Transcript #529

QAV 529 CLUB

Cameron  00:06

Wel­come back to QAV episode 529. Record­ing this 26th of July 2022. How’re things in Syd­ney, Tony? Are you under­wa­ter today?

Tony  00:24

No, we’re sun­nier today, it’s good. We’ve had three days of sun­shine.

Cameron  00:29

That’s nice.

Tony  00:30

Yeah, there’s a few grey clouds around, but I’ll I’ll take that over a del­uge of rain. So, oth­er­wise its been good.

Cameron  00:37

What else has been new with you this week?

Tony  00:39

Oh, not a whole lot. I got a COVID boost­er last week and then I had a cou­ple of qui­et days after that. My arm swelled up but I was gen­er­al­ly okay. We were sup­posed to go to the Archibald to see the Archibald por­traits before it shuts, but was just too unwell to go. So, we’re going in two days time. We’ll go along and see the por­traits before the muse­um shuts down the exhib­it.

Cameron  01:03

Ah, my por­trait’s still not in the Archibald this year. I’ll tell ya. Why are you find­ing that amus­ing?

Tony  01:14

How long ago was that paint­ed?

Cameron  01:15

Eh, five or six, sev­en years ago? I don’t know.

Tony  01:19

You can’t resub­mit it, can you?

Cameron  01:21

I don’t know. I don’y know what the rules are.

Tony  01:23

Well, first of all, is it meant to be some­body of a pub­lic pro­file, of pub­lic note?

Cameron  01:28

Yeah, the media.

Tony  01:30

Oh, not just the media,

Cameron  01:31

You know, film direc­tor, some­thing, some­thing… was on the front cov­er of the bul­letin twen­ty years ago? I don’t know, not enough? Okay. Well, we’re gonna start with a sad note, I guess, this week. I want to give an RIP for our Mel­bourne QAV mem­ber and sub­scriber, QAV Club mem­ber Dar­ren Lun­ny. He passed away at the end of June, we were advised yes­ter­day. Pho­tog­ra­ph­er, for­mer chief of staff and head of Chan­nel Nine Spe­cial­ist Inves­ti­ga­tion Unit passed away of pan­cre­at­ic can­cer, I believe, at 55. So, our thoughts go out to his wife Mel and their chil­dren, fam­i­ly and friends, of course, every­one in QAV Mel­bourne who knew Dar­ren. I only met him once, I think, at din­ner we had down there in May last year, and I looked at the emails and he said, “oh, I’m gonna be run­ning late. I’ve got­ta have a CT scan and they have to inject me with some stuff that makes my eyes go puffy and I don’t know if I’ll be able to dri­ve.” But then he was fine, and he turned up and we did talk a lit­tle bit about his health issues then. I don’t think it was as seri­ous as it became in the course of the fol­low­ing year. So, it’s always sad when we lose one of our mem­bers. So, yeah, shout out to Dar­ren’s friends and fam­i­ly and hope you’re all doing okay.

Tony  02:56

Yeah, very much so. I’ll echo those sen­ti­ments and remarks, Cam, thank you. I just want­ed to add to that, too, and I don’t know Dar­ren’s sit­u­a­tion, or his wife’s or his fam­i­ly’s sit­u­a­tion, but it’s cer­tain­ly a reminder to me to make sure that things are set up. Just review what I’ve got set up so that if some­thing hap­pens to me, Jen­ny can pick it up, or Alex can pick it up. So, check the pass­word vaults, check the doc­u­men­ta­tion on where things are, make a list of who to trust, who to ask for advice and help, how to access things. You know, the Ord Min­nett web­site where our port­fo­lios doc­u­ment­ed, doc­u­ment a plan. I don’t know, again, what Dar­ren’s wish­es were, but maybe some­one in the fam­i­ly wants to con­tin­ue with invest­ing them­selves in some par­tic­u­lar way. Maybe not the way Dar­ren was deal­ing with QAV, but there are, of course, oth­er ways. Oth­er­wise, I’d prob­a­bly have to decide what to do with the shares, because our process is fair­ly active­ly man­aged. We can’t just let be ignored, it could go well, or it could with­er and die. So yeah, I’m hop­ing that Dar­ren did take the time to out­line what his plans were. You know, I’ve always said to Jen­ny to take the mon­ey and put it into a large list­ed invest­ment com­pa­ny like AFI, but even that’s not straight­for­ward, Cam. I was read­ing in the Fin Review today because AFI are just releas­ing their — I don’t think it’s their annu­al results, but cer­tain­ly their unau­dit­ed fig­ures — and they’re trad­ing at a 20% pre­mi­um to their under­ly­ing assets, so it may not be the right time to put mon­ey into a LIC like AFI. And also too, I know that if you put AFI into the Bret­te­la­tor it’s a sell at the moment. So, you know, I think I’ll prob­a­bly have to review what I’ve writ­ten down for Jen­ny and just tell her to go through a cou­ple of steps first before she does some­thing like that if I go tits up. And there’s oth­er things to take into account, like the cap­i­tal gains tax posi­tion of what­ev­er Dar­ren had invest­ed and what the super­an­nu­a­tion sit­u­a­tion is. So, I don’t know if Dar­ren’s fam­i­ly are lis­ten­ing, but they should take this as — when things set­tle down, any­way — take this as a chance to seek pro­fes­sion­al advice on those kinds of issues and what to do. And the oth­er thing with LICs which I know has hap­pened to some of the larg­er ones — it does­n’t tend to; I can’t think of a case where it has dur­ing my life­time — but there is cor­po­rate activ­i­ty which can hap­pen. So, they’re not always just set and for­get. And the same with super­an­nu­a­tion funds and man­aged funds, all those kinds of things: from time to time they will have rea­son to raise new funds, you know, put out a rights issue, there’ll be a merg­er and acqui­si­tion that might take place between two large list­ed invest­ment com­pa­nies or between super­an­nu­a­tion funds, for exam­ple. So, deci­sions may need to get made along the invest­ing life­time of the per­son who takes over the funds. So, it’s not always just set and for­get. So again, it caus­es me to review and just say, well, let me try and map out what to do and all the con­tin­gen­cies I can think of that might take place after I go. Yeah, so I echo your thoughts and it’s sad to hear of Dar­ren’s pass­ing, and I hope his fam­i­ly is okay and that he has tak­en the time to work out with them what needs to be done.

Cameron  06:04

Yeah, it was sug­gest­ed by one of our QAV Mel­bourne mem­bers who advised me of Dar­ren’s pass­ing that maybe one of us — some­body from Mel­bourne or myself — should try and reach out to his wid­ow, Mel, and just not only offer our con­do­lences, but say, lis­ten, if you have any ques­tions about what to do, you know, we can’t give finan­cial advice but we can point you to some­one who can. Or you know, here are the things that you might want to think about, you should talk to a pro­fes­sion­al about, et cetera, et cetera.

Tony  06:40

Yeah sure. That’s a good idea, I think.

Cameron  06:43

All right, well, mov­ing right along. Gold became a sell since our show last week.

Tony  06:50

Yeah, and I’ve been watch­ing it every day because it’s just dropped below its sell price and it has­n’t gone above it again, so I have been sell­ing my gold stocks. But it crossed the sell line and start­ed to edge up and then go side­ways and it’s been hov­er­ing just below it sell price, so I am watch­ing it. And I can’t get out of my gold stocks all at once, it’s tak­en me a cou­ple of days to sell them off and buy oth­er things, so I’ve had that abil­i­ty to watch the gold price. While I fin­ished up deal­ing with the gold price, because some­times just draw­ing a line on the chart was­n’t all that accu­rate, I went back to the very old three-point trend­line cal­cu­la­tor — the pre-Bret­te­la­tor one — which allows you to put in an L1, L2, the dates, the stock price for L1 and L2, and then it tells you the sell price. I worked that out for gold and then have been check­ing that, and the gold price is below that by a cou­ple of hun­dred bucks, so just watch­ing it. It may cross above it again, but I am sell­ing my gold stocks and buy­ing oth­er things like Mac­quar­ie Bank, JB Hi-Fi and Nation­al Aus­tralia Bank. I was buy­ing Wood­side, but it’s gone a bit below its sec­ond buy line, so I’m just paused on that. As you know, I’ve been kind of hang­ing on to gold for as long as I can because eco­nom­i­cal­ly if inter­est rates are ris­ing, if infla­tion per­sists, if we go into a reces­sion, it’s usu­al that the gold price takes off, but that isn’t hap­pen­ing and rules are rules, so I’m sell­ing.

