Transcription #449

QAV #449 Tran­scrip­tion

Cameron  00:07

Wel­come to QAV 449. This is an episode that Tony and I actu­al­ly record­ed towards the end of last week, because we knew he was going to be away for most of this week play­ing a bit of golf. And I did­n’t want to try and jam some­thing in at the end of the week. So, for that rea­son, there’s a cou­ple of events that have hap­pened this week that he won’t be talk­ing about, for exam­ple, cop­per became a sell. And so, we sold well, those of us that owned prob­a­bly sold, SFR and C6C and AIS. And, we sold MML out of the Navexa port­fo­lio, the QAV port­fo­lio in Navexa this week, as well. So, there’s, there’s a cou­ple of ques­tions we answer at the end that we got last week, but most­ly this is just a recap show. Tony and I are talk­ing about some of the high­lights and low­lights of 2021 in QAV and invest­ing. So that’s what it is. And we’ll be back next week with a reg­u­lar show, so send us your ques­tions if you’re a QAV club mem­ber. Let’s get on with it. Oh, wel­come back. Here we are. Yet again.

Tony  01:16

Yet again. Two days lat­er

Cameron  01:18

Yeah, well, peo­ple don’t know that, we’ll put it out next week. QAV 449. We’re gonna call this one some­thing clever, no doubt, as I always do, but it’s, it’s sort of, I don’t know, lessons of 2021 show. Do some­thing a lit­tle bit dif­fer­ent to wrap up the year even though it’s ear­ly Decem­ber. We got a few more shows left in us before the end of the year, but you did one of these for Phil recent­ly and it seemed to go well, so we thought we’d do one for us too.

Tony  01:45

Yeah. 2021 the dump­ster fire. Just like 2020, but more COVID.

Cameron  01:54

Yeah, the econ­o­my… I saw our fed­er­al Trea­sur­er’s report card’s not look­ing great. Out of all of the OECD coun­tries, I heard on the ABC this morn­ing, our econ­o­my has done the worst this year. Mm-hmm.

Tony  02:09

Urgh, real­ly?  Yeah. I haven’t heard that and it’s prob­a­bly true, because we’ve been locked down like none of the oth­er coun­tries have. But I, you know, I’d be sur­prised if what’s, what’s not hap­pen­ing in the econ­o­my is accu­mu­lat­ing in peo­ple’s sav­ings accounts, so I think it’ll be good in the end.

 

 

 

Cameron  02:28

I thought peo­ple were spend­ing mon­ey like nobody’s busi­ness over the last year with all of the job keep­er and what­ev­er stuff they were get­ting. Prop­er­ty prices, it’s all going into prop­er­ty, prop­er­ty prices are boom­ing, etc.

Tony  02:40

Yep.

Cameron  02:41

Share mar­ket went up had a, had a crazy run there for a while.

Tony  02:45

Yeah, yeah, no, that’s all true. But peo­ple haven’t been able to spend on trav­el, in par­tic­u­lar. What else haven’t they been spend­ing on? Car prices have gone up, I guess. But yeah, I did see some­thing in the last 24 hours say­ing that sav­ings are at an all-time high.

Cameron  03:00

Right. Well, that’s good.

Tony  03:03

Any­way. Like, look, you know, I think it does­n’t amount to a hill of beans, all these kinds of assess­ments on the econ­o­my at the moment. It’s, it’s, it’s all propped up with paper mon­ey, and it’s, or with fun­ny mon­ey. And it’s, you know, an arti­fi­cial time. So, it’s not a good time to judge.

Cameron  03:22

Fills up columns and meet­ing min­utes, though, Tony. You got­ta talk about this, though. Well, they have to talk about this.

Tony  03:28

The noise.

Cameron  03:29

We ignore the noise, and how’s that doing, how’s that been for you this year? Do you, what do you want to talk about this year? What do you want to talk about, the cur­rent mar­ket?

Tony  03:40

Yeah, so I know this isn’t going out until next week, but just a cou­ple of things that peo­ple might want to watch. The oil price was get­ting close to a sell. I think it’s only about two bucks above the sell, and that’s the Brent crude price — I checked it before we came on. I know this is going out a week lat­er, so it may have already crossed and so but peo­ple might want to check. And we can always put some­thing out in the Face­book group if it cross­es. That’s in response to Omi­cron, and if the bor­ders do shut, which they have in some cas­es around the world, and there’s less trav­el, there’ll be less demand for oil because of air­crafts being ground­ed. So, just be aware of that. I’ve got San­tos in my port­fo­lio, so it’ll be a sell if the oil price cross­es. And then the oth­er one on the flip side, there’s a com­pa­ny called Nufarm, NUF is the code, which is get­ting close to a buy. I got an alert a cou­ple of days ago to say that it crossed the buy line, but it’s retreat­ed again in the lat­est down­turn. So, if peo­ple need a large ADT stock, or are look­ing for one, they might want to check that one out.

Cameron  04:45

And they’re in the oil game?

Tony  04:47

No, Nufarm are in the crop pro­tec­tion game, so pes­ti­cides, agribusi­ness, they also I think now have a divi­sion which sells seeds. So, they’re, I guess they’re becom­ing more and more a sup­pli­er to the whole of farm need. So, they sell canola seeds and things like that as well as, as well as the weed killers. And actu­al­ly, that’s a ques­tion for the lis­ten­ers, I was try­ing to find the under­ly­ing chem­i­cal to see if there was a com­mod­i­ty chart for it, but I haven’t been able to yet. I think the under­ly­ing chem­i­cal might be some­thing like glyphosate, some kind of phos­phate, I think is the basis of the, of the weed killers. But like, a, I could­n’t, I could­n’t tell from look­ing at the Nufarm web­site what their inputs were, and I could­n’t also get a five-year month­ly chart or any­thing like that. But some­one might be able to find it or they might know, espe­cial­ly our rur­al peo­ple, they might know exact­ly what’s in the can of a bot­tle of Nufarm chem­i­cals.

Cameron  05:42

And so, you would use — try and track that, like we track oth­er com­modi­ties?

Tony  05:47

Oh, yeah, def­i­nite­ly. Yeah. It’ll be inter­est­ing. It could, it could be, you know, there’s kind of a two-edged sword here, like if it is, say some­thing like glyphosate, and it’s going up, which it prob­a­bly is, then, if Nufarm are able to pass on the price increas­es to cus­tomers then their sales by def­i­n­i­tion are going to go up. So, that might be a heck of a tail­wind for them. How­ev­er, if they’re in a very com­pet­i­tive envi­ron­ment and they can’t pass on those price ris­es it’ll be a dif­fi­cult time for them. So, it would be inter­est­ing to know what the inputs are and what the trend line is for that com­mod­i­ty.

Cameron  06:22

That if their costs are going up and their prices go up, does­n’t real­ly mat­ter from a cash per­spec­tive does it?

Tony  06:28

Yeah, well, it will, because it’s the old mar­gin conun­drum. Like if I’m sell­ing some­thing for $1, and it cost me 50 cents, I’m mak­ing a 50% mar­gin. If the input cost goes up by 10%, and I pass it on as a 10% price range, I’m get­ting $1.10 but it’s cost­ing me 55 cents so I’m actu­al­ly mak­ing a big­ger mar­gin. So, some­times that comes into play.

Cameron  06:48

Instead of mak­ing 50 cents you’re mak­ing 55 cents.

 

Tony  06:52

Cor­rect, yeah.

Cameron  06:52

Right. Okay. There you go.

Tony  06:56

So that’s the two cur­rent things. But as for 2021… actu­al­ly, prob­a­bly the last thing I want to talk about in the cur­rent sit­u­a­tion, my port­fo­lio has been very chop­py, prob­a­bly going down over the last week or two with all the ups and downs and rule 1 sells and three point sells and all the rest of it that’s been going on. And I seem to buy some­thing and it goes down the next day, which is not real great, but any­way, that’s hap­pen­ing. And it makes me reflect on the fact that, well two things. I think, first of all, I don’t think we lose mon­ey in these sit­u­a­tions, we lose time. And what I mean by that is that, you know, men­tal­ly I have this clock in my mind, and maybe it’s a plan­ning idea, but I’m expect­ing to dou­ble every sort of four to five years, prob­a­bly four years or so based on our com­pound growth rate. And when we have these peri­ods of down­turns in the mar­ket, it just kind of elon­gates that a lit­tle bit. So, instead of maybe hav­ing anoth­er, I don’t know how many, twen­ty dou­blings left in my life, I might only have nine­teen now. So, I kind of, kind of look at these as los­ing time rather than los­ing mon­ey. The port­fo­lio is not going to go back to zero, the share mar­ket’s not going to shut tomor­row, so we’ll always be able to regath­er it if we fol­low the process. But we just lose that time of com­pound­ing that it makes the time to dou­ble a bit, a bit longer.

