Transcript #535

QAV 535 CLUB

Cameron  00:06

Wel­come back to QAV every­body. This is episode 535, record­ed on Tues­day 6th of Sep­tem­ber, 2:25pm East­ern Stan­dard Time. How are you, TK?

Tony  00:22

Okay, in the wars a bit. It seems like every time we record a pod­cast, I’ve got a litany of ill­ness­es to report. But no, I had a skin can­cer cut out today. Well, two.

Cameron  00:31

That’s what hap­pens when you get old, Tony.

Tony  00:33

Yeah, I know. It’s won­der­ful part of life, get­ting old.

Cameron  00:37

So, skin can­cer cut out of your neck?

Tony  00:39

Yes, and a biop­sy done for my fore­head. I think I’m liv­ing too close to the equa­tor, Cam, I’ve got to get back to Mel­bourne. Back to Cape Schanck.

Cameron  00:48

Don’t we all. We all need to get back to Mel­bourne.

Tony  00:50

Yeah, less inten­si­ty in the sun.

Cameron  00:51

We should build a QAV com­pound, like The God­fa­ther com­pound, a QAV com­pound in Mel­bourne. Just hous­es for all of the peo­ple who grad­u­ate QAV, we just all live togeth­er. Big com­pound some­where.

Tony  01:04

Yeah, in Cape Schanck, we’ll make it like the Tahoe com­pound.

Cameron  01:08

Yeah, you know, just start… Well, I guess we just buy the hous­es. I was going to say we take over a golf course and build hous­es on it.

Tony  01:16

Now you’re talk­ing. Yeah, that’d be great.

Cameron  01:19

Just one by one, we’d buy all the hous­es at Cape Schanck and we’ll all stay down there.

Tony  01:24

That’s get­ting hard­er because they’ve all gone up in val­ue since COVID.

Cameron  01:28

Unlike our port­fo­lio this finan­cial year. Let’s get into the show. Iron ore is now offi­cial­ly a sell as of last week. What a bru­tal, bru­tal cou­ple of days it was for iron ore stocks in our port­fo­lios last week. GRR was a killer.

Tony  01:45

In par­tic­u­lar.

Cameron  01:46

 FEX was no good either, but GRR went from being a super­star to just… I think I sold it at a loss, even­tu­al­ly.

Tony  01:55

Yeah, I know we have a ques­tion about that lat­er, so maybe I’ll just keep my remarks until then. But it’s a dou­ble wham­my of the iron ore price becom­ing a sell and the com­pa­ny report­ing at the same time, they weren’t fore­cast­ing what peo­ple thought they should.

Cameron  02:09

Yeah, well. We’ll talk about that lat­er on, as you said. I found an inter­est­ing quote from Buf­fett on some­thing I was read­ing this week. It was some arti­cle about how he sold at of Dis­ney too ear­ly and lost $18 bil­lion or some­thing, but I think he’s doing okay. I don’t think he regrets it, but nice to know that even Buf­fett makes mis­takes from time to time. I think he’s the first per­son to acknowl­edge that. But there was a great quote from him: “it’s good to learn from your mis­takes. It’s bet­ter to learn from oth­er peo­ple’s mis­takes.” Our episode last week I called the “Qav­er­ick”, and that’s what I keep telling peo­ple; like, Tony spent thir­ty years mak­ing mis­takes. We don’t need to make our own mis­takes over again. Let’s just learn from Tony’s mis­takes and see how it goes.

Tony  02:57

Yeah, that’s exact­ly right. When we do the pulled pork, I’ll con­fess to anoth­er one as well.

Tony  02:57

Oh, yeah, that’s good. I like that. I always like it when you admit to mis­takes because it makes me feel bet­ter about myself.

Tony  02:59

It’s ridicu­lous try­ing to hide them, right? Because apart from the fact some­one will go through our dis­clo­sure list and say, “hey, how come you bought this stock?” So, we get found out. But you got­ta own up to your mis­takes. Just own up to them, front up to them, move on.

Cameron  03:21

Like, don’t wor­ry about it. We’re all human. Every­one makes mis­takes, even you.

Tony  03:26

We’re not robots, but even robots make mis­takes as well.

Cameron  03:30

Yeah, the T 1000 did­n’t kill Sarah Con­nor, so there you go. If he can make a mis­take, we all can. Hey, I want­ed to ask you some ques­tions. These aren’t in the notes, I just came up with these this after­noon while I was doing stuff. You know we talk about down days and updates; we try not to buy some­thing on a down day, we wait till it has an up day. What about a neu­tral day? There was a stock I was look­ing at yes­ter­day, BRI, it was hav­ing a down day yes­ter­day. Today it’s hav­ing a neu­tral day.

Tony  03:58

It’s pret­ty rare that a stock would have a neu­tral day. It must be fair­ly thin­ly trad­ed.

Cameron  04:02

It’s a small cap: 18,000 aver­age dai­ly trade, you know. But it’s hav­ing a neu­tral day, is that is that kosher, then?

Tony  04:10

Yeah, I’d still buy it on a neu­tral day, I think. I can’t recall much expe­ri­ence with that, because gen­er­al­ly the stocks are always in motion. But yeah.

Cameron  04:18

So, I fig­ure if it’s not going down… Like the rea­son we don’t buy them on a down day is because, you know, we can buy it cheap­er, maybe tomor­row, but if it’s hav­ing a neu­tral day, then that should be kosher.

Tony  04:29

Well, yeah. And there might also be a con­tin­u­ing trend and we don’t know what news is dri­ving it down until we can do some research. So yeah, there’s all sorts of rea­sons for not buy­ing on a down day.

Cameron  04:37

Well, there was anoth­er one I was look­ing at yes­ter­day, LYL, Lycopodi­um or what­ev­er it is. They’re in the lithi­um busi­ness, I think.

Tony  04:45

Oh, they used to be in the min­ing ser­vices busi­ness.

Cameron  04:48

Well, they pro­vide ser­vices, they just won a con­tract to some lithi­um min­er too. They were high on my buy list yes­ter­day, they’re above their 2BL. They were hav­ing a down day yes­ter­day, I looked at them today and they’re hav­ing an up day, but they’re now a Josephine. But, above their 2BL accord­ing to the Bret­te­la­tor. Pull up the Bret­te­la­tor if you can.

Tony  05:13

Yeah, I’ve got it’s above its 2BL but its below its last month close.

