, and in 2020, that that line item was $6.6 bil­lion. So it’s gone down from the last annu­al report. But that 6.6 bil­lion is in appear­ing in 2020 in the oper­at­ing cash flow state­ment.  So that says to me, this is some kind of request vaca­tion, per­haps because of an account­ing prin­ci­ple change, which they haven’t called the oth­er I haven’t found yet. But here, it’s all quite strange.

Again, like as you know, I like using oper­at­ing cash flow because you can’t do a whole lot to it. But there’s always an excep­tion isn’t there where some­one’s done some­thing to it as opposed to using prof­it or PE ratios, or earn­ings per share as they are analy­sis tool because the prof­it can be manip­u­lat­ed in more ways and you can think of, and this is prob­a­bly an exam­ple of that kind of manip­u­la­tion, even if it’s inad­ver­tent.  But yes, I just don’t under­stand, am I still I’m still hold­ing on to my isec shares, if I’ve made a mis­take in buy­ing them, I’ll just trade them using the three-point trend lines. But if it’s a reclas­si­fi­ca­tion or some new account­ing prin­ci­ple, and we keep see­ing this oper­at­ing cash flow item, going for­ward, and we get a decent answer as to what it is, then it’s what the oper­at­ing cash flow is going for­ward. So we’ll see.

Cameron 40:39

So did you pick up this anom­aly some­how, dur­ing your analy­sis of it?

Tony 40:49

No. I don’t go in and try and dig out the oper­at­ing cash flow for that very rea­son that cash flows, usu­al­ly fair­ly sim­ple. And I can oper­ate at speed dur­ing report­ing sea­son, when I see these num­bers come in.

Cameron 41:00

Yes.

Tony 41:00

If you’re using if you are using PE ratios or prof­it, maybe you got to sit down and do this kind of detailed analy­sis. And well, that stage the mar­kets moved on the wag­on trains pulled out of town. So yes, and this is an out­lier. So one exam­ple in the whole of our invest­ing uni­verse. So far, I’ll dig down and find out what it is, but I’m not too wor­ried about it. It will be if we don’t like it will sell the share. If we do like it, it’ll be there going for­ward. And if it’s some­thing in between, I’ll just tried to share using three-point trend lines.

Cameron 41:33

And when you get on this con­fer­ence call, you’re going to try and get the CEO of the ASX to explain it in Eng­lish, too.

Tony 41:39

Yeah, well, he’ll prob­a­bly defer to the CFO, and then I’ll get an answer lat­er on. But

Cameron 41:44

When you speak to the CFO ask her if she thinks he’s a psy­chopath just for research.

Tony 41:49

[laugh­ing] Just tak­ing a phone call to ask her if she’s read

Cameron 41:53

It has­n’t come out yet. I can’t get the proof. You can ask her if she’s read the Psy­chopath Epi­dem­ic, though?

Tony 41:59

Yes.  If every­one lis­ten­ing to this has­n’t bought a copy of it. Or if you are going to, go to your local book­store if you’re not in lock down? And just ask them if they car­ry it? Because they prob­a­bly don’t, because they’re us pub­lish­ers. Prob­a­bly does­n’t care if it’s in Aus­tralia book­shop. But just put some pres­sure on, get it out there. How are we doing for time? All right. 10 min­utes until the inter­view?

Cameron 42:26

Yeah, you want to keep going with BFG?

Tony 42:30

Yes, we might as well go through these updates. And then we can do ques­tions after the inter­view if you’re like.

Cameron 42:34

OK.

Tony 42:34

If we have time.

Cameron 42:35

Yes.

Tony 42:36

So BFG results. So Bell Finan­cial Group results came out. And they weren’t that great in terms of the growth that hap­pened. So the busi­ness­es had a great run, but obvi­ous­ly at some stage that’s going to stop, and the share price came off a lit­tle bit. With­in year results. The QAV score is back 2.06 sites off the top scor­ers list, so we’re not going to buy it if we don’t already own it. The inter­est­ing thing was with a sell off, I won­dered whether that qual­i­fied is bad news. So I was think­ing about tak­ing it out of the dum­my port­fo­lio. But it’s it’s sort of set­tled down a lit­tle bit now. And it’s start­ing to sort of slow­ly increase again. So I think we’ll watch it, but I’ll leave it in there for the moment.

Cameron 43:24

Right. OK, it’s down a lit­tle bit for us this finan­cial year, down about 8.4% now, OK.

Tony 43:36

Yes. And that’s main­ly hap­pened in the last week, I think when it sold off after the results came out.

Cameron 43:40

Right.

Tony 43:42

Yes.

Cameron 43:43

m i l and the qual­i­fied audit.

Tony 43:46

Yes. So inter­est­ing. So if you remem­ber, we had EMI on the, in the in the vexa port­fo­lio, the dum­my port­fo­lio and we took it out because they had a qual­i­fied audit. And they always admit, what’s the empha­sis of mat­ter. Regard­ing going con­cern? I think it’s a ter­mi­nol­o­gy. But this is a com­pa­ny which took a lot of gov­ern­ment sub­si­dies dur­ing COVID did a good job using that to pay that staff par­tial­ly with that mon­ey, paid off debt with the rest of it, and is in a much bet­ter shape going for­ward.  How­ev­er, in this lat­est results, which have come through dur­ing the week, it has­n’t been called out as a qual­i­fied audit item. But it is still being called out in the notes to the finan­cial state­ments that there’s a whole list of things which could cause the com­pa­ny to have prob­lems pay­ing its debt is when they fall due and there­fore may have prob­lems being a going con­cern. But for some rea­son, it they haven’t ticked the box for qual­i­fi­ca­tion of the audit, but it’s in there as a key audit item. So I did post it in Face­book and asked our friend James Oliv­er, or James what he thought of it and he said there must have been a lot of dis­cus­sions around that one and left it at that.  So I’m going to take it as still being a qual­i­fied or that because the issue is still there and the same word­ing is still there. I just haven’t ticked the box. So, yes, oth­er­wise, mil­len­ni­um scores well, but I’m just not pre­pared to take the risk on it at the moment.

Cameron 45:19

1. All right. What next? You’ve got…

Tony 45:27

Well I think the rest of it was just per­son­al stuff that we could talk about, but why don’t we jump on to the ques­tions then we’ve got a few min­utes before the inter­view.

Cameron 45:35

We’ve goy five min­utes.

Tony 45:36

Cameron 45:37

OK, let’s get into ques­tions then. This is from Sue and Ben. Hi, Cam. Hope you and Tony are well, lov­ing the show. I’ve heard dol­lar cost aver­ag­ing men­tioned a fair bit, but unsure how best to do it. How does this work with QAV. Does Tony add to his posi­tions after buy­ing in? What cri­te­ria has to be best for him to do this when build­ing up a port­fo­lio? What does Tony rec­om­mend? Also won­der­ing what Tony’s advice is after hit­ting the 20 stock mark? If you have more cap­i­tal to invest as he adds it to the high­est QAV scored stock in his port­fo­lio? What if none of scor­ing high but above sell-lines?  Thanks, guys, been a sav­ior these lock­downs, the show is the high­light of our week. James, Sue and Be, I just think you need to get out or you prob­a­bly can’t do that if this is the high­light of your week. I mean, I’m glad you like the show. And [laugh­ing] I’m glad you look for­ward to it. But it’s yes, I like this show. But it’s not the high­light of my week. Real­ly? Well, I‑in case there are chil­dren lis­ten­ing to this one, I tell you what the actu­al high­light is, it’d be in the top five,

Tony 46:53

Right. But it’s not the high­light. So I have to work on anoth­er.

Cameron 46:58

You’d have to do a lot of things to be the high­light Chi­na, you’d have to have a sex change and, you know,

Tony 47:05

get out of lock­down.

Cameron 47:11

So I did send in some links to stuff that you’ve taught you. And we’ve talked about this before. And just a tip for peo­ple, par­tic­u­lar­ly for the new peo­ple. If you go to the bible, and you go down to the bot­tom of the bible, you’ll see like the last page or two I’ve got episode guides, by top­ic, com­mon top­ics, com­mon ques­tions that we get, like this kind of stuff. Tony has talked about it before. And I’ve put links to those episodes and time codes and some of them. So I did send that to sue and Ben. But you prob­a­bly would­n’t hurt to just recap quick­ly. Your thoughts on dol­lar cost aver­ag­ing?

Tony 47:50

I can. You did­n’t send me this ques­tion. I prepped for about two hours for the show based on the ques­tions you sent me. You did­n’t send me this ques­tion.

Cameron 47:57

It was in the notes, man. I may have added it to the notes this morn­ing. What, you don’t check the notes?

Tony 48:05

Yes, I did. I checked them when you sit through the email link, but…

Cameron 48:07

Oh but then I added some after that, keep check­ing the notes [laugh­ing] .

Tony 48:13

I was doing prep based on the ques­tions you sent through. [laugh­ing] Sor­ry, you print them out or some­thing, do you? You don’t do it live.  make notes on the notes.

Cameron 48:25

That’s why you War­ren Buf­fett, you get your sec­re­tary to write your emails or notes or some­thing.

 

 

Tony 48:30

I wish I was, he just shuts the door and that’s it so I can think all day. Yes, so a cou­ple of ques­tions. $1 cost aver­ag­ing yes, I do it from time to time, which is a bit of a dis­ci­pline, if I have large posi­tions to put into some­thing. And the posi­tion sizes I’ve tak­en a stock could be quite large and just trans­fer­ring mon­ey from my account to the stock bro­kers account has its lim­i­ta­tions.  And so it might take me some­times if I’m deploy­ing new cash maybe a week to 10 days to trans­fer the mon­ey across to the bro­ker who’s plac­ing the order slow­ly. And that has its ben­e­fits and neg­a­tives, often­times, if it’s like new fig­ures and every­one’s get­ting on board, then you’ll miss out on some of that quick growth.  But also some­times in report­ing sea­son, we’ll see a stock start to rise and fall back again. So dol­lar cost aver­ag­ing can work in that case, as well. But, gen­er­al­ly, I try and stay ful­ly invest­ed and gen­er­al­ly I’ll just trade and swap one stock for anoth­er.