Cameron  08:06

I thought with the rule of sev­en­ty-two at 19.5% it was more like three and a quar­ter years.

Tony  08:12

Yeah, yeah it is. So, three and a half to four years is prob­a­bly about right. That makes sense.

Cameron  08:17

But just because you’ve had a, like, an aver­age year, or a bad year, does­n’t nec­es­sar­i­ly mean you can’t have a boom of a year… … Next year and recov­er all of that, right?

Tony  08:25

Cor­rect. Yeah, no, exact­ly. And it’s also I think inter­est­ing that we’re hav­ing this kind of chop­py peri­od now after a boom year last year, that some­times hap­pens as well. The mar­kets raced ahead, maybe raced ahead of itself, giv­en the cir­cum­stances eco­nom­i­cal­ly…

Cameron  08:41

Yeah.

Tony  08:41

… Around the world. So, it could be just retreat­ing a lit­tle bit to catch its, catch its breath and pause, and then we’ll go off again. Who knows?

Cameron  08:46

I think, I mean, that’s a good point. I mean, the thing we have to remem­ber is whilst down­turns, reces­sions, down­turns, depres­sions are com­mon, they’re part of the, part of just what hap­pens in mar­kets. And they’re not unex­pect­ed. They seem to be unex­pect­ed when they hit but you know, we have one, what­ev­er, ten years or so?

Tony  09:07

Well, not at all. Let me just, let me just fill you in… yeah go on, sor­ry.

Cameron  09:12

Well before you do, I was gonna say that this is a glob­al, a glob­al pan­dem­ic that we haven’t had to deal with for a hun­dred years. Glob­al­ly, there weren’t many coun­tries that did a good job of it. Near­ly every coun­try butchered the whole thing. And it’s going on a lot longer than any of us could have imag­ined. The impli­ca­tions of it are far deep­er than any of us could have imag­ined. This is a, it’s a crazy time, and a crazy time to be an investor as a result. I think we — every­one needs to keep that in mind, that we’re trad­ing through one of the cra­zi­est things that’s hap­pened to civ­i­liza­tion since, I don’t know, the last World War maybe.

Tony  09:54

Yeah, true, but it seems like every cou­ple years we trade through crazy times, like it’s, that’s been my expe­ri­ence. So, I just, I made a list of all the things that have hap­pened in a macro sense that peo­ple have called a cri­sis while I’ve been invest­ing, and you know, to go through it, there was the “reces­sion we had to have”, the Paul Keat­ing reces­sion “we had to have”, when inter­est rates were real­ly high and the share mar­ket did­n’t do well dur­ing that. So, that would be in the ear­ly 90s. There was a Gulf War I around that time as well, when, when George Her­bert Bush went to, went to war. There was the Asian Finan­cial Cri­sis, there was the long-term cap­i­tal man­age­ment cri­sis, there was the dot com col­lapse, there was the World Trade Cen­tre col­lapse. There was Gulf War II after that, when the Bush fam­i­ly tagged each oth­er and took up the, took up the baton for, for Amer­i­ca. There was the GFC after that. There was a COVID cough. There’s Omi­cron. And I prob­a­bly missed three or four. But that’s, what’s that, ten, there’s ten — been ten crises in the last thir­ty years. So, that’s one every three years. And that sounds about right to me. So, you know, it’s like, get used to it. This hap­pens. And, and you know, yes, they are cri­sis to a cer­tain extent; I mean, the Asian Finan­cial Cri­sis had bug­ger all effect on me per­son­al­ly, but it did have an effect on the share mar­ket, it made every­one jit­tery. And that’s the thing, the share mar­ket likes cer­tain­ty. Peo­ple want to know, if I’m going to put my mon­ey into the share mar­ket, there’s going to be more when I go to take it out. They don’t like the fact that, “oh, what’s hap­pen­ing in Asia? And what does that mean for bonds? And what does that mean for banks? And what does that mean for gov­ern­ments, and the cur­ren­cy?” and all this kind of stuff. It gets too hard to put all the mov­ing pieces into a spread­sheet or a mod­el, and they take their mon­ey out. So, all these things are called crises and col­laps­es and all the rest of it, but some­times it’s just, it’s just the noise in the mar­ket, you just have to keep plough­ing ahead and ignore it.

Cameron  11:53

And it’s busi­ness as usu­al. I mean, you said on our last show, the, “the obsta­cle is the way”. I mean, this is the mar­ket. Mar­kets aren’t always going up in a straight line, they’re,

Tony  12:04

Cor­rect.

Cameron  12:05

They’re tur­bu­lent, they go up, they go down, they go back up again, there’s no avoid­ing it. That is, that is the mar­ket. That’s what we’re invest­ing in.

Tony  12:15

And we sit here ready, if the mar­ket goes down fur­ther, to sell out and cash out and wait. Then we sit here ready if the mar­ket goes up tomor­row to invest and reap the rewards. We don’t take a posi­tion on what the mar­kets gonna do we just have a process that accepts what­ev­er comes next.

Cameron  12:31

Yeah, and I think, part­ly, because we take a long-term view of invest­ing, as opposed to say, many of the pro­fes­sion­al invest­ment firms out there that are incen­tivized on more short-term rewards — they need to report num­bers, peo­ple get paid bonus­es on num­bers, you know, they’re look­ing for short term num­bers — we’re not real­ly I mean, we’re in it for the long term. So, we just keep doing what we’re doing and know that over five years or ten years it’s going to work.

Tony  13:08

Yeah, that’s right. Yeah, no, exact­ly. We want to, and, you know, hope­ful­ly, we’ll have had, our port­fo­lios will be worth, you know, eight times more than what they are now in ten years’ time and that’s the sort of thing which we’re striv­ing for.

Cameron  13:21

Yeah.

Tony  13:21

And it could all, that eight times could all hap­pen in two six-month peri­ods, real­ly. Yeah.

Cameron  13:26

And from what you told me, I remem­ber, some time ago, I can’t remem­ber when it was but in the last year, you took us through your annu­al fig­ures over twen­ty-five or thir­ty years, what­ev­er it was. And from mem­o­ry there was a lot of aver­age years, a few bad years and a half a dozen fan­tas­tic years. Right. Yeah. So, I guess the point for those of us that are new investors is to always remem­ber that. It’s the long-term plan that we’re work­ing towards here. So, just by the very nature of the mar­ket, there are gonna be bad years, most years will be aver­age years.

Tony  13:49

Yeah. I mean, yeah, it’s right. And the GFC is a good point of that, like I, I lost, well over the, it sort of went for about eigh­teen months, but over those two years, I lost 20% on 20%, which is basi­cal­ly half the port­fo­lio went miss­ing in the GFC. But then the next year, I tripled the mon­ey. So, like it’s just, that’s just how it works. 20% down, 20% down, then 300% up. That’s the stock mar­ket.  Mm-hmm.

Cameron  14:36

But we want to make sure that when the real­ly good years come, we’re in, we’re in it.

Tony  14:41

Yeah.

Cameron  14:42

We’re there, and we ride it up.

Tony  14:43

Yeah, and there’s been plen­ty of stud­ies done by peo­ple say­ing, “oh, if you weren’t in the mar­ket for these eight days over the last ten years, you would have made a lot more mon­ey than if you’d be in the aver­age, if you’d been ful­ly invest­ed.” Yeah, great. But you know, who picks those eight days?

Cameron  14:58

Yeah.

Tony  14:58

You know, it’s, it’s, it’s nice to know that because that’s how the mar­ket works, but you’ve got to… It’s like play­ing pok­er, right? You can’t say, “oh, deal me out for the next three hands. I think every­one’s look­ing a bit dusty around the table. It’s not look­ing good.” And then the three hands time, “oh, deal me back in, I feel real­ly hot now.” It’s like, it just does­n’t work that way. You got­ta keep, keep at the tables. Sit at the table and take every, every card that’s dealt to you and have a process to deal with that.

Cameron  15:26

You may not be aware of this, but the World Chess Cham­pi­onship is going on at the moment.

Tony  15:31

How come you’re not there?

Cameron  15:32

In Dubai? You know, I just, I’m busy. So, it’s been played between Mag­nus Carlsen, who’s been the world champ since I think 2013 and a Russ­ian, Ian Nepom­ni­achtchi. AKA, it’s just Nepo is what he’s known as. They played their fifth game last night, and it’s been five draw­ers so far. They’re just it’s a draw, draw, draw. They’re just play­ing draw­ers. And it’s been called the most accu­rate World Cham­pi­onship ever played, accord­ing to the com­put­ers that are analysing the game, like, just no one’s mak­ing mis­takes. Every move that they make is the per­fect move to be made accord­ing to the com­put­er. And it results in real­ly, real­ly bor­ing chess.

Tony  16:20

Right.

