Transcript QAV #451

QAV 451 Tran­scrip­tion

Cameron  00:10

Wel­come to QAV episode 451, TK. Are you in a, what do you call a bird aquar­i­um? There’s a name for it. 

Tony  00:20

An aviary.? 

Cameron  00:21

Aviary? That’s it.

Tony  00:23

Well, I kind of am. I’m look­ing out the win­dows and there’s this beau­ti­ful lit­tle spar­row with a big red breast that just flew into a tree and out again. It’s love­ly.

Cameron  00:31

You’re in the mid­dle of the bush, Cape Schanck. 

Tony  00:34

Yep. Beau­ti­ful down here. 

Cameron  00:36

How’s Omi­cron in the Cape today?

Tony  00:38

Well, we, I missed it by about 10 min­utes last week, so.

Cameron  00:42

“Missed by that much.”

Tony  00:45

Yeah. So, we’re at the — played golf down here, and there was some­body in the club­house, I think it was from ten past one ’til ten past five, they were in and out. And we left the club­house at about one o’clock to go and play and we got back in about twen­ty to five, so we just missed them. Not to say we would have caught it if we were there at the same time, but we prob­a­bly would have had to have, you know, test and wait for results and stuff. So, we were lucky.

Cameron  01:07

And just hop­ing they did­n’t cough on a golf club that you then picked up or some­thing, or a cart. 

Tony  01:12

Well, I have my own golf clubs, yeah, but a table or some­thing. Yeah, for sure. I bought the PCR home test now, so I test­ed myself before I went to a Christ­mas par­ty on the week­end, and I was fine. And I’ll do it again before Christ­mas Day when I meet up with fam­i­ly, so yeah. 

Cameron  01:25

Did you see Bri­an May’s sto­ry? 

Tony  01:27

No, the guy from Queen? The gui­tarist from Queen? 

Cameron  01:30

Yeah, he post­ed a video on Insta­gram or some­thing this week. He said “my wife and I’ve lived like her­mits for the last two years and there was a birth­day par­ty for a friend and they were there with about a dozen peo­ple. All of them were triple jabbed,” he said, “great night a cou­ple of days lat­er, a cou­ple of them said they had symp­toms.” He said he and his wife had symp­toms that was just like a bit of a tick­le and a bit of a cough so they got the tests, test­ed neg­a­tive. Then they did anoth­er test the next day, test­ed neg­a­tive. And then they found out that about eight of their friends that were there had test­ed pos­i­tive and they test­ed on the third day, and they test­ed pos­i­tive on the third day. And he said the first two days just knocked him out like the worst flu you could pos­si­bly imag­ine, com­plete­ly flat­tened him, and then start­ing day three, day four, he start­ed to pick up. When he did the video, he said it had been a week and he was feel­ing pret­ty good, but he said it even tripled jabbed com­plete­ly — he’s 74 — but he said com­plete­ly knocked him off his feet for a cou­ple of days.

Tony  02:32

Yeah, I’m not look­ing for­ward to it. It’s gonna hit us I think at some stage because it’s just grow­ing so quick­ly, spread­ing so quick­ly.

Cameron  02:37

He said a very, very close friend of his died last year from COVID. In six days — boom, gone. And he said if “I was­n’t vac­ci­nat­ed, I’m pret­ty sure this would have prob­a­bly killed me as well.” Yeah, it was that bad. Triple dose. 

Tony  02:51

Yeah. 

Cameron  02:52

And I’m assum­ing that was Omi­cron too, right. I mean, I don’t know. It’s the dom­i­nant vari­ant every­where now, I assume it is in the UK as well. Might have been anoth­er one. But we keep hear­ing that it’s mild, and he was like, “man, this one knocked me out.” 

Tony  03:03

Yeah, it’s not mild. I mean, it may not have the same death rate, but it’s still killing peo­ple. It was, what was it? Six deaths last night in Vic­to­ria, some­thing like that? From, I guess, Delta and Omi­cron. But yeah. 

Cameron  03:16

Yeah, I don’t I — haven’t seen any data yet on the deaths, whether they’re Delta or Omi­cron, but I did see that it’s now the dom­i­nant strain in Aus­tralia, Omi­cron, by cas­es. It is in the US, too.

Tony  03:27

Yeah. So, I think what they’re say­ing is that same num­ber of hos­pi­tal­i­sa­tions, so less peo­ple are going to hos­pi­tal because of it, but it’s more vir­u­lent. I was gonna stay down here longer, I’m going to head back to Syd­ney next week and hun­ker down until I can get my third job which isn’t due until, at the ear­li­est, mid-Jan­u­ary, but they’re talk­ing about delays any­way, so. 

Cameron  03:45

Oh, real­ly? 

Tony  03:46

Yeah. So, if I can get my third ja mid-Jan­u­ary, I’ll come back down here for a cou­ple of weeks after that. But I don’t know if we should be host­ing din­ners or any­thing like that at the moment with Omi­cron. 

Cameron  03:54

No. And I’m not due for my boost­er until Feb­ru­ary, I think, so.

Tony  04:01

Well, they should also bring them for­ward. I mean, Britain’s now down to, is it three months in Britain or four months in Britain, between shots?

Cameron  04:07

I read today that the states are push­ing the Com­mon­wealth to make it ear­li­er. Any­way, enough of that let’s get on to invest­ing. It’s been tur­bu­lent, con­tin­ues to be tur­bu­lent, mar­ket is not hap­py. Just look­ing at the All Ords for today, it’s slight­ly up today, but if you look at the last three months, I guess, you know, mid-Novem­ber we hit 7798, the All Ords, its cur­rent­ly down at 7638. So, it’s, I don’t know, 150 points down from where it was six weeks ago.

Tony  04:42

Yeah, it’s going side­ways which it does in times of uncer­tain­ty, right, no one can work out what’s hap­pen­ing with infla­tion, what’s hap­pen­ing with bond yields, what’s hap­pen­ing with Omi­cron. All those things are still try­ing to get worked out. They’ve been thrown in the punch­bowl or thrown in the soup, and then some­one’s try­ing to divine what’s going to hap­pen from, from here. It’s pret­ty hard.

Cameron  05:01

Peaked at 7902 back at sort of the end of August, or mid-August, by the looks of it. Yeah. But it’s been trav­el­ling down and side­ways as you say ever since.

Tony  05:13

Yeah, and look, this is usu­al­ly a qui­et time as well. So, there prob­a­bly isn’t much vol­ume in the mar­ket so it gets moved around a lit­tle bit with a heavy trade at the moment.

Cameron  05:21

Any­way, let’s get into news and then we’ll get into ques­tions. I noticed in doing our check­list this week that MYR was get­ting close to its sell line. I peg it’s sell line at about 37 cents. 

Tony  05:37

The Bret­te­la­tor says 38. I mean, the thing about Myer is that it’s nev­er good see­ing a retail­er have their stock price decline dur­ing the Christ­mas sea­son. No, it’s 43.5 cents at the moment being the 21st of Decem­ber in the after­noon, so it’s still a lit­tle bit above its sell line. But it’s nev­er good see­ing a retail­er decline dur­ing Christ­mas, that means that some­thing’s leak­ing that sales aren’t where they should be, I would guess. But who knows? We’ll still apply our nor­mal rules.

Cameron  06:03

It’s had a mas­sive run, though, for the last six months. Like it’s still up, I think 30% from when I bought it six months ago. So, is it maybe some prof­it tak­ing throw­ing in as well?

Tony  06:14

Absolute­ly. If you look at the graph, the month­ly graph and or even a short­er-term graph in Stock Doc­tor it sort of, com­ing out of COVID it had a, I don’t know, maybe a 30% sort of degree or 30 degree slope on it. And then back in June, sort of shot up real­ly sharply and now it’s com­ing back towards that 30-degree slope again. So, yeah, it had a good run there and it’s just, as you say, prob­a­bly because of prof­it tak­ing retrac­ing some of those steps up.

Cameron  06:44

Sol­ly giveth and Sol­ly taketh away.

Tony  06:48

Well, he wants the share price to go up too, it’s I think it was Geoff Wil­son that caused it to sell off in the first place. 

Cameron  06:53

Yeah, Geoff Wil­son.

Tony  06:54

With Wil­son Asset Man­age­ment sell­ing down their share­hold­ing. So, they could still be sell­ing. Who knows? We don’t change the rules, though, we just apply them.

Cameron  07:02

Anoth­er one that I noticed is drop­ping — and the rea­son I noticed these two is because I own them, of course — Lind­say Trans­port, LAU, I think, also get­ting close to its sell line, which I also pegged at around about 38 cents.

Tony  07:16

Yeah, again, the Bret­te­la­tor has 36, so it’s pret­ty sim­i­lar. 

Cameron  07:20

Right. I was just eye­balling it on the chart, I did­n’t throw it into the cal­cu­la­tor, I think. So, keep an eye on those two if you have them, folks. Make sure you’ve got your alerts set, etc., etc., etc. 