So my order to the bro­ker will be sell for the skew met­als group and buy X Y Z with the pro­ceeds.  And there might be some, a lit­tle bit of machi­na­tions there depend­ing on the accounts that dif­fer­ent things are held in and what­not. So that’s that. Yes, some­times I do it. If I’m deploy­ing new cap­i­tal, gen­er­al­ly, I just swap stocks in and out as a back to back trade. In terms of what do I do when I’m ful­ly invest­ed, if I have you, I don’t want to hold more than 20 stocks, and I pre­fer to hold even 15 rather than 20.  I’m not afraid of the volatil­i­ty, or hav­ing a small­er port­fo­lio can lead to, but you have, cer­tain­ly if peo­ple are start­ing out, I would­n’t con­cen­trate much below 15 stocks, if I’m ful­ly invest­ed I’ve got my port­fo­lio 15 to 20 stocks, and I have new cap­i­tal to put in there, yes, I’ll buy what­ev­er is the high­est thing on our QAV list to buy.

I guess the only caveat is you don’t want the pump­kin to out­weigh a PE. So like I’m talk­ing about, if I have new cap­i­tal, it’s like­ly to be no more than sort of five to 10% of the port­fo­lio. And so I can dou­ble white, some­thing in the port­fo­lio that’s at the top of our list. But if it’s like sud­den­ly my long lost Uncle War­ren Buf­fett dies and gives me a bil­lion dol­lars, then I would­n’t go and put it all into the one stock I’d aver­age it out over the over the port­fo­lio ral­ly.  And there’ll be a few tricks there. Like I prob­a­bly would­n’t buy into some­thing that was­n’t on the top score results, even if I still owned it could because it’s been going up. So there’s a few tricks there. But, gen­er­al­ly, you’re not putting in that kind of over­weight cap­i­tal, you’re putting in sort of one posi­tion. And if I’m ful­ly invest­ed, I just buy some­thing that was high on the list again.

Cameron 51:43

Right. OK, thank you, Tony. Thanks, Sue and Ben, hope that answers your ques­tions. And do go and check out those oth­er episodes where we’ve talked about this sort of stuff in in detail as well. Well, we have a guest on the show today, Lucky Dun­can from stock mar­ket for teens.com. Lucky was intro­duced to us by one of our Bris­bane well, south­east Queens­land any­way. sub­scribers, Mark Dpug Moore, a friend of yours, Lucky?

Lucky Dun­can  52:17

Friend of a rel­a­tive.

Cameron 52:18

Friend of a rel­a­tive. Well, wel­come to the show Lucky and hap­py birth­day. I believe you’re turn­ing 20 today and you’ve stead of hav­ing a par­ty and going out and get­ting drunk with your mates. You decid­ed to come on this show and talk about invest­ing.

Lucky Dun­can  52:33

That’s right. Well, no bet­ter day to talk about what you love, I think.

Cameron 52:38

Yes, exact­ly. Where are you based, Lucky?

Lucky Dun­can  52:41

In Mel­bourne.

Cameron 52:43

Right. So you’re in week two, is it? Of lock­down there or three?

Lucky Dun­can  52:50

I’ve lost count at this point.

Tony 52:53

[laugh­ing]

Lucky Dun­can  52:53

It’s all blur­ring togeth­er.

Cameron 52:55

Yes. That’s how Tony feels. Tony’s in week, nine or 10 or some­thing.

Tony 53:01

Yes, week nine.

 

 

 

Cameron 53:02

Yes. All right. Well, let’s see. Start with a quick bio. Luck, y we already know you’re 20 and in Mel­bourne, tell us a lit­tle bit about your­self. What do you what do you do for work? Are you study­ing out­side of run­ning the web­site? Do you have oth­er inter­ests?

Lucky Dun­can  53:17

Yes, well, I’m in my sec­ond year of study at Mel­bourne Uni doing com­merce.

Cameron 53:23

Right.

Lucky Dun­can  53:24

Yes, I have a part time job work­ing at McDon­ald’s. It’s not ide­al but God am I glad to have it at the moment dur­ing a lock­down.

Tony 53:32

Yes, good for you.

Lucky Dun­can  53:34

You know for some­thing to do.

Cameron 53:37

They still are open McDon­ald’s down there?

Lucky Dun­can  53:39

Yes, thank­ful­ly. Yes.

Cameron 53:41

Well, that’s good. No, I think hav­ing a hav­ing a job while you’re study­ing. Real­ly smart, gives you some mon­ey and gives you some good expe­ri­ence. So let’s talk about your inter­est invest­ing where when it start­ed, how its devel­oped, etc. had it and the web­site tell us a bit about why and how that got set up.

Lucky Dun­can  53:59

Yes, so I got start­ed in invest­ing when I was 15 right in the mid­dle of high school and I think I sort of start­ed because I asked myself the ques­tion, how do I want to live and more impor­tant­ly how can I actu­al­ly live the way that I want have to have the free­dom of choice to live that way and so I start­ed look­ing at mak­ing mon­ey in the stock mar­ket was the first place I turned.

Cameron 54:22

Did you have fam­i­ly that were active investors that prompt­ed you or gave you a bit of a boost to head­start?

Lucky Dun­can  54:30

No, not at all I am first stum­bled across it on my own I did­n’t have any help into it.

Cameron 54:35

Right? Well how did you get start­ed? What was the first thing you did? Did you read a book did you watch a YouTube How did you start to edu­cate your­self?

Lucky Dun­can  54:41

I think I think it was a YouTube video. I it was prob­a­bly how to make mon­ey overnight or some­thing. I clicked on it and the rest is his­to­ry.

Cameron 54:50

Yes, let’s make a video on YouTube called How To Make Mon­ey Overnight and get the adver­tis­ing rev­enue from…

Tony 54:58

Please don’t tell me you’re buy­ing Bit­coin at 15?

Lucky Dun­can  55:02

No, I was­n’t there.

Cameron 55:04

Hey, if he did, he prob­a­bly would be too rich to come on the show talk to us a bad thing. It’s gone up like 20,000% in the last five years.

Tony 55:14

Yes, good point. OK. What did your friends think about that, Lucky?

Lucky Dun­can  55:19

Yes. So at the time, no one seemed to know much about it at all. And I talked to them, and they had all these sort of wor­ries about it, say­ing don’t you need mon­ey to do that? And they’re just think­ing about the mon­ey they could lose and how they did­n’t think they were good enough at mak­ing a liv­ing out of it at all say,

Tony 55:38

Did you turn up to school with a peak cap and a brief­case and pull out the film review at lunchtime? And not quite?

Lucky Dun­can  55:46

I don’t know, I did­n’t. I did­n’t talk to too many peo­ple about it. To be hon­est, I sort of kept it to myself a bit while I was fresh at it. But yes.

Tony 55:54

What gave you the con­fi­dence to start?

Lucky Dun­can  55:56

I thought if you viewed it as some­thing I had to do, even­tu­al­ly I thought that I have want to have the free­dom of choice to do what­ev­er I want. I have to even­tu­al­ly take that. take that leap. And so I just did it.

Cameron 56:08

Where did you get the mon­ey to invest at first? Is it pock­et mon­ey? Birth­day mon­ey, job mon­ey?

Lucky Dun­can  56:14

Yes, lit­tle bit of pock­et mon­ey when I first start­ed, from birth­days sort of in my sav­ings account? And when I tried to get a part time job, as soon as I could­n’t build that up over time.

Cameron 56:26

Well, you’re young War­ren Buf­fett. He start­ed like 10, I think, did­n’t he, Tony? some­thing like that.

Tony 56:35

Well, he start­ed deliv­er­ing news­pa­pers when he was 10. Yes, and then work­ing out how to lever­age that by befriend­ing the air host­esses in the apart­ment build­ings who he would drop the papers off, and they would take up and down the stairs for him.

Cameron 56:50

So let’s talk about the web­site, then lucky. When did you start that? What’s the vision behind it? How’s it going, etc.?

Lucky Dun­can  57:00

Yes. So when I was talk­ing to my class­mates, class­mates about the mar­ket, then they had all these mis­con­cep­tions about los­ing mon­ey and need­ing to have a PhD, or what­ev­er I am, sort of got to me and I want­ed to sort of help some­how and real­ly use my knowl­edge for good, I think, and so I decid­ed to cre­ate this web­site, where I real­ly just out­lined every­thing that I knew. And then it also pushed me to learn more and to sharp­en up my skills and my knowl­edge. So real­ly good fit. For me as well.

Cameron 57:34

I think that’s the best thing about pub­lish­ing any­thing online, or in a book or in a film is it real­ly makes you have to try and get your shit straight. You have to know what you’re talk­ing about. Yes.

Tony 57:47

That’s a big step. I know, you’re new to invest­ing, you’re doing it your­self. And you’ve decid­ed to pub­lish about it. That was what made you take that step.

Lucky Dun­can  57:56

Yes, so the pace that I learned, just because I had to put my knowl­edge out there was so much greater than I would have been oth­er­wise.

Cameron 58:09

And so tell us a lit­tle bit about your own approach to invest­ing? What method­ol­o­gy do you put into prac­tice when you’re think­ing about buy­ing some­thing?

Lucky Dun­can  58:21

Yes, I cre­at­ed my own strat­e­gy I used to, I use an anal­o­gy that I think would res­onate with teenagers. And that’s of a road trip. So I imag­ine you’re going out into the stock mar­ket, you’re send­ing out on a on a road trip, and there are var­i­ous things that you need for a road trip. And so I sort of split up the stock mar­ket into three dif­fer­ent areas. And I think that any good strat­e­gy will have aspects of these three areas.

So the first thing for your road trip is you want to you want a car, and I imag­ine this as the com­pa­ny that you’re invest­ing in the vehi­cle that’s going to take you from A to B and you want to you want to have a good car to dri­ve it, you want to first of all make sure that it can actu­al­ly get you there. And so I look at the growth of the com­pa­ny now. Is it? Is it actu­al­ly expand­ing? Or is it declin­ing? And then I look at, well, you want to you want to be safe while you’re on this road trip.  So how’s that? How’s the finan­cial posi­tion of the com­pa­ny, in terms of the bal­ance sheet and the debt and equi­ty and all that? Yes, the oth­er thing is, when you’re going out on this road trip, you want to get the most bang for your buck in terms of the car that’s tak­ing you there, like ide­al­ly, you’re going out in a Lam­borgh­i­ni or a Fer­rari or what­ev­er. It’s not always fea­si­ble, you want to you want to buy these com­pa­nies at a rea­son­able price. And that’s what makes the road trip worth­while.

Cameron 59:46

Good anal­o­gy.