Cameron  16:20

Because it’s the safest chess you’ve ever seen. There’s noth­ing flam­boy­ant, there’s noth­ing flashy. It’s not like the good old days in the 80s with Gar­ry Kas­parov, where he was just sac­ri­fic­ing pieces and blow­ing up peo­ple’s ends just because he knew he’d pull some­thing out of his ass in the last sec­ond to come in, which was real­ly Napoleon­ic chess. This is real­ly, real­ly, real­ly bor­ing.

Tony  16:44

Right.

Cameron  16:46

Stur­dy, steady chess. But you know, they know they’re play­ing because they both know that World Cham­pi­onships these days are won in that one game, when your oppo­nent gets tired.

Tony  16:58

Right.

Cameron  16:58

Or he miss­es some­thing and you get that point, you know, it might just be one out of ten games that you actu­al­ly win. And that’s it, you get a mil­lion bucks, right? Hey, folks Cameron in the edit­ing room. So, as I men­tioned ear­li­er, we record­ed this, I dun­no, late last week. Of course, since we record­ed this, I said they’d just played game five, game six, Mag­nus crushed Nepo. It was amaz­ing. It’s been called one of the great­est chess games ever played in his­to­ry. Those of us that are chess nerds have been very gid­dy about it ever since. Game sev­en was a very quick draw game, Nepo blun­dered again and Mag­nus got anoth­er win. So, I know you prob­a­bly don’t care. You care as much about this as I care about Tony dron­ing on about hors­es and golf. But yeah, it’s cur­rent­ly, Mag­nus is two points up, there’s six games left, Nepo would need to win four out of the next six to win, it’s just not going to hap­pen. So, it’s been very excit­ing since I record­ed this. I just thought I should point out, in case any of you are chess fans that yes, I know that it all went as I pre­dict­ed; some­body would make a blun­der and then Mag­nus went in for the kill prov­ing that he is tru­ly the great­est of all time.

Tony  18:15

It sounds like that book we talked about last year, the, what was it? Win­ning is Not Los­ing, some­thing like that?

Cameron  18:20

I don’t remem­ber that. What was that one…

Tony  18:22

Oh, yeah, you put me onto it. It was about, I think it had exam­ples of ten­nis play­ers. You just keep the ball in play.

Cameron  18:30

Oh, yeah.

 

Tony  18:32

I think chess was part of it. But it was basi­cal­ly say­ing that… It was called some­thing like Win­ning is a Game of Not Los­ing. Yeah. And that’s what it was say­ing. It was say­ing, you know, don’t take out­landish risk at what­ev­er you do, just, just stick to the process, keep the ball in play, and even­tu­al­ly your oppo­nent will get tired or make a mis­take.

Cameron  18:50

Yeah. And in our case, our oppo­nent is the rest of the mar­ket.

Tony  18:54

Yeah, that’s right. And if they’re not, if they don’t have a process, and they’re lis­ten­ing to noise, and they’re just as emo­tion­al as the mar­ket, they’re gonna make a mis­take.

Cameron  19:03

I just think, we talk about aim­ing for a 19.5% aver­age annu­al return. And it’s, I think it’s easy for those of us that are new to think, well, we need to earn that every year. That it’s going to be 19.5% this year, 19.5% next year. And, the sad real­i­ty is, it would be love­ly if it worked out that way, but the sad real­i­ty is that’s just not how it works, right?

Tony  19:25

No, and I remem­ber talk­ing with Alex Hay, going back a long time ago. We were in a box at the races as guests of some­one and he said — and this was about, oh would’ve been ear­ly spring car­ni­val, so prob­a­bly August/September — he said, “you know, some­one rang me up yes­ter­day, one of the fund man­agers I know and he said, I’m up 20% This year, what do I do Alex? It’s, do I sell every­thing and just claim a 20% return for the year or do I keep going and run the risk of los­ing it?” And, that’s always stuck with me because who knows? You know, the num­ber of times I’ve been halfway through the year and I’ve already made my 20%, of course, it’s a… like it’s a, you know, maybe sixty/forty split for the sec­ond half of the year as to whether I lose mon­ey or make mon­ey, right. So, you’ve got­ta keep going. I’ve got no idea what to do.

Cameron  20:08

Yeah, right. Yeah.

Tony  20:11

Because if I don’t, right, say I sit on the 20% return halfway through the year, the share mar­ket might dou­ble in the sec­ond half of the year. You missed out on it.

Cameron  20:18

Yeah.

Tony  20:18

It might go down 10%, and you’ve, you know, you’ve, you’re los­ing, well, you’re los­ing, you’re back to 10% for the year rather than 20%. So you just got­ta, you can’t pre­dict. You’ve got­ta stay in it.

Cameron  20:29

Got­ta stay in, got­ta just play the cards every day. The cards the mar­ket deals you.

Tony  20:33

Yeah. Yeah, no, exact­ly.

Cameron  20:36

And just have that long-term view. It just reminds me of Buf­fet­t’s Mr. Mar­ket sto­ry, which I think is Ben­jamin Gra­ham’s Mr. Mar­ket sto­ry, but, and he prob­a­bly got it from some­one before him. But this, like Mr. Mar­ket is bipo­lar. One day, he’s, we’ve seen this, like, in the last week, I’ve been laugh­ing about it on our Face­book group, you know, one day, all the mar­ket news is up, COVID, Omi­cron, this is not going to be bad. No one wor­ry about it. It’s the, the symp­toms com­ing out of South Africa sug­gest that it’s not very, not as, not as, I dun­no, dan­ger­ous as some of the oth­er vari­ants. That’s all great. Mar­ket jumps by 60–70 points for the day. The next day, they come in and go, actu­al­ly, it could wreak hav­oc with the glob­al econ­o­my, mar­kets down 60 points…

Tony  21:24

Exact­ly.

Cameron  21:24

… The next day, it’s all over the place.

Tony  21:27

It’s like watch­ing a ten­nis match. Like, yes­ter­day, I get up and the head of Pfiz­er or Mod­er­na says, “well, we don’t think our vac­cines gonna cope with Omi­cron.” Mar­ket goes down. Get up today, the head of AstraZeneca comes on and says “yeah, well, yeah, prob­a­bly will, we think it will.” Mar­ket goes up. It’s like…

Cameron  21:45

Yeah. Won’t even give you blood clots this time, it’s gonna be good, trust me. Yeah, I know. It’s, it’s all over the place. But yeah, the good thing for us is just to remem­ber that we can ignore the noise and just, just keep fol­low­ing the pat­tern.

Tony  22:00

As Buf­fett says, we’re buy­ing, we’re buy­ing pieces of com­pa­nies. And if the price changes, we still own that piece of a com­pa­ny. So, that’s the impor­tant thing to remem­ber, I think. It’s the price that’s the, it’s the price that’s rotat­ing up and down or gyrat­ing up and down. It’s not the com­pa­ny. I mean, yeah, look if we own shares in Qan­tas at the moment, or if we own shares in air­ports, you know, Auck­land Air­port, or what­ev­er, yeah, they’d be going down because of Omi­cron. But most of the shares we own, like San­tos might, we might have, I might have to sell it because it’s an oil com­pa­ny and if the world mar­ket does shut down, there’ll be less oil if you can’t trav­el. Okay, but most of our stocks are not going to have much, not going to be impact­ed much by Omi­cron or vac­cines or what­ev­er. So, we are own­ing pieces of com­pa­nies.

Cameron  22:45

But the flip side to that is we’re not going to sit and hold those shares if the price goes down, we are going to rule 1 them out. Peo­ple can sit and hold on them and do a clas­sic val­ue investor play if they want, hold on to them for five years. Wait for them to come back. Buy more. Yeah, yeah, yeah.

Tony  23:01

Dou­ble down, and when it keeps drop­ping, dou­ble down again. When it keeps drop­ping and your broke, what do you do then?

Cameron  23:10

Bor­row mon­ey from the mafia, to buy more.

Tony  23:13

You go on to Tik­Tok and you say, “oh, this should­n’t be hap­pen­ing. I know what the val­ue of this com­pa­ny’s worth!”

Cameron  23:22

But, your strat­e­gy is, well, no, don’t do that. Sell. Stop loss, get out and try and put your mon­ey into some­thing that’s not falling.

Tony  23:33

Or even in the same com­pa­ny, if it comes back up next week. If that’s the next thing, next thing on the list to buy, for sure.

Cameron  23:38

Yeah.

Tony  23:39

I don’t have a prob­lem with that. Like, it might seem sil­ly, but you’re hav­ing trans­ac­tion costs and trig­ger­ing CGT, and that’s not great, but there have been cas­es where I’ve sold one thing and then a month lat­er bought it back again. That’s just the way the process works. You can’t…

Cameron  23:54

But if it’s a rule 1 sell, if it’s a rule 1 sell it’s a cap­i­tal gains loss for us. So, you’re just stack­ing up future cap­i­tal gains loss­es that you can off­set against your gains down the track.

