Transcript QAV 509

QAV Club 509

Cameron  00:00

Here we go. Wel­come to QAV episode 509, TK. Where are you on this love­ly Tues­day 8th of March 2022?

Tony  00:16

I’m in south­west Syd­ney, Cam.

Cameron  00:18

South­west Syd­ney?

Tony  00:20

Oth­er­wise known as Wag­ga.

Cameron  00:23

Wag­ga Wag­ga Wag­ga.

Tony  00:24

Wag­ga Wag­ga Wag­ga, yeah.

Cameron  00:26

How’s the weath­er in Wag­ga? Are you get­ting the Syd­ney rain there?

Tony  00:29

No, Wag­ga’s beau­ti­ful. It’s a bit over­cast today, but we’ve had 30-degree days, sun­ny days for the last week. It’s been good.

Cameron  00:38

Well, that’s good. Golf­ing and you’re head­ing back to Syd­ney.

Tony  00:43

Tomor­row.

Cameron  00:44

Tomor­row, right?

Tony  00:45

Yeah. Yep. Back tomor­row night. While I’m here, it’s been good to be away. It’s been so wet.

Cameron  00:52

Yeah.

Tony  00:53

Four­teen days of straight rain. 140 mils today, I think they were say­ing. It’s just incred­i­ble.

Cameron  01:01

Lots of dam­age like there was up here?

Tony  01:02

From what I can… maybe not as bad. I don’t think there’s been as-the flood­ing has­n’t been as heavy like it is around the Bris­bane Riv­er, but there’s been evac­u­a­tions from Hawkes­bury and down south — the Georges, I think. So, yeah, there’s cer­tain­ly been some­thing. Prob­a­bly not as bad as Bris­bane, though.

Cameron  01:19

Hmm. Well, we send all of our best wish­es to every­one in Syd­ney. Hope you’re all dry and safe, stay­ing out of it. Well, it’s been a big week in the mar­kets, Tony, yet again, with all of the stuff going on in Ukraine and all of the oth­er stuff that we were still cop­ing with before that. On the, I guess the pos­i­tive side of it, if it’s pos­i­tive, is oil prices are up; gold is up. I read this arti­cle in the Finan­cial Review say­ing that plat­inum was going to rise, “Return of war reignites demand for pre­cious met­als.” Did you see that sto­ry?

Tony  01:57

I did, yeah. Yeah, it’s got to do with how much Rus­sia sup­plies the world and whether the world actu­al­ly cuts it off or not. I under­stand what’s hap­pen­ing with oil, but it’s a bit of an over­re­ac­tion I think, too. I think oil will come back down a bit because Rus­sia does have 7% of the world’s sup­ply, but not every­one is obey­ing the sanc­tions. But that seems to be the hyp­o­crit­i­cal part of all this. If you’re Ger­many and you still need gas you’re still tak­ing gas from Rus­sia, even though you’re sup­ply­ing arms to the Ukraine. It’s a bit cir­cu­lar. So, I think that’s still the case, though. Even though Rus­sia sup­plies the world was 7%, it’s prob­a­bly not all of 7% that’s been cut off. And, with the oil price ris­ing, I mean, it’s prob­a­bly in that arti­cle, actu­al­ly, the old say­ing that the best way to low­er oil prices is to raise all prices, because as soon as it becomes such an attrac­tive thing to sell all the mar­gin­al pro­duc­ers come back into the mar­ket. That’s par­tic­u­lar­ly hap­pen­ing in the US where the shale oil pro­duc­ers have just been sit­ting in care and main­te­nance, and they’re all now fired up again. I think I read last week that the US has become a net exporter of oil again, since the Ukraine war. So, that, I mean, those cou­ple of things will prob­a­bly start to bring the oil price down again, but it’s going to be sen­si­tive towards the news. So, any­thing that hap­pens in Europe that was­n’t fore­cast or looks bad is prob­a­bly going to dri­ve the price up again.

Cameron  03:33

Wow. So, they man­aged to get Rus­sia to invade Ukraine and now the Amer­i­can oil pro­duc­ers are doing well. Wow. Cui bono, Tony, cui bono.

Tony  03:46

I don’t think it’s that well-orches­trat­ed, but who knows? And as for the oth­er ones, plat­inum and I think nick­el is anoth­er one, some of the min­er­als that are used for pro­duc­ing chips, etc., Rus­sia is a big pro­duc­er of those. So, their prices are sky rock­et­ing.

Cameron  04:03

I read Ukraine is a big pro­duc­er of those sorts of things. Chip, stuff that gets used in chip man­u­fac­tur­ing. So, yeah, prices of all those things are gonna go up they’re say­ing; plat­inum, etc. So, Zim­plats, our gold com­pa­nies, our oil com­pa­nies. How’s San­tos doing this week? Oh, no, they’re down. Down 3.5% today, San­tos. But, they had a good run.

Tony  04:32

Yeah, a lot of stocks have come off. Yeah. Yeah, I think the oil price did come off a lit­tle bit overnight, and you know, the echo cham­ber’s tak­ing over a lit­tle bit in the US where they’re try­ing to fore­cast whether a ris­ing oil price will make inter­est rates rise or make inter­est rates fall, and what’s going to hap­pen in terms of the econ­o­my? Is it going to be a good thing or a bad thing? Is it going to be a reces­sion? So, there’s a lot of volatil­i­ty going on at the moment, too.

Cameron  05:00

Well, as QAV sub­scribers know, we just play it day by day. We’re reac­tive, right? We’re not try­ing to fore­cast.

Tony  05:09

Yeah. And that’s, that’s a good point. I mean, I was think­ing about that just recent­ly. I was lis­ten­ing to some arti­cle or lis­ten­ing to a TV com­men­ta­tor or a pod­cast, I can’t recall where it was, about how this is the right time to buy into gold when the world’s uncer­tain and the VIX indi­ca­tor is up. And there’s a, you know, uncer­tain­ty about when the Ukraine war will fin­ish. That’s not how we invest, though; like, we’re not in gold because we fore­cast those things were going to hap­pen, we’re in gold because it was unloved and the price was real­ly low on the gold pro­duc­ers. And we just wait for the regres­sion to the mean, we just wait for things to hap­pen which focus a light back onto the sec­tor that we’re invest­ed in. So, it’s got noth­ing to do with the war in Ukraine that we bought gold. We bought it a year ago or longer. It just so hap­pens that we, you know, well per­haps unfor­tu­nate­ly, we ben­e­fit from it, but — because of the rea­sons for the ben­e­fit — but we ben­e­fit.