Cameron  05:18

Yeah, so how does that make any sense? It’s a Josephine but it’s above it 2BL.

Tony  05:23

That can still hap­pen, and this is a good exam­ple of it. So, it’s sec­ond buy line is based on its high­est peak and last high­est peak, but it closed last month at 655 and its 640 today.

Cameron  05:37

So, we say that if some­thing has become a Josephine, we don’t buy it until it’s crossed it’s 2BL, but this is anoth­er Schro­ding­er. This is a dou­ble Schro­ding­er. It’s above its 2BL but also a Josephine at the same time.

Tony  05:52

Yeah, I think it is, because if you look at the Bret­te­la­tor, the last leg of the graph is down even though it’s above its buy line. So, I’d still want to see that turn up.

Cameron  06:01

Right? So, it needs a third buy line now?

Tony  06:05

No, it just needs to be above the last month close and it’s sec­ond buy line.

Cameron  06:09

So, we don’t need to do anoth­er buy line that it cross­es.

Tony  06:16

No, you can’t because the high­est point is the right­most point at the moment.

Cameron  06:21

Well, that’s good. So, I’ll keep an eye on that and wait until it turns around. Anoth­er ques­tion for you: rule one and div­i­dends. So, there was anoth­er stock, Gen­worth, GMA, which I had to sell from one of our port­fo­lios today. It was a rule one, but it had a div­i­dend, but the div­i­dend was paid on the 31st of August. So, we’re past the pay date and it’s a rule one, but when I look at it, it’s down 10% from the buy price but the div­i­dend was suf­fi­cient that it’s actu­al­ly only down 5% if you fac­tor back in the div­i­dend. If I look at Navexa it says if you include the cap­i­tal loss, if you add the cap­i­tal loss, and the income, we’ve lost 5% on it. But we would still call that a rule one sell, right, if the price is down?

Tony  07:10

Yeah, if the div­i­dends been paid, yeah. All things being equal, it should have recov­ered. So, it goes ex div­i­dend, it goes down, div­i­dend gets paid and the stock price and get back up again. If it does­n’t, it’s prob­a­bly going to be in a down­trend going for­ward.

Cameron  07:22

Yeah, it was down again today too so I felt com­fort­able get­ting rid of it. But I did think, if we’ve only lost 5% of it because we’ve got the income, we haven’t real­ly lost 10%, we’ve lost 5%.

Tony  07:32

That’s cor­rect, but the share price should start to recov­er once the div­i­dends banked.

Cameron  07:36

And if it’s not, it’s just not a good sign any­way.

Tony  07:38

Yeah, that’s right. Yeah.

Cameron  07:40

Okay. All right. That’s all I want­ed to ask you. Port­fo­lio updates. Well, it’s been a rough week on the All Ords. Crashed on Thurs­day, and basi­cal­ly has just tum­bled along since then; has­n’t real­ly recov­ered from the crash last week. The DP is up slight­ly for the FY even after tak­ing a hit from FEX and GRR last week, but we’re still get­ting our ass­es kicked by the sexy 200 on a finan­cial year basis. It’s been a rough year for our port­fo­lio.

Tony  08:16

Well, finan­cial year; we’re talk­ing about, what, five weeks.

Cameron  08:21

Well, the whole last twelve months we’ve been under­per­form­ing.

Tony  08:25

I guess I’ve have had a bit of a mus­ing about that, and I don’t know if this will come to too much, but if you look at the Navexa port­fo­lio, the dum­my port­fo­lio graph, you can see that if it was a stock, it would have been a three-point trend­line sell back in the mid­dle of life last cal­en­dar year. So, you know, the thought did cross my mind: what if we had have sold it then gone to cash and kept run­ning a dum­my port­fo­lio just on paper to pick the turn­around, and then rein­vest it? I mean, it’s, again, an added pro­tec­tion about los­ing mon­ey. So, I’ll have to think about that one more. It’s a pret­ty big call going to cash, but it would have been the right one in this case.

Cameron  09:03

That goes against the pol­i­cy of “always be ful­ly invest­ed.”

Tony  09:06

It does, yeah. But as you point­ed out, we’ve gone back­wards since the mid­dle of last year. And as lis­ten­ers will know that from their own expe­ri­ence, we’ve been rule one’d on rule one’d on rule one’d con­tin­u­al­ly. So, it has­n’t been an easy time to be in the mar­ket.

Cameron  09:20

And the mar­ket, we know the sexy is up 9–10% for the finan­cial year. What’s dri­ving the All-Ords suc­cess, do you think, this finan­cial year?

Tony  09:34

It’s dri­ven by a few big stocks just because of their mar­ket cap weight­ing. So, we don’t have BHP, for exam­ple, in our port­fo­lio; we don’t have CBA, we don’t have Coles and Wool­lies. Maybe we do have Wood­side, I think. So, yeah, gen­er­al­ly this will hap­pen if BHP and RIO go on a tear, for exam­ple. They have been com­ing down and should come down because of the iron ore price, but BHP did have a growth spurt when it repa­tri­at­ed back to Aus­tralia and ceased its Lon­don list­ing.

Cameron  10:00

So, I’m look­ing at BHP for the last six months. Six months ago, it was trad­ing at $50. It’s now trad­ing at $37.

Tony  10:08

Okay, it’s not BHP then.

Cameron  10:10

CBA six months ago was trad­ing at 94, it’s now at 96. It’s gone up, come down, gone back up. What were some of the oth­er ones you men­tioned?

Tony  10:21

RIO.

Cameron  10:23

RIO six months ago was trad­ing at 120, it’s now trad­ing at 91. So, it’s none of those.

Tony  10:30

Well, some­thing’s been dri­ving the All-Ords up, though. Let’s do a quick look at what makes up the top 20, see if we can pick it. But that’ll be the rea­son, there’ll be some­thing large in the All Ordi­nar­ies which is hav­ing a good run and we don’t have it — which is fine, I’m not wor­ried about that, Cam.

Cameron  10:47

No, I know, I’m not either. I mean, I know it goes in swings and round­abouts and we always come out on top, in my vast three years of expe­ri­ence.

Tony  10:57

Yeah, so BHP and Comm­Bank are the two biggest. RIO. CSL maybe? Let’s have a look at CSL.

Cameron  11:02

Oh yeah, CSL has had a great run: 249 up to 294.