Lucky Dun­can  59:47

Because yes, so the sec­ond aspect is, I called the dri­ver which is I equate to sort of the tech­ni­cal side of the stock in terms of the bulls and the bears and who’s in con­trol. You want to be with the trend in the stock and I out­lined ways that you can ana­lyze the strength of this trend and how you can find turn­ing points where you want to get into the stock.  And final aspect is the road that you’re trav­el­ing on. And I equate that to the gen­er­al mar­ket, like the over­all macro econ­o­my and investor sen­ti­ment on a on a large scale. And I think that’s quite peo­ple over­look that aspects.  And it is very impor­tant because the major­i­ty of stocks fol­low the gen­er­al mar­ket and every­thing can be look­ing good in terms of your car and your dri­ver. But if the investor sen­ti­ment is poor, then you can get burned by the stocks if you’re invest­ing at the wrong time. So yes, it’s absolute­ly impor­tant to con­sid­er all three aspects.

Tony 1:00:59

And so what kind of investor would you say you are? Is it? Is it a mix­ture? Are you val­ue? Are you growth? What style do you like?

Lucky Dun­can  1:01:06

I lean towards the val­ue side, but I do con­sid­er growth as a major part of the stocks I’m invest­ing in, because any val­ue in the stock comes from its abil­i­ty to pro­duce cash flows into the future, and you want those cash flows to not only be con­stant over time, but actu­al­ly increas­ing. And the greater the increase in cash flows, the more val­ue you can get from your­self.

Tony 1:01:32

And has the jour­ney gone well for you? Do you pub­lish your returns at all?

Lucky Dun­can  1:01:36

No, I’m not actu­al­ly quite sure. I’ve nev­er mea­sured my exact returns, but I’d say any­where from 15 to 20%. But I’m still quite, quite fresh from the mar­ket. And in the last five years think­ing about the return of the mar­ket in gen­er­al, I haven’t real­ly expe­ri­enced a huge bear mar­ket last­ing longer than a few months. So yes, I haven’t real­ly had all the ups and downs that you guys have been through as all these.

Tony 1:02:04

Yes, let’s ter­rif­ic. So are you find­ing with the web­site, you’ve cre­at­ed that peo­ple are con­tact­ing you and ask­ing ques­tions and want­i­ng to invest with you or invest like you?

Lucky Dun­can  1:02:15

Yes, absolute­ly. I think it’s real­ly good to hear that. Like, it’s actu­al­ly inspired a lot of young peo­ple to invest in the mar­ket for the first time. It’s got a lot of pos­i­tive feed­back. And I’m real­ly glad that I can actu­al­ly help peo­ple out to get them to make that first step on their invest­ing jour­ney.

Tony 1:02:33

Oh, that’s real­ly good. And of course, this the snow­ball effect will be bet­ter for you start­ing at 50.

Lucky Dun­can  1:02:40

Yes, that’s right. Just real­ly start the greater the snow­balls are going to be in the end.

Tony 1:02:44

Yes, that’s a bril­liant,

Cameron 1:02:46

What have you deduced from this expe­ri­ence over the last few years lucky about the way that mil­len­ni­al tend to think about invest­ing, I’ve got a cou­ple of sons that are 21 of them is an active investor. And I know that he’s very seri­ous about invest­ing over the next 20 years in order to set him­self up. But I get the sense just from, you know, what they tell me about their friends and their cohort in gen­er­al, what you will see in the media that mil­len­ni­al are most­ly into bit coin and grew high growth stocks and a lot of sort of what we would say high risk, high reward type invest­ment strate­gies. But your fin­gers prob­a­bly more on the pulse, what do you think Mil­len­ni­al are look­ing for when it comes to invest­ing?

Lucky Dun­can  1:03:46

No, I think you’re absolute­ly right. And I think young peo­ple the first time they hear about the mar­ket is through social media and these claims of peo­ple mak­ing how­ev­er much mon­ey in in a few days’ time and being lured in by these extreme­ly spec­u­la­tive high risk, high reward sit­u­a­tions and some pret­ty ter­ri­ble advice.  Unfor­tu­nate­ly, the stuff they may expose to and they don’t real­ly get to hear the oth­er side of it like how you want to be com­pound­ing over time and real­ly grad­u­al­ly build­ing up your wealth. I think if  they are hear­ing that it’s from their  grand­par­ents or some­thing and they think, what are you talk­ing about these peo­ple on social media are mak­ing hun­dreds of dol­lars a day just in cryp­to cur­ren­cy or these growth stocks? Yeah.

Cameron 1:04:40

Yes. Either from their grand­par­ents or from peo­ple who are old enough to be their grand­par­ents like us.

Lucky Dun­can  1:04:45

That’s right. Yes.

Cameron 1:04:47

Yes. Well, good on you for try­ing to edu­cate them in a dif­fer­ent way. Like, I guess that’s the chal­lenge is that they think that slow and steady is anti­quat­ed and bor­ing. They want to get rich quick as every gen­er­a­tion does, every gen­er­a­tion wants to get rich quick. I think it’s only by the time that you get to our age that you real­ize, well, Tony worked it out, let’s say to the 90, but you get to 50. And you go, Oh, OK. You’ve seen the get rich quick schemes fail enough times in your life­time that you real­ize that it nev­er works. It does­n’t work for most peo­ple. Any­way, it works for a very small per­cent­age of peo­ple that get away with it. But it’s luck more than any­thing else.

Tony 1:05:32

Yes, well, they’re pump­ing it and then dump­ing it.

Cameron 1:05:36

So I think, hav­ing a good sort of long term strat­e­gy when you’re young and being able to stick to it, and hav­ing the wis­dom to not get sucked into get rich quick schemes and pump and dump. So just stick to a strat­e­gy is great.  I did an inter­view with an old of mine on this show ear­ly on. His name is Steve Sam­marti­no. If you should check out that episode and have a lis­ten, because he start­ed invest­ing seri­ous­ly when he was most­ly in ETFs. But he start­ed doing it when he was in his ear­ly 20s. And just stuck to it. And by the time he was in his mid-30s, he built up enough of a port­fo­lio that he could retire from his cor­po­rate job and just go and do the things that he real­ly want­ed to do.  So those sto­ries are out there of peo­ple that just got into it ear­ly took it seri­ous­ly. He threw every­thing he had into it. And just let the com­pound­ing tak­ing there over the next 10 or 12 years or what­ev­er it was. Yes, so they’re inspir­ing and slight­ly depress­ing sto­ries. If you don’t do that. It’s depress­ing. Yes, shit. Why did­n’t some­body tell me to do that when I was 20? But you’re out there doing it so good on you.

Tony 1:06:58

Who are your heroes, Lucky? Who do you look up to for men­tor­ship or advice?

Lucky Dun­can  1:07:03

Oh, that’s a good ques­tion. Yes, one of my favorites is Peter Lynch, I think he wrote a book called one up on Wall Street, I’m sure you’ve heard of it. And in his book, he talked about the advan­tage that you and I will have over sort of Wall Street, Wall Street pros. And we use sort of our inside knowl­edge of these com­pa­nies. And when we see com­pa­nies out on the street, in the super­mar­ket, at the depart­ment stores, you notice which prod­ucts are tak­ing off and which ones are real­ly pop­u­lar. And for 14 ages, they tend to be on top of on top of what’s trendy and fash­ion­able. And that real­ly gives us an advan­tage over every­one else.

Tony 1:07:58

Yes, It’s a good point. Like I was think­ing about buy­ing shares in the com­pa­ny when I first start­ed using their prod­uct, and I had­n’t come across it before. But it hap­pens to us all these two I start­ed drink­ing luck scotch. But I think I missed the bot­tle. I did­n’t buy the shares ear­ly enough. But check out the graph on lark whiskey at some stage.

Cameron 1:08:20

All right, good stuff, Lucky. Well, every­one out there. I know like our audi­ence tends to be old­er, but they’ve prob­a­bly got kids or grand­kids your age. So we’d urge every­one who has teenagers to send them a link to stock mar­ket for teens.com it prob­a­bly speaks their lan­guage more than we do on this show.

Tony 1:08:44

And yes, so before you go, we often get asked by par­ents, how do they moti­vate their kids to get tak­en inter­est in the stock mar­ket? What would be your advice to those par­ents?

Lucky Dun­can  1:09:00

Think well, the thing for me that moti­vates me is that free­dom of choice and I think sort of the val­ue of mon­ey and hav­ing it hav­ing it work for you in terms of pas­sive income and think if you can get your kids to under­stand the pow­er of this com­pound inter­est in gen­er­at­ing pas­sive income where you don’t have to work real­ly pow­er­ful.

Tony 1:09:23

How do you do that? Is that read­ing Rich Dad Poor Dad?

Lucky Dun­can  1:09:27

Yes, I did read that. But it’s real­ly a lot of books sort of sparked my pas­sion for it, see­ing how the pros did it and how it was some­thing that actu­al­ly works when you stick to it.

Tony 1:09:39

And what about the mechan­ics of it? Like how would you tell one of your younger friends to start invest­ing? How do they know what sort of plat­form do they go on? What kind of bro­ker do they use? How small can you start with? What’s your advice there?

 

Lucky Dun­can  1:09:51

Unfor­tu­nate­ly, teens can’t actu­al­ly direct­ly invest in the stock mar­ket. You have to be 18 or over but what you can do is cre­ate what’s called a cus­to­di­al account, I believe it’s under the par­ent or guardians name. But the teenag­er is the ben­e­fi­cia­ry. Once the teenag­er does turn 18, the account trans­fers into their name. So the par­ent has to make all the deci­sions in Medicare and pro­vide the funds that can’t be can’t be the teenag­er, but there’s noth­ing to say how involved the teenag­er can be in that process.  If you have a good rela­tion­ship with your par­ent, then you can you can be col­lab­o­rat­ing on the process decid­ing which stocks to invest in togeth­er, which approach do you want to take? And I think that’s a real­ly good idea.

Tony 1:10:40

I think one of the big things I’ve noticed in my invest­ing career is that when I first start­ed out pre inter­net, I start­ed with a stock­bro­ker, he was a friend of a friend, and became a friend. And you’d asked him the ques­tion, how much mon­ey do you need to start with, and he would say about $80,000 to cov­er the costs, and diver­si­fi­ca­tion, all that kind of stuff. And back then, if you were invest­ing in the share mar­ket, it would cost you know, sort of 1.2% for trade so and you had lots of oth­er costs you had to incur.  Any­way, thing I’ve learned over the years is that with stock broking being dis­in­ter medi­at­ed by the Inter­net, and now just in the last cou­ple of years with the advent of El Toros and net wealth and South wealth, and all those kinds of things, and Robin Hood in the states and super­hero here and that’s become a… the amount you need to start off in the mar­ket has become quite small. And I think that’s the mes­sage that needs to get out to teenagers.