Cameron  06:03

So, we prof­it­ed from the war.

Tony  06:05

Yeah.

Cameron  06:07

I won­dered about all those trips you’ve been doing to Rus­sia late­ly, what that was all about. Cape Schanck, he said. He said Moscow, Cape Schanck, Moscow’s where he’s been. Yeah, we don’t buy things because we think they’re going to go up, we buy things because they’re unloved and just wait for the mar­ket to come back around.

Tony  06:28

Yeah, exact­ly. Well, we do think they’re gonna go up on aver­age, but we we don’t pre­dict when or what’s gonna cause it.

Cameron  06:34

Yeah.

Tony  06:34

And I cer­tain­ly would­n’t repo­si­tion the port­fo­lio because of some macro fore­cast. It’s just, yeah, the sys­tem just churns on.

Cameron  06:41

Yeah, we believe that if it’s a prof­itable, well run busi­ness and it’s under­val­ued, there’ll be regres­sion to the mean and we’ll take advan­tage of that.

Tony  06:50

Cor­rect.

Cameron  06:51

Okay, so speak­ing of, I don’t know, some­thing not going well. I got this one stock in my port­fo­lio, Max­i­PARTS, MXI, trip the sell alert in Stock Doc­tor yes­ter­day, Mon­day. Bret­te­la­tor said the sell price was $2.51 when I checked, and the price was $2.33 at the time. I think now it’s down to $2.20 when I looked ear­li­er today, it’s kept falling-or $2.16 now, it’s down 11.5% today. As is Lind­say, oh my god, it is blood on the streets today. It’s still up, well it was yes­ter­day, up 40% since I bought it, but they paid a div­i­dend or a cash sort of thing — 62.5 cents per share back in Decem­ber, ful­ly franked. But I was­n’t sure, do I take that off the sell price? And is my sell price real­ly then $1.88, or should I be sell­ing? I’m not exact­ly sure how long I keep fac­tor­ing that div­i­dend or what­ev­er it is back into it.

Tony  07:59

Yeah. So, from mem­o­ry that was a spe­cial div­i­dend that hap­pened because they sold off a part of their busi­ness, and then they returned part of the cap­i­tal at least to the share­hold­ers. So, that’s why that hap­pened. But, I treat it like any oth­er div­i­dend, and cer­tain­ly there are lots of com­pa­nies at the moment in my port­fo­lio which have gone ex-div­i­dend and the shares have dropped. So, it’s the same thing. So, basi­cal­ly, my rule of thumb is that if a share price has crossed the line –a three-point sell line or a rule one price — I’ll look to see if it’s ex-div­i­dend and then I look to see whether the div­i­dends been received-or paid, as they say. But in between, I’ll add the grossed-up val­ue of that div­i­dend back to the share price, which usu­al­ly puts it above the sell line. I’m not sure about Maxi, but in Max­i­PARTS’ case that spe­cial div­i­dend was paid on Christ­mas Eve, from mem­o­ry, the 24th of Decem­ber. So, it’s no longer part of your think­ing. Once it’s paid, it’s out. I mean, the way I look at it is that if I was a new investor in Max­i­PARTS, I would­n’t take the fact that there was a sale of a busi­ness unit last year and then a return of cap­i­tal to the cur­rent­ly invest­ed at the time into account. I’m look­ing at Max­i­PARTS now and going for­ward. And so, once I’ve received the val­ue of that return of cap­i­tal, then I sort of flip over to being of the view­point of a new investor; on buy­ing the shares based on their cur­rent val­u­a­tion while tak­ing into account returns that hap­pened in the past.

Cameron  09:35

Right, so I should sell it then.

Tony  09:37

Yeah, you should.

Cameron  09:38

So, let me ask you about ANZ, then, because I sent you an email last night: I got a sell alert for ANZ, which is in the QAV port­fo­lio, and you sent me a reply say­ing they’ve gone ex-div­i­dend but as far as I can tell in Stock Doc­tor, they went ex-div on the 8th of Novem­ber and paid it on the 16th.

Tony  09:59

Oh, okay. Sor­ry. There were two stocks you sent through, I just checked the first one. What was the oth­er one?

Cameron  10:04

CGF was the oth­er one. CGF I think isn’t paid yet.

Tony  10:08

Right, yeah. So, I looked at-to be hon­est, when you sent through that ques­tion, I looked at the Navexa port­fo­lio and they were both above their rule 1 sell lines. I knew CGF had gone ex-div­i­dend, so if ANZ paid at the end of last year, you would­n’t take it into account, but for CGF you do.

Cameron  10:24

So, the rule then is once it’s been paid we can stop gross­ing it up.

Tony  10:30

Yeah. So, do you want me to walk­through it? Is that help­ful?

Cameron  10:33

Yeah, we’ve done it before, but it’s always good. I find it, for some rea­son, this does­n’t stick in my brain very well. And I know we had a cou­ple of ques­tions about it on the Face­book group this week, too, so I know I’m not the only one.

Tony  10:42

Yeah, okay. Well, let’s look at Chal­lenger, CGF. So, cur­rent price of $6.32, which is the 8th of March, and I’m using Stock Doc­tor to look at this. So, if you look at the tabs across the top, so the ones that sort of run in the sec­ond row, so, there’s the nine gold­en rules, the finan­cial state­ments, health ratios, etc., the cor­po­rate details and share­hold­ers. Next to share­hold­ers is DIV, divs, and I open that, and I just scroll down to the table of when div­i­dends were issued and paid. So, in this case, Chal­lenger had an inter­im div­i­dend that went ex. So, 24th of Feb­ru­ary 2022 was the last date that you can become a share­hold­er and still be enti­tled to that div­i­dend. So, any­one who bought 25th of Feb­ru­ary and after don’t get the div­i­dend pay­ment, but if you’re a share­hold­er before you do, and they pay that div­i­dend on the 22nd of March, so it takes rough­ly a month in this case to receive the funds. So, I can con­tin­ue to count that back into the share price; so, in this case, the div­i­dend per share was 11.5 cents, and I nor­mal­ly gross it up. You can see in Stock Doc­tor, again, that this was franked, so that means that we can add back the tax that’s been paid by the com­pa­ny. And to do that, we just divide by 0.7 because the com­pa­ny’s tax rate is 30%. And it does­n’t work it out for you in Stock Doc­tor, unfor­tu­nate­ly, but you can just gross it up quick­ly. So, 11.5, so I’m get­ting a gross val­ue of 16.42 cents. So, that’s the val­ue to me if I can claim the frank­ing cred­it. If you can’t claim the frank­ing cred­it, for exam­ple over­seas investors can’t claim Aus­tralian frank­ing cred­its, in some cas­es a fam­i­ly trust can’t claim a frank­ing cred­it, so there’s a cou­ple of cas­es where they don’t but most peo­ple can take that as a cred­it off their tax return. So, I’m adding the 16 odd cents back to the cur­rent share price, and then I’m see­ing if that is above the three-point sell line. And I do that until I get the mon­ey into my account on the 22nd of March this year.