Tony  07:32

So, one more. Did you own WWG at some stage? Or still own WWG, Wise­way Group?

Cameron  07:37

At some stage I did, yeah.

Tony  07:40

Okay. Thought you might. Any­way, came off my buy list this week when I was doing it on the week­end. Just thought I’d raise it in case you do own it. And then the oth­er major change to the buy list when I was going through it was HLS, Heal­ius, is back on the buy list. Towards the bot­tom again, I think it’s got a score of 0.11, but it’s a large-cap stock if peo­ple are inter­est­ed in those. 

Cameron  08:00

Good old Heal­ius. The oth­er change to the buy list is GAP is in the buy list and should not be in the buy list, and should­n’t have been in the buy list for the last cou­ple of weeks when it has been in the buy list. Mia cul­pa. I gave it a pass and I should­n’t have. It’s well below its buy line, I don’t know what I was drink­ing, or not drink­ing is prob­a­bly the prob­lem. So, please don’t buy GAP. We’ve just sold it out of our Navexa port­fo­lio, the QAV port­fo­lio today and replaced it with GWR. It had also dropped it a bit since we bought it as well. So, there you go. But yeah, replaced it with GWR today, so apolo­gies to every­one for that, which is why I say every week, check my work before you do any­thing.

Tony  08:41

Yeah, do your own research.

Cameron  08:44

Yeah. 

Tony  08:44

Which I’m pret­ty sure peo­ple are doing, judg­ing by the ques­tions we get which is good. 

Cameron  08:48

The crazy thing is, is peo­ple prob­a­bly know you do a check­list each week, Alex does one, I do one then I com­pare all three and decide what the final right ver­sion is because each of us makes mis­takes every week, each one of us makes mis­takes and because it’s human error when you’re deal­ing with hun­dreds and hun­dreds of stocks and data and charts and what­ev­er, and even then I still screw it up some­times at the end with the final list. So, yeah. A cou­ple of oth­er things, CAA did an upgrade to guid­ance this week, thanks to Jere­my for point­ing that out via Face­book. That’s always nice, par­tic­u­lar­ly in this kind of a mar­ket when some­body does an upgrade to their guid­ance.

Tony  09:27

My four favourite words: upgrade to finan­cial year guid­ance. It’s just, is that four, five? Five favourite words up, sor­ry upgrade to full year guid­ance.

Cameron  09:41

I thought it was “hole in one”. Oh, that’s three words.

Tony  09:45

I’ve nev­er had a hole in one. I’d love one. 

Cameron  09:47

Or, your horse just…

Tony  09:49

Wins the Mel­bourne Cup?

Cameron  09:53

So, did you drill down into, this is Capral, CAA. 

Tony  09:56

No. It’s, great to see cap­i­tal upgrad­ed. 

Cameron  09:58

Yeah, and their, their chart looks, like, crazy. It’s one of these ones that, you know, some­times peo­ple say to us, “well, you know, the charts gone up so much you should sell.” And you know it — I think we bought it around about three or four bucks. It just keeps going. It’s up now, it went up to 835 and then dropped for a cou­ple of months down to 767. This gets back to — some­body asked us last week, should we sell any stock if it drops 10% at any stage, should we then sell it? And you were like, “no.” And this is a clas­sic one. Capral’s then jumped from that 767 up to $9.19, it is, today.

Tony  10:38

It is, and I remem­ber look­ing at the alu­mini­um price on the week­end. It’s, it’s not too far above its sell line, so that’s inter­est­ing that Capral’s going up. There’s oth­er things at play, obvi­ous­ly, than the alu­mini­um price.

Cameron  10:49

Yeah, right. I think I post­ed on Face­book when some­body men­tioned, Jere­my men­tioned this, that it’s gone up, it’s up 70% I think since we bought it. No, 85.87% now total return. Cap­i­tal gain 70%, but it must have thrown some div­i­dends or some­thing at us as well. 85.87% since we bought it, so yeah, it’s been a ter­rif­ic earn­er for us.

Tony  11:13

It has, has­n’t it. Yep. And that would have been, what, in the space of about a year I think? We bought it last year some­time.

Cameron  11:20

We bought it… Yes. Octo­ber 2020. 

Tony  11:24

That’s pret­ty good. 

Cameron  11:25

Yeah, at 17 cents, but they had a con­sol­i­da­tion in Novem­ber, and a cou­ple of huge div­i­dends along the way as well.

Tony  11:33

Okay, I’m just call­ing up alu­mini­um. It’s actu­al­ly just touch­ing it’s sell line now. So, we’ll see what hap­pens. Or maybe just slight­ly above it.

Cameron  11:40

Oh, wow. Okay. Well, we might have to dump Capral next week.

Tony  11:44

Yeah, we might. Well, it’s a bit hard, Stock Doc­tor does­n’t have the sort of fine res­o­lu­tion to be exact, but it looks like the sell price for alu­mini­um is going to be about 2570. Which I guess is, I don’t know what that unit is, dol­lars per tonne, maybe? And the cur­rent price is 2645, so it’s, yeah, a hun­dred points. Ooh, actu­al­ly no, 50 points above the sell price.

Cameron  12:07

Well, that leads me to my next talk­ing point, which is Glenn in our Face­book group said that he found out based on some­thing you asked peo­ple to research last week, “how do we set alerts for com­modi­ties?” He said “Trad­ing View, the app, will let you do that if you pay for one of their mem­ber­ships. I think it’s about fif­teen bucks USD a month for a mem­ber­ship for the base lev­el sub­scrip­tion and you can set com­mod­i­ty alerts. So, I’ve set them for a few; plat­inum, iron ore, gold, and I will go in now and set it for alu­mini­um. And this being an Amer­i­can site, they prob­a­bly spell it wrong. A‑L-U-M-I-N-U‑M. 

Tony  12:49

Alu­minum?

Cameron  12:50

Ah, right. 

Tony  12:51

Yeah, they spell it that way but they pro­nounce it “alu­minum”. 

Cameron  12:53

So which futures should I be look­ing at? 

Tony  12:56

Well, I’m using Phys­i­cal, Alu­mini­um XAL_.

Cameron  13:01

I don’t think they use the same codes. Yeah, there’s no, noth­ing match­ing XAL_. Well, they have a lot of alum… they have Man­aksia Alu­mini­um, Wis­dom Tree Alu­mini­um. I don’t know if these are com­pa­nies or com­modi­ties, I can look at. Yeah, they just have futures. Oh, well, I’ll just use a future one, then.

Tony  13:24

Yeah, use the short­est termed future one if you can. 

Cameron  13:27

Oh. Well, it looks… is that buy line you looked at real­ly steep? Because this is a real­ly steep graph.

Tony  13:36

It’s pret­ty steep, yeah. It’s been going up since the COVID cough, since April 2020 when it was as low as 1461, and it got as high as 2851 in Sep­tem­ber.

Cameron  13:50

Are you fudg­ing the sell line for this?

Tony  13:54

Not at all, no. I’ve got L1 May 2020 at 1515, and then L2 at Sep­tem­ber 2020 at 1737.

Cameron  14:07

Well, I’ve got an ear­li­er buy li- sell trough on the one I’m look­ing at back from July 17. 

Tony  14:14

Ooh.

Cameron  14:15

And then I run it through L2 in May 2020 and it comes in quite low.

Tony  14:19

July 17?

Cameron  14:20

Mm. But again, this is alu­mini­um futures on…

Tony  14:24

Yeah, I don’t know, sor­ry. I don’t know Trad­ing, Trad­ing View.

Cameron  14:28

Yeah, we’ll play around with this and we’ll come up with an alert for that. All right, well, that’s all of my news items to get through this week. Tony, what have you got to talk about?

Tony  14:37

Not a whole lot just, want­ed to of course wish every­one Sea­son’s Greet­ings for the hol­i­day sea­son and hope every­one stays away from Omi­cron and has a hap­py and safe hol­i­day. And thanks to all our sub­scribers, you’re very val­ued. And thanks to our lis­ten­ers. You’re very val­ued too. And for all the peo­ple who give us ques­tions and sup­port on the Face­book group, it’s, it’s very wel­come. It’s great. So, Sea­son’s Greet­ings every­one. I’ve got a cou­ple of things to go through. I’ve got our Navexa port­fo­lio was up 0.95% for the week and the biggest mover was Capral that we spoke about, up 13.4%. GAP was our worst per­former, down 6%, but we’ve removed that today from the port­fo­lio. A cou­ple of oth­er things. I did post some­thing on Face­book last night, the world’s sec­ond tallest depart­ment build­ing is being built in Malaysia at the moment and I know about six months ago I talked about Col­in Nichol­son’s top of the mar­ket indi­ca­tors, and one of his indi­ca­tors that always stuck in my mind is when some­one builds the world’s tallest build­ing, it’s def­i­nite­ly a sign that the mar­kets very top­py. So, the sec­ond tallest apart­ment build­ing might be telling us it’s get­ting top­py as well.