Lucky Dun­can  1:11:44

Yes.

Tony 1:11:44

How small do you think you can go to still make it worth­while to start?

Lucky Dun­can  1:11:51

Yes, well, you have to find the right bro­ker. So depend­ing on who you’re with, you can be charged $20 com­mis­sion on your trades, which is when you have mid­dle funds to begin with that real­ly eats into your return. So you have to con­sid­er that you know, but I think I think you can start with $1,000 and find a bro­ker that does­n’t have enor­mous com­mis­sions, and that we’ll be able to build that up sig­nif­i­cant­ly over time.

Tony 1:12:19

1000 bucks. So that’s the thresh­old with all the kids out there.

Lucky Dun­can  1:12:23

Yes, nice round num­ber.

Tony 1:12:25

Get 1000 bucks togeth­er, go to your plat­form and start invest­ing as soon as you can.

Cameron 1:12:30

Maybe learn a few things first, and then start invest­ing.

Lucky Dun­can  1:12:33

That’s right. Yes, the way I like to think about is that your teenage years are the best years for you to get that expe­ri­ence and actu­al­ly learn, because I men­tioned, when you’re a teenag­er, and you lose, say, like 20% of your mon­ey as a teenag­er that you know, a few $100 it’s not too big of a deal. You can earn that back by work­ing for a few hours, but when you’re 40 or old­er, and he lose 20% of your net worth that’s quite sig­nif­i­cant. And you’d be say­ing to your­self, I wish I made these mis­takes ear­li­er.

Cameron 1:13:11

Yes, that’s a good point.

Tony 1:13:13

Yes. Good advice.

Cameron 1:13:14

All right. Well, thanks again for com­ing on and chat­ting. Lucky. Con­grat­u­la­tions on the site. Well done. And yes, we urge every­one with teenagers or young adults out there to send them to stock mar­ket for teens.com. And get them on the right track. Good on you, mate. And what are you going to do for the rest of the night? How are you cel­e­brat­ing your birth­day tonight? watch­ing War­ren Buf­fet­t’s last AGM for three hours? That’s what Tony does every year on his birth­day.

Lucky Dun­can  1:13:46

Yes, I don’t know about that.

Tony 1:13:49

I just saw they released I think anoth­er nine hours of film that did­n’t make it into the Becom­ing War­ren Buf­fett doc­u­men­tary on YouTube, if you want to watch that.

Cameron 1:13:58

Oh, the guy. There’s no bet­ter way to spend your birth­day.

Lucky Dun­can  1:14:03

Yes, well, there are many options these days in Mel­bourne.

Cameron 1:14:07

That’s true. Yes, well, stay safe. Lucky. Enjoy the rest of your day, mate. Hap­py birth­day.

Lucky Dun­can  1:14:13

Thank you. And thank you for hav­ing me.

Tony 1:14:15

Well done. Good luck, mate.

Cameron 1:14:18

All right. Well, Tony and I just went and got our­selves some scotch­es. So it’s good. It’s it’s the whiskey hour now on QAV.

Tony 1:14:25

Yes, it is. That’s right. I joined a cou­ple of scotch whisky asso­ci­a­tions dur­ing the lock­down. I’m quite stocked up at the moment.

Cameron 1:14:34

So you told me last week that you’re drink­ing less dur­ing lock­down, buy­ing more?

Tony 1:14:41

Yes, that’s right. I’m hav­ing a cou­ple of scotch­es at night. I’m just sit­ting on them for about four hours. It’s quite nice. It’s good.

Cameron 1:14:49

How many did you have before lock­down?

Tony 1:14:53

A cou­ple of Negron i’s, a cou­ple of scotch­es, a cou­ple of bot­tles of wine. A cou­ple of bot­tles of wine. A cou­ple of bot­tles of wine? Oh between Jen­ny and I. No, I’m exag­ger­at­ing. A cou­ple of glass­es of wine any­way.

Cameron 1:15:06

Yes, OK. Oh, well I’m drink­ing Talisker storm. What have you got there? What are you drink­ing? Do you know?

Tony 1:15:14

I’m drink­ing some­thing called tof­fee shot.

Cameron 1:15:16

Oh, that sounds good.

Tony 1:15:18

Yeah, it’s from the Sin­gle Malt Scotch Whiskey Asso­ci­a­tion. So they put togeth­er their own cask. They don’t tell you where the whiskey comes from. But they source it.  I tell you gen­er­al­ly this is a Spey­side.

Cameron 1:15:36

Right.

Tony 1:15:37

They tell you about it. Give you some tast­ing notes, etc. Yes, and it’s from a first fill X bour­bon bar­rel, and it’s nine years old. And they sell like 100 bot­tles or 200 bot­tles, what­ev­er the cask holds.

Cameron 1:15:57

And then what does every­one else get? When are we going to get the QAV whiskey? That’s what I want to know.

Tony 1:16:05

Yes, we should.

Cameron 1:16:06

We got to talk to Nico about get­ting…

Tony 1:16:09

Well, we can take some orders. I think it costs $4,000 at Archie Rose to get a bar­rel and make your own blend.

Cameron 1:16:17

Right. The Archie rose peo­ple we were sit­ting on the table with the [crosstalk 01:16:23] Yes. Love­ly folks. Won a bunch of awards too.

Tony 1:16:27

Yes, no, it’s good. All right, they put out a nice Negroni, too, which I’ve been drink­ing.

Cameron 1:16:32

They put it like in a bot­tle, they’re grow­ing it in a bot­tle?

Tony 1:16:35

Yes, but it’s made of like, it’s called Aus­tralian Negroni or some­thing like that. It’s got some Aus­tralian wild­flow­ers in it. Yes.

Cameron 1:16:44

Love­ly. All right. Well, if we slurred while we answer the next few ques­tions, you know why.

Tony 1:16:53

We’re hav­ing fun.

Cameron 1:16:54

And I’m just going to try and remem­ber which ques­tions I sent you this morn­ing. And which I added in lat­er.

Tony 1:17:00

How about I read them. So I know where we are.

Cameron 1:17:01

Yes. [laugh­ing]. I got noth­ing to do. I’ll just turn the air con­di­tion­er back on and mute my micro­phone. Why don’t you tell me which one you want to do? And I’ll read it out.

Tony 1:17:14

All right, Daniel’s ques­tion.

Cameron 1:17:15

Right.

Tony 1:17:16

So you sent me a use, by the way, peo­ple I got this note this morn­ing say­ing we’ve got two ques­tions. [laugh­ing] One o’clock, we had 10.

Cameron 1:17:26

Yes, well peo­ple jumped. I said that on Face­book, we’ve only got one ques­tion. And then peo­ple jumped on. And I found a cou­ple of email over the week­end that I’d missed. And peo­ple email me on the week­ends. I’m not read­ing email on the week­ends. Daniel. Hi, mate. cou­ple of ques­tions for the show. One when adding to a posi­tion or top­ping up? Is it from this price that Tony would apply his 10% rule? rule num­ber one he’s talk­ing about here. So if you’re adding to a posi­tion or top­ping up, it’s the price that’s your buy price that the 10% rule applies to, yes.

Tony 1:18:01

Yes, it’s the aver­age. If we’re adding to it. It’s the aver­age price. Cor­rect. And look, it’s these these ques­tions assume… [laugh­ing]

Cameron 1:18:14

assume that you actu­al­ly have a rule when you…

Tony 1:18:16

Cor­rect. Yes, I have some guide­lines, a frame­work. I don’t real­ly have sci­en­tif­ic rules on all this.

Cameron 1:18:21

Yes.

Tony 1:18:21

And if I appear to be real­ly slick about it, I mean, it has­n’t both­ered me, because if one shares in a 20 stock port­fo­lio drops by 10%, it’s 10% of 5%. The port­fo­lio is down by half a per­cent. I mean, it’s just noise.

Cameron 1:18:39

Right.

Tony 1:18:39

Your port­fo­lio can move by more than that in a day any­way, just nor­mal­ly. So don’t get too tied up on these rules, guys.

Cameron 1:18:47

Yes. What did you see? I end­ed up after I did the Edit last week. I gave last week’s episode, the title of Rule Num­ber Two. Rule num­ber one is nev­er lose mon­ey. Rule num­ber two is but don’t dri­ve your­self crazy think­ing about it like. Don’t get obses­sive. Like I have been over the last cou­ple of weeks.

Tony 1:19:08

I saw that and I thought hang on, rule num­ber two is don’t for­get the rule num­ber one.

 

Cameron 1:19:12

Yes, I changed it to just don’t dri­ve your­self crazy mon­i­tor­ing it, hit­ting refresh every 30 sec­onds like I have been. [laugh­ing]

Tony 1:19:26

Yes, What can hap­pen is that as we see with some of these stocks will go down 11% your sell at now go back up. So take your time, con­sid­er the con­text and sit­u­a­tion as well.

Cameron 1:19:38

Yes, like so the EHL you were talk­ing about ear­li­er?

Tony 1:19:41

Yes.

Cameron 1:19:42

Took a hit. But real­ly still good com­pa­ny. And you think the mar­ket might have over­re­act­ed. So…

Tony 1:19:49

Yes, so if it keeps going down. Sure. Sell it. But yes. So the rules aren’t hard and fast with this.

Cameron 1:19:57

Yes. Well, part two to Daniel’s ques­tion is I’ve noticed, as Tony has men­tioned, stocks can move around a fair bit a few days before results. And it makes him curi­ous as to whether or not there’s insid­er infor­ma­tion being shared nev­er, nev­er, nev­er would hap­pen in Aus­tralia, Daniel, nev­er, but not to divert from the point has he ever thought to put a mar­ket in at safe minus 5% a few days before to stop any unex­pect­ed loss­es, the mar­ket audit of mar­ket order, of course, would have to be in more liq­uid close spread stocks to stop any down­side pro­tec­tion and to let the upside run if we should be pleas­ant­ly sur­prised.