Tony  24:07

Yeah, and look, if you have, if you have twen­ty stocks in your port­fo­lio, and you have a few rule 1 sells, so you’ve lost 10% on I don’t know even, even if you’ve lost 10% on three or four, it’s not, it’s not a big hit to your port­fo­lio over­all.

Cameron  24:23

Yeah. Each stock, if you’ve got twen­ty stocks, each stock­’s 5% of your port­fo­lio. If it drops by 10%, that’s 0.5% of your port­fo­lio.

Tony  24:33

Yeah, so if that hap­pens to you five times, you’re down 2.5% assum­ing noth­ing else goes up or down. Yeah.

Cameron  24:40

Yeah, yep. Alright, what else do you want to talk about? What else have you learned this year, Tony?

Tony  24:48

This year? Well, I think that the two things that have real­ly impressed me this year, one of the tools that our group have con­tributed, the Flit­man mod­el, and, and the Bret­te­la­tor. So big shout out to those guys, it’s… When I think back to before I start­ed QAV, it was a much more man­u­al process that I was going through. And if peo­ple go back and lis­ten to some of the ear­li­er pod­casts, they’ll hear that I talk about, I get an update from Stock Doc­tor of all the com­pa­nies that just report­ed, like, I sort of go through those by hand and look at, look at their num­bers. Run a kind of man­u­al screen on price to cash flow. And when I found some­thing, have to dump it into a spread­sheet man­u­al­ly and then do the cal­cu­la­tions on the check­list. All those things, it was just such a long, labo­ri­ous process. I had a few short­cuts, I used to run a kind of pro­to­type QAV check­list fil­ter and Stock Doc­tor was based on the acquir­ers mul­ti­ple, which was a kind of a proxy for our, for our check­list. But even then, we’d spit out a list of you know, a hun­dred stocks, and I’d have to go through each one by hand and, and look at it. Did­n’t have the Flit­man Mod­el back then, did­n’t even have the mod­el I devel­oped for QAV in Excel back then. But things just evolved, and they’re get­ting more auto­mat­ed, and those two tools in par­tic­u­lar real­ly made my life a lot eas­i­er, a lot quick­er. And more golf time to go out and play golf. Yes, so real hats off to those two con­trib­u­tors. And I think the sec­ond point is that the group is just such a great group. I mean, I love the Face­book group. It’s just, it’s peo­ple help­ing peo­ple and sup­port­ing peo­ple. It’s, it almost should be tak­en out of Face­book and put some­where else because it’s so unlike the rest of Face­book or Twit­ter or any of those things, no one’s, no one’s there going “sucked in, you rule 1 sold that, why’d you ever buy that for, I did­n’t buy it.” It’s, it’s no, it’s the reverse. It’s just, you know, bad luck. Stick to the process. And that’s prob­a­bly the third thing is that, you know, thanks to the peo­ple who lis­ten to the pod­cast who put their, their results out there for pub­lic dis­play. That’s just fan­tas­tic to hear peo­ple say I got 70% last year or, you know, 60%. Those are some real­ly fan­tas­tic num­bers that peo­ple told us they were get­ting over the last twelve months. And thank you for shar­ing, but that’s great.

Cameron  27:11

Yeah. No, it is. It’s a, it’s a group of real­ly smart and nice peo­ple. So, it’s a plea­sure. It’s real­ly nice to see.

Tony  27:22

Yeah, and the din­ners are great. We’ll have to catch up with them again. Hope­ful­ly over Decem­ber, Jan­u­ary when I’m in Mel­bourne, but in the oth­er places too. It’d be great to get over to Perth one day.

Cameron  27:31

Yeah.

Tony  27:32

Ade­laide.

Cameron  27:32

Well I’ve promised every­one in WA that we will be over there as soon as we’re allowed to. We’ll be over there to do an event.

Tony  27:39

Yea, no, good. I want to shout out your work. You’ve done a lot of great work this year and it does­n’t get recog­nised.

Cameron  27:48

Oh, thank you, Tony.

Tony  27:48

It’s yeah, I mean, we, in the last week or so — peo­ple don’t know, but we catch up usu­al­ly on a Mon­day and talk about the pri­or work pri­or week and what we’ve been doing and what needs to be done and all the rest of it — and you’ve just been work­ing your ass off on QAV, get­ting things organ­ised behind the scenes, help­ing peo­ple, answer­ing ques­tions, mon­i­tor­ing the Face­book group. It’s real­ly good. I just want to say thanks for that.

Cameron  28:16

Thanks. Screw­ing stuff up, but hope­ful­ly not. Get­ting it right more times when I screw stuff up. That’s my mod­el; 60%. That’s my goal. Get things right 60% of the time.

Tony  28:27

But that’s anoth­er learn­ing, I think since you know… when I start­ed off on QAV, I was very ten­ta­tive. It’s like, “ah, shit, I don’t want to make a mis­take in front of peo­ple. That’d be real­ly ter­ri­ble.” But I realised, of course, that mis­takes are just part of the process, and every­one makes mis­takes, and you learn from them. But you move on, recov­er and move on.

Cameron  28:46

Yeah, despite rumours to the con­trary, you and I are both human.

Tony  28:51

Cor­rect. Yes.

Cameron  28:54

Well, I’ll add a cou­ple of stuff in. Like my big lessons for the year, I mean, I’ve talked about this before, a few months ago, I think maybe, but there was that switch that went off in my head at some point where I start­ed to think about QAV as a game.

Tony  29:06

Yeah.

Cameron  29:07

It’s like a game of chess, for me. It’s like, okay, I have all of this data in front of me, I’m try­ing to, you know, find the stocks that are going to out­per­form the oth­er stocks that the mar­ket has­n’t picked up on yet. And we’re going to, I’m going to buy those for my port­fo­lios, and I’m not going to get it right every time but I’m going to weed out the ones that don’t work and replace them with oth­er ones and some of those won’t work, but some will and weed those out. And it’s like, okay, you’ve put ten in, you put twen­ty in, take out, you know, five, put anoth­er five in, take out a cou­ple of those, put it in, take out a cou­ple of those where you just keep, and then some of those will fail and you replace them with this thing, but it’s like it’s kind of this beau­ti­ful sort of shell game almost where you’re just mov­ing things around.

Tony  29:55

Right.

Cameron  29:56

And you don’t know which one the shel­l’s under until it goes up. But yeah, it’s this, it’s this dis­ci­pline of being unemo­tion­al, treat­ing it like a game. It’s a prob­lem to be solved. You know, it’s like chess is, it’s, it’s a prob­lem. Okay, I have a set of data here, in chess it’s the pieces, and it’s your oppo­nent and what you think they’re going to do, the oppo­nents like the mar­ket. Well, what do I think they’re going to do? What, you know, I’m gonna try and counter what they’re doing and do my own thing. And you know, just try to be unemo­tion­al about it which is very hard at chess. But…

Tony  30:33

Real­ly?

Cameron  30:33

… I find — oh, yeah, for me, you get very, very emo­tion­al in a game of chess.

Tony  30:37

Real­ly?

Cameron  30:38

Nor­mal­ly — oh, yeah. And nor­mal­ly, it’s your­self.

Tony  30:41

Right.

Cameron  30:42

Like you beat up your­self. If you make a mis­take, you’re like, “Ah, why did I…?” You know, and I still do that with this. You know, the big chal­lenge in chess for, chess play­ers will know this, like, is when you make a move too quick­ly, and you know you should have thought it through but you just get emo­tion­al and you make a move. And then you kick your­self a sec­ond lat­er when you realise — and I do that with QAV. I’ll see some­thing’s gone below 10% and, in Stock Doc­tor, and I’ll get an alert and I’ll quick­ly go and sell it. And the minute after I hit the sell but­ton, I’ll go “oh shit, I did­n’t check the div­i­dends.” Or, I did this the oth­er day, I had to replace some­thing, rule 1 some­thing, and I had to replace it, and I bought it. And, you know, I’m doing fifty oth­er things, right? At the same time, and I bought it and then I was like, “oh, shit, I did­n’t check it for a Josephine.” It was, was PRU, Perseus. I was like, “oh my God, I did­n’t check it for a Josephine. I’m such an idiot.” I checked it, luck­i­ly it was­n’t a Josephine. But, you know, it’s like,

Tony  31:27

Yeah. Yeah.

Cameron  31:41

It’s still those sorts of things where I jumped too quick­ly, and I’m not… I need the check­list before I buy, before I sell.

Tony  31:49

No that’s right. Yes.

Cameron  31:51

You know?

Tony  31:52

And I think, I mean, that’s hope­ful­ly where we’ll end up over time, is, is get­ting the process auto­mat­ed. So,

Cameron  32:00

Yeah.

Tony  32:00

You know, it’s just okay, here’s your alert, sell it. It’s already cal­cu­lat­ed the div­i­dend com­po­nent of it. Is, here’s some­thing to buy next, it’s the high­est on the list, but it’s not a Josephine and the under­ly­ing com­mod­i­ty’s all fine, and all the rest of it. Yeah.