Cameron  15:47

That’s why you post­ed that. I thought “what’s that got to do with any­thing?” I think, I think I thought you’d post­ed it mis­tak­en­ly or some­thing to the forum. I see, makes sense now.

Tony  15:58

Yeah. Col­in Nichol­son. I don’t think his web­site’s still going, well the site might be still going but his ser­vice isn’t, but I used to sub­scribe to it. And he had used to pub­lish three papers on indi­ca­tors for dif­fer­ent stages in the mar­ket, and yeah, there was stages in the bull mar­ket with high lev­els of IPOs merg­er and acqui­si­tion activ­i­ty and peo­ple start build­ing icons to them­selves. I guess you could prob­a­bly count the blue penis as one of those; space­ships to your­selves. Maybe that’s the tallest thing in the world at the moment.

Cameron  16:28

Sor­ry, what? The blue penis? What?

Tony  16:31

Yeah, the space­ship that Jeff Bezos built and rode up in was nick­named the blue penis. You did­n’t see that.

Cameron  16:37

Real­ly? No, I missed that. 

Tony  16:43

Yes, edi­fices to rich peo­ple is a sign of the top of the mar­ket.

Cameron  16:47

There’s a, an image I won’t get out of my head for the rest of the day now.

Tony  16:53

Yeah, rid­ing inside the blue penis. Any­way, it’s a sign the mar­kets get­ting top­py, but I guess we know that because it’s get­ting chop­py and we’ll have to let it resolve itself. But it does­n’t change what we do, but just some­times it’s nice to know con­text for what’s going on. 

Cameron  17:08

What about stocks of the week? FMA? No, sor­ry, FEX and GMA this week?

Tony  17:14

Yes. So, I’m going to focus on GMA, Gen­worth Mort­gage Insur­ance, and we have a ques­tion about it lat­er, which I’ll, I guess I’d bet­ter talk about up front. So, first of all, Gen­worth Mort­gage Insur­ance, been around for a long time. Was an inter­na­tion­al com­pa­ny with a, an office in Aus­tralia, and ear­li­er this year, or end of last year com­plet­ed a sell down. So, it’s now whol­ly owned by Aus­tralians and list­ed on the ASX. So, it’s been around for a long time. It’s one of the main providers of mort­gage insur­ance, so it’s a one prod­uct com­pa­ny, which can be a prob­lem if some­thing goes wrong with that one prod­uct, but, but it’s been fair­ly prof­itable over the years. It was­n’t prof­itable dur­ing COVID so it made a loss last year. And often­times, the loss­es with a com­pa­ny like this being an insur­ance com­pa­ny are around pro­vi­sion­ing. So, it might have to mark to mar­ket a change in how much its pro­vid­ing in case there are loss­es, which it did last year and then that gets writ­ten back this year — a bit like what the banks do for pro­vid­ing for doubt­ful debts when they lend peo­ple mort­gages. So, its first half back in prof­itabil­i­ty hap­pened this last results in June. What else can I say about it? If peo­ple don’t know what mort­gage insur­ance is, it’s if you’re going to take out a mort­gage from a bank and the bank says you must have 80%, or, sor­ry, no more than 80% bor­row­ing, so a 20% deposit, you can actu­al­ly reduce that deposit by pay­ing for mort­gage insur­ance. And it’s some­thing I’ve done in the past when I was first start­ing off in the real estate sec­tor. I took out mort­gage insur­ance, which meant I could actu­al­ly bor­row 90% from the bank and I paid a cou­ple of grand to some­one like Gen­worth to insure the fact that if I did­n’t meet repay­ments then Gen­worth would pick them up for me if I ever went down into fore­clo­sure. So, that’s what that is, it’s been doing it for a long time. I guess a cou­ple of things to note; it’s basi­cal­ly a white label sup­pli­er, so, and when I took it out many years ago it was offered by the bank I was bor­row­ing from even though it was pro­vid­ed by prob­a­bly a com­pa­ny like Gen­worth. I guess that’s still hap­pen­ing these days. Does­n’t mat­ter either way, I sup­pose. But the banks have just start­ed putting these con­tracts out to ten­der. So, I think it was last year at the start of last year, Nation­al Aus­tralia Bank put out to ten­der their mort­gage insur­ance providers con­tract and Gen­worth lost it and QBE picked it up, and there were only two peo­ple in that ten­der so it’s a fair­ly niche mar­ket. And then the Com­mon­wealth Bank ear­li­er this year announced that they would run a ten­der when their cur­rent con­tract was near­ing com­ple­tion. So, the cur­rent con­tract which is held by Gen­worth does­n’t come up or keeps run­ning until Decem­ber 2022, but the Com­mon­wealth Bank will run that ten­der process well before that time peri­od to allow them to tran­si­tion away if they, if they need to. My guess is again, there’ll prob­a­bly be a very small num­ber of peo­ple apply­ing for that ten­der, and who knows whether Gen­worth will get it or not. The mate­r­i­al fac­tor is that Comm­Bank is about half of Gen­worth’s insur­ance busi­ness so if they lose this ten­der it’ll be a big hit to their prof­its. And like­wise, if they’re des­per­ate to keep it, which you think they would be, if they, if it’s worth that much to them, they may have to shave their mar­gins right down to the bare bone. So, it could be a hit to future earn­ings as well. So, that’s a cou­ple of things to keep in mind with it, we should know the results of that ten­der well before the end of 2022 — I think it may even be under­way now. So, this trade isn’t with­out risk and that’s one of the rea­sons why it comes on to our buy list as a val­ue play. But it’s there now. It’s just come on above its buy line in the last week or so. So, it’s a, it’s a new three-point uptrend. And to go through the num­bers — sor­ry, before I do that, a few oth­er points to make. The price graph has slow­ly been increas­ing since the COVID cough and it’s tak­en anoth­er leg up recent­ly, and the leg up it’s tak­en recent­ly is prob­a­bly because they’ve announced a, an on mar­ket buy­back, and they plan to spend about 10% of cap­i­tal buy­ing back their own shares. So, man­age­ment are giv­ing us a vote of con­fi­dence in the com­pa­ny even though it’s, there’s a fair bit of uncer­tain­ty around it. The lat­est prof­its have been helped by the hous­ing mar­ket, which before COVID hap­pened, some peo­ple said was going to tank, but in fact, the reverse hap­pened. Shows you how good some econ­o­mists are at fore­cast­ing. And so, there’s been a lot of busi­ness for them and peo­ple tak­ing out mort­gage insur­ance. And as it gets, as house prices rise, and it gets hard­er to save for a deposit more peo­ple tend to take out mort­gage insur­ance and do what I did; take out an insur­ance pol­i­cy and then the bank will lend you more so you have to save for a small­er deposit, which is a worth­while thing to do if you’re con­sid­er­ing buy­ing into the mar­ket, and you can afford to do that. The oth­er thing which has helped, has been a tail­wind for this com­pa­ny, is that because of COVID and the lock­downs, the banks were told not to fore­close on peo­ple who could­n’t pay their mort­gages, and they actu­al­ly had pro­grammes where you could take, I think it was, up to six months off your mort­gage repay­ments, and so that meant that the num­ber of claims on mort­gage insur­ance went down because of that. And also because of all the gov­ern­ment sup­port that was being hand­ed out to peo­ple. The unem­ploy­ment rate’s pret­ty low. So, there’s been less claims and more activ­i­ty com­ing in through the front door for Gen­worth, so it’s been a good peri­od for them. So, that was one of the rea­sons why the com­pa­ny’s turned around with its share price. So any­way, so that’s, that’s by the by, that’s the back­ground, but the num­bers are — and I’m doing this with a stock price of $2.36, which was at the week­end 19th of Decem­ber 2021. One of the rea­sons why I picked this one to do it, it’s high up on the buy list, but it also has an aver­age dai­ly trade of just under $2 mil­lion, about $1.8 mil­lion. So, it should suit most investors. The price cur­rent­ly is below its con­sen­sus tar­get price, it’s about 71% below its con­sen­sus tar­get price, so it scores for that. The finan­cial health in Stock Doc­tor is strong and also recov­er­ing, and again, because it was at a loss last year, and it’s now prof­itable and I tend to like com­pa­nies which are doing that. So, it scores a 2 on the check­list for that. If any­one’s inter­est­ed in the ROE, it’s low, it’s about 3%. I’m not par­tic­u­lar­ly wor­ried about ROE but I know some peo­ple focus on it, I guess that’s a reflec­tion of the indus­try, it’s in the insur­ance indus­try where a lot of the returns are fair­ly skin­ny on skin­ny mar­gins, but over a large vol­ume. And it’s got to do with rein­sur­ance pric­ing for the risks they take etc., etc. So, low ROE. That’s not unusu­al for this indus­try, though. Because of all the risks involved, price to cash flow is down to 2.5 times, so that’s very low for us. Inter­est­ing­ly enough, the PE is up at 23 times, so that says to me, again, this is a com­pa­ny which is bring­ing in lots of cash, but then obvi­ous­ly los­ing all that cash the costs along the way. So, that’s just again, the nature of the insur­ance indus­try, I guess. IV 1 it’s greater than IV 1, it’s less than IV 2 and it’s less than two, IV 2 was greater than two times the share price, so we score it a two for that rea­son. It’s actu­al­ly, the share price is cur­rent­ly less than NEPS, it’s the net equi­ty per share, and so it scores e a point for that. It’s also less than NEPS plus 30%, so it scores anoth­er point for that, obvi­ous­ly, if it’s less than NEPS. There’s strong growth fore­cast and earn­ings per share, and I guess you got­ta be care­ful with this, because if it does lose the con­tract that will, that will still reduce, but the fore­cast growth is real­ly high so even if it does lose Comm­Bank we’ll prob­a­bly still see some growth in the EPS next year. Growth over PE, which is what we look at, is 14 times, and we’re look­ing for some­thing to be 1.5 times on that met­ric, so it’s well and tru­ly above our thresh­old hur­dle for that. So, it scores a 2. As I said before, it’s a new uptrend, so it scores a 1 for that. It is a record high PE, so it gets a ‑1 for that. And I said before the PS’ 23, so that’s quite high. And it does­n’t have con­sis­tent­ly increas­ing equi­ty, not sur­pris­ing if it had a loss last year so it does­n’t score for that. All in all, I get a qual­i­ty score of 80%, and a QAV score of point 0.32. So, it’s some­thing to have a look at, cer­tain­ly high up on the buy list, but cer­tain­ly not with­out its risks.