Cameron  12:56

Right. Thanks. I’m gonna have to get the tran­scrip­tion of that next week and put it into the Bible so I don’t have to ask you anoth­er time. All right. Mov­ing right along. Tech pipe dreams. Oh, I like this sto­ry. So, all those tech stocks that over the last cou­ple of years, all of the ana­lysts out there have been say­ing “no, look, here’s how you, here’s how you work out the val­ue of a tech stock. It’s based on this fan­cy hyped up inter­net met­ric or that fan­cy hyped up inter­net met­ric.…” Then I read in the Finan­cial Review this week “Aussie investors no longer buy­ing tech pipe dreams.” Say what? Pipe dreams? I thought this was based around real­ly clever think­ing that no one could explain to us in terms that we can under­stand. Pipe Dreams now. Oh, I’m shocked, shocked to find pipe dreams going on in this estab­lish­ment, Tony.

Tony  13:57

Yeah, it’s incred­i­ble how they turn, isn’t it? Like, was­n’t too long ago they were talk­ing about how this time it’s dif­fer­ent, every­thing’s changed. If you get on the buy now, pay lat­er band­wag­on, you’re a fool.

Cameron  14:11

Yeah. Its inter­est rates are always going to be low, noth­ing’s ever going to change, this is the new world. Hold on, did­n’t we, did­n’t we have some­body on the show once upon a time that said some­thing like that? Here it is… ”Every time, it’s always dif­fer­ent, Tony, it’s nev­er the same.” [Alan Kohler]

Cameron  14:28

Thank you, Alan Kohler. Nev­er get tired of play­ing that. Then we would always say “I don’t believe those fig­ures. Please explain.” [Pauline Han­son]

Cameron  14:41

And nobody ever could.

Tony  14:43

Well, that’s the thing, isn’t it? I mean, isn’t that just the basic rule of life? If some­one’s try­ing to sell you some­thing that you can’t under­stand and they can’t explain, why would you buy it?

Cameron  14:56

Well… I mean, like, it’s one of these things where I guess all of us — I don’t know about you, but I think most of us mere mor­tals — do some­times feel like, maybe I’m just dumb. I’m not get­ting this, like there’s all this… Maybe it’s just this thing that I don’t under­stand. It’s like advanced cal­cu­lus, I just don’t under­stand it. I should just do it. All these oth­er peo­ple seem con­vinced, they must be right. Like all the, when all the fundies are talk­ing about — fund man­agers, that is — and all the tech jour­nal­ists are talk­ing about it, and Rudy’s talk­ing about it, and every­one’s talk­ing about it, even­tu­al­ly, you know, the pres­sure is just to capit­u­late and go, “okay, well, obvi­ous­ly, I’m an idiot.” And that’s one of the rea­sons I’m so grate­ful for QAV, is I don’t have to lis­ten to any of that stuff. I go, lis­ten, if it does­n’t fit into the QAV frame­work, I don’t need to pay atten­tion to it.

Tony  15:45

And it’s not just that, it’s like, it’s all the Kah­ne­man behav­iour­al kicks and quirks that affect us that comes into play; like the fear of miss­ing out, or keep­ing up with the Jone­ses and all those kinds of things that go into that as well.

Cameron  15:59

Yeah. So, tech pipe dreams, remem­ber that. Like, I have to laugh, like, you know, I’ve been lis­ten­ing to you on the show for three years now. Every time we talked about tech stocks going, “yeah,” you would always say “yeah, but see,” what do you say? If his­to­ry does­n’t rhyme-“doesn’t repeat, but it rhymes”, and, “I’ve seen this before,” and “what hap­pens even­tu­al­ly is inter­est rates go up, infla­tion goes up, inter­est rates go up, and then these tech stocks will crash.” And every­one’s like, “no, you’re an idiot.” And here we are, they’re all crash­ing and every­one’s going, “oh, look, infla­tion’s going up, inter­est rates are gonna go up, these tech stocks aren’t any good.”

Tony  16:40

And you know what, I don’t get any schaden­freude from all that because peo­ple are los­ing mon­ey and that’s nev­er good. I’d rather, you know, I’d rather see them invest log­i­cal­ly and sim­ply and have a sys­tem and stay the course and keep their mon­ey safe than to basi­cal­ly go to the casi­no. And on the oth­er hand, I think there’s a room for a lot of these com­pa­nies in terms of inno­va­tion. You know, I love my Apple iPhone, I love my Apple lap­top, I use Face­book and all that kind of stuff. But it just gets skewed by human nature, I guess, and peo­ple who exploit that human nature…

Cameron  17:17

Yeah.

Tony  17:17

That these things get out of con­trol.

Cameron  17:20

Well, that’s it, right? And we’ve talked about this a lot over the years, but it’s this, there’s a whole indus­try out there to take mon­ey out of the pock­ets of pun­ters by hyp­ing shit up, right? It’s, they’re the ones that make all the mon­ey out of this. It’s the peo­ple sell­ing the picks and the shov­els, you know, the peo­ple sell­ing the, I dun­no, the jour­nal­ists and the bro­kers and the apps, the Fin­Tech apps, and you know, all of these peo­ple that get behind them.

Tony  17:49

No, exact­ly.

Cameron  17:51

Hype up these things.

Tony  17:52

Yeah, includ­ing-I’m not, I don’t know what Alan Kohler thinks about this real­ly, or if he’s hyp­ing or not, but yeah, he ben­e­fits from the “you beaut” sto­ries about peo­ple who struck it rich or peo­ple who’ve got a great new way of doing some­thing. That’s just grist for the mill. But they are, they’re bloody coat lifters, Cam, they just go around pick­ing top­ics.