Tony 1:20:39

So I guess what he’s say­ing is, if you’re com­ing into a com­pa­ny report­ing, do you put a stop loss and in case the users bad? And I don’t do that? No. And maybe I should, but I don’t do it. Again, because yes. As we said, the com­pa­ny might score well drop for a while, and the mar­ket real­ized that they got it wrong and, and buy into the com­pa­ny. And don’t for­get, if the num­bers are good, and the share price is depressed, that’s a good time to buy.  So yes, I don’t do that the only time I’ve ever sold the stock com­ing into report­ing sea­son. And I won’t say the name of the stock because I may get it wrong. I’m pret­ty sure it was def­i­nite­ly a retail I’m pret­ty sure it was. Any­way, I won’t say the name of the stock that, well, it’s just I could have it wrong that’s all because it’s going back a while. And we’re drink­ing scotch.

Cameron 1:21:35

[laugh­ing]

Tony 1:21:36

And [laugh­ing] so the mar­ket start­ed to slide in the stock. And it’s nev­er good look­ing at a par­tic­u­lar­ly for a retail­er. Because we’re any real­ly big stock, but retail­ers in par­tic­u­lar, because there’s so many ways to pick up if a retail­er is hav­ing prob­lems that they’re slow­ing down the pay­ment of their sup­pli­ers and not reorder­ing stock to the same lev­els. Maybe they’re tak­ing longer to pay their bills, maybe they’re putting peo­ple off. We’re giv­ing them less shifts, that kind of thing.  So it does­n’t take long for some­thing unusu­al to get out in the mar­ket. And this retail­er, it stock was slid­ing going com­ing into the results, and I sold it and it was the right move. But that’s one stock in the his­to­ry of my invest­ing. So, yes I’m not too wor­ried about it. Maybe I should­n’t be but again, it’s one stock and if it drops 10% it’s noise as far as your over­all port­fo­lio is con­cerned.

Cameron 1:22:42

Right, OK, thank you, Daniel, what do you want to do next, big man?

Tony 1:22:49

OK, we got Well, there was I’ve got a ques­tion for peo­ple. So there was a ques­tion from Dean who I don’t think is a sub­scriber but lobbed in an inter­est­ing ques­tion any­way, which we don’t nor­mal­ly look at. But do you want to read that one out?

Cameron 1:23:05

OK so Dean asks, he’s talk­ing about oper­at­ing leas­es. He says the account­ing stan­dard for leas­es changed a year or two ago. And one of the impacts of the change was that as a result of the change, oper­at­ing leas­es had to be account­ed for on bal­ance sheet. If the state­ment of cash flows is sor­ry, in the state­ment of cash flows. This then meant that the cash flows from oper­at­ing leas­es change from being an oper­at­ing cash flow to a financ­ing cash flow. For large enti­ties with large rental costs.  For exam­ple, Maya this then meant that oper­at­ing cash flow increased sub­stan­tial­ly as the cash out­flow from leas­es moved from oper­at­ing to financ­ing. I was just won­der­ing if Tony changed his process­es as though when this occurred in look­ing at price to oper­at­ing cash flow, because all things being equal busi­ness­es would have looked much bet­ter val­ue when in real­i­ty, the improve­ment would just be due to a change in account­ing stan­dard.

 

Tony 1:24:01

Yes, look, it’s a good ques­tion. I don’t have an answer for I cer­tain­ly haven’t changed the way I look at oper­at­ing cash flow. And again, this is a bit like the iecex [pho­net­ic] exam­ple where things have moved in a cash flow line and it’s pret­ty arcane. So I did go through and research it. Yes, does­n’t make a lot of sense and got a ques­tion some­times these things like the gen­er­al­ly accept­ed account­ing prin­ci­ples, which are… I don’t know group of aca­d­e­mics get togeth­er and decide to change the rules on account­ing, it’s like they real­ly help with are they real­ly hinged­ly they’re doing real­ly care but any­way, they they’re talk­ing about how a busi­ness accounts for leas­es.

One of the big things that hap­pened when I was work­ing was that there was a process called sale and lease­back so if you were a retail­er and you own the stores out­right on the prop­er­ty under Nathan, you could sell that off, and then do a deal with the buy­er to buy it back at a decent yield for the pur­chase for the per­son who pur­chased the prop­er­ty of you.  And that actu­al­ly improved your return on equi­ty, some­thing we’ve spo­ken about in pri­or shows, which was a met­ric every­one was focus­ing on.

So was it the best thing for the com­pa­ny? Maybe, maybe not. But it was the best thing for man­age­ment to get their bonus­es because every­one was being mea­sured on ROI.  So this is sounds like it’s try­ing to address that in terms of account­ing for leas­es, if it goes into all sorts of arcane exam­ples about how do you amor­tize the least cost, if you’re con­tin­u­ing to if it’s a long lease, if you’re con­tin­u­ing to con­tin­u­ing to use it, if you don’t think you’re going to sell it, or move out? All these kinds of things.  So it has mean that oper­at­ing costs have improved a lit­tle bit, because the essence is that what was a rental cost is now being moved some­where else in the cash flow state­ment, which means oper­at­ing cash flow goes up. It’s very arcane. I’m inclined to think that there was a step change. And if you can see it your­self, if you look back in Stock Doc­tor. On some of our retail com­pa­nies like Maya, JB Hi-Fi etc., their oper­at­ing cash flow did go up a cou­ple of years ago. And they’ve kind of stayed lev­el since.

So I’m inclined just to let that slip through and ignore it. Large­ly, maybe it does give the retail­ers a bit of a bump, but maybe they should have had that bump all the way along to so I’m not going to real­ly care about it. But I want­ed to talk about this because I want­ed to just throw it out there. I know there are peo­ple out there who have bet­ter account­ing skills and me and more knowl­edge on these kinds of sub­jects. If they want to weigh in with some advice, that would be great. I’m not inclined to do some­thing like you know, dis­count the oper­at­ing cash flows on retail­ers, because then we’re, again, start­ing to mess around our­selves with a line item, which I like, because it’s been fair­ly pure and we don’t need to do fur­ther analy­sis on it. But be inter­est­ed to get oth­er peo­ple’s takes on it.

Cameron 1:27:07

OK, I think Dean who sent this ques­tion in but won’t hear your answer, because he’s not a sub­scriber. I think he’s, I think he’s an audi­tor with a bit dif­fer­ent phone to James.

Tony 1:27:24

OK, well, James might have an opin­ion about it, too.

Cameron 1:27:29

That’d be great. All right.

Tony 1:27:30

Yes.

Cameron 1:27:31

Thank you for that one. Now, where do you want to go?

Tony 1:27:34

What do we get? I want to I can we got some ques­tions from Face­book, which we can go through in a sec. But a cou­ple of things that peo­ple have sent us which are worth read­ing out through in the read out some of those. Actu­al­ly, you might not have lis­tened to the Howard Marks quote, but-

Cameron 1:27:53

No, I don’t think so.

Tony 1:27:54

OK, so I think it’s might have been Steve maps had us through a quote from how it was sent us through a quote from Howard Marks, lat­est epis­tle. And some­thing struck me as being very in line with QAV so this is the quote, Howard Marks says many investors think their job requires him to devel­op a macro out­look, and invest accord­ing to its dic­tates. Suc­cess­ful stock pick­ers or Real Estate Buy­ers often make pro­nounce­ments regard­ing the macro out­look, even in the absence of evi­dence link­ing their invest­ment suc­cess to accu­rate macro fore­casts.  Nonethe­less, since macro devel­op­ments are so influ­en­tial, many peo­ple think it’s down­right irre­spon­si­ble to ignore them when invest­ing yet macro fore­casts are like­ly to either turn out to be unhelp­ful or use­less. And he goes on to say that macro fore­casts aren’t very help­ful and he would nev­er hire an econ­o­mist that his com­pa­ny Oak tree cap­i­tal. So I thought that was a great quote. Thanks for send­ing that one through. Do you have the quotes there from Quo­ra which some­one sent through a cou­ple of weeks ago?

Cameron 1:29:11

No, that was weeks ago.

 

 

Tony 1:29:13

Yes, they’re good. So Jeff, thanks to Jeff for send­ing through these tips. This is a list of invest­ing tips that he found on Quo­ra, Q U O R A. The aver­age investors returns are about 40% of what the index pro­duces. This is often pre­cise­ly because they assume this time is dif­fer­ent. Every time an event like a virus or 911, or crash hap­pens, they sell out. The dead per­formed or liv­ing in invest­ing. The dead out­per­formed the liv­ing in invest­ing those who for­get about their invest­ment accounts to the best amongst the liv­ing. They can’t pan­ic by def­i­n­i­tion. [laugh­ing]. The aver­age British or Amer­i­can per­son only has about $10,000 invest into retire­ment, and most don’t have a work­able alter­na­tive like a pas­sive income gen­er­at­ing busi­ness.

Cameron 1:30:11

That makes me think I caught up with Peter Elliot, my old friend. Yes­ter­day at four, he and his part­ner up in the Gold Coast. They’re from Mel­bourne, they came up when Mel­bourne got out of lock­down, and now they haven’t been able to go back but we were talk­ing about he was going on about Paul Keat­ings great gift to Aus­tralia, of super­an­nu­a­tion,

Tony 1:30:26

Super­an­nu­a­tion, it’s true. Very true. And that’s the dif­fer­ence between Aus­tralia and Amer­i­ca and Britain and Cana­da and all those places they don’t have. I have a super sys­tem. They have 401 K’s and that kind of stuff. But I’m not as knowl­edge­able about the British sys­tem, but cer­tain­ly the US in the Cana­di­an sys­tem is minis­cule com­pared to Aus­tralia and large­ly option­al-

Cameron 1:31:00

Vol­un­tary.

Tony 1:31:01

Which we’re not vol­un­teer­ing.

Cameron 1:31:03

Forced sav­ings for retire­ment.

Tony 1:31:06

Cor­rect? Yes. On aver­age, a stock mar­ket cor­rec­tion hap­pens every two years. So falls of 10 to 20% or above a very nor­mal, there have been count­less 35 to 50% cor­rec­tion since 1941. To true the NASDAQ has been no oth­er mar­kets in the last 30 years going up by about 12% per annum. It decreased by 70%. After 2000 and anoth­er 50%. Dur­ing 2008. It took about 14 years to recov­er from 2000. That did­n’t stop the long term investor from doing well though, if they weren’t patient enough. The S&P 500 has his­tor­i­cal­ly gone up in about 70% of years. It has nev­er been down over a 25 to 30-year peri­od. Which is true. So long term invest­ing. I thought they are inter­est­ing, some good, good tips and points there.