Cameron  32:12

Even bet­ter, if we don’t need to do any­thing. The soft­ware just does it.

Tony  32:16

That’s what I mean.

Cameron  32:17

It does the trad­ing for us.

Tony  32:18

Oh, right. Yeah.

Cameron  32:18

Oh yeah, no, it just does the trad­ing.

Tony  32:20

Yeah, right.

Cameron  32:22

We just lie on the beach, play golf, and it just runs it in the back­ground for us.

Tony  32:27

Right. And the CCP hacks their away into the code and drains all the mon­ey out of our account.

Cameron  32:32

Hey, don’t speak evil of Cred­it Corp. They’ve been my best invest­ment over the last year, they’re up like 75%.

Tony  32:38

Yeah, they are good, aren’t they? I agree. Yeah, I was going to, one of the things I want­ed to go over today was my best, my best stocks I’ve ever pur­chased and ones that I would hold for­ev­er. And I think Cred­it Corp would be in that list. It’s cer­tain­ly one I would hold for­ev­er. I kind of qual­i­fy that, because I real­ly like the cur­rent man­age­ment, I think the CEO of Cred­it Corp would be right up there in my top, you know, top list of best CEOs in Aus­tralia, if not at the top. You know, I’ve met him, I’ve lis­tened to him talk. He’s run­ning, he’s work­ing in a, you know, an indus­try that has had a bad rep­u­ta­tion but he takes it very seri­ous­ly in terms of the process that they go under, to the point where — I mean, it’s a debt col­lec­tion busi­ness, right? So, to the point where they, they become a busi­ness that not only col­lects debts, but it actu­al­ly lends cred­it to those peo­ple now, because they’ve been so suc­cess­ful at work­ing out repay­ment plans for peo­ple in col­lect­ing their mon­ey. They have a real­ly good pro­file of those cus­tomers, and they can actu­al­ly lend the mon­ey and now they’ll get it back. So, you know, that’s how suc­cess­ful they’ve been. So, I just I just think Thomas Bere­gi at cred­it Corp is right up there and Cred­it Corp would be a stock I prob­a­bly hold for­ev­er. Admit­ted­ly, it will go, it will go up and down at times. The GFC, it dropped like a stone because there was no debt col­lec­tions going on. The bank’s stopped sell­ing their debt ledgers and so Cred­it Corp had to bide its time for a while. But, and that will hap­pen from time to time, hap­pen in the COVID Cough it went down but it always recov­ers. It always does well. I saw there was an announce­ment a cou­ple of days ago, the stock went up 8%. They bought the part of the radio rentals busi­ness, the old, you know, appli­ance hire busi­ness. And they’ll be, they’ll be doing that now as well. So yeah, I mean, they’re expand­ing into niche areas, but they do it real­ly well. And the oth­er thing about Cred­it Corp is they always under, under promise and over deliv­er. So, I think the rea­son why the shares went up 8% was­n’t so much that they bought the radio rentals busi­ness but the fact that they did that and then they upgrad­ed their guid­ance for the year and the stock went up. And that’s, it’s almost a patent to Cred­it Corp. They’ll come out with their results and go “Yeah, we think the next year’ll be okay, here are all the prob­lems that we’re fac­ing.” And then towards the end of the year, they’ll just upgrade their guid­ance. So “oh, actu­al­ly, things turned out bet­ter than we thought,” and the share price goes up, and they just do that year after year.

Cameron  35:04

It’s an old Microsoft and Berk­shire Hath­away play too, I think. Microsoft used to do that every year in Bill Gates’ day, Ballmer’s day, to be like, “Yeah, like, we had a great year, but next year…”

Tony  35:13

Yeah.

Cameron  35:13

… “next year can’t be as good as this year. So, every­one just cool your jets, it’s not gonna be as good,” and of course, next year would be bet­ter. And they’d go “okay, well that was a good year, but.”

Tony  35:20

Yeah, right. Yeah.

Cameron  35:23

Sand bag­ging, we used to call it.

Tony  35:25

Yeah, right. And, and Cred­it Corp are very good at that. The oth­er, the oth­er, my best stock buy, I think ever, if I can reflect on this a bit. This is pri­or to QAV, but the QAV process was in its pro­to­type stages, was a com­pa­ny called Mon­adelp­hous, MND. And it may come back onto the buy list at some stage in the future. But it hap­pened back in about mid 90s, I think. And it was trad­ing at 20 cents a share, and it went all the way up to $24 a share over the fol­low­ing, sort of, maybe three or four years. No, that’s wrong, prob­a­bly over the case of about eight to ten years. And the GFC killed it, and I sold out at about $22 or some­thing. But it got to the stage where I was receiv­ing my orig­i­nal pur­chase amount in div­i­dends every year from it. Yeah. So, that was a, that was a good buy. There’s a cou­ple of… Mac­quar­ie Group, I think also would be a stock I hold for­ev­er, and I cur­rent­ly own it. And again, it does, it does trade up and down with the econ­o­my, it’s lever­aged to that, but it just, the man­age­ment has just always been A1 with Mac­quar­ie Group. They always have their mod­el of, of find­ing entre­pre­neurs and, and just incen­tivis­ing the hell out of them to make mon­ey. And then if it makes mon­ey, just grow it as fast as they can with the cap­i­tal they’ve got at their dis­pos­al. Mac­quar­ie, the Mac­quar­ie Group is, that exists now is so dif­fer­ent from the one that I first encoun­tered when I start­ed invest­ing, which was Mac­quar­ie Bank. And it was basi­cal­ly, you know, it was, it was a stock­bro­ker back then, as well as a small retail bank. And now it’s prob­a­bly one of the biggest infra­struc­ture own­ers in the world, at least as a list­ed com­pa­ny, and owns lots of toll­ways and bridges and things like that around the world. So again, I just, no one ever sat down at Mac­quar­ie Group and, sat down with a white­board and said, “right, what’s our strengths, weak­ness­es, oppor­tu­ni­ties and threats, let’s build a busi­ness plan around road­ways.” They just found some­one who was an entre­pre­neur in the area, bought them a, bought them a pro­pos­al and said, “look, if I had a bil­lion bucks, guys, I can make a lot of mon­ey if we went and bought these road­ways,” and they went, “yes, go for it, we’ll give you what­ev­er it is, 10% of the prof­its.” And it’s just grown from there. So, it’s just a great busi­ness mod­el of shar­ing incen­tives with peo­ple who are devel­op­ing the busi­ness.

Cameron  37:43

And they’re up three bucks today.

Tony  37:45

Good, hap­py days. I’ll have a Negroni tonight to cel­e­brate.

Cameron  37:54

They’re trad­ing at 198, so 10%‘s $20. That’s what 3%, rough­ly, up 3% today.

Tony  38:01

Good.

Cameron  38:01

It’s not bad in this mar­ket, though.

Tony  38:02

In this mar­ket, I agree.

Cameron  38:04

I don’t know what it is about their busi­ness that made them go up 3% when every­thing else is pret­ty much in the red today.

Tony  38:11

They must be get­ting close. They had a share place­ment issue, so maybe that’s get­ting close to…

Cameron  38:16

Oh, right.

Tony  38:17

… Fin­ish­ing. Yeah. That might affect the share price, I’m not sure I haven’t looked. So, the oth­er one that I’ve nev­er been able to buy since, but I owned it years ago, was a com­pa­ny called ARB. It does four-wheel dri­ve acces­sories. And it start­ed off as just man­u­fac­tur­ing bull bars for Utes. And it’s just grown and grown and grown. It’s been real­ly well man­aged. And I remem­ber talk­ing dur­ing the year about try­ing to find the, the cus­tomer-cen­tric com­pa­ny that was lever­ag­ing its growth. And there was a sec­tion in the book I read out which talked about com­pa­nies Munger like, that were like that. So, Wal­mart was one, Ama­zon was one, where they take their prof­its, they always, they cap their prof­its so they don’t try and make more than about 10% mar­gin per year, and they put it back into low­er­ing prices. And there’s this lever­ag­ing fly­wheel effect of, of keep­ing prices low, attract­ing more cus­tomers, cap­ping the mar­gins, putting it back into the busi­ness and I think ARB, just on reflec­tion, might be a ver­sion of that kind of busi­ness in Aus­tralia. But con­se­quent­ly, it’s trad­ing at a like a real­ly high PE. I haven’t been able to buy it after my first encounter with it, when it was start­ing out. It was cheap. And it did real­ly well for me, but then it became expen­sive and I sold it.

Cameron  39:32

Why did you sell? We don’t sell things because they become expen­sive. Why did you sell? Was it a GFC thing or some­thing?