Cameron  18:13

Coat lifters? Yeah, and that’s, you know, we’re part of that thing as well. We talk about this stuff. But, you know, we’re telling peo­ple the bor­ing sto­ry always on this. It’s like, you’re always like “no, no, no, no, no,” just stick with the tried and true prin­ci­ples that the God­fa­thers taught us, Buf­fett and Munger, Ben Gra­ham, basic prin­ci­ples nev­er change. What was that quote I had from Munger on last week’s show? I think: “buy­ing good qual­i­ty things at a dis­count is nev­er going to go out of fash­ion.”

Tony  18:51

Cor­rect, and peo­ple do that every day in their nor­mal lives until they get in front of a stock mar­ket screen. And then they go crazy. No one goes to Wool­worths and says “I’ll pay you ten times that price, that’s too cheap.” They look to try and buy cheap­ly.

Cameron  19:08

Yeah, they shop around. But you know, I think most of us — for me, and I know, you know, a lot of our QAV club mem­bers — until you dis­cov­er QAV and you learn some fun­da­men­tals, all you real­ly have to go on is what you’re hear­ing about in the media, what you’re read­ing about, what peo­ple are telling you, and it’s all very over­whelm­ing and con­fus­ing.

Tony  19:27

And you know, what, Cam? I also think about this too, it’s like, we do take sub­scrip­tion mon­ey from our lis­ten­ers, but it only lasts as long as they make mon­ey, and so our sys­tem has to stand up. And so, I’m quite com­fort­able with that. That’s a decent trans­ac­tion. But it’s all these oth­er peo­ple who are out there get­ting paid to speak, get­ting paid to hype, get­ting their fees on trans­ac­tions, they’re the ones who are steal­ing from the sys­tem, real­ly. Because the hard­est thing in the world in the finan­cial indus­try is to have long term good returns, con­sis­tent returns. So, I don’t have a prob­lem charg­ing to teach peo­ple this, but that’s the rea­son why there aren’t many oth­er peo­ple doing it, because it’s so bloody hard

Cameron  20:08

Doing it? Yeah.

Tony  20:09

Well, doing what we do.

Cameron  20:10

Yeah. Speak­ing of hard, for QAV club mem­bers out there, don’t for­get if you haven’t already to add the new fil­ter to your list of Stock Doc­tor fil­ter. The new “con­sen­sus tar­get date” we have to add to our Stock Doc­tor fil­ters, it’s been fac­tored in to the AF mod­el already. Thank you to Andrew Flit­man, for his won­der­ful work on that, as always. And I guess you’ll get around to doing it on yours when you get a chance?

Tony  20:42

Yeah, I start­ed doing it today, but I haven’t fin­ished it yet. So, just be care­ful, peo­ple, if you’re using my ver­sion of the spread­sheet, I’ll let you know when a con­sen­sus tar­get date can be added but up until then use the cur­rent fil­ter.

Cameron  20:55

Right. It won’t mat­ter, right? It’ll just put anoth­er col­umn of data in the down­load tab.

Tony  20:59

Yeah, but when you load it in your spread­sheet, it’ll throw the columns out.

Cameron  21:04

Oh, okay. Don’t add it then, until Tony does the update. As we talked about last week, it should­n’t be dra­mat­i­cal­ly affect­ing the results in the sheet, but, so it’s noth­ing to pan­ic about.

Tony  21:18

No. I think Andrew said that, too, did­n’t he? When he clicked over on his it did­n’t make much dif­fer­ence.

Cameron  21:24

Yeah. But you know, makes us as accu­rate as pos­si­ble.

Tony  21:28

Cor­rect. Yeah, we’ll get it fixed up. Just hav­ing a bit of the usu­al prob­lems, or not the usu­al prob­lems, my lack of Excel knowl­edge has been test­ed in terms of sub­tract­ing one date from the oth­er in dif­fer­ent for­mats at the moment. So, that’s what’s slow­ing me down, but I’ll get it worked out.

Cameron  21:42

The last thing I had to talk about in news was, I just want­ed to thank every­body that has sent in con­tri­bu­tions for Den­nis, our edi­tor in Ukraine. I know I’ve giv­en peo­ple on the Face­book page an update but I know that not every­one’s on that. So, for peo­ple who are lis­ten­ing for the first time, our reg­u­lar edi­tor for the last six months, this won­der­ful bloke called Den­nis, he’s lived in Kharkiv in Ukraine, the city that’s right next to the Russ­ian bor­der, they’ve been hit pret­ty hard. He and his fam­i­ly went under­ground, as did every­one in Kharkiv when the attack start­ed, went into bunkers. For­tu­nate­ly, they were in bunkers when their house was hit by a mis­sile and destroyed, and they’re now in a dif­fer­ent city and try­ing to get out of the coun­try into Poland. But we did a bit of a col­lec­tion, and some peo­ple, some of the lis­ten­ers — you know who you are — were very gen­er­ous, and I for­ward­ed all that mon­ey on to Den­nis last week. He was blown away, to say the least, at the gen­eros­i­ty of a bunch of Aussies that did­n’t even know he exist­ed a week before that because we nev­er talk about him. I’ve just, I’ve been work­ing with him behind the scenes to do our edit­ing, and he does a great job. He said, oh, this is great. It’s going to help us, you know, in terms of find­ing a place to live, hav­ing some cash on hand, obvi­ous­ly makes those things, par­tic­u­lar­ly in wartime I imag­ine, a bit of cash to hand around helps get things done when you’re try­ing to move your fam­i­ly. I know they’re try­ing to get to Poland at the moment, last I heard there’s like a mil­lion refugees, Ukrain­ian refugees in Poland now. So, thank you for that. And if you do want to, if you haven’t yet con­tributed, no pres­sure, but if you have the means and you want to help Den­nis out, just drop some mon­ey, PayID it into my account: [email protected] is the PayID. Moth­er­lode is MOTHERLODE, and just put Den­nis as a ref­er­ence. And once a week or so I’ll just col­lect all of those and send them through to him via Wise pay­ment sys­tem, which I used suc­cess­ful­ly last week and he was, he got the mon­ey with­in a few hours, so works pret­ty well. So, thank you to every­one who has sup­port­ed that. And that’s all I’ve got for this week, Tony, what else? What have you got to talk about?