Tony  11:08

Okay, so CSL could be doing it. Not sure when BHP paid its div­i­dend, but that could be part of it too because we’re using the STW which is the accu­mu­la­tion index. So that could be it. It’ll be some­thing in that list. CSL, NAB — I think we bought NAB, so it’s prob­a­bly okay.

Cameron  11:28

NAB went from 28 to 30.

Tony  11:31

West­pac, I think went down, ANZ prob­a­bly went down, Wood­side’s been going up but we own it. Mac­quar­ie… I don’t know if Wood­side and Mac­quar­ie in the dum­my port­fo­lio, but I cer­tain­ly have them. They’re going up. And then you’ve got Wes­farm­ers. Fortes­cue has been going back­wards. Wes­farm­ers, ResMed, Wool­worths, Tel­stra.

Cameron  11:49

Mac­quar­ie has­n’t done much. Mac­quar­ie has gone from 175 to 178 in the last six months. Tel­stra has gone from $3.82 to $3.89, not much. So, none of the top ones seem to have grown a lot. As you say, it might be div­i­dends, but I don’t know where… It’s not the tech stocks, it’s not the big caps, it’s not our stocks. What the hel­l’s dri­ving the All Ords.

Tony  12:16

Wood­side has gone up a lot.

Cameron  12:18

Since the acqui­si­tion, or demerg­er or what­ev­er the hell that thing was.

Tony  12:22

Yeah, when they bought BHP’s oil busi­ness.

Cameron  12:25

No, it has­n’t. Six months ago, Wood­side was 34 bucks, now it’s 35 bucks. If any­one knows what’s dri­ving every­thing up, let us know.

Tony  12:37

It’ll just be a mix of those big ones, the big caps.

Cameron  12:40

Yeah, right. But of course, what real­ly mat­ters is our long-term per­for­mance since incep­tion, which is 2nd Sep­tem­ber 2019: Dum­my port­fo­lio is up about 15% per annum ver­sus the bench­mark which is up about 6% per annum, that’s the STW 200, the sexy 200. So, we’re still doing two and a half times bet­ter than the index over three years. So, I’m not wor­ried, not com­plain­ing, just won­der­ing what the hell, you know, why the mar­kets going up and we’re not, real­ly.

Tony  13:12

Yeah, well, when stocks like GRR in our port­fo­lio have the kind of rever­sal of for­tune they’ve had, it does­n’t help.

Cameron  13:19

I know, it’s shock­ing. Like, all of our big rever­sals in the last six months to a year have been iron ore. Remem­ber, it was about this time last year that we did an iron ore sell, I think it was Sep­tem­ber last year we had to sell off all our iron ore stocks when iron ore became a com­mod­i­ty sell. We lost a bunch then and then we bought back into iron ore and then we lost a bunch on it again.

Tony  13:45

Well, it might be the last time we do that for a while.

Cameron  13:48

Though I got­ta say, look­ing at our top five stocks since incep­tion: num­ber one is C6C, 177% per annum in the times that we’ve owned that. GRR is num­ber two at 138% per annum, even after its col­lapse, because we’ve owned it three times. FMG 87.7% per annum, CAA 59.6%, and IGL 59%. So, four min­ing stocks there, two iron ore stocks that we’ve tak­en a beat­ing on at var­i­ous times, but they’re still two of our top five stocks. So, we take a beat­ing, but they’ve also deliv­ered very well for us over the last few years. So, can’t com­plain about iron ore, real­ly?

Tony  14:38

No, I agree. And that’s, I guess that’s the per­spec­tive that we’ve had over the three years and cer­tain­ly mine over time is that yeah, you tend to focus on, “oh gee, I could have sold out $1.50 and I fin­ished up sell­ing it at 75 cents.” So, you feel real­ly bad, but look­ing back over the his­to­ry, it works out.

Cameron  14:54

That’s the thing that I have to keep remind­ing myself, it’s a long game that we’re play­ing here.

Tony  14:59

Yep. And look, it’s not per­fect. I mean, if we can come up with a bet­ter way of doing it, then that’s great. My expe­ri­ence is, and I guess I’m pre-empt­ing the answer to the ques­tion here that’s going to be asked a bit lat­er, is that if you draw sell lines clos­er to the upward trend, invari­ably you’ll sell out too soon and they’ll have a sec­ond leg, and you’ll have regret that you sold too soon. But if you don’t, then you have what we have now which is oppor­tunis­tic regret. I wish I had sold it when it was high­er. So, yeah.

Cameron  15:29

So, you’re gonna have regrets. Unless you fol­low rule 1.5, which is “nev­er look back.” Don’t look back.

Tony  15:39

Yeah, focus on the long term as we do, look at the long-term per­for­mance of the port­fo­lio.

Cameron  15:43

Who was in that film? Don’t look back.

Tony  15:46

Don’t look back. That’s the Bob Dylan one, isn’t it?

Cameron  15:49

Oh, no, well, what was the one I’m think­ing of, then?

Tony  15:53

Is that the Bob Dylan biog­ra­phy with Cate Blanchett play­ing Bob Dylan? Is that Don’t Look Back?

Cameron  15:57

There was a bunch of peo­ple play­ing him I think, I’ve nev­er seen it. Yeah, you’re right. That’s not the one I was think­ing of what was the ear­ly 70s movie with the neg­a­tive waves guy in it? It was “Don’t Look some­thing.” What’s neg­a­tive wave’s guy’s name?

Tony  16:13

Don­ald Suther­land.

Cameron  16:14

Yeah, a Don­ald Suther­land film.

Tony  16:17

I don’t know. He’s made a lot of good ones.

Cameron  16:20

It was a real­ly trip­py film about, I think he and his wife lost a kid and she went nuts, and there was a lot of sur­re­al­ist hor­ror stuff. It was one of the great hor­ror movies. Let’s see, I’m scrolling down IMDb here. “Don’t Look Now.”

Tony  16:41

I don’t think I’ve seen it.

Cameron  16:44

Oh, I high­ly rec­om­mend it. It’s only got a 7.2 on IMDb. “A mar­ried cou­ple griev­ing the recent death of their young daugh­ter in Venice when they encounter two elder­ly sis­ters, one of whom is psy­chic and brings a warn­ing from beyond.” Direct­ed by Nico­las Roeg who did the David Bowie film.

Tony  17:02

Oh, the Man Who Fell to Earth.

Cameron  17:02

The Man Who Fell to Earth. Yeah, so it’s that kind of Nico­las Roeg. Julie Christie and Don­ald Suther­land, real­ly kind of trip­py, ear­ly 70s sur­re­al hor­ror kind of thing. He was a real­ly inter­est­ing direc­tor back in the 70s.