Cameron  08:17

And it’s very con­ve­nient for a cer­tain QAV club mem­ber who will remain name­less who called me before we decid­ed it was a go, and he said, “mate, I just screwed up. I just bought PRU, and it has­n’t crossed its sec­ond buy line, what should I do? Should I hold it? Should I sell it?” And I said, “well, let’s have a look at the gold price. I think you’ve got an out, I think you can say I got­ta sell it because golds become a sell.” So, I think he did. He got a get out of jail free card there, he did­n’t have to make a hard deci­sion about whether to sit or buy.

Tony  08:51

Yeah, right.

Cameron  08:53

I did say, though, I thought that if it was you’d say, “lis­ten, if you’ve bought it and it’s going in the right direc­tion,” it was going up, “prob­a­bly just wear it and hold on to it. If it turns around, get out.”

Tony  09:05

Yeah, I prob­a­bly would have but it’s dif­fer­ent if the gold price is a sell, the under­ly­ing com­mod­i­ty’s a sell, I think.

Cameron  09:10

So, that was very con­ve­nient for said per­son, whose name I will not reveal because I don’t want to embar­rass him too much. All right. Iron ore not a sell, but close to the fudge line. Now, depends what chart you look at. If you look at the Stock Doc­tor 62% CIO Chi­na futures, it’s not quite a sell. The one I nor­mal­ly look at though, which is on some oth­er web­site, “trad­ing view” or some­thing like that, it does look like a sell, but I think that’s the phys­i­cal, not the futures.

Tony  09:46

I tend to look at the phys­i­cal, but I must admit I use Stock Doc­tor which in this case… yeah, so it’s called Iron Ore 62% FE CFR Chi­na (TSI), which I think is a code, TR#. I think that’s actu­al­ly an actu­al as well, but it might be a dif­fer­ent grade, or some­thing like that, to what you’re using.

 

Cameron  09:46

Does­n’t it appear under the “futures” sec­tion of Stock Doc­tor, though?

Tony  10:08

No, it’s under the com­mod­i­ty sec­tion of Stock Doc­tor. There is anoth­er two which are futures sec­ond and futures third, TR#2 to and TR#3. Yeah, but regard­less, that’s the one I’ve been using. Sounds like we’re not too dis­sim­i­lar.

Cameron  10:24

No, not too dis­sim­i­lar, but one’s a sell and one’s not quite a sell. See, if I go into Stock Doc­tor in advanced chart­ing, I go into fold­ers… Oh, there we go. Okay, so under com­modi­ties?

Tony  10:41

No, it’s not. Oh, it is sor­ry, TR#. Yeah, that’s inter­est­ing. Because I’ve come into it from a dif­fer­ent way, I’ve come into it from the front screen, the home screen, where it’s got the iron ore price and you click on Advanced, and it takes you to this one.

Cameron  10:54

Okay, right. Well, I think it’s a future, so maybe the dif­fer­ence between that and the one that I nor­mal­ly use is future ver­sus phys­i­cal. So, which is the best one for us to use when we’re try­ing to deter­mine if it’s a sell?

Tony  11:05

Well, I use phys­i­cal — I should use phys­i­cal, I thought I was using phys­i­cal.

Cameron  11:10

“Let’s get phys­i­cal”

Tony  11:13

Do you have your link to the phys­i­cal graph there? What’s it called?

Cameron  11:17

Tradingeconomics.com/commodity/iron-ore

Tony  11:21

So, we’re in US dol­lars here, aren’t we? US dol­lars per tonne? So, I’ve got a price of $104 on the graph, is that what you’re see­ing?

Cameron  11:27

Yeah. Ver­sus Stock Doc­tor, which says for this future one, TR#, 105. So, there’s not a lot between them as you’re say­ing.

Tony  11:41

Yeah, no, Cam, I might have to take it offline and have a look at it fur­ther.

Cameron  11:45

That’s all right.

Tony  11:46

Hap­py to use the phys­i­cal, I thought I was using the phys­i­cal on Stock Doc­tor, but that’s fine, I’ll have a look. Look, I think the iron ore price has been declin­ing, so I’ve always felt like it’s not very far away from a sell any­way. Espe­cial­ly with all the things that are going on in Chi­na with the COVID lock­downs and now with the prop­er­ty mar­ket tee­ter­ing on the edge. It’s real­ly inter­est­ing to watch. I mean, the sto­ries about the Chi­nese peo­ple who are refus­ing to pay their mort­gages because the apart­ments haven’t been fin­ished, which has also cre­at­ed cracks in the bank­ing sys­tem over there. It’s very inter­est­ing. All right, I’ll check out trad­ing eco­nom­ics for iron ore.

Cameron  12:20

Okay. Inter­est­ing arti­cle in the Finan­cial Review about a week ago by Jonathan Shapiro, “How pump and dump has duped pen­ny stock investors.” “The cor­po­rate reg­u­la­tor said that more than 80% of share mar­ket traders who took part in organ­ised social media pump and dump schemes realised the finan­cial loss or zero ben­e­fit and col­lec­tive­ly burned about $6.3 mil­lion a month chas­ing over­hyped stocks. In an exten­sive report­ing of the pump and dump activ­i­ties of micro-cap secu­ri­ties released late this week, the Aus­tralian Secu­ri­ties and Invest­ments Com­mis­sion said it was able to quick­ly inter­vene and dis­rupt mis­con­duct in the small­er end of the mar­ket after iden­ti­fy­ing sus­pi­cious behav­iour. ASIC took the unprece­dent­ed step of post­ing on telegram chat rooms to alert users they were being watched and pos­si­bly break­ing the law, an inter­ven­tion that it says has put the brakes on poten­tial mar­ket manip­u­la­tion. It said small­er investors who were lured into pen­ny stocks through social media cam­paigns gen­er­al­ly lost mon­ey from day trad­ing, high­ly volatile and illiq­uid shares that were only trad­ed amongst them­selves.” Oh my god. Now lis­ten, we’ve talked a lot about this over the years, pumps and dumps. “Around March of 2021, ASIC esti­mat­ed that around twen­ty-two pump and dump schemes a day were being oper­at­ed involv­ing stocks with mar­ket cap­i­tal­iza­tion below $60 mil­lion.” You know, I’m sure this hap­pens all the time, just with peo­ple tak­ing advan­tage of ama­teurs and peo­ple that are greedy.

Tony  14:01

Well, yeah, I mean, my first thought was, is ASIC going into Hot­Cop­per and mon­i­tor­ing all the posts there?

Cameron  14:08

They prob­a­bly are.

Tony  14:09

They pos­si­bly are, yeah.

Cameron  14:10

They prob­a­bly are, I imag­ine so.

Tony  14:11

Yeah, but I mean it’s dif­fer­ent ver­sions of the same sto­ry. I mean, this sto­ry’s as old as time. Many years ago, it used to be gold prospec­tors with a vial of gold in their back pock­et who’d pour it over the pan before they’d get the results, and it would look real­ly good, and every­one would say, “wow, this is fan­tas­tic. It’s going to be the biggest gold deposit in Aus­tralia.” And of course, all the old hands were say­ing, “yeah, it does­n’t make sense that there’s a big gold­mine out­side of Syd­ney.” But of course, enough peo­ple get caught up in the moment to boost the shares and then lose their shirts.