Tony  23:59

Yeah, well, thanks for sup­port­ing Den­nis that way, and thank you to every­one who’s donat­ed. That’s, that’s great. And I’ll be doing any­thing as well. So, hope­ful­ly it’ll help him. What have I got? I’ve got a pulled pork to do, and I’ve got our top movers in Navexa which we’ve already touched on. So, GRR was up 50% last week, down a lit­tle bit I think now, but up 50%, and Kor­vest was up 21% last week as well. So, two good results for us there. And then the pulled pork I want to do is on Chal­lenger. So, I did say, I think, two weeks ago that I would talk about Chal­lenger and its num­bers which took a lit­tle while to get into Stock Doc­tor but they’re there now. I’ll do that now. So, just a quick recap: Chal­lenger Finan­cial, CGF is the code, it’s a com­pa­ny that in the main and his­tor­i­cal­ly has pro­vid­ed annu­ities to retirees in par­tic­u­lar, so peo­ple can pur­chase a prod­uct and then get a guar­an­teed income stream either for a peri­od of time or for the rest of their life depend­ing on how much they pay and what kind of prod­uct they buy. Sor­ry about that. There’re some cars going by out­side. They’re now start­ing to, I guess, expand, and use some of their skill sets…

Cameron  25:14

A bit of local Wag­ga colour.

Tony  25:15

My friend Rud­dy thinks he’s bought a house in quite sub­ur­bia, but it’s quite busy. Any­way. So, Chal­lenger are expand­ing; they’ve start­ed to invest-open up a funds man­age­ment arm to use the sort of maths that they’ve been doing to invest the pay for the annu­ities, and make that avail­able to the gen­er­al pub­lic. And they’re also, they’ve pur­chased a com­pa­ny which pro­vides non-bank lend­ing to peo­ple. So, I guess a bit like what Cred­it Corp did, once they get a sort of pro­file of cus­tomers and their repay­ments and their finan­cial sit­u­a­tion, they can lend them mon­ey with com­pe­tence. So, that’s anoth­er area of expan­sion for them. But over­whelm­ing­ly, their biggest busi­ness is in pro­vid­ing income streams to retirees. CEO changed last year, and this new one seems to be doing well and cer­tain­ly is either build­ing on what the last one did or is going after this growth through expan­sion strat­e­gy, which has been rea­son­ably well received by the mar­ket. But the stock last time I looked, today being the 8th of March, was a Josephine. So, just be care­ful if you’re lis­ten­ing to this in a cou­ple of days’ time or a week’s time, it may not still be a buy. So, use the Bret­te­la­tor to test that. But, to run through the num­bers-oh sor­ry, I should also say it’s ex-div­i­dend today, so take that into account as well when you’re work­ing out whether you want to buy it or not. The ADT for Chal­lenger is 6.5 mil­lion, so even though it’s very high up on our buy list — it’s one of the top stocks on our buy list — it’s still a large cap stock. I’m using a price of $6.50, which was the price on the week­end when the down­load was done, but it’s actu­al­ly down to 6.35 today, so these num­bers will be a lit­tle bit out of date. But the num­bers will improve because of the low­er share price. It’s slight­ly below the con­sen­sus price tar­get, so it scores for that. It’s cur­rent­ly yield­ing 3.4%, and as peo­ple can recall, we put the bench­mark yield up to 4.49% last week based on a mort­gage from ANZ and there­fore it does­n’t score on yield even though it’s pay­ing out a rea­son­able yield. Finan­cial Health in Stock Doc­tor is strong and steady. The price to oper­at­ing cash flow was 1.43 times, so it’s quite low, and that’s one of the rea­sons why it’s way up top of our buy list. But, the PE is 18 times, so anoth­er one of these inter­est­ing stocks where they’re gen­er­at­ing lots of cash, but it cer­tain­ly does have a cost struc­ture which is absorb­ing some of that cash before it hits the bot­tom line. And, that’s got me think­ing, and I might try and do some analy­sis on that one going for­ward and break stocks up into those which have low price to oper­at­ing cash flows but high­er PEs, maybe high­er than the aver­age in the share mar­ket, and com­pare those that have low price to oper­at­ing cash flow and low PEs and just see if there’s a diver­gence there that we can exploit. And maybe, you know, poten­tial­ly one day put it into the check­list. But any­way, I digress. The share price is greater than the IV 1 but less than the IV 2, so it’ll score a one for that. The equi­ty per share is $6, so it’s trad­ing at less than what we call book val­ue, and cer­tain­ly less than 30% above that, by def­i­n­i­tion as well. So, it’s cause for that. There is fore­cast growth expect­ed for this com­pa­ny of 17%, but the growth over the PE is only 0.91. So, even though it’s grow­ing by 17%, the PE is still 18, so we’re not quite get­ting our 1.5 there, so no score there. Direc­tors hold about 2.76%, so we’re not scor­ing on that one either. But it does have a record low PE out of the last six halves, so it scores for that. And it’s a new upturn, scores for that. But the equi­ty has­n’t been con­sis­tent­ly increas­ing, so it does­n’t score for that. So, all in all, the qual­i­ty score for chal­lenger is 71%, and the QAV score is 0.50, which is quite high.

Cameron  29:26

And why do you think its price is plum­met­ing at the moment? I’m gonna have to rule 1 it I think if it keeps going.

Tony  29:34

Well, add back the div­i­dend, Cam, because it’s paid, you know, that grossed up 16 cents a div­i­dend. So, this hap­pened, does­n’t always hap­pen this way, but it hap­pened last year I recall that there was a fair­ly unusu­al report­ing sea­son when the div­i­dends came out, whether it’s because peo­ple get ner­vous and they see, like, a cou­ple of per­cent­age point drops in a day. So, like, Chal­lenger would have dropped, say, 2% on the day it went ex-div­i­dend for no oth­er rea­son than it went ex-div­i­dend, and so peo­ple who are buy­ing it did­n’t want to pay for the div­i­dend which had just been divest­ed and they got ner­vous. Maybe that trig­gers activ­i­ty one way or the oth­er, prob­a­bly sell­ing activ­i­ty in the mar­ket at the moment. So, we did see that in the last one or two report­ing halves,  where going ex-div­i­dend could cause the stock to drop in price. But I think from mem­o­ry, they’ve pret­ty much all recov­ered after the ini­tial peri­od.

Cameron  30:32

Thank you for that. What else you got to talk about before we get into Q&A, today, TK?