Tony  17:18

He was very much so, was­n’t he?

Cameron  17:20

Any­how, sor­ry for the… Don’t Look Back, rule 1.5 I always say: nev­er look back at the deci­sions that you’ve made because you’ll always beat your­self up.

Tony  17:30

Unless you meet a clair­voy­ant. “Hub­ble bub­ble, toil and trou­ble. Beware the Ides of March.”

Cameron  17:40

He also did “Erot­ic Tales Vol­ume Three” in 1995. I nev­er got to see that one, I’ll have to check that out.

Tony  17:46

Nico­las Roeg or Don­ald Suther­land?

Cameron  17:48

Nico­las Roeg. There’s no plot even in IMDB, so no infor­ma­tion, no syn­op­sis, no cast. So any­way, there you go. All right. Mov­ing right along. What have you got on your list of things to talk about?

Tony  18:04

Yeah, a few things here. We’ve cov­ered the mus­ing about three-point trend lines on the port­fo­lio lev­el. A cou­ple of heads up: I did a down­load today to do the pulled pork, San­tos and Wood­side are get­ting close to becom­ing back on the buy list, so peo­ple can keep their eyes open for that. It’s start­ing to rain div­i­dends, which is always good, this time of year. So, just as we spoke about before, add them back before sell­ing because the price can drop. So, for exam­ple, JBH, JB Hi-Fi would have been a rule one except I added back the div­i­dend and it’s not, and it’s been ris­ing, so that’s good. And I should­n’t over­look the fact that Mr. War­ren Buf­fett turned 92 last week, on the 30th of August. So, hap­py birth­day to War­ren.

Cameron  18:47

Unbe­liev­able.

Tony  18:48

Still going strong on Cher­ry Coke and peanut brit­tle.

Cameron  18:51

Every day, like, I have a news alert every day and it says “War­ren Buf­fett…”, and I go, “oh no, he’s dead.” He’s rock­ing along.

Tony  19:00

Yeah, that’s always been an inter­est­ing thought of mine, and one of the rea­sons why I did sell Berk­shire Hath­away, even­tu­al­ly. It’s got to be a breakup play when War­ren goes. It’s a con­glom­er­ate, right, and some­one with a lot of mon­ey like a pri­vate equi­ty firm will come in and say, “I can get more for the sum of the parts rather than the whole,” and they’ll break it up and start sell­ing things off. Which may be a good thing for share­hold­ers, but yeah, inter­est­ing thoughts on what might hap­pen when War­ren shakes off the coil. But he’ll prob­a­bly go for longer than you and I the way he’s going, he’s just unstop­pable, real­ly.

Cameron  19:36

Don’t they have some­thing in the con­sti­tu­tion of Berk­shire that says that it’s going to be around for­ev­er, and noth­ing can ever hap­pen to it?

Tony  19:43

I’m not aware of that? Pos­si­bly.

Cameron  19:46

Okay, let’s get back to oil. You men­tioned STO before. Oil is a Josephine at the moment, does­n’t oil need to cross a sec­ond buy line before we can buy any of those stocks?

Tony  19:57

Cor­rect, it does. So, yeah, so you’re right. They’re close to com­ing back on the buy list, but we just have to check for whether the under­ly­ing com­mod­i­ty is a Josephine or not, so you’re right.

Cameron  20:07

It’s very much so, very much so a Josephine.

Tony  20:09

Yeah, the oil stocks have had a bit of a leg up again because of the, what is it called, the Nord gas pipeline shut­ting again.

Cameron  20:17

Yeah.

Tony  20:18

And also, too, OPEC have cut back their pro­duc­tion as well. So, it’s an inter­est­ing place for the oil mar­ket at the moment.

Cameron  20:25

Well, I guess that its been, I mean, it’s just been such a rocky glob­al cli­mate in the last year. Par­tic­u­lar­ly for com­modi­ties with Ukraine, and with Chi­na and sup­ply chains. I read a thing in one of the Red­dit invest­ment forums yes­ter­day or over the week­end; some­body said my father or father-in-law or some­thing works in ship­ping, and he was say­ing all the con­tain­ers are emp­ty going to Chi­na, just emp­ty, noth­ing’s going in. It’s a big bad sign for sup­ply chain issues. And some­body else point­ed out, “well, it’s because Chi­na’s in lock­down, half of it. They’re not buy­ing stuff.” And “it’ll turn around the next month.” But I don’t know, it’s too hard for me to unpick all of the macro-eco­nom­ic events hap­pen­ing around the world.

Tony  21:22

And that’s why we don’t try, that why we just fol­low the graphs. But you’re right, yeah. So, Wood­side and San­tos, even though they’re com­ing back on the buy list, check the under­ly­ing com­mod­i­ty before you buy. Mov­ing on to an excel­lent arti­cle that your son Tay­lor wrote on Yahoo Finance that peo­ple can go and Google “Tay­lor Riley, Yahoo Finance.” He’s talk­ing about the snow­ball effect, and I’ll just quote a lit­tle bit here: “if at twen­ty years old I had saved up $10,000 and put my mon­ey into a port­fo­lio, if I also worked a fair­ly aver­age job and only man­aged to save an extra $5000 a year to feed my snow­ball, assum­ing the 9.8% mar­ket returns for the last thir­ty years stay con­sis­tent, by the time I have my 51st birth­day, that port­fo­lio will be worth over 1.055 mil­lion. If I left the same mon­ey until the aver­age retire­ment age of six­ty-five, I would have over 4 mil­lion in that port­fo­lio.” So, excel­lent analy­sis from Tay­lor and shows the pow­er of com­pound inter­est. And it’s often wast­ed on the young, but it’s the best time to start doing it. So, hope­ful­ly he’s tak­ing his own advice. I think it’s great that he’s writ­ten arti­cles like this, you know, a lit­tle bit of me hopes that I’ve had an effect on some­one young like Tay­lor to do things like that.

Cameron  22:32

Oh, you may have had a small effect on him, yeah. And when you say he wrote it… He did. He actu­al­ly did write this one. I wrote one para­graph of it, the one giv­ing QAV a plug, but he wrote the rest of it by him­self.

Tony  22:47

Yeah, very good.