Cameron  14:47

I think it’s in the first or sec­ond episode of Dead­wood, were Alma Gar­ret­t’s hus­band — some rich New York­er who’s gone out west to be adven­tur­ous and make it rich — and Al is sort of work­ing with a cou­ple of cut-outs to con this dumb rich guy from the big city into buy­ing a plot, a gold plot which is com­plete­ly use­less. But he’s got EB Far­num lined up to act as the oth­er buy­er who’s push­ing the price up and, you know, play­ing him off against this guy delib­er­ate­ly to cre­ate a sense of urgency and push the price up and yeah, it’s just you know, fresh meat, right? Fresh meat comes to town, wants to get rich, and the old timers just rape and pil­lage.

Tony  15:37

it’s the old sto­ry, isn’t it? And it’s not just here too, it was the clas­sic ones we talked about in Amer­i­ca; the meme stock to the moon shares for, I think it was called Game Stock, the stock that they were push­ing in that.

Cameron  15:47

Yeah, Gamestop and AMC. Yeah. I went into a Gamestop just to see if I could buy some dia­mond hands. They did­n’t, they weren’t sell­ing them.

Tony  15:57

You did­n’t ask for any stock tips while you were in there, did you?

Cameron  16:00

I did­n’t, it was a bunch of fat nerds talkin’ about fat nerdy shit.

Tony  16:07

You should have tak­en a video and post­ed it for all the mil­len­ni­als to see before they bought any more shares in Gamestop.

Cameron  16:13

Yeah, but look, I think, you know, it gets back to the psy­chol­o­gy of invest­ing that we talk about a lot. There is def­i­nite­ly a sense of FOMO that we saw with lots of pun­ters dur­ing the last bull run. If it’s not day trad­ing or tech stocks or cryp­to, all that kind of stuff, peo­ple just get sucked into the sto­ries about “oh, you can make 100% on your mon­ey very quick­ly,” or “1,000%” or what­ev­er it is, and my hairdresser’s son knows a guy who, etc., etc.

Tony  16:47

Yeah. Luck­i­ly enough, we’ve been around long enough to know all the ways that behav­iour­al psy­chol­o­gy, or we prob­a­bly don’t know all the ways, should­n’t be so assum­ing, but we know a lot of the ways that behav­iour­al psy­chol­o­gy can work against us and we’re on the look­out for it. But I mean, apart from the fact that young males do have dif­fer­ent wiring to old­er type males and are more risk tak­ing than we are — par­tic­u­lar­ly young males get car­ried up in the momen­tum of things and don’t know that it’s very risky if you’re tak­ing stock mar­ket tips from the Uber dri­ver and not from some­one who’s an investor.

Cameron  17:20

Yeah, take it from a pod­cast­er. You know so much about the tricks of human psy­chol­o­gy that it took me years to fig­ure out how to trick you into doing this pod­cast.

Tony  17:29

A few cut outs and then…

Cameron  17:32

Yeah. My twins, my twins were the cut-outs.

Tony  17:39

Yeah, got it, right.

Cameron  17:45

I want­ed to fin­ish that seg­ment by say­ing those times will come again, obvi­ous­ly.

Tony  17:50

All the time.

Cameron  17:51

It will come back and those sorts of ridicu­lous­ly high returns that you can get if you just lis­ten to my quick three tips kind of thing. I don’t real­ly know how we’re dif­fer­ent from that apart from we tell peo­ple don’t lis­ten to us, do your own work, fol­low the process. Don’t lis­ten, you know, we might be wrong. Don’t lis­ten to any­thing that we say, do your own work. Do your own research.

Tony  18:16

Yeah, apart from the fact that it’s a pod­cast, right? You could be lis­ten­ing to it in six months’ time, so what we’re say­ing is gonna be out of date as well as irrel­e­vant to what you need at that time. So, yeah, do your own research. We’re teach­ing you how to do your own research. That’s what we’re try­ing to do.

Cameron  18:31

And look, if you don’t think the sys­tem that we’re teach­ing makes sense to you, come up with your own sys­tem.

Cameron  18:37

And mod­i­fy it, change it if you want. I mean, you know, we’re just say­ing that “here is a sys­tem that has worked.”

Tony  18:37

Cor­rect.

Tony  18:44

Yeah, and I think equal­ly as impor­tant as fol­low­ing a sys­tem slav­ish­ly is under­stand the under­ly­ing prin­ci­ples. I saw a quote just the oth­er day which said, “if you can’t put the thing down in num­bers, it’s opin­ion, it’s not fact.” So, it’s the under­ly­ing prin­ci­ples of what we do. We take the num­bers, we crunch them, we spit out a list, we apply a cou­ple of fil­ters, and we decide that it’s okay to buy based on past per­for­mance and sta­tis­tics. we’re not lis­ten­ing to CEOs spin their sto­ries, we’re not lis­ten­ing to meme stock/crypto push­ers and all that kind of stuff, we’ve got a process. Take that frame­work on board and if you need to mod­i­fy it, mod­i­fy it for your­self, but it’s the frame­work that’s impor­tant.

Cameron  19:22

And the frame­work very sim­ply is look for the busi­ness­es that are per­form­ing bet­ter than the oth­er busi­ness­es, and that you can buy at a dis­count to what their val­u­a­tion might be on a share basis. And your chances of them doing bet­ter are prob­a­bly high­er than the oth­er com­pa­nies. So, it’s not over­ly com­pli­cat­ed, all the num­bers in the spread­sheets are just a way to work out which busi­ness­es are doing bet­ter and are val­ued at a dis­count.

Tony  19:56

Cor­rect. Yeah. And it’s direc­tion­al, right? Like we said before, you’re bet­ter off buy­ing from the top of the buy list but you don’t do bad­ly if you buy from the bot­tom. So, you can make too fine a point of it, but the sys­tem’s real­ly about the under­ly­ing frame­work rather than the actu­al mechan­ics of what the num­bers have spat out.

Cameron  20:13

But I’m sure a year from now or eigh­teen months from now we’ll have peo­ple say­ing to us: *“it is dif­fer­ent every time. It’s always dif­fer­ent, Tony, it’s nev­er the same.”* (audio of Alan Kohler)

Tony  20:25

Well, yeah, you can sort of almost spot them. I mean, it was­n’t long ago peo­ple were ask­ing me should they buy into lithi­um stocks, lithi­um mines, and I used to say, “yeah, about two years ago.” By the time it reach­es your ears, it’s been through every oth­er wal­let in the invest­ment com­mu­ni­ty first, so it’s always some­thing.

Cameron  20:44

Well, one of the stocks that appears on our buy list fair­ly reg­u­lar­ly is Beach Ener­gy as they are now, used to be Beach Petro­le­um, BPT, now called Beach Ener­gy. They came out with some results just in the last week or so. This is from Share­Cafe: “the Ker­ry Stokes dom­i­nat­ed Beach Ener­gy yes­ter­day revealed its best quar­ter­ly earn­ings off the back of the surge in glob­al oil and gas prices since the inva­sion of Ukraine in late Feb­ru­ary and the harsh sanc­tions being applied by the West to Rus­sia on many of its exports and finances.” La di da di da… “Beach said rev­enues dur­ing the June quar­ter of 2022 totalled $504 mil­lion, up 10% on the $458 mil­lion the oil and gas com­pa­ny report­ed in the third quar­ter of 2021/22.” So, what do you think about Beach’s results, TK?