Cameron  25:40

When you talk about the risk of it los­ing Com­mon­wealth Bank’s busi­ness, but then, you know, you’re talk­ing about the ana­lysts have giv­en it strong growth fore­casts, you would assume that these ana­lysts have a sense for what’s going on in this space?

Tony  25:56

Yeah, look, I don’t know what these ana­lysts are think­ing and I don’t know what guid­ance they’ve been giv­en by the com­pa­ny. The com­pa­ny may well have giv­en guid­ance and then said, you know, aster­isk, assum­ing we retain all these con­tracts. But often­times an ana­lyst, if they’re worth their salt will say, “well, there’s a X per­cent­age that does­n’t,” you know, they’ll work out what the per­cent­ages are, they’ll say “50% prob­a­bil­i­ty that they keep the Comm­Bank con­tract, and there­fore we’ll apply that to the earn­ings fore­cast and we’ll come out with our num­ber.” But it looks to me like they’re fore­cast­ing a high num­ber and if they lose the com­bat con­tract, they’ll still get some growth out of their future fore­casts.

Cameron  26:35

Right. And shout out to my old friend Gerd Schenkel, who I see was appoint­ed Non-Exec­u­tive Direc­tor of GMA in Novem­ber 2021.

Tony  26:46

Okay, well give them a call and ask him what’s hap­pen­ing with the RFP.

Cameron  26:49

I was gonna do that. I was gonna see if we can get him on the show to talk about it. Just tell us what’s going on.

Tony  26:54

Yeah, that’d be great. He’ll have to say “no com­ment, no com­ment, no com­ment.”

Cameron  27:02

Sure, he’d be hap­py to do that. Gerd used to spon­sor my pod­casts eleven or twelve years ago when he was run­ning — he was one of the founders of some­thing called UBank, one of the first sort of new gen­er­a­tion bank things — used to spon­sor my booze bud­get, actu­al­ly, for my pod­casts. Good guy. Nice guy.

Tony  27:25

I know, I know who you’re talk­ing about now. Yeah. Right. Well, shout out to Gerd if he’s lis­ten­ing.

Cameron  27:30

Exact­ly. Alright. Well, thanks for that break­down, Tony. Should we get into ques­tions?

Tony  27:35

Absolute­ly, yeah. 

Cameron  27:37

First one is from good ol’ Dave from Newy: he says, “g’day Cam. Chal­lenger Lim­it­ed, CGF, in the inter­est of dis­clo­sure, I was a hold­er, but sold on, on a rule 0.2.” I’m not sure what rule 0.2 is, but okay, “it went up 10% from where I bought it, in which case I was set to sell on breakeven as it pulled back. It lost a cou­ple of per­cent below that on the open, any­how, I’m out for the time being. But I get more announce­ments for CGF then most hold­ing. A lot of these relate to sub­stan­tial hold­ings CGF has in oth­er list­ed stocks, a lot of these are not what you’d call QAV wor­thy. I did some dig­ging in the annu­al report to try to work out what per­cent­age of rev­enue and equi­ty assets is tied up in these hold­ings, but the thing is a frig­gin’ doorstop. And pre­sum­ably CGF has costs asso­ci­at­ed with man­ag­ing the hold­ings’ inter­nal and exter­nal retail part­ners? Not expect­ing Tony to dis­sect the annu­al, but I’d be inter­est­ed in his gen­er­al thoughts on how this sort of a set­up is dif­fer­ent to just direct­ing some dol­lars to a man­aged fund. I get the mod­el is part­ly Berk­shire, but you’d back what­ev­er Buf­fett is spend­ing his float cash on com­pared to some of the hold­ings that have popped up for CGF. Not down ramp­ing, just keen to under­stand the mod­el for a busi­ness of this nature. It’s out­side my wheel­house. Thanks, Dave from Newy.” 