Cameron  22:48

Yeah, it is very good. And I don’t think he lis­tens to the show very often at the moment, so I can say that I don’t know where this kid came from. I think he came from you; I think he’s your kid. He’s in Syd­ney doing meet­ings today, cut­ting deals with peo­ple. Three or four years ago this kid could­n’t even answer the door when the piz­za guy was deliv­er­ing the piz­za because he was too shy and too intro­vert­ed to even answer the door. Now he’s writ­ing arti­cles, cut­ting deals, fly­ing around. Where the hell did you come from, man? What hap­pened? What hap­pened to you?

Tony  23:26

Oh, but you were like that when you were his age?

Cameron  23:28

What, a hus­tler?

Tony  23:30

Yeah.

Cameron  23:30

Well, I was both. I was intro­vert­ed and then became a hus­tler. Yeah, that’s true. He’s way smarter than I was at that age, but yeah. I did­n’t have Tony Kynas­ton as my men­tor.

Tony  23:45

Well, I’m glad that it’s seep­ing through, because it’s one thing to be told some­thing and anoth­er thing to do it. So, it’s great.

Cameron  23:51

And he does do it. He’s got his invest­ment port­fo­lio and he’s stick­ing as much mon­ey in there as he can and liv­ing as cheap­ly as pos­si­ble. My moth­er gave him her old car when she won a new one in a raf­fle, and it’s a 1991 Toy­ota some­thing, and it’s, you know, he calls it a shit­box. And he goes, “I love it. Every­one says, all my friends are pay­ing $60–70 grand for new cars, and I’m like, ‘No, I’m gonna just dri­ve the shit box until it falls apart and invest my mon­ey.’ ”

Tony  24:22

That’s exact­ly what I did to until I was about 30–35. So, yeah. And loved it. I actu­al­ly quite got a kick out of going and buy­ing an old Mad Max Fal­con and things like that. That was great fun. Even though they were crap­py and broke down a lot.

Cameron  24:37

Well, when he was in the mar­ket for a car when he got his licence, we were look­ing at a bunch of shit­ty old sec­ond-hand cars, and it was real­ly hard to find one that was in his bud­get, you know, that was­n’t com­plete­ly a piece of shit and being sold by some dodgy guy. You knew the engine was going to fall out of it in a month, you know? So, get­ting one that my mom had owned for sev­en­teen years and I think was her father’s before her too… I think she inher­it­ed it from her dad when he died. But, yeah, no, I like his atti­tude. It’s “nup, going to live cheap, live sim­ply, and get rich by the time I’m thir­ty. That’s his mind­set.”

Tony  25:16

Yeah, that’s great. Very good, good arti­cle. I rec­om­mend it for peo­ple. And then last­ly, I’ve got to talk about Stan­more Resources which is my pulled pork today: SMR, Stan­more resources. So, it’s on the buy list.

Cameron  25:29

Not to be con­fused with ASMR, which is when peo­ple *get up close to the micro­phone, and they do this and they make scratchy nice and sup­pos­ed­ly it turns some peo­ple on, but I don’t get it. Is this turn­ing you on, Tony?*

Tony  25:49

You’re mak­ing me laugh. I would­n’t pay mon­ey for it.

Cameron  25:57

*Can you do the pulled pork like this, Tony? Get up real­ly close, do SMR as ASMR?* Sor­ry, this is the brain dam­age and fil­ter thing that we were talk­ing about off air. Sor­ry, as you were.