Tony  21:33

Yeah, well, they’re just the quar­ter­ly num­bers. So, don’t for­get we’re in con­fes­sion sea­son, so they’re oblig­ed to come out with their — I think, actu­al­ly, resource com­pa­nies and min­ing com­pa­nies are oblig­ed to come out every quar­ter with their top line num­bers any­way. So, we’ll still have to wait and see what the actu­al num­bers are as they hit Stock Doc­tor next month. We’re not too far away from that. But yeah, Beach Ener­gy is doing real­ly well. I hold it, it’s been good. I read recent­ly that the sneaky Rus­sians are think­ing of con­strict­ing the pipeline to Ger­many even more. So, they shut it off for main­te­nance then they opened it up to 40%, then they found anoth­er prob­lem and are now shut­ting it down to 20% again for more main­te­nance. So it’s just Putin play­ing games with the EU econ­o­my. But unfor­tu­nate­ly for Ger­many, it’s gonna keep the gas prices up which will ben­e­fit Beach. It’d be great if the world was a hap­py place, I can’t see it get­ting there in a near future, so I sus­pect Beach will con­tin­ue to per­form well.

Cameron  22:30

Well, I don’t know if he is play­ing games. I mean, the sto­ry is that they have tur­bines that need main­te­nance and they sent one to Cana­da, I think for main­te­nance, but the Cana­di­ans can’t send it back to them now because of the sanc­tions.

Tony  22:44

You think they would have checked that first, hey? It’s like, “ah, we’re gonna send you a crit­i­cal part of our infra­struc­ture to fix for us.” “Oh, yeah, sure. Hey, how are ya? Oh, yeah, send it over.”

Cameron  22:57

They might have sent it before the sanc­tion regime, before the inva­sion, I don’t know. Yeah, well, I mean, these things, you know, this is the side effects of the sanc­tions, right? Whether it’s delib­er­ate on behalf of Rus­sia or not, you know, these sanc­tions are going to have mas­sive con­se­quences — already are and are going to con­tin­ue to have. Beach’s share prices is not doing too bad­ly, like it peaked a week or so ago at a $1.86, its back down to $1.79 now, so it has spiked again in the last cou­ple of days since this news came out. But it’s not exact­ly sky­rock­et­ing either.

Tony  23:39

It’s up 4% today.

Cameron  23:41

Well, that’s good.

Tony  23:42

What did you say the price was? I’m get­ting $1.79?

Cameron  23:45

Yeah,  $1.79 today, but it was a $1.82 last week, and it was a $1.88 back in June. So, it’s crawl­ing back up there.

Tony  23:56

Yep, we’ll see. I cer­tain­ly can’t pre­dict share prices and I can’t pre­dict geopo­lit­i­cal events, but I would think giv­en the way things are that Beach will con­tin­ue to per­form well. Any­way, I’ll await their num­bers in Stock Doc­tor next month.

Cameron  24:09

Well, I’ll tell you who else can pre­dict things: War­ren Buf­fet­t’s. There’s a sto­ry in Busi­ness Insid­er I read this week: “War­ren Buf­fet­t’s Berk­shire Hath­away has ploughed near­ly $10 bil­lion in Occi­den­tal Petro­le­um stock over the course of just twen­ty nine trad­ing days this year, the famed investors con­glom­er­ate has amassed 182 mil­lion occi­den­tal shares so far, giv­ing it a near­ly 20% stake in the oil and gas com­pa­ny.” He goes on to say, “ ‘we’ve bought it in two weeks or there abouts, 14% of Occi­den­tal Petro­le­um. I find it just incred­i­ble.’ Buf­fett said. The nine­ty-one-year-old investor empha­sised how absurd it would be to attempt to buy 14% of the nation’s farms, apart­ments, auto deal­er­ships or any­thing else in just two weeks. More­over, he not­ed that around 40% of Occi­den­tal’s out­stand­ing shares were held by index funds that weren’t active­ly sell­ing in the peri­od, mak­ing Berk­shires rapid accu­mu­la­tion of shares even more extra­or­di­nary. Buf­fett attrib­uted Occi­den­tal’s huge trad­ing vol­umes to ‘an unprece­dent­ed num­ber of peo­ple treat­ing the stock mar­ket like a casi­no and shares of Amer­i­ca’s largest com­pa­nies like pok­er chips. It defies any­thing that Char­lie and I have ever seen, and we’ve seen a lot,’ he said.” What do you think about all that?

Tony  25:24

It’s pret­ty hard to argue against the guru, isn’t it, real­ly? So, I think what he’s say­ing through all that is that he could buy a lot of shares in Occi­den­tal, because there are lots of retail investors pre­pared to sell them to him. And then I guess, in a kind of round­about way, he’s say­ing, “oh, I’m a real­ly suc­cess­ful investor, per­haps the best suc­cess­ful investor of all time, and you guys want to sell to me? Yeah, you might be treat­ing this like a casi­no.” But the point he’s mak­ing is, there was a lot of mon­ey in the share mar­ket, and yeah, retail investors are trad­ing in and trad­ing out a lot.

Cameron  25:54

The casi­no aspect of it in the years that we’ve been doing this, it’s the thing that comes back to me over and over when I talk to peo­ple out­side of QAV. You know, I have a con­ver­sa­tion with peo­ple in the street, man of the street, and they say, “what do you do?” And I say, “blah, blah, blah… oh, and, you know, we have an invest­ing pod­cast,” and we get talk­ing about invest­ing. The sort of things that peo­ple usu­al­ly talk about, which are tech stocks, and cryp­to, etc., etc. there’s real­ly like a gam­bling casi­no mind­set out there. Most ama­teurs that you talk to about invest­ing, it’s very much casi­no mind­set. And the first thing that you taught me, I think, when we start­ed doing the show — cer­tain­ly one of the first things that real­ly sunk in — was the dif­fer­ence between an invest­ing mind­set and a gam­bling mind­set. And I think that’s just a real­ly fun­da­men­tal start­ing point for any­one look­ing at invest­ing in the stock mar­ket, is to under­stand the dif­fer­ence between an invest­ing mind­set and a gam­bling mind­set.

Tony  26:58

Yeah, absolute­ly. And I’ve always told peo­ple who’ve come to me for finan­cial advice that I can make them rich­er than they are, I just can’t do it overnight. And that’s the num­ber one thing that peo­ple have to come to terms with. Because for a long time I would get peo­ple con­tact­ing me say­ing, “hey, I’ve just got this extra $5,000, what should I do with it?” It’s like, well, you can buy one share and it may or may not work, and I’ve got a 60/40 hit rate, so that’s the odds. But that’s like going to Flem­ing­ton and putting it on the favourite in the last race. It’s like, that’s a dif­fer­ent mind­set to say­ing, “I’ve got this much mon­ey to com­mit for the rest of my life, this is how I’m going to do it. This is my sys­tem for doing it. I’m not just ask­ing peo­ple for tips.” They’re very dif­fer­ent mind­sets.

Cameron  27:41

And, you know, when I used to run a mar­ket­ing strat­e­gy busi­ness, one of the things I would say to clients, new clients all the time when I’d asked them what their busi­ness strat­e­gy was, and they would mum­ble some­thing under their breath because they did­n’t have one. Like, near­ly every busi­ness own­er I ever worked with did­n’t have a strat­e­gy for their busi­ness. It was like, “oh, well, you know, peo­ple call us and we sell them stuff, and that’s kind of it, right?” And hop­ing things will be bet­ter this year than they were last year. Like I used to say all the time, “hope is not a strat­e­gy.” And it’s the same with invest­ing; just hop­ing that there’ll be a big­ger fool than you down the track that will pay more for some­thing than you pay for it is not a strat­e­gy. You might be lucky, but appar­ent­ly accord­ing to ASIC with the pump and dumps that peo­ple fol­low, 80% of peo­ple lost mon­ey on them. Good luck to the oth­er 20% that did­n’t. I don’t know what they did dif­fer­ent­ly to the 80%.

Tony  28:36

Well, you know what they do. Again, it’s just sta­tis­tics, but the prob­lem is those 20% will go and crow about how good they are at invest­ing and the oth­er 80% will go, well, next time I’ll know that when I do it again not to make those mis­takes.

Cameron  28:48

Those 20% have already got a pod­cast out, they’re already on Tik Tok. “How I got rich.”

Tony  28:54

They think they’re on Fin Tok. What’s it called?