Tony  39:37

It was pre GFC. This is going way back into the prob­a­bly 90s I guess. So, yeah, I did­n’t have the three-point sell lines then. It could have been that it had a down­turn and I sold, I can’t recall the exact exam­ples. But there was also a time when, when I did play that game, when I said “okay, well it’s trad­ing on a PE of five or what­ev­er it was at the time, I’ll buy it.” And it’s, it went all the way up to what­ev­er, you know, PE it did thir­ty times and I thought it’s get­ting rich and I’ll sell it. Of course, biggest mis­take in my life, it’s prob­a­bly worth about 100 times more than it was back then. But yeah, so that, that would be anoth­er com­pa­ny, if I had a chance to buy it again, I would and hold it for the rest of my life, because I think it’s again, it’s real­ly well run. And it seems to have that kind of cus­tomer-cen­tric, cap the prof­it and put it back into the busi­ness type approach that Munger talked about.

Cameron  40:28

Mm-hmm.

Tony  40:29

Of course, the prob­lem with those com­pa­nies is every­one knows that and they push the price up, and it becomes hard to buy them. Yeah, yeah. So, what else this year, so in our dum­my port­fo­lio, best and worst stocks that Navexa was telling me this morn­ing; the best stock for this cal­en­dar year for 2021 was Grange Resources, GRR, up 154% for the year, so that was pret­ty good. And the worst stock was Hawthorn Resources, which was down 48% for us, so that was real­ly bad. Oh, and by the way, Hawthorn’s been on the rise, and it was get­ting close to its buy line on the week­end when I was doing our buy list actu­al­ly. So that’s anoth­er one that peo­ple might want to keep an eye on.

Cameron  41:10

So hold on, how could, how could Hawthorne been down 48%? We would­n’t have let it drop that far before we sold it. That does­n’t make much sense.

Tony  41:18

Yeah, it can hap­pen if, because we’re talk­ing about the cal­en­dar year, so I’m not sure when we bought it. So poten­tial­ly, we bought it at a low price, it went up and then came back into its sell line.

Cameron  41:28

Oh, I see what you mean. Right. Yeah.

Tony  41:31

I’m just look­ing at the cal­en­dar year 2021.

Cameron  41:33

Right.

Tony  41:34

Yeah.

Cameron  41:34

I’m gonna look it up now, because I want to know what the sto­ry there is.

Tony  41:38

It could have dropped quick­ly too, because it was, it’s a very liq­uid stock. It’s a small-cap, so it may, it may have just pow­ered through the, through the sell line. If I, if I remem­ber was­n’t it, was that the one that Chris Cor­ri­g­an was a share, owned 30% of the shares and he sold it?

Cameron  41:53

I think so. Yeah. And it plum­met­ed fair­ly quick­ly, I think.

Tony  41:56

Yeah. So, we may not have been able to get out in time for, to rule 1 at a 10%.

Cameron  42:00

Just hold on a sec, let me look up the trade details. Hawthorn we bought back in April 2020 at 14 cents. We sold it in Feb­ru­ary at 7 cents. But, there was a return of cap­i­tal along the way, too in Novem­ber 2020.

Tony  42:23

Right, so that’s not count­ing into Navex­a’s cal­cu­la­tions for this year, then.

Cameron  42:27

No.

Tony  42:28

We’ve prob­a­bly added the return of cap­i­tal back into our thoughts on when to sell, I would think. For me, I looked at, looked at mine; my best stock this year, cal­en­dar year, is South 32. Which I haven’t held for the whole year. But that’s up 37%. And my worst stock was SSR which is down minus 28%. SSR, I think was the one the Amer­i­can Gold­min­er that merged with Alka­ne Resources which I held, and then the share price went up but in that retreat­ed quite dra­mat­i­cal­ly after that.

Cameron  42:59

Yeah, I think we had that in the QAV port­fo­lio as well.

Tony  43:03

Yeah, quite pos­si­bly.

Cameron  43:04

Well, I’m going to look at my best stocks for the year now that you’ve done that. I’m inter­est­ed, I want to know. Well, it’s a toss-up between Cred­it Corp, which is up 67% for the year, and Max­i­Parts, which is up 70%.

Tony  43:19

Okay.

Cameron  43:20

Now, I don’t think I’ve held them for a year, you know, I only bought, I don’t know, I’ve held Cred­it Corp for a while but I only bought maxi pads prob­a­bly six months ago. But it’s up 70% in that amount of time. So, that’s alright.

Tony  43:31

It’s inter­est­ing. I’m not sure why Cred­it Corp was­n’t at the top of my list when I had a look, because I’ve held it for years.

Cameron  43:38

It’s had a cork­er year. And the third best for me is Myer, up 50% still. Myer’s had a crack­er run.

Tony  43:48

Yeah, very good.

Cameron  43:50

I told Tony before we went to air I’ve put every­thing into a spread­sheet. Before the show today I was try­ing to work out my CAGR for it, because I’ve got three port­fo­lios and they’ve all got dif­fer­ent trans­ac­tion peri­ods and blahdy blahdy blah, and I was try­ing to… Last time I was hav­ing, we had a QAV din­ner here, I was talk­ing to Steven Mabb and we were just talk­ing about our per­for­mances. And I said, “well, you know, accord­ing to Stock Doc­tor and the time weight­ed return, mine is…, blah, blah, blah,” and Steve was like, “yeah, but that’s bull­shit. You can’t, you can’t, it’s not, you know, it’s noth­ing.” He said, “yeah, the only real way to do it is to do a CAGR thing,” so, and you and I’ve talked about the same thing before, so I tried to do it in Excel today and my brain melt­ed. So, I spent like an hour on it and my brain was melt­ing. I’m gonna have to go back and have anoth­er crack on it. And accord­ing to that it said my per­for­mance since incep­tion was neg­a­tive 1,347%, so I don’t think I did it right.

Tony  44:43

No, prob­a­bly wrong.

Cameron  44:44

I know I’m not the world’s great­est investor, but I don’t think I’m down neg­a­tive 1,347%.

Tony  44:51

What else have I got to talk about? A cou­ple of things. I’m going to drop the rebal­anc­ing study that I’ve been doing-test.

Cameron  44:58

Oh, yeah?

Tony  44:59

You know I said last week I’m going to keep going for anoth­er six months. Like, it’s, it’s the sec­ond of Decem­ber now so I updat­ed it yes­ter­day. And, like, it’s rebal­anc­ing is down 25–30% com­pared to not rebal­anc­ing.

Cameron  45:12

Wow!

Tony  45:13

Yeah.

Cameron  45:14

What did you say last week? Did­n’t you say it was kind of even?

Tony  45:17

It was 1%, yeah, but that… so last, so yes­ter­day, or last month I sold out of NIC Nick­el Mines, and that’s gone up like 40% or some­thing this month. I bought chal­lenger CGF with the results, and that’s gone down. And then this, this month, I was due to sell South32, which on the day was still ris­ing, and I’m like, this is nuts. I’m not gonna…

Cameron  45:43

And this was because it’s QAV score was 0.05?

Tony  45:47

Yes. So…

Cameron  45:47

That’s why you did­n’t get rid of it?

Tony  45:48

No. So, I think I got that wrong. I’ve just been buy­ing the bot­tom of my list of QAV scores in the port­fo­lio. So, some of them weren’t, I think, I think South32 is about 0.8 or some­thing like that at the moment. So, it was­n’t just those, it was just tak­ing the bot­tom stock out of the port­fo­lio, replac­ing it with the next one on, the top one on the buy list.

Cameron  46:06

The bot­tom stock based on what met­ric?

Tony  46:09

In my, on the QAV score. So, the low­est QAV score in my port­fo­lio and… Right. … I’d say prob­a­bly every month that was much low­er than 0.1.

Cameron  46:19

So, walk me through this again. So, every, you’re doing this month­ly?

Tony  46:23

Yes.

Cameron  46:23

Every month, you would take the stocks in the port­fo­lio.

Tony  46:27

Cor­rect.

Cameron  46:27

Look at the QAV, cur­rent QAV scores for those stocks.

Tony  46:31

Cor­rect.

Cameron  46:31

Remove the one with the low­est QAV score and replace it with…

Tony  46:36

The high­est QAV score on the buy list that I could buy.

Cameron  46:40

That you could buy that you did­n’t already own?

Tony  46:42

Yeah.

Cameron  46:42

Or add more of it if you did own it.

Tony  46:44

Cor­rect, add more if it. Yeah. So,

Cameron  46:45

Right.

 

Tony  46:46

CGF has been that stock for a while, Eclipx was there for a while. They’ve all been going back­wards. Where­as if I had­n’t have sold some­thing and bought them, I would­n’t have the same expo­sure to CGF or Eclipx and have it go back­wards. So yes, it’s this, doing it yes­ter­day, I just went “this is nuts”. And it’s prob­a­bly, it’s prob­a­bly cost me two or 3% on my per­for­mance for the half because…

Cameron  47:13

And you were doing this with real mon­ey?

Tony  47:14

Yeah. 10%. I put 10% of the port­fo­lio into it. So, yeah.