Tony  26:23

Alright, so ASMR. I’ll do it in Morse code by scratch­ing the micro­phone. Okay, so Stan­more Resources. A lit­tle bit of back­ground had a big change in busi­ness in the last six months when they bought a lot of coal mines off BHP. And, you know, this is this hap­pens a lot in the coal indus­try, and it’s often­times dri­ven by non-eco­nom­ic fac­tors. But this could just well be the deal of a life­time for a com­pa­ny like Stan­more, because I just briefly went through their results pre­sen­ta­tion today, and they say that they have debt on their books at about $258 mil­lion, which was used to finance the BHP acqui­si­tion, and in the six months since then, they made a prof­it of $232 mil­lion. So, if they chose to, they could pret­ty much pay off the acqui­si­tion in six months. So, pret­ty good deal, and BHP were hell bent on get­ting out of the coal mar­ket, not because they thought it was a good time to sell but because they were cop­ping a lot of flak from investors and banks who would­n’t lend to them and things like that, because of the cli­mate change con­cerns. So, well done to SMR for pick­ing up some resources on the cheap. Back­ground for SMR, it’s a met­al­lur­gi­cal coal min­er. So, if you remem­ber, there’s two types of coal: there’s the coal used for pow­er sta­tions, which is by far the major­i­ty of the coal mined, and then there’s cok­ing coal or met­al­lur­gi­cal coal, which I think is about 12 or 13% of coal mined over­all. And that’s used in steel­mak­ing to fire the burn­ers to smelt the iron ore. So, this is a met­al­lur­gi­cal coal min­er in the Bowen Basin. They already had some ten­e­ments, which they’ll still con­tin­ue to devel­op, but now they’ve got an oper­a­tional mine. So, that’s real­ly boost­ed their oper­at­ing cash flow, which is why its hit the buy list after their lat­est results. One of the dif­fi­cul­ties, though, with these com­pa­nies is find­ing a five year month­ly cok­ing coal chart. So, I found a five-year chart at a site called barchart.com, but it’s a five-year week­ly chart, I don’t have a month­ly chart. So, if any­one knows of one, let us know. But Coro­n­a­do is anoth­er one that’s been on our buy list and might still be there today which is a cok­ing coal com­pa­ny. Find­ing a chart for these is hard. And that’s, I guess, my con­fes­sion about poten­tial­ly mak­ing a mis­take; last week, when I bought this stock myself, it had just looked like it had bro­ken through its sec­ond buy line, but when I did the research again today it looks like it’s turned down again. So, it was just touch­ing last week, but again, I was using a week­ly five-year chart, so not as good as a month­ly one. But I bought it and I’ll hold on to it and use the usu­al rules for sell­ing to see how we go. But it is actu­al­ly up at the moment even though as they point out, and as Stock Doc­tor points out, the price in cok­ing coal has col­lapsed in the last six months or so. It reached a high of $650 per turn and now it’s down to $250 per tonne. And in fact, this com­pa­ny is call­ing out neg­a­tive earn­ings growth of 18% for the next half, so they expect that they won’t have anoth­er bumper half like they had this time. And in Stock Doc­tor, they’ve out­lined four risks with the com­pa­ny which I’ll just quick­ly go through now, because I think it’s inter­est­ing to know the risks. The first one is the Met coal price is down. Hav­ing said it’s down, it’s still in the buy ter­ri­to­ry for us, and like I said, it’s skirt­ing with the sec­ond buy line. It just briefly crossed it last week. There’s been a change in roy­al­ties; the Queens­land Gov­ern­ment are now charg­ing coal com­pa­nies, so that will neg­a­tive­ly impact this com­pa­ny. Stock Doc­tor are quot­ing that there’s a 40% roy­al­ty for prices exceed­ing $300 per tonne. The price is below that now, so that won’t be paid, but there still has been a gen­er­al increase in roy­al­ties on a step like struc­ture depend­ing on the price of the coal. SMR recent­ly acquired the coal mines from BHP but there is a sec­ond leg to the acqui­si­tion. I think that they cur­rent­ly own 80% of the coal mines, but they have a deal to buy the oth­er 20% for $380 mil­lion. So, again, in read­ing the man­age­men­t’s report, they’re say­ing there’s no prob­lems find­ing the cash flow to do that, and they won’t have to issue more shares or to take on more debt to do that. And then the last thing that Stock Doc­tor lists as a rick is that it’s a recent­ly formed enti­ty, because they’ve acquired the coal assets in the last six months, “the com­pa­ny has low end­less cov­er­age, plac­ing extreme uncer­tain­ty on this out­look.” So, as you know from past pod­casts, I don’t mind that. I like the fact that there are low ana­lysts cov­er­ing this stock, it gives us a lev­el play­ing field to poten­tial­ly get in before more ana­lysts cov­er this. So, any­way, the rea­son for going through those risks is that this is not with­out risk. How­ev­er, as the com­pa­ny man­age­ment point out, even though the Met coal price is down it’s still at a very healthy lev­el at $250 per tonne, and they expect to make good mon­ey going for­ward at that lev­el. So, that’s good. The sec­ond thing that they call out is that they do have a very large run­way of unde­vel­oped ten­e­ments, and so they expect the com­pa­ny to grow dra­mat­i­cal­ly. They now have the cash flow to fund that devel­op­ment. So, you know, even if the coal price does drop, maybe even a good deal from where it is, but a lit­tle bit any­way, they still have plen­ty of run­way to expand and grow. So, inter­est­ing com­pa­ny, plus­es and minus­es for it. But again, I’m not going to focus on those, I’m going to focus on the num­bers. At a share price of $2.32 and an aver­age dai­ly trade of $3.8 mil­lion, $2 bil­lion mar­ket cap, this is quite open­ly avail­able for any­one who wants to invest in it. Going through the num­bers, there’s no div­i­dend yield, which is prob­a­bly a good thing for this kind of com­pa­ny which is still in growth phase. So, it does­n’t get a point for that. The Stock Doc­tor finan­cial health is strong and steady, and this com­pa­ny has an ROE of 32% cur­rent­ly. So, again, high­light­ing the good deal it’s done. It trades on a PE of 3.6, which is incred­i­bly low giv­en the amount of cash it’s throw­ing off and has a price to oper­at­ing cash flow of 2.2 times, so incred­i­bly cheap. The price is less than our IV 1 and IV 2, and also two times IV 2, so scores well on all the val­ue met­rics, as well as the net equi­ty per share, which is $1.97. So, share price when I did the analy­sis was $2.32, it’s slight­ly above it on $1.97, but less than net equi­ty per share plus 30%, which is $2.56. As I said, earn­ings per share fore­cast is neg­a­tive, so we don’t score for that, we give it a minus one. Direc­tors are hold­ing 5% of the com­pa­ny, but our test is 10 so it does­n’t get a score for that. Its price is less than the con­sen­sus fore­cast even though there’s only one ana­lyst fore­cast­ing, so it scores for that. It does have record low PE out of the last three years. It’s not a new three-point trend­line upturn how­ev­er, and the equi­ty is all over the place, which prob­a­bly reflects the merg­er. So, no con­sis­tent increase in equi­ty over the last three years. Adding all those things up, the qual­i­ty score is 80%, which is good, and the QAV score is 0.36, so it’s high up on our buy list. But peo­ple should just watch that barchart.com graph and make sure it’s not a Josephine before they buy it.

Cameron  33:57

*Thank you, Tony.* I thought you said the bar chart was dai­ly?

Tony  34:02

Week­ly.

Cameron  34:03

Week­ly.

Tony  34:04

Five years week­ly, yeah.

Cameron  34:06

So, that’s not real­ly use­ful for us for fig­ur­ing out if it’s a Josephine, but we just like do the best we can?

Tony  34:13

Yeah, I think so. You just have to try and pick out the month­ly peaks and troughs from it.

Cameron  34:17

So, it’s bar chart cok­ing coal.

Tony  34:20

Yep.

Cameron  34:21

Okay, well, that was fun.

Tony  34:25

Espe­cial­ly the ASMR part.

Cameron  34:27

Yeah.

Tony  34:28

That’s a new pod­cast we can do.

Cameron  34:30

Yes, I love it.

Tony  34:31

*Late night Stock Doc­tor with Cam and Tony.*

Cameron  34:39

Fox and Chris­sy were mak­ing kinet­ic sand for a school thing that he’s doing. You know what that is? It’s like clumpy sand that you can make stuff out of. Any­way, we were watch­ing YouTubes about how to make and a lot of them are ASMR videos, because they have this sand and then they will, like, cut it, and they put the micro­phone up close, and you hear the knife slic­ing through the sand. Peo­ple just lis­ten to that, put their head­phones on, you know, turn the lights off, get a box of tis­sues and they’re off. I don’t know, man, I love peo­ple’s quirks and foibles. So, fas­ci­nat­ing. Humans are fas­ci­nat­ing,

Tony  35:22

Lots of inter­est­ing caves in the inter­net, isn’t there?

Cameron  35:25

There def­i­nite­ly are. All right, let’s get into Q&A. First one is from Tim: “pos­si­ble ques­tion for TK. Is SGM less impact­ed by the iron ore price than the iron ore min­ers because it is both a buy­er and a sell­er of iron? If it is less impact­ed, should we take less notice of the iron ore price graph when mak­ing buy and sell deci­sions?”