Tony  30:38

I think that’s pret­ty much it.

Cameron  30:40

Well, let’s start with a ques­tion from Paul. This ques­tion was a week or so ago, 28th of Feb­ru­ary, he said: “MML, Medusa, sits up high on the QAV list, how­ev­er it released fig­ures on Fri­day show­ing sig­nif­i­cant drops in rev­enue and prof­it on the basis of them now min­ing the less­er grade of the mine. The new mine, Tiger, won’t be open for three years and their recent­ly announced pur­chase of an Aus­tralian prospect­ing area seems to be fur­ther out on the hori­zon yet again. On the basis of what looks like a three-year drop in rev­enue and prof­it, I’m out. Do you and TK agree or dis­agree? Cheers, Paul.”

Tony  31:22

Yeah, it’s a good, good ques­tion. I guess my imme­di­ate thought was that this could qual­i­fy for bad news. But then, and I guess I’ve got the hind­sight of answer­ing this ques­tion a lit­tle bit after Paul asked it, if the results are so bad, why did the price go up? So, the price has gone up quite a bit in the last week. So, my guess is that the mar­ket had fair warn­ing about the tail off in the sales or rev­enue and prof­it for this com­pa­ny, and per­haps it actu­al­ly did a lit­tle bit bet­ter than what peo­ple thought it would and its fore­cast has improved. So, that might be dri­ving the price up. So, I guess, you know, if it’s a qual­i­ty man­age­ment run­ning this com­pa­ny — and I’ve got no rea­son to think it’s not — and they keep the mar­ket very well informed and the share price is look­ing for­ward, that if even though there is this, as Paul says, drop off in sales and rev­enue com­ing, it’s prob­a­bly already fac­tored into the price. And so, if they deliv­er a lit­tle bit bet­ter than that, then chances are the share price will hold up, will actu­al­ly improve. I’m just look­ing at the num­ber. The Pr/Opcaf is down a lit­tle, but it’s still strong and it’s still only two times at the moment. So, there’s, it’s, we’re cer­tain­ly not going to over­pay for this stock. There are no fore­casts in Stock Doc­tor, so I can’t see how, you know, what the oth­er ana­lysts or bro­kers are think­ing of it, but, you know, I do sus­pect that the drop off in rev­enue and prof­it is baked into the share price. And if I recall, over the last twelve months or so when Medusa min­ing has been on our buy list, it’s kind of gone up and back and side­ways, in a sort of zigzag fash­ion. So, it’s quite pos­si­ble that the mar­ket was digest­ing the fact that rev­enue was going to come off until new mines came on string. But of course, the big thing which could be affect­ing Medusa at the moment is the gold price. And so, with a high­er gold price, you know, it could coun­ter­act the the decrease in the ore grades that they flagged. And the oth­er thing which has hap­pened in this par­tic­u­lar earn­ings sea­son is that they start­ed pay­ing a div­i­dend, and they did­n’t last half, so that could also be dri­ving a bit of the share price move­ment as well. So, I’m in the camp that this could be bad news, but I’ll wait and see whether it’s reflect­ed in the share price and just stick to our sys­tem rather than to try and fore­cast whether it will be bad news or not.

Cameron  33:48

For it to be bad news does­n’t it have to be sur­prise bad news?

Tony  33:52

Yeah, well, that’s a good way of putting it. Yeah. I mean, I used to only use things like the CFO resigned or an inde­pen­dent direc­tor resigned with­out notice or with­out any sort of expla­na­tion as my trig­ger for bad news. I kind of have have widened it a bit because we have seen some cas­es where a sur­prise down­grade comes out into the mar­ket and we’ve used that as a bad news sell. But, often­times if we stick to our three-point trend lines and rule 1s it takes care of the bad news any­way.

Cameron  34:21

*Cameron in the edit­ing booth, here, on the 9th of March — Wednes­day, the day after we record­ed. Of course, first thing this morn­ing there was an announce­ment: “Medusa Min­ing Ltd. advis­es that Mr Paul Ryan Welk­er has been appoint­ed as the com­pa­ny’s man­ag­ing direc­tor fol­low­ing the ter­mi­na­tion of Mr Andrew Teo’s con­tract.* Yeah, I think last week we were talk­ing about Mid­way. When their results came out, sales were down 39%. You said that was a bad news, that it would have been a bad news sell.

Tony  35:00

Yeah, well it is bad news if it’s a sur­prise, so you’re right to men­tion that. If the mar­ket has­n’t been flagged, and they should be flag­ging the mar­ket, they would have known, Mid­way would have known their prof­it was going to be bad. They just sat on it until the last pos­si­ble minute, which is why the share price react­ed so vio­lent­ly, I guess.

Cameron  35:17

Don’t they have a respon­si­bil­i­ty dur­ing con­fes­sion sea­son to tell us this stuff?

Tony  35:22

They do. Exact­ly. So, look, I don’t know, the cir­cum­stances of Mid­way, I should­n’t be too harsh on them with­out know­ing the cir­cum­stances. But yes, it should be, if the mar­ket is oper­at­ing under the rules that are there in the Cor­po­ra­tions Act, yes, as soon as they have rea­son to believe, con­crete rea­son to believe that they will pro­duce a result which is dif­fer­ent to what the mar­ket expects, they should be out there telling peo­ple about it.

Cameron  35:47

Right. And the same would have been true with Medusa and their rev­enue and prof­it.

Tony  35:50

Yeah. And so, it’s quite pos­si­ble Medusa has been say­ing this for a while and the mar­ket’s absorbed that, and the results have come in a lit­tle bit bet­ter than what some of the big ana­lysts thought and there­fore the share price has­n’t gone down. And with the gold price ris­ing and the rein­state­ment of the div­i­dend, it’s gone up in the last week.

Cameron  36:10

Okay. Thank you, Paul. Hope that helps. Ques­tion from Nick next: “the old do you rebuy a stock that’s crashed you out on rule 1 ques­tion.” Oh, the old do you rebuy a stock that’s crashed you out on rule one, chief? Get Smart ref­er­ence for peo­ple under the age of 50, TV show in the 60s, co-writ­ten by Mel Brooks, look it up, it’s a great show. “Tony said he’s nev­er real­ly had it come up, and he just picks again from the top of the buy list. For exam­ple, GWR for me has recov­ered to a neg­a­tive 15% over­all after a rough cou­ple of days of one cent shifts. It’s the sec­ond stock on the buy list, though admit­ted­ly now a Josephine. So, hold on for dear life and hope it comes back up again or take the hit and the les­son on the abil­i­ty for very low-price stocks to swing around wide­ly and move on fur­ther down the list?”