Tony  29:04

Yeah, good. Good ques­tion, Dave. And I don’t know what rule point two is either. I think what he means is it went up and he sold it when it came back down to breakeven, per­haps. But any­way. Look, I actu­al­ly real­ly liked Chal­lenger. I’ve owned it in the past and it’s an inter­est­ing busi­ness mod­el. If I go back to when it first start­ed, I don’t know, fif­teen-twen­ty years ago, maybe a lit­tle bit longer, what the founder set out to do was to invest in real estate and then pro­vide the peo­ple who gave him the mon­ey to invest with a guar­an­teed return every year. So, that’s what is called an annu­ity and that’s what chal­lenger does in the main part. And that was suc­cess­ful at doing that for a while. There was a retail down­turn dur­ing the GFC and there were lots of ques­tions about whether the mod­el was bro­ken and all that kind of stuff. And it’s also a very high­ly reg­u­lat­ed busi­ness for that rea­son, because it involves lots of fore­cast­ing on returns for their invest­ments and, and then whether they can meet their oblig­a­tions to pay the annu­ities. So, for exam­ple, my father had an annu­ity and basi­cal­ly when he retired, he went to Chal­lenger and paid them what­ev­er it was, let’s say it was a hun­dred grand, and they guar­an­teed to pay him sev­en grand for the rest of his life. That’s the way the prod­uct works. So, there’s a lot of actu­ar­i­als going on there to decide how long he might live for, and then fore­cast­ing and pro­ject­ing as to what they can get as a return from tak­ing his hun­dred grand and invest­ing it in either real estate, and more recent­ly in the share mar­ket, and that’s what Dav­e’s talk­ing about. So, along the way, I think it was post GFC, because of rup­tures in, in the real estate mar­ket, they start­ed to diver­si­fy a bit and start­ed to invest in the share mar­ket. They knew it was going to be more risky than prop­er­ty, but they also expect­ed to get high­er returns. And so, they were doing that as a way to try and beef up their — to bol­ster their invest­ments so that they could guar­an­tee the annu­ities, but also, I guess, to make a big­ger mar­gin. If you’re still offer­ing, you know, what­ev­er they’re offer­ing now, I don’t know what they’re offer­ing now, 6% maybe, to peo­ple guar­an­teed for life, then you’ll get, part of that will be high­er from the share mar­ket if you’re invest­ing wise­ly com­pared to the prop­er­ty mar­ket, but the prop­er­ty mar­ket is usu­al­ly less risky. So, they’ve been fid­dling with the blend now for a while. And that’s, that’s attract­ed some crit­i­cism and made it a lit­tle bit con­tro­ver­sial. And they also, a cou­ple of years ago, down­grad­ed what they pro­ject­ed that their returns would be from their invest­ment port­fo­lios, which again, made share price slide. But some peo­ple are also say­ing that the pro­ject­ed returns are much more real­is­tic now. So, it’s not a funds man­age­ment com­pa­ny, Dave, it’s more like a twist on bank­ing. So, what they’re doing is tak­ing peo­ple’s deposits, invest­ing those, and then man­ag­ing to get a bet­ter return than what they pay back to the cus­tomers as an annu­ity. There’s prob­a­bly a lit­tle bit more risk there because they take the mon­ey upfront, and they’ve got to guar­an­tee it for, either for life, or for a peri­od of time. So, some­times they’ll say the annu­ity lasts for ten years or twen­ty years or what­ev­er, and the per­son tak­ing, the retiree tak­ing out the annu­ity can decide whether they’re going to live that long, or whether they care and they’re hap­py to go onto the pen­sion, for exam­ple, at the end of that peri­od. But that’s the game they’re in. And I think why I like it is because I’m old enough to have been work­ing cor­po­rate back in the 80s, when most of the pen­sion, or most of the super­an­nu­a­tion plans, were changed from defined ben­e­fit to what they are now, which is basi­cal­ly an invest­ment style account. So, in the past with defined ben­e­fit super­an­nu­a­tion, if you, when you retired, you basi­cal­ly got a per­cent­age of your fin­ish­ing salary. And I guess more often than not, it was like the aver­age of the last three years that you work, and you might have got­ten as high as 60% or 70% of that salary, so they were very gen­er­ous. And all the risk was absorbed by the super­an­nu­a­tion fund. And much in the same style as Chal­lenger is absorb­ing risks; they’re say­ing “I’ve had your, all your mon­ey for a long time and I’ve invest­ed it wise­ly, and it’s grown to a large amount so that I can guar­an­tee your retire­ment based on your age and based on the last three years of your salary, etc., etc.” Com­pa­nies moved away from that to make all, to pass all that risk back on to the super­an­nu­ants them­selves. And so, if you’re retir­ing from a big cor­po­rate you get, you’ll get giv­en a lump sum, you can go into a pen­sion phase, I guess, but it large­ly depends on how you want to invest the mon­ey, whether that be with super­an­nu­a­tion funds that you trust, like indus­try funds, for exam­ple, or whether you want to do it your­self. So, the risks have gone back on to the per­son. Some­one like my father, who was a, basi­cal­ly a chip­py for most of his life, did­n’t have the first knowl­edge of how to invest and I could see that when he final­ly showed me his, his retire­ment pro­file, but an annu­ity suit­ed him because he had the guar­an­tee of an income even though, you know, he payed his lump sum up front to get guar­an­teed return. So, chal­lenges in that busi­ness. In terms of the split of the man­aged funds ver­sus the, the oth­er invest­ments, if you look at the front page of Stock Doc­tor, Dave, you’ll see that the funds man­age­ment side of Chal­lenger is now 15%. So, it’s by no means the pre­dom­i­nant part of Chal­lenger, and I think what’s hap­pened in the last lit­tle while is that Chal­lenger, when it start­ed to branch out and invest for itself in the share mar­ket, decid­ed that that was also an offer­ing that they could offer to retail investors. And so, they’ve turned what was inhouse invest­ments into also an exter­nal­ly offered invest­ment pro­gramme, so, or prod­uct. So, I guess if that ever grew to be the dom­i­nant part of Chal­lenger, it would change the type of busi­ness it is and I would treat it more like a list­ed invest­ment com­pa­ny or a fund man­ag­er and prob­a­bly take it off the buy list, but for now, it’s not, it’s more in the sort of bank­ing mode of things with a twist that they pro­vide annu­ity. So, that’s what I know about Chal­lenger. It can be con­tro­ver­sial because, you know, if the share mar­ket turns down, all the ana­lysts will focus on, on man­age­ment and ask­ing if they can still pro­vide the annu­ities. That can be good or bad. But over the time­frame it’s been oper­at­ing, which was I think about fifteen/twenty, maybe even twen­ty-five years, as far as I know, it’s nev­er missed any annu­ity pay­ments, so, it’s been well man­aged. And I would expect that to con­tin­ue.

Cameron  35:14

Fas­ci­nat­ing: a bank with a twist, bank­ing with a twist. I like that. You should be in mar­ket­ing, Tony.

Tony  35:20

It’s also, I mean some­thing that I was think­ing about, in terms of if we ever have a fund offer­ing for peo­ple, that if we can get 19.5% in the mar­ket, how much do we have to give back to some­one who wants a guar­an­teed return for the rest of their life? You know, gen­er­al­ly peo­ple these days are look­ing for about 7%. If you can guar­an­tee that for them, and the rest is not just prof­it for us, but a buffer and in case we have a mar­ket down­turn for a cou­ple of years, it’s actu­al­ly not a bad busi­ness mod­el.

Cameron  35:49

You could guar­an­tee them 8%, but if we have a good year, give them 10% and say “here, Mer­ry Christ­mas. We had a good year.”

Tony  35:59

You could. Absolute­ly.

Cameron  36:02

Alright, thanks for that ques­tion, Dave. Ashish asks, “Tony men­tioned he sold FMG for $20.50. If we assume you bought the share for $10.50 more than a year ago, his cap­i­tal gains tax would be $5 per share. If he’s on the 30% tax rate out of the cap­i­tal gains, he has to pay $1.50. So, if you’re plan­ning to get back in you have to buy the share at $19 just to break even. If we con­sid­er bro­ker­age the get back in price would be even low­er. Hence, if we know that if the com­pa­ny is fun­da­men­tal­ly sound, can we just keep the stock there and ignore the short-term volatil­i­ty?” 

Tony  36:40

Yeah, good ques­tion. And I think that in all those num­bers, Ashish has missed a cou­ple of impor­tant points. One is that who knew that Fortes­cue Met­als Group would come back from where it did? Who knew what the bot­tom was going to be, whether it was going to be $15, or $14, or $10? And so, the three-point trend sell line is all about an insur­ance pol­i­cy. I want to pre­vent big down­turns like that, on the, I guess, the like­li­hood that they may stay low for a long time. And so, all of Ashish’s num­bers make sense if I bought back into Fortes­cue Met­als Group now, it’s prob­a­bly a breakeven game for me, except for the fact that I still had all my prof­its to invest in the last two or three months that I would­n’t have had if I’d stayed in Fortes­cue Met­als long term. As it turns out, the last two or three months haven’t been a great time in the mar­ket, so it prob­a­bly is a zero sum game if I bought back into Fortes­cue now, ut, but that’s the think­ing behind it. We take a prof­it, we can invest it some­where else and make mon­ey out of that ‚and if the orig­i­nal invest­ment then comes back to be a buy, we can buy it. More often than not, not always, but more often than not, that’s for the cheap­er price than what we sold out at. Fortes­cue Met­als Group has just gone up quite quick­ly, and to be hon­est, I’m scratch­ing my head on all these iron ore stock, because Fortes­cue I think got to about $25 a share at its height, and the iron ore price around that time was in the $220 range per tonne. And I think when I sold Fortes­cue Met­als Group, the price was about $180 per tonne, and was drop­ping fast, and iron ore price I think dropped down to in the $90 range. And Fortes­cue Met­als Group dropped back to about $14.50, and now the iron ore prices back up to, I dun­no, its around $115 to $120 a tonne. But the share price has almost regained all its ground. So, some­thing isn’t gelling for me in that, in that maths equa­tion. Fortes­cue Met­als is back on the buy list, and so are all the iron ore stocks, so I’d be buy­ing it if it was the next stock on my list. I’m not say­ing don’t buy it. But I just don’t under­stand how some­thing that was, you know, had an under­ly­ing com­mod­i­ty price of $180 is now worth almost the same as it was when the under­ly­ing com­mod­i­ty prices was $115. That does­n’t make sense to me. But any­way, peo­ple are I guess fore­cast­ing what will hap­pen with iron ore, which, which I don’t like doing. So yeah. So, Ashish is right with his sums. If I do buy back into it, it’s prob­a­bly been a zero sum for the last two or three months, but I’ve been safe. And the three-point trend sell line is always about insur­ance, and it will pay off more times than it won’t, but some­times it won’t. But I’m not wor­ried if it does­n’t, because I’ve still got my prof­its, and I can put them to work some­where else. Even if the share price goes on to be above what I sold it for, I’m not wor­ried. I stayed out of a stock that had a high-risk pro­file, and I did­n’t want to be in.

Cameron  39:27

Yeah, and the thing that jumps out at me here is that Fortes­cue in this par­tic­u­lar instance has rebound­ed rather quick­ly, but it could have gone down to $10 and stayed down there for two years. And if you just held and did­n’t sell, then your mon­ey’s not doing any­thing for two years, so the oth­er prin­ci­ple is to keep your mon­ey work­ing for you. We don’t know what’s going to hap­pen with Fortes­cue, right, or the iron ore price, but if some­thing falls like that, yeah, I mean, in ret­ro­spect, you can go “well, it came back up, we should have just sat on it” and maybe that’s jus­ti­fi­able, but it could have gone down and just stayed down. Who knows? We don’t know what’s going to hap­pen with it, so we’re cut­ting our loss­es or not our loss­es in this case, tak­ing our prof­it and putting that mon­ey to work, hope­ful­ly, mak­ing it work well for us while we, while time moves on and Fortes­cue can go up, can go down, can go side­ways, does­n’t real­ly mat­ter to us then what hap­pens once we’ve got out. I want­ed to ask you about Fortes­cue, though, because Eliz­a­beth Gaines has just some­what sur­pris­ing­ly announced that she’s step­ping down as CEO and it was sort of posi­tioned in the media as this is part of their piv­ot to green ener­gy, get­ting out of iron ore. Are they still an iron ore com­pa­ny in that case? I mean, obvi­ous­ly, that’s still their rev­enue right now. But how do you think about a stock like FMG when they make those sorts of announce­ments? 