Tony  35:49

Yeah, good ques­tion, Tim. So, it’s almost remind­ing me of Capral Alu­mini­um which is the same sort of deal. But I thought the eas­i­est way to answer this is to go into Stock Doc­tor and graph SGM and then over­lay it with the iron ore price. There’s a high cor­re­la­tion between both; not quite one to one, but the cor­re­la­tion is pret­ty clear if you have a look at it.

Cameron  36:11

So, we talked about these guys last week. Scrap met­al recy­cler, and you said the graph is turkey scrap 80/20.

Tony  36:19

Cor­rect, yeah. Which gen­er­al­ly, again, fol­lows the iron ore graph. It’s just at a cheap­er price point.

Cameron  36:26

Anoth­er good ear­ly ’70s film, “Turkey Scrap”.

Tony  36:28

Don­ald Suther­land?

Cameron  36:32

They were rac­ing turkeys from one side of the US to the oth­er, The Van­ish­ing Point style. Thank you, Tim. Mark: “hi Cam. Like you I’ve been hold­ing GRR for a while.” Grr indeed, that’s how I’ve felt about it last week. “Bought at 77 cents, rode it up to $1.79 and way back down to 70 cents and out. Is it worth ask­ing TK to dis­sect whether we could have exit­ed ear­li­er? Or is it a case of suck it up?”

Tony  37:05

I haven’t found a way of get­ting around this, as I said before, so it’s a case of suck­ing it up. Like I said before, we can draw a sell line more steeply, but then we fall into the prob­lem of the sec­ond leg. So, stocks like Fortes­cue Met­als Group that we’ve had in the past, you know, if you draw the line too steeply, it looks like a sell but then it goes up again and does those three or four times. So, I know you can always buy back in, that’s poten­tial­ly a solu­tion, but I haven’t found a way of get­ting out of these stocks that go up steeply and then come back steeply in terms of using the com­mod­i­ty charts. Because there’s obvi­ous­ly some­thing else going on with the com­pa­ny because they are shoot­ing above the under­ly­ing com­mod­i­ty. The one thing that I’d say to have a look at, Mark, which has been brought to my atten­tion by Brett from the Bret­te­la­tor, is to have a look at Renko charts. And this might be the solu­tion but I’m still play­ing around with them and haven’t had a chance to, you know, apply enough cas­es to them to see if it works. But if you have a look at Renko charts and use those, in this case you would have got­ten out of GRR at about $1.50 a share. And Renko charts are avail­able in Stock Doc­tor. If you go into Stock Doc­tor and go into advanced chart­ing and call up a stock like GRR, and instead of using a line graph, use the Renko chart you’ll see a whole heap of green steps going up and red steps com­ing down. That seems to be pick­ing up those cas­es where you have a big upward swing, and then it picks the down­swing. So, that’s one thing to look at.

Cameron  38:36

Renko, named after Jer­ry Renko, who…

Tony  38:45

Was in Van­ish­ing Point?

Cameron  38:49

Yeah. Okay, I’m just pulling up GRR and the Renko now to have a look at that, see if I can under­stand what you’re talk­ing about. So, am I still look­ing at five years month­ly on this Renko? Because then I just get one big green bar at the… Oh, hold on. That’s 1987. What the hell is going on here?

Tony  39:09

Because the oth­er one I was look­ing at was White­haven Coal, which was anoth­er ques­tion, and the same thing; I think a Renko chart might be use­ful there.

Cameron  39:17

Okay, so I’ve got this Grange Renko open in front of me, walk me through it again. What am I look­ing at here?

Tony  39:25

So, go into advanced chart­ing. See where you can pick the graph style.

Cameron  39:30

I’ve got it under Renko, yep. Got a bunch of green and red box­es.

Tony  39:34

Yeah, so the green box­es are buys and the red box­es are sells.

Cameron  39:38

Right, and how would we use this if we were using this?

Tony  39:42

Yeah, so the last cou­ple of months have been red box­es, but you’d be sell­ing when the green box turns red, so that would have been 31st of May at 1265.

Cameron  39:56

Well, that sounds too easy.

Tony  40:00

Yeah, but I mean, it’s not as easy as it sounds because if you look back over time, you’ve got, again, this prob­lem of red box­es turn­ing green for a short peri­od of time and going red again and going green and going red again. So, there’s a lot of trad­ing going on. But it does seem to be get­ting you out in these cas­es where you have a big, quick upturn, and then a pull­back, and it seems to work bet­ter than the three-point trend lines in those cir­cum­stances.

Cameron  40:24

“A Renko chart is a type of chart devel­oped by the Japan­ese that is built using price move­ment rather than both price and stan­dard­ised time inter­vals like most charts are. It is thought to be named after the Japan­ese word for bricks, ‘ren­ga’ since the chart looks like a series of bricks. A new brick is cre­at­ed when the price moves a spec­i­fied price amount, and each block is posi­tioned at a 45-degree angle up or down to the pri­or brick. An up brick is typ­i­cal­ly coloured white or green, while a down brick is typ­i­cal­ly coloured black or red.” Okay, “Renko charts are designed to fil­ter out minor price move­ments to make it eas­i­er for traders to focus on impor­tant trends. While this makes trends much eas­i­er to spot, the down­side is that some price infor­ma­tion is lost due to sim­ple brick con­struc­tion of Renko charts. The chart shows a strong uptrend in a stock with a $2 box size. Box­es are drawn based on clos­ing prices for highs and lows as well and moves small­er than $2 are ignored.” Well, that’s sort of sim­i­lar to our month­ly charts, right?

Tony  41:28

It is, yeah.

Cameron  41:29

“Renko charts don’t show as much detail as can­dle­stick or bar charts giv­en their lack of reliance on time. A stock that has been rang­ing for a long peri­od of time may be rep­re­sent­ed with a sin­gle box which does­n’t con­vey every­thing that went on dur­ing that time. This may be ben­e­fi­cial for some traders, but not for oth­ers. Highs and lows are also ignored, only clos­ing prices are used,” that kind of works for us. “There can often be false sig­nals where the colour of the bricks changes too ear­ly, pro­duc­ing a whip­saw effect. That’s why it’s impor­tant to use Renko charts in con­junc­tion with oth­er forms of tech­ni­cal analy­sis.” I’m read­ing this off Investo­pe­dia. Okay, so you’re think­ing about this.