Cameron 1:32:07

Yes, well, I’ve got a quote from Niko­la Tes­la, that I actu­al­ly used on my Renais­sance show last week talk­ing about Leonar­do da Vin­ci. But it also made me think of QAV. This is Niko­la. I’m read­ing Niko­la Tes­la’s auto­bi­og­ra­phy at the moment, which is a trip­py read. I got to say he was a trip­py guy, man. He had some out their ideas and expla­na­tions for his own genius, but it’s almost like if he was doing LSD or if he was tapped into some­thing, man, but it’s crazy.  But any­way, when Thomas Edi­son, his fren­e­my, died. He wrote, there was all these glow­ing obit­u­ar­ies for Thomas Edi­son in the media. And then there was Niko­la Tes­la’s obit­u­ary for Edi­son, which goes like this. He had no hob­by, cared for no sort of amuse­ment of any kind, and lived in utter dis­re­gard of the most ele­men­tary rules of hygiene. His method was inef­fi­cient in the extreme for an immense ground had to be cov­ered to get any­thing at all unless blind chance inter­vened. And at first I was almost a sor­ry wit­ness of his doings, know­ing that just a lit­tle the­o­ry and cal­cu­la­tion would have saved him 90% of the labor. But he had a ver­i­ta­ble con­tempt for book learn­ing and math­e­mat­i­cal knowl­edge, trust­ing him­self entire­ly to his inven­tors’ instinct and prac­ti­cal Amer­i­can sense.

Tony 1:33:37

So I went to Edis­on’s place in Flori­da when I was there hold­ing once. It’s real­ly good Muse­um, the Edi­son Muse­um, but you pick up on the fact very quick­ly that Edis­on’s strong suit was find­ing some­body else’s inven­tion, tak­ing out the patent and insert­ing them into the ground. Basi­cal­ly, he did­n’t do a whole lot of invent­ing him­self. Or he invent­ed the lawyer process, basi­cal­ly.

Cameron 1:34:03

Yes. Well, and it was Thomas telling us the thing I was telling Peter ear­li­er yes­ter­day that, I grew up hear­ing the sto­ry of Edi­son try­ing 1000 dif­fer­ent com­bi­na­tions to come up with the right fil­a­ment for the live Mel­bourne. It always gets sold, as well. That’s a tes­ta­ment to his per­se­ver­ance and Amer­i­can inge­nu­ity and the whole thing, Tes­la’s like, he could have done it in 15 min­utes if he just read a bloody book on physics. [laugh­ing] No, it’s not some­thing to be proud of.

Tony 1:34:43

Yes, well, there’s a plen­ty of exam­ples like that. And per­se­ver­ance is the oth­er theme that comes out that there was a sto­ry about his fac­to­ry burn­ing down and he, lost a whole heap but just moved on straight­away to rebuild the fac­to­ry to that one. fell into the swap one. The next one stood up. He were the thought that exper­i­men­tal light bulb fac­to­ry would burn.

 

Cameron 1:35:11

But the thing I took out of in terms of invest­ing is like a lit­tle the­o­ry and cal­cu­la­tion and some machine learn­ing and goes a long way to our method, your method of invest­ing, right? There’s some-

Tony 1:35:26

You’re 90% ahead of the pop­u­la­tion, aren’t you?

Cameron 1:35:28

There’s some the­o­ry and sci­ence behind it. You’re not just throw­ing mud at the wall and hop­ing it sticks, which I think is why most of us invest.

Tony 1:35:36

Yes, not nec­es­sar­i­ly rein­vent­ing, not nec­es­sar­i­ly invent­ing the wheel from scratch or time to.

Cameron 1:35:41

Yes, well, that’s how it came into the Vin­ci sto­ry. And I apol­o­gize for peo­ple at home who don’t care, but I’m going to tell it any­way.

Tony 1:35:50

It’s their high­light of the week­end [laugh­ing].

Cameron 1:35:52

[laugh­ing] Lis­ten­ing to you is the high­light, lis­ten­ing to me they just fast for­ward through every­thing I say prob­a­bly. Da Vin­ci. in the first 3040 years, he was alive he because he did­n’t get a for­mal edu­ca­tion, because he was the bas­tard’s son of the fam­i­ly. He kind of poopooed peo­ple with a real edu­ca­tion. And he’s in the 1414, late 1480s, ful­ly 90s, in the cor­ner, Milan and a Ludovi­co Sforza, which is sur­round­ed very sur­round­ed by the most pre­em­i­nent thinkers of Italy at the time, very edu­cat­ed. And they’re always quot­ing from the clas­sics, which peo­ple had at that stage.  They’re quot­ing Cicero, and Aris­to­tle, etc., etc. And he wrote in his note­books where they can quote, but what do they real­ly know, I know from per­son­al expe­ri­ence, because I go out there, and I do my own research. But then he start­ed to get his hands on more books. Because the same year he was born 1452 was the year that Guten­berg invent­ed the print­ing press, or the first year, he came out with the Bible any­way, the Good Book Bible, which was the first book that he print­ed.  And so by the time divi­no, by the time Da Vin­ci is in Milan, in the 1490s, there are hun­dreds of print­ing press­es in Italy, and mil­lions of books being churned out clas­sics that have been trans­lat­ed into Ital­ian, from their orig­i­nal Greek or Latin. And he’s able to get them and then he starts not­ing in his note­books, the col­lec­tion of books, that he’s build­ing up on sci­ence and tech­nol­o­gy, and biol­o­gy and art and every­thing.  And then he starts to go well, it’s a com­bi­na­tion of per­son­al obser­va­tions and expe­ri­ence, and tak­ing the pre­ex­ist­ing the­o­ry. So you don’t need to work it all out from your­self, you can take the the­o­ry, test it in the real world and see if the the­o­ry holds up, and, or not. And so this is like 100 years before Galileo, he was­n’t the first per­son to com­bine the­o­ry with, you know, first­hand expe­ri­ence and obser­va­tion and exper­i­ment, Roger bacon was doing in the 1200s and grace, a tester in Eng­land, the sort of 12th cen­tu­ry 13th cen­tu­ry.

But, you know, he is one of the first guys that real­ly start­ed to under­stand what we now think of as some of the basics of the sci­en­tif­ic method, tak­ing the­o­ry, com­bin­ing it with obser­va­tion and exper­i­ment writ­ing, revis­ing. For­tu­nate­ly, he nev­er pub­lished his note­books. He nev­er real­ly put it out there. So it took a few 100 years before every­one else caught on to what Da Vin­ci was already doing. But I just thought it was inter­est­ing, this pro­gres­sion where-first of all, he’s like, screw these guys with all their book learn­ing. And then he starts to go, OK, now, well, there is a place for book learn­ing in the­o­ry.

Tony 1:38:54

I think that’s impor­tant. I mean, I think soci­ety pro­gress­es because of the icon­o­clast. So go, I can do bet­ter than these idiots. It’s like Kei­th Moon turn­ing up to the who rehearsal say­ing I can drum bet­ter than him, and get­ting the gig it’s just that sort of these guys are all idiots. I’m bet­ter. That’s a key part of I think that improv­ing things real­ly. Sure. And if 100 peo­ple do that 99 aren’t bet­ter and they fail. They haven’t lost any­thing but the one per­son here who is us gen­uine tal­ent pro­gres­sive things. Yes.

Cameron 1:39:30

Speak­ing of you, so you’re basi­cal­ly draw­ing analo­gies between your­self and Kei­th Moon there, Tony. Say­ing you’re Kei­th Moon of invest­ing. Is that where you’re going?

Tony 1:39:38

[laugh­ing] The slop­py drum­mer of invest­ing yes.

Cameron 1:39:41

You’re not going to drink your­self into an ear­ly grave like Keaton.

Tony 1:39:45

Maybe a light one but now…

Cameron 1:39:46

You have ever dri­ven a car indoor swim­ming pool, Tony, when you’ve been hav­ing-

Tony 1:39:50

No.

Cameron 1:39:51

Was that Kei­th? Was that one of the oth­er…

Tony 1:39:53

Oh, yes. def­i­nite­ly.

Cameron 1:39:54

Bri­an Jones died in this when we built it and yeah, train Rolls Royce. He was Kei­th and Tre­vir Rolls Royce in this movie, I tell you, he’s still, I think he’s my favorite drum­mer of all time, I mean Jimi Hen­drix drum­mers up there as well. I can’t remem­ber his name off the top of my head but and Ringo I think does­n’t get enough cred­it but…

Tony 1:39:59

Yes.  I don’t know, Zach’s much bet­ter than Ringo? Char­lie? Zach?  Yes, Zach. Yes, Ringo’s Zach now drums for the WHO.

Cameron 1:40:25

Oh.

Tony 1:40:28

His clas­sic quote is Kei­th god Ringo could keep time or dad could keep time Kei­th is gone.

Cameron 1:40:36

Yes, Just with his fill his frills and his fills and his flair. And he’s a joy to lis­ten to. He’s just real­ly brings a whole new dimen­sion to it.

Tony 1:40:46

There’s a great clip on YouTube of the Isle of Wight con­cert from the 60s with the Who.

Cameron 1:41:03

Yes.

Tony 1:41:03

And some­thing breaks down on stage. I think it might have been Daugherty’s micro­phone or some­thing. And they take 20 min­utes to fix it. And Kei­th and Town­shend just play off each oth­er with riffs.

 

Cameron 1:41:04

Just go at it.

Tony 1:41:05

Just go at it. It’s bril­liant.

Cameron 1:41:07

Have you seen the clip of them? In the stu­dio record­ing? I think it’s bet­ter you bet or some­thing one of those. And just Kei­th clown­ing around while they’re record­ing the vocal har­monies. He’s just, it’s just hilar­i­ous to watch. Like, it just it looks like it was a lot of fun.

Tony 1:41:26

Yes, def­i­nite­ly.

Cameron 1:41:28

Are we done? Is this our wrap up con­ver­sa­tion?

Tony 1:41:31

We’ve got a lot to go through this. I wor­ry about the Face­book ques­tions. Should we do those quick­ly?

Cameron 1:41:36

Which ones?

Tony 1:41:37

Oh, there was a, there was one from? Let’s have a look. We had one from Alice about the QB graph. Yes.  Yes. So I think you- just in a nut­shell, I think QB is a buy. How­ev­er, accord­ing to its graph, wher­ev­er it’s QAV scores, 09 when I looked at today, so it’s fall­en off, the top score is less because of its score, but it may come back on again,

Cameron 1:42:02

if you draw on the sell-line for this.