Tony  40:52

Yeah, I did. I was cau­tious, because it was a sur­prise announce­ment when a CEO changes roles, I would have pre­ferred to have some sig­nal­ing before­hand. But, I think the way it’s been han­dled is this was the sig­nal that it’s been well man­aged. They’ll, they’ll replace her, she’s going to head — still work at Fortes­cue — and head up the new divi­sion. Yeah, look, I thought about it being a bad news sell but I don’t think it, I mean giv­en what the share price has done, I don’t think we could call it that. She’s been there for three years, which is a bit on the short side, but she’s not leav­ing the com­pa­ny, so that that makes sense. Ini­tial­ly, I thought, per­haps a bad news sell, but I think it’s all kind of work­ing out for them. I still think of Fortes­cue Met­als Group as an iron ore com­pa­ny, all of the green hydro­gen and what­ev­er else they’re get­ting into is still pret­ty much blue-sky. It’s, it’s a small part of their port­fo­lio mix at the moment.

Cameron  41:40

But when they say, well, the CEO is step­ping down to focus on oth­er stuff, when iron ore is still their main bread and but­ter, you would think you’d keep the CEO doing that, doing what she’s doing, and have some­body else do the blue-sky stuff? But, what the hell do I know? I trust that Twig­gy knows what he’s doing here.  

Tony  41:59

Yeah, look, I tend to agree with you. But, I think you’re right. Twig­gy does know what he’s doing, every­one seems fair­ly com­fort­able with the move. I think, from mem­o­ry, Eliz­a­beth Gaines came from out­side the indus­try, so I think she’s had a pret­ty tough and steep learn­ing curve and maybe she’s had enough and maybe they’ve nego­ti­at­ed this and it’s been going on behind the scenes. She has­n’t, like, spat it and resigned. And typ­i­cal­ly, the rea­son why I don’t like see­ing a CEO do that is because, a bit like with the Mag­el­lan CEO, he just leaves and you don’t know why, and you’re sup­posed to assume, that you’re being told by the, by the peo­ple who are still there that it’s busi­ness as usu­al. But some­thing’s gone on. In this case, I sus­pect she’s just tired of run­ning an iron ore com­pa­ny. It’s been very demand­ing for her and she wants to focus on the new stuff, and they’re going to man­age their way through that.

Cameron  42:47

Think she was the CEO of Hel­loworld pri­or to join­ing FMG, from mem­o­ry. I think they’re like a trav­el com­pa­ny.

Tony  42:54

Yeah, so she’s come from out­side the indus­try. I think she’s a very smart woman, I think she was a McK­in­sey grad­u­ate or some­thing like that. But, tough world, being an iron ore sell­er, par­tic­u­lar­ly to the Chi­nese in this mar­ket, and it’s obvi­ous­ly had its ups and downs. I total­ly respect what Ashish was say­ing, par­tic­u­lar­ly in this case, but my ques­tion to Ashish is: if you’re not going to sell when the under­ly­ing com­mod­i­ty drops, or if you’re not going to sell when the share price goes through its three-point trend­line when do you sell? So, it’s, it’s fine if you have a bet­ter way of, of sell­ing some­thing, but to buy some­thing as if it’s a For­ev­er stock, I think is, is not going to work, par­tic­u­lar­ly in the last twen­ty years in the share mar­ket. May have worked a hun­dred years ago.

Cameron  43:36

I think that’s a ques­tion peo­ple who bought After­pay six months ago are ask­ing them­selves; when should I sell? The peo­ple who bought it back in late August at $136 when it was going to the moon! They’re gonna go to the US! They’re gonna be acquired by Square. It’s going to the moon! And now they’re at what, 90… $82. $82. Yikes.

Tony  44:03

Yep. And the US gov­ern­ments just launched a probe into buy-now, pay-lat­er com­pa­nies. 

Cameron  44:07

Yeah, like, don’t get me wrong, if you bought it back in Decem­ber 19, at $8.90 — no hold on, that was March 2020, sor­ry. COVID cough, right, $8.90. You’ve done very well, if you got out at the right time — even if you got out now you’ve done very, very well. But I wor­ry for the peo­ple that were buy­ing into it at $153 in Feb­ru­ary this year, or $133 or what­ev­er, the peo­ple who bought it at $153, $154 it peaked out in Feb­ru­ary. It’s almost half that now. So, it’s yeah, there you go. What did you used, what do you always say?  “No, no tree. No tree grows to the sky?” 

Tony  44:50

Cor­rect, yeah. High fly­ing, high PE stocks, they, they can be very volatile. Yeah. And the answer to the ques­tion of when should I have sold? When some­one asked, “when should I have sold?” The answer is inevitably last week. The fact that you’ve just stum­bled across that as a ques­tion means that you should have sold before.

Cameron  45:09

Yeah. All right. Wade says “Wow, MFG. 33% down today,” I think this was prob­a­bly yes­ter­day, “and count­ing on the back of con­tin­ued neg­a­tive news, in Tony’s cor­po­rate invest­ing expe­ri­ence, what would be man­age­men­t’s mindset/targets at this point?” You know, I’d open a win­dow at the top of the build­ing and jump out, I think. “Direc­tion change of the busi­ness or just try­ing to sta­bilise the cur­rent sit­u­a­tion and rebuild a sta­ble base into the future? Any com­men­tary appre­ci­at­ed? I’m just glad I don’t hold.”

Tony  45:44

Yes, I agree, Wade. I’m glad I don’t hold it too. I think it was on the buy list a cou­ple of years ago, was cer­tain­ly on my radar; I think I may have owned it maybe four or five years ago. So, it does have peri­ods where it comes down in price and then we can buy it and it goes up, although cur­rent­ly even though the price is I think around $20 or sub $20, it’s, it’s still only got a QAV score of about 0.04 at the moment. So, it may come on to our buy list, but it’s not there at the moment. And look, again, this is like After­pay. MFG, at its height, Feb­ru­ary 2020, so just before the COVID crash was at a high of $72. And now it’s $20 today. So, back then in Feb­ru­ary 2020, the PE was 30 times and now it’s 8.9. So, yeah, it’s fall­en a long way. But you know, my ques­tion is, why would you pay 30 times income for, or earn­ings for a fund man­age­ment com­pa­ny? That’s a lot of faith on the stock pick­er, and as it’s turned out, the stock pick­er has been dis­tract. There’s been plen­ty of stuff spo­ken about and writ­ten about, about Hamish Dou­glass’s divorce and the fact he took three months off and went and sat on Ker­ry — James Pack­er’s yacht in the Mediter­ranean and all this kind of stuff. The CEOs resigned unex­pect­ed­ly, and there’s been no rea­son giv­en. So, there’s obvi­ous­ly a lot of inter­nal rup­tures. The two things I would focus on, maybe three things I would focus on with Mag­el­lan is, first of all, Hamish Dou­glas does have a good track record but he did go to cash last year, think­ing that the mar­ket was over­val­ued. And that just has­n’t worked out for him because the mar­ket, par­tic­u­lar­ly over­seas, which is where he focus­es most of his fund’s man­age­ment, and in the US, is, has gone up quite high this year. So, he’s under­per­formed his bench­mark in the short term, but in the long term he’s done okay and that’s what he will be focus­ing on. He’ll be say­ing, “for­give me my mis­takes this year, but look at what I’ve done over the last ten or so years, fif­teen years,” and peo­ple will. Mag­el­lan is incred­i­bly embed­ded in the finan­cial advi­sors net­work and with the insti­tu­tions in Aus­tralia and some­what over­seas. There was a big man­date, their biggest man­date was lost a day or two ago, the St. James insti­tu­tion in the UK took away about 13% of their funds under man­age­ment, so that was a big hit to them. But look, I mean, what’s man­age­ment, think­ing Hamish Dou­glas will prob­a­bly be very focused now on going around and talk­ing to all the peo­ple who rec­om­mend their funds, say­ing, “hey, I’ll get through this. We’re think­ing about rede­ploy­ing our cash.” He also had some prob­lems in that he invest­ed in Chi­na at the height of the boom there. And if you recall, in the last about twelve months ago, in the last twelve months, the Chi­nese gov­ern­ment has cracked down on peo­ple like Jack Ma for, I guess, being too rich and hav­ing too much influ­ence and even being a bit crit­i­cal. So, stocks like Aliba­ba and Ten­cent have under­per­formed in the last six-twelve months, and Hamish Dou­glas was a bull for those and a boost­er for those, so that’s hurt him. So, he still has all the funds under man­age­ment, he’s still smart, very expe­ri­enced oper­a­tor, and even­tu­al­ly he’ll work his way through all his per­son­al prob­lems and his invest­ment prob­lems. And they do have such a great net­work of peo­ple rec­om­mend­ing him that even if he los­es some of it, they’ll pull through. So, that’s what they’ll be think­ing at the moment is they’ll be prob­a­bly going around to some of the oth­er key per­son­nel say­ing, “look, if you stay on that and you don’t jump ship, we’ll give you some reten­tion bonus­es” and things like that. And he’ll be clear­ing the decks and clear­ing his per­son­al life to focus on the busi­ness again. That’s what he’ll be think­ing.