Cameron  28:57

Fin Tok, yeah. Here’s a sto­ry from the ABC I read this week: “prof­its, not war or weath­er, may be dri­ving infla­tion and price hikes as more Aussies report finan­cial pain.” Did you read this sto­ry?

Tony  29:11

I did. Yeah.

Cameron  29:12

So, basi­cal­ly for every­one out there, what The Aus­tralia Insti­tute I think it was that did this study says, they’ve crunched the num­bers and most of the infla­tion that we’re see­ing isn’t being dri­ven by high­er sup­ply side prices or inter­est rates or any­thing like that. It’s most­ly just by busi­ness­es tak­ing advan­tage of the fact that prices are going up, so they’re push­ing their mar­gins up as much as they think they can get away with, which is dri­ving infla­tion even high­er than it would be oth­er­wise.

Tony  29:48

Was it most of it or a good por­tion of it? I can’t recall the arti­cle.

Cameron  29:51

It says, “behind much of the infla­tion,” “prof­its of behind much of it,” so I don’t know if that’s most or just a big chunk.

Tony  30:00

Yeah, it’s hard to com­ment with­out see­ing some sol­id data under­neath it. But yeah, of course busi­ness are try­ing to push their prices up, that’s what they’re in busi­ness to do. And that may sound sin­is­ter and in some respects, it is, because some peo­ple are try­ing to use any excuse to put their prices up. But I was think­ing about it again a bit more after read­ing that arti­cle and it’s also I think a bit of risk man­age­ment. Like, If I’m in busi­ness, I’m putting an order in — if I’m the cof­fee shop man­ag­er, right, and my cof­fee bean price is going up every time I put an order in, I may try and rise prices a lit­tle bit more than that to cov­er the next order because it’s going to be more expen­sive. So, there could be a lit­tle bit of risk man­age­ment going on too. But, yeah, it does­n’t sur­prise me at all that as prices rise, peo­ple try and put their prices up even more for what­ev­er rea­son. And the banks are the clas­sic exam­ple. We’ve spo­ken about those in depth, right? Inter­est rates are ris­ing, they’re not going to rise the deposit inter­est rates as fast they’re gonna rise the mort­gage inter­est rates, which means their mar­gins are widen­ing. So, yeah, that’s def­i­nite­ly part of the cause/driver of infla­tion that’s going on for sure.

Cameron  31:03

The arti­cle lat­er on does say it’s the major­i­ty of it actu­al­ly, it goes so far as to say, “the major­i­ty of the increase in liv­ing costs is due to com­pa­nies mark­ing up prices as much as they can. Prof­its have account­ed for 2.5% points of the increase in the GDP defla­tor, about 60% of the total, The Aus­tralia Insti­tute report­ed.”

Tony  31:25

Wow. And that could be, a large share that could be banks as I said. They’re going to increase their mar­gins while they can, for sure. It’s no sur­prise to any lis­ten­er of this pod­cast from Aus­tralia that we have four major retail banks, two major super­mar­kets, two major depart­ment stores, four or five major oil com­pa­nies. It’s not hard to send price sig­nals in the Aus­tralian retail space.

Cameron  31:47

So, this is why we need a Marx­ist cen­tralised price set­ting mech­a­nism, Tony, where we get to tell every­one what the prices are, and they get locked in.

Tony  31:57

Well, that’s kind of what the heads of those com­pa­nies do. Alleged­ly, alleged­ly.

Cameron  32:05

Alleged­ly.

Tony  32:07

They used to be called “safe­ty meet­ings” in my past life.

Cameron  32:10

Safe­ty meet­ings?

Tony  32:12

Yeah. They’d have an indus­try safe­ty meet­ing, just hap­pen to talk about price while you’re there.

Cameron  32:17

The safe­ty of your prof­its is what you’re talk­ing about, right?

Tony  32:21

The lawyers used to tell me if you go to a safe­ty meet­ing like that and they start talk­ing about price fix­ing, you’re meant to stand up and say “I’ll have noth­ing to do with this” and take your pants off and walk out. The rea­son you’d take your pants off is that every­body remem­bered you left the meet­ing before they talked about price fix­ing.

Cameron  32:40

I like it. So, how many times did you take your pants off, Tony?

Tony  32:43

Oh, I nev­er went to those meet­ings, Cam.

Cameron  32:45

No, of course you did­n’t.

Tony  32:47

I was reck­less when it came to safe­ty meet­ings, I did­n’t go to them.

Cameron  32:51

“ ‘I’m shocked that there is gam­bling going on in this estab­lish­ment, shocked I tell you!’ ‘Here’s your cuts, sir.’ ‘Thank you very much.’ ” One of our very clever QAV sub­scribers Dun­can sent me an email about asset wash­ing dur­ing the week: “Cam, I’m cur­rent­ly lis­ten­ing to the com­ments you and TK made this week about asset wash­ing. I have a back­ground in tax advice and have some views on Part4A of the tax leg­is­la­tion and asset wash­ing that I thought I would share. After all, every­one is enti­tled to my opin­ion 🙂 This is a part of the plan to put the fear of God into tax­pay­ers. How­ev­er, it is actu­al­ly quite dif­fi­cult for the ATO to make a water­tight case bar­ring bla­tant inva­sion activ­i­ties. Part 4A is fre­quent­ly…”

Tony  33:41

Sor­ry Cam, Its “eva­sion activ­i­ties.”

Cameron  33:44

Is that what it is?

Tony  33:46

Eva­sion. You’re say­ing “bla­tant tax inva­sion.”

Cameron  33:49

What did I say, inva­sion? Yeah, yeah, well in that too. They want to stop inva­sion activ­i­ties. I thought you were say­ing part 4A, IVA, stands for inva­sion.

Tony  33:59

Well, part 4A is about tax eva­sion, yeah.

Cameron  34:02

But that’s not short for inva­sion with an “i”, is it?

Tony  34:07

No.

Cameron  34:08

Sor­ry. They don’t care about your inva­sion activ­i­ties, just your eva­sion activ­i­ties. “Part 4A is fre­quent­ly con­sid­ered when tax­pay­ers do things like pre-pay­ing their insur­ance, etc., in June to bring for­ward as a deduc­tion into the cur­rent year. How­ev­er, if there is a jus­ti­fi­able expla­na­tion of why you have done the thing in ques­tion and it makes com­mer­cial sense, like get­ting a reduced pre­mi­um in the above exam­ple, then the ATO would have a hard time prov­ing the bal­ance of your moti­va­tions was weighed towards tax min­i­miza­tion. In oth­er words, it is only like­ly to be applied in a sit­u­a­tion where some­thing did not make any com­mer­cial sense oth­er than achiev­ing a tax advan­tage, which does not in and of itself qual­i­fy as a com­mer­cial ratio­nale for doing some­thing. With asset wash­ing, if you have a valid rea­son for the trades then I would not be too con­cerned by the prospect of being accused of asset wash­ing, not that the ATO has suf­fi­cient com­pli­ance resources to apply to the likes of mere mor­tals like me. Though it may be a dif­fer­ent case for peo­ple of TK’s girth.” I think he just means your walle, the girth of your wal­let, TK.

Tony  35:16

Oh, right. He was­n’t fat sham­ing me there?