Cameron  47:19

Wow, that’s like $100 mil­lion peo­ple, that’s like that’s, that’s near­ly real mon­ey.

Tony  47:23

Any­way, I’m stop­ping it. I know that I start­ed doing it because last half or last year I noticed that it might be a good thing to do. And it worked the oth­er way. But, nah it’s just I think…

Cameron  47:32

Should­n’t you have run it on paper for a year…

Tony  47:34

I did.

Cameron  47:34

… Before you, oh, you ran it on paper?

Tony  47:36

So, I noticed it, I ran it on paper and then I was doing it live as a 10% chal­lenger port­fo­lio.

Cameron  47:40

So how long did you run it on paper for?

Tony  47:42

I’d say six months. I think what’s hap­pened is, com­ing out of the COVID cough which would have been eigh­teen months ago now or there abouts, it worked then, as things went up in val­ue and their QAV score dropped, cycling out of them. But I think in more, I call it nor­mal, it’s not real­ly nor­mal, but, but since then, it has­n’t worked.

Cameron  48:00

There you go, exper­i­ment­ing with real mon­ey peo­ple.

Tony  48:03

And Dylan, I remem­ber also what gave me the courage to do it was Dylan did a study over the last ten years of doing that every month; swap­ping the low­est. And he, and we haven’t cracked a way of putting the three-point trend line, trend lines into our mod­el because it’s just, it’s just too hard to do the cal­cu­la­tions every month for ten years on two thou­sand stocks. So, it’s with­out three-point trend­line buys or sells just tak­ing the high­est QAV score and the low­est QAV score and rebal­anc­ing, sell­ing the low­est, buy­ing the high­est, and he was get­ting 18% over ten years just doing that. So, that kind of gave me courage that it was going to work but I’m just, I can’t stand a hit to my port­fo­lio at the moment to keep going so I’m gonna dump it.

Cameron  48:47

You don’t trust Dylan, in oth­er words, you don’t trust the mod­el?

Tony  48:50

No, I do trust Dylan, I do trust the mod­el, but we’re get­ting more than 18% now with what we’re doing. So, the test was always, see, we don’t know how much the three-point trend lines adds to his 18%. Whether it was adding 1%, in which case what we’re doing now is as good, or whether it’s adding 5%, in which case we’re bet­ter off going with Dylan. But I just, I haven’t seen enough suc­cess to drop what we’re doing now and replace it with a rebal­anc­ing strat­e­gy. And it’s always been my base­line the­o­ry that rebal­anc­ing isn’t a good idea.

Cameron  49:21

Yeah.

Tony  49:22

Yep. And I think that’s, the last sort of month has proven that to me.

Cameron  49:26

Well, maybe you’re just doing it the wrong way, though.

Tony  49:29

Yeah, and it could be a bad month. I know. But I’m not pre­pared to per­sist with it.

Cameron  49:36

Fair enough. Real mon­ey. I get it.

Tony  49:38

What else? Oh, we did­n’t men­tion the inter­view sub­jects. So, the high­lights for me I think have been some of the inter­views we’ve done this year. Ear­ly on, I went back through and had a look, ear­ly on we had David Wal­dron on to speak about his book Build­ing Wealth Through Shares. That was, that was great to inter­view him. I real­ly enjoyed that.

Cameron  49:54

Yeah.

Tony  49:54

I real­ly enjoyed Louise Bed­ford’s inter­view on get­ting female, more females into invest­ing and their expe­ri­ences, that was real­ly good.

Cameron  50:02

Yeah.

Tony  50:02

A lot of pos­i­tive feed­back after that one, too. And I mean, that’s just two, there’s been plen­ty of oth­er ones. I real­ly enjoyed Michael Gold­berg’s, but I think he might have been 2020 rather than 2021.

Cameron  50:12

Right. I can’t remem­ber.

Tony  50:14

Yeah. But he’s always stuck in my mind. He’s, he’s, what he said was, “if you’ve got a list of good ideas, why go past your first one? Why inves­ti­gate the twen­ty?” That’s always stuck with me. Yeah.

Cameron  50:26

Yeah.

Tony  50:27

Yeah. But yeah, the inter­views have been a high­light, I think, as well.

Cameron  50:31

Yeah.

Tony  50:32

Low­lights, I mean lock­downs, COVID, all that kind of stuff. The bor­der clo­sures have been a low­light. We’ve just been stuck in, stuck at home, stuck in Syd­ney for too long. I mean, I know there are rea­sons for it.

Cameron  50:44

But you’re still alive.

Tony  50:46

I know I’m still alive. I know there are rea­sons for it, so I’m not begrudg­ing it, but it’s been a low, it’s been a low­light. Has­n’t been a high­light.

Cameron  50:51

You’re not gonna get out there and march in the streets?

Tony  50:52

No. You know, I saw that it was like, I’m going down to Vic­to­ria on the week­end, I saw there was still anoth­er 1300 COVID cas­es there yes­ter­day.

Cameron  51:02

Real­ly? Wow, still that high.

Tony  51:03

And like ten deaths. And you got­ta think that peo­ple who are dying from COVID now have to be unvac­ci­nat­ed, right? So, these peo­ple who are march­ing in the streets are just sign­ing their own death war­rants in Vic­to­ria at the moment.

Cameron  51:16

I think the stats, I’m not sure about Aus­tralian stats, but I think the stats com­ing out of the US any­way, are that 95% of hos­pi­tal­i­sa­tions and 95% of deaths are unvac­ci­nat­ed peo­ple. Right?  Yeah.

Tony  51:31

And Vic­to­ria, I think is over 90% dou­ble vaxxed now, so the peo­ple-if there were ten deaths yes­ter­day from COVID, they’ve got to be unvaxxed peo­ple.

Cameron  51:39

Well, 90/95% of them, let’s say that.

Tony  51:41

Yeah.

Cameron  51:41

So, nine out of the ten were prob­a­bly unvaxxed. Yeah.

Tony  51:46

So that’s anoth­er low­light, that peo­ple can be so — look, I’m scep­ti­cal, I think you’re scep­ti­cal but peo­ple can be so mis­di­rect­ed by social media now in par­tic­u­lar, to do the, to do things which are advanc­ing some­one’s polit­i­cal cause and not help­ing, not help­ing their own cause. Now, I think it’s a real, it’s a real I don’t know. I don’t know. It’s, it’s some­thing that I don’t like. And it’s a real prob­lem.

Cameron  52:07

Yeah. Look, my the­o­ry is there’s always been stu­pid peo­ple in the pop­u­la­tion. They just, now they just have social media. I mean, you know, fifty years ago, stu­pid peo­ple were you know, were just at home rant­i­ng to their fam­i­ly and neigh­bours, col­leagues at work. Now they’re on social media. A cou­ple of quick ques­tions. Easy ones, I think, Gary: “hi Cam, just going through the lat­est check­list sheets to see how they com­pare. I noticed with Tony’s sheet it has a col­umn of cal­cu­lat­ed sen­ti­ment that can be fil­tered for uptrend and down­trend. This does­n’t seem to be in the AF ver­sion. I feel like I heard you guys talk­ing about this fil­ter on a recent episode.” And I said, “yeah, Gary, I think that’s just the SDMAX thing that he was look­ing at for a while when we were try­ing to cal­cu­late Josephine’s for the buy list,” but I don’t think you pay much atten­tion to it, real­ly.

Tony  52:55

So, it was actu­al­ly before that it was used, I think it was Steve Mads idea to use it as a proxy three-point trend line cal­cu­la­tor.

Cameron  53:04

That’s right. Yes.

Tony  53:05

It’s if the five-year share price is up, if the six months share price is up, and it’s SDMAX bull­ish I think it is in Stock Doc­tor, then it cor­re­lates rea­son­ably well with our three-point trend­line sen­ti­ments. It’s not a com­plete cor­re­la­tion, so I did­n’t take it any fur­ther. It is, it is in the check­list. I find it use­ful If I, if I have a, when I do a down­load I check that col­umn where it says “uptrend or down­trend” against what I’ve got for sen­ti­ment and it makes it much eas­i­er to process my, my lookups on the graphs. If they’re both in sync, if it’s a down­trend accord­ing to that cal­cu­la­tion from Stock Doc­tor and I say it’s a down­trend move on, if they’re both up trends, move on, but if they’re dif­fer­ent, I’ll go and inves­ti­gate why.

Cameron  53:50

Right. Well, Gary said he’s been fil­ter­ing based on that. Is that a good idea or a bad idea?

Tony  53:57

It’s not a bad idea, but it won’t be 100% accu­rate in terms of three-point trend line sen­ti­ments. There are dif­fer­ences. Yeah.

Cameron  54:06

So maybe don’t do that, Gary.

Tony  54:08

No. Do what I do. Like, like I said, look for the dif­fer­ences and focus on those.