Cameron  49:27

Jol­ly good. Well hold the best to every­one there. Tim asked a ques­tion about GMA but I think you’ve pret­ty much answered that. This is about the CBA GMA con­tract. 

Tony  49:39

Yeah. 

Cameron  49:39

Got a late ques­tion from Jamie aka P Head, which I know I haven’t giv­en you to prep for but I don’t think you need prep. He says “could Tony per­haps elab­o­rate on his expe­ri­ence with his hun­dred times return on Mon­adelp­hous, how he man­aged to stay the course, his deci­sion-mak­ing process, how he took prof­its, etc. The impact to his port­fo­lio, the rede­ploy­ment post sale of the large amount of funds, etc., etc. This is a once or twice in a life­time type return for an investor, a Holy Grail, so a deep­er dive would be great lis­ten­ing and learn­ing.” You could save that for a future episode if you want or you can give us a high ball.

Tony  50:16

Yeah, I can give you, I mean, yeah, off the cuff. It was­n’t a hun­dred times, by the way, I don’t think. I think it was, was less than that. I bought it for around 80 cents, and I sold it for about $21. So, it was more like a 20% plus type return.

Cameron  50:33

Think you mean twen­ty times, not per­cent? 

Cameron  50:35

Sor­ry. Twen­ty times, yes. So, what­ev­er that is 2,000%, I guess. I bought it in 1998 or there­abouts, and there was a thing called the Asian Finan­cial Cri­sis back then, when a lot of emerg­ing economies across Asia were default­ing on their bonds because they’d invest­ed heav­i­ly and could­n’t afford the debt repay­ments, and so the mar­ket start­ed to crash because of the flow through onto the bank­ing sys­tem. Because of that, there was a bit of a decline in the stock mar­ket. It was­n’t like a GFC event, but it was a, prob­a­bly a 20% decline, maybe a lit­tle bit more. And cer­tain­ly, when that hap­pens, like, the mar­ket just does what it is doing now; it goes side­ways, like it drops and then it goes side­ways as peo­ple try and work out what’s hap­pened, who’s affect­ed, all those kinds of things. And I took the oppor­tu­ni­ty then to buy Mon­adelp­hous which was cheap on all its met­rics. I did­n’t have a for­mal check­list in place, but cer­tain­ly things like low PE, good yield, strong cash flow, own­er-founder, all those things were in place. And it was a buy. I held it, I mean, it just kept going up for a long time, and even­tu­al­ly a guy, it was found­ed by a guy called I think John Rubi­no from mem­o­ry, an Ital­ian — and you’ll like this Cam, I remem­ber at one stage when Mon­adelp­hous went up dra­mat­i­cal­ly, he became, went from being CEO to Exec­u­tive Chair­man and Alex Hay told me that John Rubi­no took the oppor­tu­ni­ty to go back to Italy for his daugh­ter’s wed­ding and host­ed it in the vil­la where they filmed The God­fa­ther scene when Michael goes back and gets mar­ried in Sici­ly.

Cameron  52:11

No. Oh, that’s badass. 

Tony  52:17

Yeah. 

Cameron  52:19

Hope­ful­ly, no, no, ear­ly 50s Chevy’s were harmed in the mak­ing of that wed­ding — did­n’t blow up.

Tony  52:28

No. So John Rubi­no was then moved to become the Chair­man and a guy called Rob Vel­letri I think from mem­o­ry took over as CEO. I used to go along every six months to Baillieu’s and meet with them and get an update, and then it was all going well. The thing I liked about the busi­ness was they were a min­ing con­trac­tor, but they had very lit­tle staff. They used to put their staff on a back to back con­tract. So, if they, if they won a three-year con­tract to start up a mine for BHP, all the staff who worked on that were on a three-year con­tract. So, if there was ever a down­turn, they did­n’t have to wor­ry about cut­ting staff or rede­ploy­ing them. And the down­turn of course hap­pened when the GFC struck. And I remem­ber going along to my, the final brief­ing I went along to, and used to just be about half a dozen of us sit­ting around the table, and in the end, there was a room full, a board­room full of peo­ple — must have been fifty to a hun­dred peo­ple there want­i­ng to know what was going on. And they, and Rob Vel­letri just stuck to the same sto­ry; “look we have back to back con­tracts. were still prof­itable. If the GFC turns out to be a big hit to the min­ing indus­try, we will lose rev­enue, but we won’t lose prof­it. So, we won’t have the cost of, of mak­ing peo­ple redun­dant which will hit prof­it.” So, it did, it did fall away. I think it got to a high of about $24, the GFC hit, it oscil­lat­ed around that sort of low twen­ties mark and I decid­ed to sell. It was prob­a­bly the first stock I sold on the three-point trend­line, I was think­ing about what to do, so it must have been towards the end of the GFC when I was try­ing to work out how to improve my invest­ing based on when to sell. And it cer­tain­ly had retraced back to, you know, that sort of low $20 mark. I think I got out at about $21/$22. And it’s, I don’t think it’s ever touched up against that price again, and cer­tain­ly on our cur­rent check­lists you would­n’t buy Mon­adelp­hous. 

Cameron  54:23

Yeah, I did look at it before, like it did come up to about $19 again in ear­ly 2019, but it’s cur­rent­ly trad­ing south of $10. About $9.50.

Tony  54:34

Yeah, did get back up to $18.70/$19 back in 2019, you’re right, but I think that would have been, would­n’t have hit our buy list. I’d say it would have been trad­ing on a high PE or some­thing like that, and in fact at the moment if I have a look at Mon­adelp­hous its QAV score is neg­a­tive in fact, it’s that bad. So, it’s qual­i­ty score is neg­a­tive, which means that, you know, some­thing’s got a ‑1 in there which is health, its health is declin­ing in Stock Doc­tor. And it’s, it’s a neg­a­tive growth fore­cast, yeah.

Cameron  55:07

Do you remem­ber what you did in terms of rede­ploy­ing the funds when you got out?

Tony  55:12

I don’t, exact­ly, but that would have been close — I prob­a­bly said on cash for a while, because like I said, it was towards the end of the GFC. I’m not sure of the exact tim­ing of this, Cam, but it, com­ing out of the GFC it got to be March 2009 and we start­ed get­ting the com­pa­ny reports from Feb­ru­ary or from sor­ry, the end of Decem­ber, com­ing out in Feb­ru­ary-March of 2009, and every­thing was just look­ing like it was great val­ue, it was a good time to buy. And I fin­ished up not only rede­ploy­ing that cash but also bor­row­ing mon­ey against my prop­er­ties to rein­vest and like that all, all those invest­ments made at that time went up by three, prob­a­bly an aver­age of 300%. So, it was a great time to be buy­ing in the mar­ket, the com­pa­nies that had had prob­lems in the GFC all took the oppor­tu­ni­ty to raise mon­ey and bol­ster their bal­ance sheets. They, they trimmed their div­i­dends a lit­tle bit. So, they were far more prof­itable com­ing out of the GFC than they were going in, and far stronger in terms of their bal­ance sheets as well. So, it was a good time to invest.

Cameron  56:16

Well Mon­adelp­hous was only trad­ing at about 10 bucks at the end of March 2009. So, I’m not sure about your tim­ing there. If you sold it around $20, it must have been around ear­ly 2011, accord­ing to the chart, I’m look­ing at Jan­u­ary 2011, it hit $20 for the first time. 

Tony  56:33

Could be, Cam, I could have that tim­ing wrong, sor­ry. 

Cameron  56:36

As I said, this came in late, just before we record­ed. I did­n’t give Tony any warn­ing or prep time for this to go back through his records. But any­way, the point is that you held the course, sold it when it start­ed to drop the begin­nings of the three-point trend­line sell indi­ca­tor, and hap­py days. 

Tony  56:53

Yeah, so that, actu­al­ly that would have been, you’re right, I’m just look­ing at the graph, it would have been around 2011. So, scratch that about rein­vest­ing it after the GFC. And it would have been a, most like­ly, an ear­ly three-point sell, which I start­ed to look at after the GFC, for sure. Because you can see around that time it does take a big step down.