Cameron  35:18

No, just your wal­lets being fat shamed. “But it is prob­a­bly unlike­ly even for him, as I sus­pect he may not be in the top five thou­sand wealth­i­est Aus­tralians who are cur­rent­ly attract­ing scruti­ny from the ATO after the top five hun­dred have been through the wringer. Hap­py for TK to cor­rect me on this assess­ment though. The most impor­tant ally to have in your cor­ner in such sit­u­a­tions is self-serv­ing doc­u­men­ta­tion. In a sit­u­a­tion where you have a doc­u­ment­ed QAV invest­ment Bible con­tain­ing rules and trig­gers for buy and sell deci­sions, and you can point to 3PTL relat­ed deci­sions and change prof­it fig­ures of fore­casts, etc., there will be plen­ty of doc­u­men­ta­tion to jus­ti­fy the com­mer­cial moti­va­tions behind buy­ing back a com­pa­ny that you’ve recent­ly sold. If you feel par­tic­u­lar­ly con­cerned about cer­tain trans­ac­tions, then record a jour­nal note in your files jot­ting down the rea­son for your deci­sions; even bet­ter if it’s elec­tron­ic and you can prove the date that the file note was cre­at­ed. Hope this pro­vides some clar­i­fi­ca­tion. hap­py to clar­i­fy if there’s any fur­ther inter­est. Sin­cere­ly, Dun­can.” What do you think about all that, TK?

Tony  36:24

Yeah, it’s great advice. Thank you, Dun­can. And I agree with it whole­heart­ed­ly. The only addi­tion­al point I’ll make is that, maybe I’m a spe­cial case, but yeah, the ATO just “hav­ing a look” can be a time-con­sum­ing affair to say the least. And I haven’t had that expe­ri­ence with the ATO, I had a minor expe­ri­ence with the Cana­di­an tax office and the Cana­di­an tax office is very sim­i­lar to the Aus­tralian Tax Office. When I was liv­ing over there, I used to have to pay tax, I think their finan­cial year end­ed 31st of March. So, I’d do a tax return in Cana­da, a tax return in Aus­tralia in July, and then I’d get a cred­it. I’d pay tax in Cana­da first, get a cred­it for the Aus­tralian one. All kinds of tax treaties would allow that, but there were some slight dif­fer­ences and I fell afoul of the Cana­di­an tax­a­tion agency because in one of my returns they picked up that I was claim­ing for an account­ing fee, which you were allowed to do unless they were account­ing fees that per­tain to prepar­ing your tax return — which was allowed to be done in Aus­tralia. And so, I had to make a case, talk to some­one, explain myself, and pay an accoun­tant to pre­pare all the doc­u­men­ta­tion to sup­port our case and to deal with the tax office over there in the first instance. So, look, it was­n’t that dif­fi­cult, but it did cost me mon­ey and it did cost me time. So, my argu­ment isn’t that if I sold some­thing in June and bought it back in July that I was tax wash­ing, because Dun­can’s right, I’m apply­ing a method­ol­o­gy and I can point out to the tax office where I’m doing that. My point is, I don’t real­ly want to spend my time jus­ti­fy­ing myself to the tax office and hav­ing them focus on me and ask ques­tions about every line in my tax return, even though I can sub­stan­ti­ate it. It’s a lot of time and effort and prob­a­bly account­ing fees to do that. So, that’s why I take a bit of a con­ser­v­a­tive view, and that was the advice from my accoun­tants when I was using one of the big six account­ing firms a lit­tle while ago to take that approach. So, yeah.

Cameron  38:18

So, you’re Cae­sar’s wife, is what she’s say­ing, basi­cal­ly?

Tony  38:20

Have to be seen to be whiter than white?

Cameron  38:25

Was­n’t a racial thing, Tony, but yeah. Cae­sar’s wife must be beyond sus­pi­cion.

Tony  38:31

Yeah. Right. So, it’s a good advice, thank you, Dun­can. It might put oth­er peo­ple at rest, and I think it might also mean that the dum­my port­fo­lio can just buy and sell accord­ing to our plans rather than tak­ing into account wash pre­vi­sions too, Cam.

Cameron  38:45

Yeah. Okay. I think mov­ing for­wards we’ll do that then. Good, good.

Tony  38:49

Thank you, Dun­can. Much appre­ci­at­ed.

Cameron  38:52

Had a look at the port­fo­lio this morn­ing. For the finan­cial year, the dum­my port­fo­lio is up about 3.8%, I think, ver­sus the 200 which is up 7.37%.

Tony  39:09

We’re under­per­form­ing.

Cameron  39:10

Yeah. So, it’s kick­ing our ass for the first few weeks of the finan­cial year. Since incep­tion, though, the DP is up 17.78% per annum ver­sus the 200 up about 5.5% per annum over the same amount of time. So, three times bet­ter we’re doing over the long haul, but not very good so far for the finan­cial year. Some of the best stocks in this finan­cial year, though: I’ve got IGL’s up 22% In July; KOV, Kor­vest, up 18%; New Hope Coal is up 15%; AMO up 14; TRS up 14; ECX up 12 and BFG up 12 in July. So, they’ve all had a real­ly stel­lar cou­ple of weeks, but not enough to pull our port­fo­lio up above the All Ords for some rea­son.

Tony  40:07

I’m guess­ing our iron ore stocks haven’t been doing so great, is prob­a­bly what’s hold­ing down the port­fo­lio. And it looks like we’re get­ting close to sell­ing them any­way, so that might rec­ti­fy itself fair­ly soon, I think.

Cameron  40:18

Any­way, what have you got on your list of notes? Got a pulled pork?