Cameron  54:12

Yeah, right. So, when you, so your own sen­ti­ment sell is from the last time you check the sen­ti­ment, which might be last week.

Tony  54:20

Yep. Or it could be when the results came out or what­ev­er, yeah.

Cameron  54:24

Yeah. But these days, you know, it’s prob­a­bly in the last week or so because we’re doing it every week.

Tony  54:28

But we’re unusu­al in that respect, I think, yeah.

Cameron  54:30

Dave: “Hi, Cam. Thanks for your review of my ques­tion last week. I real­ly enjoyed the dis­cus­sion.” Well you’re wel­come, Dave, I can’t remem­ber what that was. But good on you.

Tony  54:39

I think Dave was talk­ing about us, about QAV poten­tial­ly crowd­ing the trades. And lots of peo­ple push­ing the price up or down as we bought and sold.

Cameron  54:46

Yeah, that’s my dream: that we become that big and pow­er­ful. We can go to com­pa­nies and say, you know, “alright, what’s it worth for us to talk about you this week? Come on.”

Tony  54:57

“Acci­dents hap­pen. Oh, sor­ry about that.”

Cameron  55:05

He says Gary’s ques­tion in the lat­est edi­tion, which isn’t the Gary ques­tion we just asked about, but the last one “was real­ly inter­est­ing, but I thought it war­rant­ed fur­ther dis­cus­sion. Tony said he stays ful­ly invest­ed because he does­n’t have a crys­tal ball that tells him when the mar­ket is going to turn up. As you added” being me, “you could miss that first 10% and that’s every­thing. That seems to be con­trary to the con­cept of sen­ti­ment, which is fun­da­men­tal to QAV. Tony likes to wait until he sees a con­sis­tent upturn in a stock and even an under­ly­ing com­mod­i­ty and is hap­py to forego that 10% to pro­vide the con­fi­dence it is on the right track. Why would­n’t that apply to the mar­ket as a whole, which is arguably more sen­ti­ment dri­ven than a sin­gle stock, and def­i­nite­ly more than a com­mod­i­ty? I asked for sim­i­lar rea­sons as Gary, I start­ed a QAV mini port­fo­lio, sev­en stocks about 20% of my invest­ments less than a month ago. Since then I’ve sold and rebought four times plus two more I’m about to sell. My pos­i­tive strike rate is one out of eleven with an over­all return of neg­a­tive 10% ver­sus the mar­ket neg­a­tive 2% in just a month. I know it’s only one month, but gee, it’s prov­ing chal­leng­ing to stay the course.” Bit like Tony’s rebal­anc­ing port­fo­lio, “I’d be real­ly inter­est­ed to hear Tony’s views on this. Thanks again for the show. Dave.”

Tony  56:17

Dave, sor­ry, you’re hav­ing a tough time in the mar­ket. It is a chop­py mar­ket to be start­ing out in par­tic­u­lar. Yes, we do wait for sen­ti­ment to be improv­ing. So, I’ve said before, and I’ll say it again, that we’re not out to try and get that first 10% or so upturn when the share price turns. That’s very hard to get. But we do wait for the sen­ti­ment to be con­firmed. But I think what we were talk­ing about last week was more along the lines of should some­one in your sit­u­a­tion sell up and wait for the mar­ket to turn? And that’s when we, when we said “well, you’re gonna miss out on sud­den up-turns and poten­tial­ly, up-turns in gen­er­al,” like how do you define when it’s time to come back into the mar­ket? To take your point about apply­ing the sen­ti­ment check­er to the whole mar­ket, I’d be care­ful of doing that, because there are stocks in our port­fo­lio which run counter cycli­cal to the mar­ket. So, they can be going up or down when the mar­ket itself is going in the oppo­site direc­tion. And so, that’s you know, that’s why I’d nor­mal­ly find myself being ful­ly invest­ed 100% of the time because I can find stocks that are going up, that’re worth invest­ing in, even though the mar­kets going down.

Cameron  57:32

Right. You know, we do apply the three-point trend­line to the com­modi­ties.

Tony  57:39

Yes.

Cameron  57:39

But there’s a direct rela­tion­ship between the com­mod­i­ty price and that com­pa­ny.

Tony  57:44

Yeah, yeah, par­tic­u­lar­ly with min­ers, although we use a lot of oth­er com­modi­ties as well. Yeah, I mean, a ris­ing com­mod­i­ty price just increas­es their gross mar­gin because their costs haven’t changed. And when they, when the com­mod­i­ty price decreas­es, it affects their gross mar­gins, which gen­er­al­ly flows on to a worse posi­tion. And in fact, that’s some­thing I did­n’t men­tion before sor­ry, I skipped that in my notes. I think one of the high­lights, for me, was the great rota­tion out of com­mod­i­ty stocks, when we realise that iron ore was a mid­dle year fudge sell. And I know I got out of Fortes­cue Met­als at $20.50 a share and it’s get­ting back up there now, I think it’s about $17 today, but it got all the way down to $14. So, I, that missed a big hit to my port­fo­lio because I think some­thing like about a third of my port­fo­lio was Fortes­cue Met­als and oth­er iron ore, oth­er iron ore min­ers, like Cham­pi­on Iron comes to mind. Yeah. And so, I avoid­ed a big loss. So that was a high­light dur­ing the year for me.

Cameron  58:45

And that was a, that was a new thing for QAV too, look­ing at the com­mod­i­ty three-point trend line. There was an amend­ment or a…

Tony  58:53

Yeah. An evo­lu­tion.

Cameron  58:55

Before there was, there was the fourth amend­ment to QAV. By the Found­ing Father.

Tony  59:00

The oth­er high­light I’ve neglect­ed to talk about was get­ting the AFSL licence for us, as well.

Cameron  59:04

Oh yeah. Yeah.

Tony  59:05

Which is a high­light dur­ing the year, and I think secured our, our abil­i­ty to keep putting this out with­out hav­ing to nec­es­sar­i­ly fear being pulled off the air unex­pect­ed­ly.

Cameron  59:16

Not a high­light for my bank account get­ting the AFSL.

Tony  59:18

Yeah I know, I under­stand, I think it’s worth it though.

Cameron  59:21

It’s cost­ing us.

Tony  59:23

It is cost­ing us. Yeah.

Cameron  59:24

Yeah. But it’s secu­ri­ty.

Tony  59:27

Yeah.

Cameron  59:28

As you say, it’s, it’s the secu­ri­ty that they won’t come knock­ing on our door. I don’t think they’ve knocked on any­body’s door and tak­en them off the air yet, but, but at least we feel con­fi­dent that if ASIC do come knock­ing on our door, we can say “hey,” you know, “we’re doing we’re doing the right thing.”

Tony  59:42

Yeah, that’s right. I think we feel con­fi­dent. And I’ve always want­ed to put out with our emails each week rec­om­men­da­tions, and we need­ed the AFSL licence to do that.

Cameron  59:52

Well, you know, helps you sleep at night. That’s good.

Tony  59:54

Yes.

Cameron  59:54

I’m hap­py with that.

Tony  59:56

Thank you.

Cameron  59:59

All right. Well, I think that’s the show.

Tony  1:00:01

Okay. Well, thanks for that. We’ll be back as busi­ness as usu­al next week.

Cameron  1:00:05

Yeah, and thank you, Tony. For all the time and effort and patience you’ve put into us this year. You are a bit of a Bud­dha sit­ting there. We keep ask­ing you the same ques­tions over and over again and you just smile.

Tony  1:00:18

Give dif­fer­ent answers.

Cameron  1:00:20

It’s all, it’s all one. Yeah, occa­sion­al­ly a dif­fer­ent answer. Then you say “no, I nev­er said that.” I told you were all one with the uni­verse? What are you talk­ing about? That’s non­sense. I know, I don’t care what the tran­script says, I nev­er said that. But you got it record­ed? Uh, record­ings can be faked. Yeah, no, but seri­ous­ly you’re mak­ing all of our lives bet­ter and we, we appre­ci­ate every­thing that you do.

Tony  1:00:45

Well, thanks mate.

Cameron  1:00:47

And I appre­ci­ate you wear­ing the Berk­shire Hath­away hat that I bought you for your birth­day. Yeah.

Tony  1:00:54

Thank you for that.

Cameron  1:00:55

Alright, safe trav­els, Tony.

Tony  1:00:56

Thank you.

Cameron  1:01:01

The QAV pod­cast is a pro­duc­tion of Space­craft Pub­lish­ing Pro­pri­etary Lim­it­ed autho­rized rep­re­sen­ta­tive of FSL 52044, AFC Rep­re­sen­ta­tive No. 0012927718. Please don’t make any invest­ment deci­sions based sole­ly on lis­ten­ing to this pod­cast. This is pre­sent­ed as gen­er­al advice only, not per­son­al finan­cial advice. We don’t know your per­son­al finan­cial cir­cum­stances. Please see a finan­cial plan­ner before mak­ing any invest­ing deci­sions.