Tony  37:05

Yeah, so, and we’ve talked about this before, I actu­al­ly don’t have any expe­ri­ence where I’ve sold some­thing because of a rule 1 and it’s still a top thing I want to buy and I have to buy it back. Sounds, a cou­ple of things, sounds-what may have hap­pened here for Nick. One is that he did­n’t sell at the 10% mark for rule 1 and it’s fall­en below that. And we’ve had this ques­tion before as well, what do you do? And I would sell in that cir­cum­stance. So, I guess using Nick­’s exam­ple, if I sell GWR but it’s the next thing to buy on the buy list, would I buy it back. Like, I don’t have expe­ri­ence of that. It looks like GWR’s a Josephine, so I would­n’t be buy­ing it back. But in a dif­fer­ent world, if it was­n’t a Josephine and I was hold­ing it and it was rule 1’d I per­son­al­ly would prob­a­bly sell it and buy the next thing on the buy list and just wait and see what hap­pened to the price, and be fair­ly, you know, fair­ly hap­py with the fact that I was out even if it went back up. I real­ly don’t like hold­ing on to shares that have dropped, and this case is like 15% or more. I think that’s the mar­ket try­ing to tell you some­thing. So, I would sell. But yeah, I’ve nev­er actu­al­ly expe­ri­enced this idea of sell­ing some­thing that you want to buy next. It’s usu­al­ly a sell and move on to the next thing.

Cameron  38:27

Yeah. But as you say, accord­ing to Nick, when he wrote this com­ment any­way, it was a Josephine so, you know, don’t buy it any­way. So…

Tony  38:35

Yeah, cor­rect.

Cameron  38:35

It’s not even, it’s not even a real option if you’re obey­ing the Josephine rule. Thank you, Nick. Ques­tion from Jere­my, “ref­er­enc­ing the dis­cus­sion on Josephine’s, I’ve been think­ing about how to make it eas­i­er.” So, we’ve been hav­ing this con­ver­sa­tion, for new lis­ten­ers, over the last cou­ple of weeks about Josephine’s and you know, when to sell. A Josephine for new lis­ten­ers, by the way, is a stock where it’s above its buy line, it’s above its sell line, it’s tech­ni­cal­ly a buy, but the share price today is below where the share price was at the end of the last month and so we don’t buy it. We want it to show-we want it to demon­strate an upturn in sen­ti­ment before we buy it. But then we’ve had been hav­ing lots of ques­tions about well when is it no longer a Josephine? How do we match that? And you’ve got some ideas, you’re still work­ing your way through. So, Jere­my goes on and says “rather than look­ing at the clos­ing price of the pre­vi­ous month, which on the sec­ond or third of a month might be mis­lead­ing, would­n’t using a thir­ty day EMA or SMA be bet­ter? If the stock is trad­ing below the EMA it’s a Josephine for now,” and then he attached an MQG exam­ple. Now, EMA and SMA: EMA is some­thing some­thing mov­ing aver­age and SMA is some­thing else mov­ing aver­age, right? Remind me what an EMA and SMA is, Tony?

Tony  40:03

I can’t recall EMA, SMA is Sim­ple Mov­ing Aver­age. So, it’s basi­cal­ly tak­ing the long term move­ments in the share price, aver­ag­ing that, and then graph­ing the short term move­ments in the share price on that and look­ing for when they cross each oth­er. Or in this case, I think he’s just using one of those. So, the short term move­ment and over­lay­ing it on the share price and see­ing if that trend is up or down.

Cameron  40:28

I just looked it up. EMA is Expo­nen­tial Mov­ing Aver­age.

Tony  40:31

Right.

Cameron  40:32

“A type of mov­ing aver­age that places a greater weight and sig­nif­i­cance on the most recent data points.”

Tony  40:38

Yeah, look, this could be valid. I haven’t used them and don’t use them, but not to say it won’t be a valid sce­nario. I think we’ve had this ques­tion before, Cam, and I think my response when I’m using or when I’ve looked at mov­ing aver­ages in the past is that they lag a lit­tle bit because you’re wait­ing for the aver­age. So, if you say, for exam­ple, your using a three-month mov­ing aver­age as a short-term line on the graph, it’ll take three months before you get sig­nif­i­cant move­ment because it’s got to aver­age — if it’s a one month, you might get it quick­er. Where­as, if we’re using the three-point trend­lines, I often found that I was in or out of a stock quick­er than wait­ing for the mov­ing aver­ages to catch up and give me a sig­nal. But I’m not crit­i­cis­ing Jere­my’s point, I just encour­age Jere­my to do some research and let us know if it’s bet­ter or worse. And just on what I think will be the out­come of the Josephine dis­cus­sion, and Brett Fish­er from the Bret­te­la­tor and I are still going back and forth on what’s good about this. And he’s, he’s in the camp of using the old style H1 H2, so we don’t wor­ry about the buy line fol­low­ing the sell line rule. And I, you might be to be able to help me here, Cam, because I think from mem­o­ry the buy line fol­low­ing the sell line became much more impor­tant back when we were com­ing out of COVID. We were look­ing for stocks that we could see the stocks were going up sharply, from low­er left to top right in the graphs. But in wait­ing for our nor­mal buy lines it was tak­ing too long, but if we did buy line fol­lows a sell I think we were get­ting it ear­li­er, but my mem­o­ry is hazy on that. And I’m, you know, I’m ret­i­cent to change a rule or make a rule based on the cur­rent mar­ket, because the next six months or the next year it could flip and be the reverse and we’ve got a rule which does­n’t apply any­more. So, you might be able to help me. Are you able to search the data­base and see what we said about buy line fol­low­ing the sell line and the con­text for that, when we sort of dis­cussed it around the COVID cough time at all?

Cameron  42:45

Oh, yeah, pos­si­bly. I can go back and have a look. I mean, we talk about that so much it’s going to be hard to pin­point it, but yeah. I thought that had always been the rule, buy line fol­lows the sell line.

Tony  42:57

It did, but it came into its vogue, like it came into its own at one par­tic­u­lar stage and I think it was around then. But if I can just get a few exam­ples and some graphs that I can share with Brett we can help to nut out the prob­lem.