Tony  40:22

I do. Yeah. So, I’m gonna do a pull pork on ACL, which was request­ed. So, thanks for the requests, we’ve got three, I think, now. So, I’ll do one today and then one next week, and one the week after to catch up with peo­ple’s requests. But keep them com­ing in, it’s good to have inter­est from peo­ple and we can answer their ques­tions. But the pulled pork is on ACL, which stands for Aus­tralian Clin­i­cal Labs, which is the third largest pathol­o­gy provider in Aus­tralia by rev­enue. They have some­thing like just under a thou­sand col­lec­tion cen­tres, thir­ty clin­ics, and eighty-six accred­it­ed labs. We will all know ACL, I’m guess­ing, from get­ting blood tests done or COVID tests done and hav­ing the results sent back to us. So, that’s the busi­ness mod­el: col­lect the test and send it to a cen­tral hub, have it checked, and then the results are sent back to your doc­tor or to your­self. That’s pret­ty much the com­pa­ny in a nut­shell. There’s been a bit of a his­to­ry in the pathol­o­gy area, and I’m prob­a­bly going back now at least ten years, maybe even longer, where pathol­o­gy com­pa­nies start­ed to aggre­gate and then list, and then roll up. So, prob­a­bly the oth­er two big play­ers in the mar­ket went through that process and they had stel­lar returns on the share mar­ket while they were in that roll up phase, and then they’ve kind of plateaued off from then. But cer­tain­ly, there are some tail winds for this indus­try, because with an age­ing pop­u­la­tion, and now with COVID and things like that, the pathol­o­gy busi­ness has always been a good busi­ness. This par­tic­u­lar com­pa­ny is on our buy list though, so it’s not only a good busi­ness, but we can pick it up for a good price, too. So, a cou­ple of things that I just want­ed to high­light. They have been grow­ing through under­tak­ing acqui­si­tions but not on any sort of accel­er­at­ed growth path, so its part of their growth busi­ness but it’s not the be-all, end-all of this com­pa­ny from what I can tell. It’s only been list­ed, though, for one or two years, so it may well con­tin­ue down the roll up path. That’s some­thing which I like in the ear­ly days because the growth is fan­tas­tic, but once they reach matu­ri­ty and peo­ple start to work out there’s less and less com­pa­nies they can acquire, then the share price comes off and the PE rerates down. And then once they reach the stage where they can’t acquire any more busi­ness­es and they become mature, yeah, they rerate again. So, it’s a well-worn path, but I don’t know if ACLs going down that path just yet. It has a female CEO, a lady by the name of Belin­da McGrath. So, going back to what we said before about these com­pa­nies sta­tis­ti­cal­ly per­form­ing, or com­pa­nies sta­tis­ti­cal­ly per­form bet­ter with a female CEO, that might be of inter­est to peo­ple. It cer­tain­ly has ben­e­fit­ed from the COVID bump, so in the last two years, their rev­enue is up tremen­dous­ly. They do call out their non-COVID rev­enue in their last results, which were back in Feb­ru­ary, and the non-COVID rev­enue was up but only by 2.8%. So, it’s a much small­er growth for the rest of the busi­ness. So, that’s going to be an issue when and if we ever come out of COVID or some­thing like COVID where we’re not doing as much test­ing as we have in the past, their sales cer­tain­ly will come down a lit­tle bit. I think that prob­a­bly is enough on the busi­ness side of things. On the num­bers, the com­pa­ny is cer­tain­ly large enough for most of our lis­ten­ers to have a look at. The ADT’s $1.243 mil­lion, so that’s quite a large size. I’m doing my num­bers on the share price of $4.77 which was on the week­end., but I noticed today, though, that the share price has gone up above that. So, peo­ple may want to do their own down­load and check the num­bers. But it’s still, I think it should still be on the buy list. Going through the var­i­ous items on the check­list: the price is below its con­sen­sus tar­get. Just as an aside, I’m still review­ing what to do about that part of our check­list, as a lis­ten­er raised with us a month or so ago that most stocks are trad­ing below their con­sen­sus tar­get because that’s the way the broking indus­try works. So, I’m just still decid­ing whether to remove or change that par­tic­u­lar part of the check­list. But for now, this com­pa­ny is below its con­sen­sus tar­get, so it gets a point. It does have a yield, a div­i­dend, but it’s not that high. It’s 2.5%, so it does­n’t score on that met­ric. Finan­cial Health, though, is strong and steady, so it scores on both of those. As an aside again, this is a high ROE com­pa­ny at the moment, it’s return­ing 39% on equi­ty. So, I know that’s of inter­est to some peo­ple, it’s not part of our check­list but it’s cer­tain­ly a good return on equi­ty for this com­pa­ny. Pr/OpCF is 3.69 times, but the PE is 26 times, so this is a cash hun­gry busi­ness. It’s trad­ing at a low mul­ti­ple to the cash it’s throw­ing off, but then a lot of that cash gets absorbed in the run­ning of the busi­ness and the PE is at 26 times which is earn­ings at the bot­tom of the state­ment of income, where­as the cash flows at the top. IV1 is below the share price. IV2 is $13, which is not just way above the share price, but more than two times share price, so it scores dou­ble for that. Earn­ings per share growth is very strong at the moment: 426% fore­cast, which means the growth over the PE is 16 times, which is like ten times above our thresh­old. So, it scores well for that, too. Inter­est­ing­ly enough, direc­tors only hold 2% of the com­pa­ny, which was sur­pris­ing to me giv­en that it float­ed recent­ly. This kind of fits the mould of a clas­sic own­er-founder com­pa­ny which has grown by aggre­ga­tion and then list­ed, but that does­n’t seem to be the case. Although, I did look into the bio for Melin­da McGrath, and she does have a very strong CV of run­ning these sorts of com­pa­nies in the indus­try. But the direc­tors are only hold­ing 2%, so it does­n’t score for an own­er founder there. It’s the high­est PE in the halves that we have — I think we only have a cou­ple of halves, so it gets a minus one. That may be a lit­tle bit unfair giv­en that we’ve only got a short-list­ing his­to­ry. Any­way, rules are rules. It’s a new upturn, so it scores one for that. It has con­sis­tent­ly increas­ing equi­ty again, but only for a cou­ple of halves. But all in all, it scores 12 out of 16 for qual­i­ty or 75%, and a QAV score of 0.2. So, scores well.

Tony  46:12

Thank you, TK, ACL. Won­der if its big enough for me to put in my Super­fund. Is it a top 300 stock, do you think?

Tony  46:20

I think so, yeah.

Cameron  46:22

Alright, well, if you don’t have any oth­er news, we’ll get into the Q&A?

Tony  46:26

Yeah, sure. I’m good.

Cameron  46:28

Well, that’s debat­able, but we’ll get into the Q&A any­way. Ed asks, “Cam, ques­tion. In pre­vi­ous shows TK has men­tioned that with lega­cy stocks, to know when to sell them we should treat them the same as a QAV select­ed stock and let them go when they cross their three-point trend­line.” Lega­cy stock obvi­ous­ly is a stock that he owned before he start­ed doing QAV. “Does that rule apply to index track­ing ETFs as well? For exam­ple, IOZ.” He sent a chart show­ing where it’s at. It’s below its sell line. Do you use that for ETFs, Tony? 3PTL?

Tony  47:10

I would. I don’t own ETFs, but I would. I’d use it for LICs for sure. So yes, I think the three-point trend line works for com­modi­ties. works for stocks and works for funds as well. Or ETFs. Def­i­nite­ly.

Cameron  47:21

There you go. Ed. That was quick, hope that helps. Sam: “bon­soir, Cameron. TK asked for pulled pork ideas,” and he’s sug­gest­ing SOL here, which I guess we’ll do at a lat­er point. He says, “I like this com­pa­ny because it’s like a Berk­shire Hath­away based in Aus. It recent­ly dropped about 40% in val­ue or so, and over the same peri­od increased its cash and cash flow sig­nif­i­cant­ly, so I’m think­ing it’ll be close to QAV val­ue when the next fig­ures come out. But it’s not on the QAV buy list, but still a qual­i­ty com­pa­ny at good val­ue, so a good pulled pork can­di­date.” Do you know where it is, why it’s not on the buy list? Have you had a look?

Tony  48:01

I had a look today. It’s like a 0.9, so it’s almost on the buy list — or a 0.09, sor­ry. It’s almost on the buy list, so we can do a pulled pork on that. Yeah, I haven’t fol­lowed this com­pa­ny for a while. I know it merged with anoth­er big list­ed invest­ment com­pa­ny called Mil­ton, I think last year, so that may be why the oper­at­ing cash flow went up, because it com­bined with anoth­er com­pa­ny. So, it will be inter­est­ing to see what the next results are like for Soul Pat­tin­son.

Cameron  48:26

Well, speak­ing of sug­ges­tions for pulled porks, Lee has sug­gest­ed Kelly+Partners as a pulled pork can­di­date. He says the CEO open­ly talks about how the busi­ness is mod­el­ling Berk­shire. Aren’t they Char­tered Accoun­tants, these peo­ple?

Tony  48:43

Yeah, I think so. Yeah, we can do a pulled pork on that one for sure. I’m not sure if it’s on the buy list at the moment, but it has been in the past. So, def­i­nite­ly, we can talk about it. Inter­est­ing how all these peo­ple are say­ing they’re the antipodean Berk­shire Hath­away.

Cameron  48:58

“No, I’m Spar­ta­cus. I’m Spar­ta­cus.”

Tony  49:03

And of course, Hamish Dou­glas always said he was the War­ren Buf­fett down under as well.

Cameron  49:09

Well, won­der what War­ren Buf­fett thinks about all these peo­ple say­ing they’re War­ren Buf­fett,

Tony  49:13

Well, he’s not buy­ing their shares, so…

Cameron  49:17

Not like the guy that Char­lie did buy the shares of.

Tony  49:19

Yeah, true. Maybe he’s the War­ren Buf­fett down under. Any­way, hap­py to do that, Lee. No prob­lem. I’ll have a look. Might be two weeks away, though.

Cameron  49:29

Reg: “Ques­tion for Tony. Over the years, does he think he’s gen­er­al­ly done bet­ter out of min­ing or indus­tri­al stocks — or oth­er sec­tors for that mat­ter? It seems to me that maybe min­ing stocks can have more volatil­i­ty depend­ing on the com­mod­i­ty price and eco­nom­ic con­di­tions, and thus may be more poten­tial upside if you can pick it right.”