Cameron  57:13

Yeah. Falls down to $7 by, I don’t know, what’s this? 2015?

Tony  57:18

Could even have been lat­er, Cam, I’d have to check my records. It could even have been in 2013/2014 as well when it dropped off a lot, too.

Cameron  57:25

May we all get a Mon­adelp­hous at least once in our invest­ing careers.

Tony  57:31

I’m sure we will. Yeah, there’s, there’s been oth­er ones which have had good runs. I mean, the orig­i­nal, my orig­i­nal invest­ment in Fortes­cue Met­als Group, I think I bought it for about a buck and sold it for like six. So that was a good run. I don’t know if I’ve ever had anoth­er twen­ty bag­ger like that, but cer­tain­ly have been some great, great quick returns. I remem­ber Jubilee Mines went up 400% in a year, and I bought it dur­ing the last nick­el boom, coin­ci­den­tal­ly. There was a com­pa­ny called Snack Foods Aus­tralia, which I bought and it went up 400% In the year as well, and it was then bought out by one of the big, like Nabis­co or some­thing like that, one of the big bis­cuit com­pa­nies or FMCG com­pa­nies. So, yeah, it’s, it’s not unheard of to get some real­ly good returns along the way. 

Cameron  58:15

Good stuff. Well, that’s all the ques­tions for this week. I’ve got some cool stuff to share with you though, in after hours, Tony.

Tony  58:24

Yeah, well, I’ve got noth­ing. My after-hours has been play­ing golf and catch­ing up with my friends. 

Cameron  58:30

Drink­ing. 

Tony  58:31

Yes, drink­ing. Exact­ly. 

Cameron  58:32

Well, I start­ed lis­ten­ing to Bil­ly Con­nol­ly’s — the audio, the Audi­ble audio­book ver­sion of Bil­ly Con­nol­ly’s new auto­bi­og­ra­phy Windswept and Inter­est­ing, which he nar­rates, and it’s just, right straight out of the gate, it’s just hilar­i­ous. Fan­tas­tic. And of course, as I think I’ve told you before, my dad was from Glas­gow, you know, very sim­i­lar accent to Bil­ly Con­nol­ly. So, its kind of, and Bil­ly’s talk­ing about grow­ing up, he would’ve been, he’d be about the same age as my dad. So, you know, just all those sto­ries about grow­ing up in Glas­gow in the 50s, ear­ly 50s, late 40s ear­ly 50s, just is fun, but it’s hilar­i­ous. High­ly rec­om­mend­ed if you’re a Bil­ly Con­nol­ly fan, even with his advanced Parkin­son’s I think it is he’s done a great job of nar­rat­ing this, he’s very fun­ny. Speak­ing of very fun­ny, Louis CK dropped a new stand up spe­cial this week on his web­site, which I, Chris­sy and I watched last night. Had got him­self into a lot of hot water a few years ago, Louis CK. I think it was a lit­tle bit overblown, per­son­al­ly. But very, very fun­ny, his new stand up spe­cial. We were huge fans of Louis CK before his fall, and he has­n’t lost it. Prob­a­bly out­side of the Dave Chap­pelle stand ups that have been hap­pen­ing on Net­flix, this is the fun­ni­est thing I’ve seen in a long time. He’s just, he’s a mas­ter of the craft. I’ve been lis­ten­ing to Robert Forster’s last solo album Infer­no a lot, real­ly enjoy­ing that. Some real­ly catchy tracks on that. And I’ve got a food one for you. Truff. Have you heard about Truff? T‑R-U-F‑F?

Tony  1:00:20

I haven’t, is that a recipe, a book, a style of food. What is it?

Cameron  1:00:24

It is some­thing that Oprah had come out with a while back. Chris­sy and I have been into it. It’s a com­bi­na­tion like hot sauce and truf­fle sauce. A sin­gle bot­tle. 

Tony  1:00:37

Okay. 

Cameron  1:00:38

Fan­tas­tic. Put it on every­thing, put it on scram­bled eggs. We put it on salmon bagels, we put it on every­thing. If you like your truf­fle, if you like your hot sauce, Oprah’s got you cov­ered. It’s expen­sive as hell, but beau­ti­ful bot­tle – very, very nice­ly designed. A lit­tle bit goes a long way. It’s quite hot. But yeah, if you like those flavour pro­files, check it out.

Tony  1:01:05

I do. I’ve had some bad expe­ri­ences with truf­fle sauce, though, that I’ve bought. It can be, yeah, very over­pow­er­ing­ly bad some­times, so it’s got­ta get the right mix, I think.

Cameron  1:01:15

Truf­fle oils? Yes. I’ve gone through a bunch of dif­fer­ent brands of truf­fle oils to find the one that I actu­al­ly like. But they are, their, quite often they taste a lit­tle bit ran­cid and pla­s­ticky and hor­ri­ble. But this one, well, this is Oprah so you know Oprah is not going to, Oprah’s not going to do you wrong. A mil­lion mid­dle-aged white women can tes­ti­fy for that. They all got a car under their seat when they went to see her, so yeah, you can buy it local­ly, they’ve got an Aus­tralian dis­tri­b­u­tion oper­a­tion. Just look it up: Truff. Order a bot­tle online, it’ll turn up on your doorstep a cou­ple of days lat­er. Fan­tas­tic.

Tony  1:01:52

Well, they should send us a bot­tle now for plug­ging it on our show. Come on Oprah.

Cameron  1:01:57

Yeah. That’s what Oprah needs. Oprah needs our help with her brand­ing. Yeah. 

Tony  1:02:02

I just checked under my seat. There’s noth­ing there, Oprah, come on.

Cameron  1:02:07

I’ll send you some, I’ll send you some and then that’ll be it. That’ll be your gift from Oprah and me. Alright, well you got noth­ing. That’s what I’ve got. It’s hot in my office. This will be our last for­mal show, I think, for the year. Next week I think I’ll put out a best of, best of 2021. Assum­ing when I go to Bund­aberg this week, I find time in between lay­ing on the beach. And I guess we’ll be back after that. Which will be prob­a­bly around about the end of the year or first week of Jan­u­ary. I haven’t looked at the cal­en­dar, but some­thing like that.

Tony  1:02:42

Yeah, it’ll be sec­ond, sec­ond or third of Jan, I think prob­a­bly.

Cameron  1:02:46

I think that’ll be sea­son five, then, crew, we’ll go from sea­son four to sea­son five, I think, for 2022. What do you think?

Tony  1:02:53

Yeah. Good. Makes it sound like we’ve been around for a long time.

Cameron  1:02:57

We have been around for a long time. Don’t you feel it? It’ll be three years in Feb­ru­ary-March. Not quite five, but yeah,

Tony  1:03:03

I know. It’s gone quick, has­n’t it? 

Cameron  1:03:05

Well, has for me, yeah. I some­times feel like you’re, you’re a lit­tle bit tired of the whole thing, but I’m hav­ing fun. I’m learn­ing. 

Tony  1:03:14

No, no, I’m not tired of it. I just get, I just got stretched in a lot of dif­fer­ent ways in the last few months,

Cameron  1:03:20

Right. You’re good? You’re in there? Stay­ing the course?

Tony  1:03:23

I’m good. Yep, absolute­ly. 

Cameron  1:03:25

Just don’t get COVID. 

Tony  1:03:27

No, I know, I’m going to head back to Syd­ney and hun­ker down in the pent­house just to try and avoid it for a while until I get a boost­er shot.

Cameron  1:03:33

Good plan, Stan. All right, well, you take care mate, I’ll talk to you soon. Take care every­body, thanks for all your sup­port this year and the com­mu­ni­ty and the emails and the laughs. Stay safe and good luck with your invest­ing, it’s gonna be a, it’s gonna be a rough peri­od prob­a­bly for a while here but it’ll, it’ll be fine. Just stick with it. You’ll get there, don’t wor­ry about. Just play the, just play the num­bers, don’t think too hard about it.

Tony  1:03:57

Yeah, exact­ly. The sys­tem’s there for the rough times. That’s when it’s most use­ful.

Cameron  1:04:02

Yeah, love it. Love a lit­tle bit of rough. Love it in the rough, that’s what you say when you play golf? You love it in the rough. Get it in the rough, love it in the rough.

Tony  1:04:11

I’ll get some Truff to have with my rough. 

Cameron  1:04:15

Alright, I’ll make it hap­pen. Take care bud­dy. 

Tony  1:04:17

Alright, bye. 

Cameron  1:04:21

QAV Pod­cast is a pro­duc­tion of Space­craft Pub­lish­ing Pro­pri­etary Lim­it­ed autho­rised rep­re­sen­ta­tive of AFSL 520442 AFS rep­re­sen­ta­tive num­ber 001292718. 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.