Cameron  43:08

Okay, yeah, I’ll go back and dig through the tran­scripts. Well, Alex had a fol­low up to Jere­my’s ques­tion; Alex said, “fur­ther to Jere­my’s ques­tion I just dis­cov­ered that Stock Doc­tor has a field called ‘price change one month’ that can either pro­vide a per­cent­age or as a val­ue. I’m won­der­ing if check­ing this as pos­i­tive pro­vides a sim­i­lar approx­i­ma­tion to the ‘price is greater than the end of month’ price. This will elim­i­nate one of the man­u­al data entry points, as in Josephines, and prob­lems that arise in the first few days of each month. Has Tony ever tried this ‘price change one month’?”

Tony  43:54

I haven’t in terms of Josephine’s and I’d have to find out from Stock Doc­tor exact­ly what they mean by that, whether it’s as we do with the price change this month or whether it’s a rolling thir­ty days fig­ure so it’s con­tin­u­ous­ly updat­ing. But we down­load that col­umn into my spread­sheet, the mas­ter spread­sheet, every time we do a down­load but I use it for some­thing dif­fer­ent. But, it’s there at the moment and again I’d encour­age Alex to do some research and let us know if she’s found a way to for­mu­late the solu­tion to the prob­lem.

Cameron  44:26

It’s a he, actu­al­ly.

Tony  44:27

Oh, it’s a he is it? I’m sor­ry, I’ve got an Alex myself that’s a she, so I default to that.

Cameron  44:33

Yeah. That’s alright. Thank you, Alex. Yeah, test it out, tell us what you think.

Tony  44:38

Yeah, exact­ly.

Cameron  44:38

Show some exam­ples.

Tony  44:40

Yeah.

Cameron  44:41

Got a late ques­tion from Dave that does­n’t require any prep. He says, “hi, Cam and Tony. I start­ed a QAV mini port­fo­lio of sev­en stocks last Novem­ber, had a dis­as­trous start, and by mid Jan was down 17% ver­sus the index down 5%. How­ev­er, through report­ing sea­son they’ve bounced back strong­ly and now it out­per­forms the index since incep­tion; now down only 3% ver­sus the index being down 6%. Got me won­der­ing, have you found that QAV’s out per­for­mance is bet­ter over report­ing sea­son com­pared to the rest of the year?”

Tony  45:19

Oh, I haven’t sor­ry, I can’t com­ment on that. It’s just over time that I track it. I think a sev­en-stock port­fo­lio, though, is going to be high­ly volatile and much more volatile than a fif­teen to twen­ty stock port­fo­lio, and there­fore, you know, I’m not sur­prised by those num­bers. It’ll wag around a lot com­pared to the index.

Cameron  45:40

Yeah, that’s what I said today in my email. Yeah, I think it’s a lit­tle bit con­cen­trat­ed, sev­en stocks, you might want to stretch it out to your fif­teen or twen­ty so you get more oppor­tu­ni­ty to find the big win­ners in there that pull every­thing up, right?

Tony  45:52

Yeah, cer­tain­ly, like, I cer­tain­ly see, I would think the most stock move­ments one way or the oth­er hap­pen around report­ing sea­son because you every­one’s get­ting new fig­ures. So, that can hap­pen. But, you know, like, if a stock has gone up after its announce­ment, you can still see buy­ing for the next four or five, six months, until the next report­ing sea­son as the mar­ket digests it. You know, because the mar­kets always for­ward look­ing so it’s not just the cur­rent results which will dri­ve things but peo­ple will take time to, espe­cial­ly the big ana­lysts and big fund man­agers, to meet with man­age­ment and look at their fore­casts and talk about the indus­try and all that kind of stuff, too. So, the buy­ing con­tin­ues all the way through the half. But it usu­al­ly does get that first 20% kick around report­ing sea­son, is my expe­ri­ence.

Cameron  46:37

Yeah, so it gets a bump but that’s not…

Tony  46:39

Yeah, yeah.

Cameron  46:41

Well, that’s all the ques­tions that we have for this week, Tony. Short show at 50 min­utes, accord­ing to my clock.

Tony  46:47

Well, can I just add quick­ly to that, because I’ve got a fol­low up answer from last week. I think one of our lis­ten­ers was ask­ing about div­i­dend pay­out ratios, and par­tic­u­lar­ly in respect to IGL. I think it might have been Alice, but did­n’t write her name down in my notes, I’m sor­ry. So, we were talk­ing about div­i­dend pay­out ratios and our sub­scriber, so this is a red flag if the div­i­dend pay­out ratio is greater than 100%. In oth­er words, more than the prof­its has been paid out in div­i­dends, and I said that it prob­a­bly was and then they list­ed an exam­ple of IGL. I did do some research on IGL and what might be hap­pen­ing there, and this is just based on a desk­top review of the of the results. It looks like IGL had cut their div­i­dend dur­ing COVID, and they did have a tough time dur­ing COVID so that makes sense. So, poten­tial­ly, this is a bit of a catch-up div­i­dend. In the next half, they’ve increased the pay­out to try and smooth it over time, because as I’ve said a lot in the past, the com­pa­ny boards are very ner­vous about cut­ting div­i­dends at all. So, they try and keep it up as high as pos­si­ble and keep it con­sis­tent to share­hold­ers. The EPS was down dur­ing 2020, so COVID did affect this busi­ness a lot, but it’s fore­cast — or 2021, sor­ry — but it’s fore­cast to rise next year. And man­age­ment have stat­ed that their div­i­dend pay­out ratio should fall with­in the 65 to 70% range, and that sort of looks like what it will be using the cur­rent div­i­dend and next year’s fore­cast EPS. So, I’m not say­ing it’s not still a risk. You know, obvi­ous­ly, if the com­pa­ny does­n’t achieve its fore­cast next year, then a high pay­out ratio can’t be sus­tained. But it may just be a COVID relat­ed thing and might just be there for a six to twelve-month peri­od and they decid­ed they could afford to con­tin­ue to give div­i­dends for what­ev­er rea­son. But, yeah, so that was just more of a detailed answer to I think it was Alice’s ques­tion from last week.

Cameron  48:50

It was Alice, yeah, thanks. And IGL, to remind peo­ple, is IVE Group I think. They’re a print­ing and mar­ket­ing busi­ness, so no doubt would have got hit hard dur­ing COVID.

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