Tony  49:48

So, yes, he’s right about that. But no, I haven’t had a favourite indus­try over my invest­ment career and things go in cycles and indus­tries will change from time to time. So, cur­rent­ly, in the last cou­ple of years, it’s been dom­i­nat­ed by com­modi­ties; first of all gold, and then iron ore in par­tic­u­lar. But looks like that might be com­ing to an end now. But that’s only been in the recent past. I mean, iron ore did have anoth­er upturn, I remem­ber buy­ing Fortes­cue Met­als Group when it was a buck and sell­ing it when it was about five or six bucks. So, it’s not unusu­al to go through cycles like that, but, you know, I’ve been through cycles where air­lines were pre­dom­i­nant or had a larg­er part of my port­fo­lio than their indus­try wait­ing in the ASX. Banks, def­i­nite­ly. I can remem­ber back to the days, prob­a­bly just before the GFC, when min­ing con­trac­tors were doing real­ly well, and they were over­rep­re­sent­ed in my port­fo­lio. So yeah, it’s just dif­fer­ent strokes for dif­fer­ent cycles, real­ly.

Cameron  50:45

So, you don’t real­ly have any sense that any par­tic­u­lar sec­tor’s done bet­ter than any oth­ers, they just have all done well at dif­fer­ent stages?

Tony  50:54

Cor­rect. I think that’s one of the strengths. I mean, you can wind back the clock and say buy­ing and hold­ing CBA from the float was a good invest­ment or buy­ing Ama­zon after the dot­com bust was a good invest­ment. But they’re kind of one off, and to put a whole method­ol­o­gy around wait­ing for that to hap­pen again is pret­ty tough. So, I feel like, and I’m pret­ty sure I’ve made mon­ey by play­ing the cycles, and as one cycle comes to an end, look for the one that’s emerg­ing and get on to that. I don’t look for the the­mat­ic, it just hap­pens that on the buy list you get more and more stocks in one par­tic­u­lar indus­try which had been out of favour, but they’re just start­ing to turn.

Cameron  51:30

Yeah, you just lis­ten to the num­bers. They tell you that this com­pa­ny is doing well, but it’s priced at a dis­count to its val­u­a­tion.

Tony  51:37

Yeah, and if you think about it, usu­al­ly the sto­ries that are com­ing out for that indus­try are all bad. I bought San­tos and Beach, and the dum­my port­fo­lio did too at a time when the oil mar­ket was grind­ing to a halt and peo­ple were say­ing, “oh, it’s the end of oil,” and you had all the prob­lems with oil tankers afloat off the shores of Cal­i­for­nia and Texas not being able to get their car­goes unloaded. When the prob­lems beset the oil indus­try, of course, every­one jumped out of the tree say­ing, “oh, it’s the end of oil. We should all be invest­ing in wind farms,” and “who wants to invest in oil any­way?” So, all that just played into our hands real­ly, it turned out to be a good time to buy oil stocks.

Cameron  52:13

You dropped your mate Vlad an email and said, lis­ten, if there’s any­thing that you can do, I’m hold­ing all these oil stocks.

Tony  52:20

No, I did­n’t. I mean, it was the same thing back when air­line stocks were cheap, even though they were good qual­i­ty stocks, again, the mar­ket com­men­tary about the sec­tor is full of doom and gloom. There are plen­ty of sto­ries being post­ed in the AFR about how War­ren Buf­fett says he’ll nev­er touch a an air­line stock, and if he had a time machine the best thing he could do for invest­ment was to fly back to Kit­ty Hawk and shoot the Wright broth­ers, and all this kind of stuff. So, all those arti­cles get trot­ted out when the air­craft indus­try isn’t doing very well, the air­line indus­try is not doing very well, but Qanas and New Zealand were big parts of my port­fo­lio dur­ing their upswing. So, yeah, that’s just the way it goes.

Cameron  52:58

Some hor­ror sto­ries about air­lines in the media at the moment.

Tony  53:02

There are, aren’t there. Not look­ing for­ward to fly­ing.

Cameron  53:05

No. And prices are ridicu­lous. Tay­lor was telling me he’s been try­ing to book air­fares to Mel­bourne for a cou­ple of weeks and it’s like $400-$500 bucks each way they were try­ing to charge him.

Tony  53:15

Yeah, Jen­ny said the same thing just last night. And it’s even worse for busi­ness class flights, too. Its like going back to the 90s when it used to cost me 500 bucks each way to fly home for Christ­mas from Mel­bourne to Bris­bane.

Cameron  53:27

Yeah, I remem­ber those days.

Tony  53:28

Or the 80s. When you had a paper tick­et kids.

Cameron  53:31

Yeah. And you could smoke on the plane.

Tony  53:33

With a car­bon, car­bon back to it, car­bon copy in trip­li­cate.

Cameron  53:38

Like one of the old cred­it card swipey machine things.

Tony  53:41

Yeah, exact­ly.

Cameron  53:42

Last ques­tion is from Ali. She says, the aver­age dai­ly trade on a share based on total share port­fo­lio, a reminder of how to cal­cu­late it and the pur­pose of it, she would like?

Tony  53:55

Yeah, sure. Good ques­tion, Ali, and kind of fun­da­men­tal one too. So, the rea­son for it is that we are try­ing to not hold on to stocks which are too big to get out of quick­ly.

Cameron  54:08

Too small?

Tony  54:09

No, too big. So, it goes back to the sto­ry that was in Nicholas Tal­ibs book about when­ev­er he walked into a movie the­atre, he would check out the fire escape door or the exit doors and make sure it was big enough to get peo­ple out quick­ly, oth­er­wise he would­n’t feel com­fort­able. It’s the same thing with this. If we buy… oh, I see what you’re say­ing, sor­ry. Yes, the com­pa­ny is too small, the ADT is not big enough. Gotcha. Yeah, you’re right. If I bought into a small com­pa­ny I’d buy a large por­tion of it, and if it was larg­er than the ADT it could take me days to get out — or weeks, which I’ve learned the hard way. And you’re either push­ing the price down as you sell or you’re not able to sell, you just can’t find the vol­ume to get out. If that com­pa­ny’s share price is going down, it can be a hor­ri­ble feel­ing try­ing to get out, forc­ing the price down and then not being able to get vol­ume to be able to match your, your sell­ing posi­tion as well. So, so that’s the rea­son for it. And I guess the reverse hap­pens on the way up; if you’re buy­ing into a small com­pa­ny and you have a lot of mon­ey to spend on the small com­pa­ny, you’re gonna dri­ve the price up and it’s going to defeat your own pur­pose. You’ll stop buy­ing it once your posi­tion has fall­en, and the price will prob­a­bly reset­tle back to where it was. So, you’ll nurse a loss. The rule of thumb is, again from Tal­ib’s book, is to buy a posi­tion which is only 20% of the ADT. So, you want five times cov­er­age so in an emer­gency, in a fire sale, you can get out. You can still have prob­lems, of course, because there might be ten peo­ple try­ing to sell that day with a sim­i­lar sized par­cel, but you’ve got a bet­ter chance of get­ting out in a clean­er fash­ion than if you had 100% of the ADT, or 200% of the ADT, and you’re try­ing to get out quick­ly. So, that ties into port­fo­lio con­struc­tion, which we’re try­ing to hold fif­teen to twen­ty stocks in our port­fo­lio, which seems to be about the right blend between not hold­ing too many so that you become more like an index and track the per­for­mance, and not hold­ing too few so that the volatil­i­ty can be stom­ach churn­ing. So, fif­teen to twen­ty stocks, take the amount of the total port­fo­lio you have to invest, Ali, divide by at least fif­teen, prob­a­bly twen­ty, and then look at how much you have to spend on each share, and then find shares which have an ADT which is five times that val­ue. That’s a good way to set up a port­fo­lio and also to find shares which are big enough and liq­uid enough to not be that affect­ed by your trad­ing.

Cameron  56:34

And you get the aver­age dai­ly trade fig­ures straight out of Stock Doc­tor.

Tony  56:39

I do. Yeah.

Cameron  56:40

Thank you, Tony. Thank you for the ques­tion, Ali. That’s it for Q&A this week, kids. After hours. Tony, what have you been doing for fun…

Cameron  1:12:32

Thank you every­body. The 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.