Tony 1:42:05

So I don’t like sell-lines or buy-lines that kind of dou­ble inter­sect. So I’ve moved the sell-line to start from the low point and then go through the right most elbow on the graph, if that makes sense. I’ll call up and tell you.

 

Cameron 1:42:21

Yes, right. So the last cell line sort of has been sur­passed by the new sell-line, which goes through that last elbow.

Tony 1:42:30

Yes, cor­rect.

Cameron 1:42:31

Well, yes just…

Tony 1:42:34

So because I think it was actu­al­ly from mem­o­ry, it was a buy or sell at the same time. That’s tak­ing a bit of time for this to come up. And yes, so I’ve got in terms of the buy-line, I’ve got 28th of the sec­ond is H1. And then it goes through 31stof may 2021. And it keeps going along that lit­tle down­turn there. But that was also the first sell-line, which hap­pened at the same time. So the L1 I’m using is Jan­u­ary 2021. And then, at the same time as the buy-line was inter­sect­ing in June 2021, so was the sell-line.  so first of all I want the buy to come after the sell, the sell only come after the buy-line. So I’m now using July 2021, is L2. Right. But also, because I don’t like that, if we keep with the old one that sort of goes through and con­tin­ues up and we’ll get crossed again, pret­ty soon. I think by the upward trend; I’d rather just have two points on the line rather than this sort of climb­ing graph that has a cou­ple of cells on it. We just want the one sell point real­ly.

Cameron 1:43:57

So 30th of July 2020. one’s not real­ly a trough. Cor­rect, because the 30 the June num­ber is low­er than it but you’re using it any­way. It’s like a…

Tony 1:44:07

Yes. So yes, I call it an elbow. Yes.

Cameron 1:44:12

So that’s OK. So it does­n’t have to go through a trough. Yes. And so for the buy-line, you’re using 31 Jan­u­ary is the high point, I assume.

Tony 1:44:25

Oh no, for the Feb­ru­ary for the buy-line Feb­ru­ary 2020.

Cameron 1:44:29

Yes, cause that’s and then there’s a flat line.

Tony 1:44:31

May 21.

Cameron 1:44:34

There is a flat line between Jan­u­ary 20 and Feb­ru­ary, right.

Tony 1:44:39

Yes, it’s actu­al­ly the same line any­way. But it does have to be with­in 8%. Yes

Cameron 1:44:44

Right. And then May is H2

Tony 1:44:48

Yes, cor­rect. Which also again, fol­lows the line. So it’s also May, it’s also June. So that trough you were talk­ing about before is both a buy and a sell which is why I’m hap­py push­ing the buy-line out to that elbow in July. So I want the sell to hap­pen after the boy.

Cameron 1:45:07

Right.

Tony 1:45:11

But any­way, it’s all moved because the lat­est QAB score I had was. 09.

Cameron 1:45:18

Yes, OK.

Tony 1:45:20

Yes. So that was the first one. We had a ques­tion on ASB, which I think is quite a bit below us by price. I’m get­ting a price of 270. For ASB, do you want to have a quick look at that graph?

Cameron 1:45:35

Yes. I think every­one jumped in on the Face­book group with this I think from mem­o­ry and gave some real­ly good answers, which is great to see love it. I got to say love what’s going on with the QAV com­mu­ni­ty?

Tony 1:45:51

it’s good, isn’t it?

Cameron 1:45:52

Smart folks jump­ing in cor­rect­ing my mis­takes. help­ing every­one else out. It’s good. It’s real­ly good.

Tony 1:46:00

OK, so I have a h1 for ASB, which is our stall lim­it­ed of Novem­ber 2019. And h2 of August,

Cameron 1:46:11

Novem­ber, you’re not start­ing yet.

Tony 1:46:13

So we have Sep­tem­ber is 434. Yet Novem­ber’s is 420. They’re pret­ty sim­i­lar. They’re going to be sim­i­lar lines any­way, but I’ll use the sec­ond one in Novem­ber. And then h2 is August. And so that gives me a buy price of around about 270. Share price is ris­ing to meet it but it has­n’t got there yet.

Cameron 1:46:39

Cur­rent­ly 251 I’ve got.

Tony 1:46:41

Cor­rect. Yes. OK. ASB… So I for­got who asked that. But some­one asked if Micheal Hill Jules had a qual­i­fied audit. And it looks fine to me. So there was I think they’re might be get­ting con­fused with the key audit mat­ters, which is not qual­i­fy­ing the audit. So it looks fine to me…

Cameron 1:47:00

That was Cos­man that asked that ques­tion.

Tony 1:47:03

Thank you. I’ve just got some notes here. So I’m sor­ry if I for­get peo­ple’s name, but Andrew did ask a ques­tion about IV cal­cu­la­tions. Do you have the handy or shall I just para­phrase?

Cameron 1:47:15

No, I do. Hold on a sec­ond. I’m just doing screen­shots of those last charts for every­body. OK.  Andrew, asked, look­ing at just about every oth­er invest­ment approach, and even most famed investors them­selves. It seems that a lot of empha­sis is placed on an IV price for…

Tony 1:47:39

Noth­ing.

 

Cameron 1:47:39

I’ll do it. I’ll do it the Da Vin­ci thing.

Tony 1:47:41

They know anoth­er thing.

Cameron 1:47:43

I’m Kei­th Moon. A lot of empha­sis is placed on- that’s going to be the title of this episode by the way, The Kei­th Moon of Invest­ing — is placed on an IV. And again, it seems that a lot of empha­sis is placed on an IV price for a stock for both buy­ing and sell­ing. I believe Tony’s approach is that an IV can be quite hard or impos­si­ble to pre­dict accu­rate­ly. And being in the check­list. I know it fac­tors into the scor­ing of a stock. This makes sense to me. I was won­der­ing though, if there was an IV fig­ure in mind as accu­rate as we could get it? Would this make the buy and sell deci­sion a bit eas­i­er when the share price was flirt­ing with its three-point trend sell- line?

Tony 1:48:26

Yeah, now good ques­tion. And def­i­nite­ly the case if we could. And if you recall, one of the things we talked about putting our port­fo­lio on the straw man was we had to nom­i­nate an IV price. I could­n’t do it. Because you’re sup­posed to do that in straw man. And look if I could get an IV with any sort of cer­tain­ty or with any sort of con­fi­dence, and I would but as we as you know. the check­list, we use a num­ber of dif­fer­ent meth­ods for valu­ing stocks and MTA book val­ue book plus 30, con­sen­sus fore­cast, Stock Doc­tor fore­casts, our IV one and IV two.  So it’s more like a heat map to get eval­u­a­tion and oth­er effects our QAV score rather than say­ing this is the price that we’re going to buy and sell it based on our IV cal­cu­la­tion.

I think what gives me con­fi­dence that that’s the right approach in most cir­cum­stances is the fact that if you look at what Buf­fett did, and what he does, now, he moved away from being the deep val­ue investor that Ben Gra­ham taught him to be when he hooked up with Char­lie Manger who con­vinced him to become an investor who paid the right price for a qual­i­ty stock.  And if you look at a lot of his invest­ments after that peri­od, they’re in com­pa­nies which have incred­i­bly pre­dictable cash flows, our pre­dictable prof­its and incomes. You know and he still does today like he tried to take over Gillette. He has a big stake in Heinz and Proc­ter and Gam­ble and those kinds of com­pa­nies and Coca Cola or obvi­ous­ly, so these are com­pa­nies where it’s, you can with some con­fi­dence pre­dict out in 10 years’ time what their earn­ings might look like, and there­fore dis­count it back into a cur­rent IV. And I guess the equiv­a­lent in the Aus­tralian share mar­ket would be stocks, like, say, Coles and Wool­worths, where that they’re going to just always grow at what­ev­er at infla­tion plus a bit, not much. And it’s been some­one else’s to say that super­mar­kets grow because of immi­gra­tion into the coun­try.

So infla­tion plus immi­gra­tion, so basi­cal­ly, Coles and Wool­worths, and I’m talk­ing about times of when there’s not a huge amount of infla­tion when food prices go up any­way, but basi­cal­ly, those kind of big retail­ers, and you prob­a­bly throw some of the oil com­pa­nies into that as well, like shell where I used to work, they just grow by the num­ber of new stores that they have on the new petrol out­lets, they open. And I tend to just open sort of 5% every year, or there about. And I do it in the growth cor­ri­dor or so you’re think­ing of the Car­o­line springs and Mel­bourne and the pack and I’m cor­ri­dor, and Syd­ney is prob­a­bly the Liv­er­pool cor­ri­dor down South­west. But those kinds of places. And so they’re there, their earn­ings are very pre­dictable.  And so you can say, with some kind of cer­tain­ty for the next 10 years that give or take, Coles and we’re going to have an extrap­o­lat­ed learn­ing expe­ri­ence based on the last peri­ods. And it’s up to you how long you go back four or five years, or 10 years, or what­ev­er. And so the kinds of com­pa­nies that Buf­fet­t’s been buy­ing, and even in the last sort of recent peri­od, he’s been buy­ing heav­i­ly reg­u­lat­ed indus­tries, like rail­roads, and like pow­er com­pa­nies, where their incomes are basi­cal­ly set by gov­ern­ment man­date, you can charge this much to haul freight in the US, because they want to con­trol a monop­o­lis­tic type of infra­struc­ture.  And we can charge this much on upon that to retail end users for pow­er usage. And Buf­fett likes that because it means he can pre­dict what the earn­ings are going to be for those com­pa­nies going for­ward. And he can dis­count it back into what their val­u­a­tion is today.

So he has solved the prob­lem of not being able to have a good han­dle on IV by only invest­ing in com­pa­nies where you can have a good han­dle on IV, we could do the same. But then we’re lim­it­ing our­selves to a very nar­row por­tion of the of the stock mar­ket, a very nar­row por­tion. And if you sort of take the corol­lary of that, then the rest of the stock mar­ket is up for grabs, and is very unre­li­able in pre­dict­ing its cash flows out and then dis­count­ing them back.  So that’s why I’m not a big fan of us, informs my deci­sions, but it does­n’t, it’s not the be all end all of my invest­ing deci­sions, because it’s just so inher­ent­ly dif­fi­cult to do.

Cameron 1:53:02

Yes.

Tony 1:53:10

And if the per­son who asked the ques­tion I’ve for­got­ten his names can, Andrew Sor­ry, can enlight­en me, that’d be great. But I just don’t think it’s pos­si­ble.

Cameron 1:53:19

Yes.

Tony 1:53:19

It involves a crys­tal ball and or time machine. And we have nei­ther.

Cameron 1:53:25

Yes.

Tony 1:53:26

Now look, hav­ing said that, there are some peo­ple who know, an infi­nite amount about a very nar­row sub­ject. And they can say, Well, I expect that the shoe shop, or the cof­fee shop is going to have this kind of demands placed on it, because cof­fee beans are expect­ed to rise in year three, and com­pe­ti­tion will rise in year four, and all that kind of stuff. And I can there­fore pre­dict those cash flows and dis­count them back. Sure. But that’s, again, that lim­its your­self to a very nar­row range of the investable uni­verse.

Cameron 1:54:01

And my under­stand­ing of the way that Buf­fett and Char­lie have worked over the last 50 years is that they spend all day every day, just read­ing reports about the com­pa­nies that they’re look­ing at. So they have a much bet­ter chance of get­ting an accu­rate guess dum­mett of IV because it’s all they want to do is just sit there and look at num­bers.

Tony 1:54:32

But, but the fact is that they lim­it what they look at to what they think they can pre­dict.

Cameron 1:54:38

Yes.

Tony 1:54:38

So it’s a very nar­row uni­verse of things which have great, they call it the moat. So if you think about the stocks which have a moat, the moat once they can uncov­er those, the moat makes the earn­ings very pre­dictable.

Cameron 1:54:53

Yes.

Tony 1:54:53

They won’t be sub­ject to infla­tion or com­pe­ti­tion.

Cameron 1:54:56

So they look at prices.

 

Tony 1:54:58

They lim­it them­selves to prices.

Cameron 1:54:59

So they lim­it them­selves to a smelly… Smelly? There you go, one scotch and I can’t even talk. A fair­ly small not a smelly fall. They might have a smelly fall, a fair­ly small uni­verse of stocks. And then they spend all day every day ana­lyz­ing those stocks. Now you’re not that kind of investor, you don’t want to spend 18 hours a day read­ing finan­cial reports sev­en days a week.

Tony 1:55:26

Cor­rect. But it’s not just that because every­one com­ing out of busi­ness school has been taught to invest that way, guess what they’re doing? They’re try­ing to apply Buf­fet­t’s log­ic and try­ing to find com­pa­nies with moats and try­ing to pre­dict their cash flows. And yes, I don’t want to play that game. That’s where the crowd is. And but I’ve been doing it for 80 years, and they’re good at it. So you’re com­pet­ing against the best.

Cameron 1:55:52

And that’s not your kind of lifestyle deci­sion either. Right.  You got oth­er stuff you want to do with your life.

Tony 1:55:59

Yes, as a great inter­view before with Laugh­lin says he’s work­ing out he wants to invest so he can be free. It’s not the oth­er way around. Yes. So he can live

Cameron 1:56:08

Yes. Well, speak­ing of liv­ing, I think this is a two-hour show. So I’m sug­gest­ing that we just skip every­thing else. And yes apolo­gies to those ques­tions we did­n’t get to this week. Try and get to them next week. Par­tic­u­lar­ly as I put a shout out for ques­tions on the show on that Face­book this morn­ing. I apol­o­gize. But we will get you next week. And I’m look­ing for­ward to see­ing every­body in Bris­bane at the Bris­bane din­ner on Wednes­day night. Sor­ry, Tony won’t be there. But we’ll try-

Tony 1:56:39

I’m very jeal­ous.

Cameron 1:56:41

If he’s free. We might try and Skype him in and just rub it in there. We’re all enter din­ner while he’s locked in lock­down. Yes, we had hun­dreds of peo­ple stream­ing across the bor­der yes­ter­day. So it’s only a mat­ter of time before we’re in the sit­u­a­tion again, too. I think so. We’ll enjoy it while we can. Yes [crosstalk 01:57:09].  All right. Thank you, mate.

Tony 1:57:14

Thanky­ou.

Cameron 1:57:14

Just before you go, the stand not so good at the end.

Tony 1:57:19

No, it was­n’t no. I think the first three or four episodes were bril­liant. And I just went back to that sort of old trope. And yes, it’s from a book that’s what 30 or 40 years old and old trope of God ver­sus the dev­il, which I found pret­ty hack­neyed. real­ly dis­ap­point­ing. I remem­ber when I read it, it did­n’t come across to me like there was more like, good ver­sus evil. And yes, one per­son­al­i­ty type against anoth­er per­son­al­i­ty type. But I don’t play with it. Whether it was the pro­duc­ers did that or whether actu­al­ly I just read Stephen King orig­i­nal­ly.  But yes, the first episodes were great because it real­ly devel­oped that the char­ac­ters and took their time to get to where they had to go, which I found real­ly inter­est­ing and enjoy­able. And then I just went down to you know, orbs with light­ning bolts com­ing out of them attack­ing the dev­il and they’re just like, Yes, please. Yes.

Cameron 1:58:15

That’s a shame. Well give a play for May­or of East town. Oh, good, is it?  Well, we haven’t fin­ished and I think we’ve got a cou­ple more episodes to go but yes real­ly good so far. And if for no oth­er rea­son than just watch­ing her per­for­mance. It’s a I told Hunter. My actors want to be actors and it’s just a mas­ter­class in act­ing like she is just insane­ly good at this char­ac­ter who’s a fair­ly deplorable char­ac­ter. And she’s doing a flaw­less Amer­i­can accent through it. Guy Pearce is good in it as well. He has a sort of a small­ish role, but she’s just so good. And Jean smart, who plays her moth­er in it is just deli­cious. As this iras­ci­ble, sar­cas­tic sar­don­ic moth­er alco­holic, moth­er fig­ure, just good Yes

Tony 1:59:16

I think It’s time to watch it.

Cameron 1:59:17

Yes, it’s on Net­flix. Kate Winslet, she’s old, like she’s old now. She’s mid­dle aged. I mean, younger than us, but still old. If you think of her in the Titan­ic, she’s old but she’s just so good. Oh great.

 

 

Tony 1:59:31

I’ve been watch­ing Ricky Ger­vais stuff. I final­ly caught up with After­life, which I thought was pret­ty good.

Cameron 1:59:39

It’s great.

Tony 1:59:39

Two sea­sons.

Cameron 1:59:40

Yes.

Tony 1:59:41

And I watched some­thing called Spe­cial Cor­re­spon­dence last night with Eric Ban­ner in it and Ricky Ger­vais.

Cameron 1:59:46

I don’t remem­ber that being any good. It was a movie, right?

Tony 1:59:49

I liked it. It’s a five out of 10. But yes it’s worth watch­ing. It’s not my usu­al stan­dard thing. [crosstalk 01:59:58] No, it was a bit of a high con­cept movie but still.

Cameron 2:00:02

I saw him. Did you know about the talk­ing Sopra­nos pod­cast?

Tony 2:00:07

No.

Cameron 2:00:07

Michael Impe­ri­oli who played Christo­pher Mal­ta San­tai and Steve Shaw Rip­per who paid Bob­by Bac­cala have been doing a pod­cast since they were in lock­down in the US, where they just go lin­ear episode by episode and then they get all the cast and crew on to talk about the mak­ing of Sopra­nos and what­ev­er. But they had Ricky Ger­vais on and I watched the YouTube of that episode over the week­end. He’s a huge Sopra­nos fan he says best tele­vi­sion show ever made, bar none and not just the best but like for the fact that it went on so long and was just so con­sis­tent­ly good. Where his mod­el is two sea­sons in and out because you can’t do more than two the old Fawl­ty Tow­ers mod­el but yes, he was just talk­ing about what he loves about the show so much.

Tony 2:00:09

Oh good.

Cameron 2:00:28

But yes, it’s good see­ing him talk about some­thing I talked to he talked about After­life as well. Yes, a lot but which I think is real­ly quite a mature show for him.

Tony 2:01:08

It’s good, isn’t it?

Cameron 2:01:10

He took it to a whole anoth­er lev­el.

Tony 2:01:12

That sounds like the West Wing pod­cast with what’s his name? The guy who played Will Bai­ley.

Cameron 2:01:18

Yes.

Tony 2:01:19

Episode by episode. I quite enjoyed that.

Cameron 2:01:21

Yes, I lis­tened to that for the first six months or some­thing and the guys from Scrubs do a Scrubs pod­cast the main two guys that play JD and Turk do a pod­cast which I’ve lis­tened to one or two. But yes the Sopra­nos one is, it’s quite good. And if for no oth­er rea­son that they have a mil­lion sto­ries about Tony Siri­co, Paulie Wal­nuts in real life, like…

Tony 2:01:45

Right?

Cameron 2:01:45

I don’t know if how much you know about Tony Siri­co. But yes, he’s a real gang­ster. he’s a real deal. So like, he’s total­ly crazy, like cra­zier than Paulie Wal­nuts in real life by the sounds of it. And a lot of his real man­ner­isms made it into the show. Like he’s a germa­phobe. He’s always, always wash­ing his hands with san­i­tiz­er. 20 years before COVID so he was way ahead of the game. And yes, like, just had Car­rie’s mouth spray like mouth fresh­en­er weed spray in peo­ple’s mouths. If he felt; they had bad breath. He’d give them a cou­ple of bursts of they’re just real­ly fun­ny char­ac­ter.

Tony 2:02:24

He had those man­ner­isms though like he used to clench his hands, talk with his hands clenched.

Cameron 2:02:30

[laugh­ing] I love Paulie Wal­nuts. He was good.

Tony 2:02:34

So good. And the hair grey tem­ples. Yes.

Cameron 2:02:38

Well they have a thing on their pod­cast called the winger meter. As the as the series pro­gress­es they ask where are the wings? because his wings just got big­ger and big­ger as the sea­sons went cra­zier and cra­zier all the way back.[laughing] Yes any­way, check that out. If you’re look­ing for some­thing fun.

Tony 2:02:56

[laugh­ing] Yes, I love the sopra­nos. It’s good stuff.

Cameron 2:03:00

All right. I’ll let you go, have a good night. Oh, wait, what’s on the menu tonight? What are you cook­ing?

Tony 2:03:07

I don’t know. I haven’t thought about it yet. I was think­ing maybe veg­gie cas­soway with some chick­en sausages, but we’ll see.

Cameron 2:03:17

Wow, sounds fan­cy. All right. Very easy. Have a good one, mate. Cheers.

Tony 2:03:23

Yes, you too.