Tony  42:09

Yeah, well, it does solve the prob­lem that Mark has high­light­ed that we don’t, if we use our tra­di­tion­al three-point trend­line sells for stocks that go asymp­tot­ic, they can crash back a long way before we get to sell them or rule one them. Where­as the Renko brick will tell us if it’s fall­en back a cer­tain quan­tum, I guess. It’s almost like quan­tum, but it’s only report­ing a brick for a cer­tain quan­tum of move­ment in the chart, rather than, you know, every day or every month a move­ment in the chart.

Cameron  42:39

Alright, so you’re gonna think about that and get back to us with your analy­sis?

Tony  42:43

Well, I think we should all think about it. I’d be tempt­ed to say if we do see cas­es, espe­cial­ly with these com­mod­i­ty charts where they go from green to red, we should think very care­ful­ly about sell­ing. So, I’m going to do this in real time and just track my port­fo­lio and Renko both at the same time as three-point trend lines and see how we go.

Cameron  43:01

Throw it out to the QAV Brains Trust, the QAV trust. The QAVe­later. We need a name for the brain trust. Well, thank you, Mark. Good ques­tion and thank you, Tony.

Tony  43:19

The QAVe­length.

Cameron  43:20

The QAVe­length. Oh, that’s good. I haven’t used that before, the QAVe­length. Well, that does­n’t real­ly sug­gest a brains trust, but we’ll use that for some­thing. When we come up with their own kind of chart, we’ll call it the QAVe­length. “Are you on our QAVe­length?” Last one is from Nick. He asked if you could do a pulled pork at some stage on ALO. He sus­pects it’s a scal­able soft­ware play, and I actu­al­ly added it to one of my port­fo­lios yes­ter­day.

Tony  43:50

Yeah, of course, Nick. I’ll do that next week.

Cameron  43:53

It was good. It’s on the buy list and was good num­bers yes­ter­day.

Tony  43:58

Okay.

Cameron  43:59

Pret­ty new float, it’s only and six months old, eight months old. Some­thing like that. But yeah, good num­bers. Well, that’s it. That’s the meat of the QAV sand­wich for this week, Tony.

Tony  44:15

I did have two late ques­tions, they were on Face­book. I don’t know if you’ve dealt with them on Face­book already?

Cameron  44:15

I haven’t been on Face­book today much.

Tony  44:22

Okay, well one from Evan­ge­los and one from Ed. I’ll just go through those quick­ly. So, Evan­ge­los asks, “I have been doing some light Father’s Day read­ing about rever­sion to the mean. From what I under­stand stock prices will fluc­tu­ate around the mean or aver­age, this aver­age is the mov­ing aver­age. I total­ly get this con­cept and it is clear to see this hap­pen­ing on any stock chart. I can­not see the cor­re­la­tion with the 3PTL con­cept. I have used the Bret­te­la­tor in con­junc­tion with my chart­ing tool to show both on the same chart, and strug­gle to find a con­nec­tion. Giv­en that rever­sion to the mean and 3PTL are both cen­tral to QAV method­ol­o­gy, can [I] please explain this in rela­tion to the mov­ing aver­age?” So, that’s the ques­tion. So, yeah, I mean mov­ing aver­ages, you can use mov­ing aver­ages to pre­dict when to buy or sell a stock, short-term mov­ing aver­age when it cross­es a long-term mov­ing aver­age is the tra­di­tion­al way of doing that. But, you know, what the 3PTL does is some­thing slight­ly dif­fer­ent. So, to put this in con­text, if you think about a chart, it’ll gen­er­al­ly have a trend. So, if you do plot a chart, say, a month­ly chart in Excel, you’ll see a dot plot which will scat­ter all over the place, have highs and lows, but gen­er­al­ly move in a direc­tion. And if you then use the aver­age abil­i­ty in Excel to plot the aver­age direc­tion, you’ll see it either moves gen­er­al­ly upwards left to right or down­wards left to right. If you look at that, you can see that it’s almost like the share price will oscil­late around that mov­ing aver­age. So, for some peri­ods it’ll be above it, some peri­ods it’ll be below it, but gen­er­al­ly it stays with­in a tranche. So, even though it’s oscil­lat­ing up and down, if the share price is going high left to low right, the peaks are gonna get low­er as they go, and the lit­tle troughs are gonna get low­er as they go. And so, you could use a mov­ing aver­age, there­fore, to pick a time when that trough devi­ates down too far or starts to revert back upwards, but gen­er­al­ly I find that you have to wait for that trend to estab­lish itself longer than you do with the three-point trend­lines. So, what the 3PTL tries to do is draw the out­liers, the lines along the out­liers of that tranche so all the high points are joined up or the low points are joined up. And if the share price drops below that low point line, it’s gen­er­al­ly trend­ing down­wards, and it’s a sell. Or if it breaks above that trend­line for the peaks, then it’s gen­er­al­ly turn­ing up again in a trend. So, we’re just look­ing for break­outs, that’s the basic con­cept of the 3PTL. Of course, it gets com­pli­cat­ed, because shares don’t nec­es­sar­i­ly just go in one straight direc­tion over five years, so we do have to fid­dle around with it a bit. But that’s the think­ing behind it. We’re look­ing at break­outs from the edges of the tranche rather than the direc­tion change in the mov­ing aver­age even though we are buy­ing things cheap­ly, because we expect them to get rerout­ed by the mar­ket. And that’s what rever­sion to the mean means in that con­text rather than the graph­ing con­text.

Cameron  47:27

SD Max is a mov­ing aver­age plot­ter, isn’t it?

Tony  47:31

It is, yeah.

Cameron  47:32

In your ver­sion of the spread­sheet, you’ve had this for some time. I think Steven Mabb sug­gest­ed it a cou­ple of years ago. We’ve been, sort of, com­par­ing the SD Max to our analy­sis, and I think you’ve told me before there’s a bit of a lag between SD Max and the 3PTL.

Tony  47:49

Yeah, so Steven was try­ing to find a way of numer­i­cal­ly cal­cu­lat­ing the three-point trend­line effect, and was using six-month price changes, five-year price changes in SD Max, and there’s some cor­re­la­tion there, but it’s not com­plete. And it’s the same thing with all these mov­ing aver­ages; because they’re a mov­ing aver­age, you’ve got to wait for a peri­od of time before the damn thing moves up or down. It’s fine, it’s a good way to spot a change in trend and sen­ti­ment, but it can be a month or two late com­pared to three-point trend lines.

Cameron  48:25

Okay, thank you. You’ve got anoth­er one?

Tony  48:27

Thanks, Evan­ge­los. Yep, from Ed: “how would I think about White­haven Coal? The oper­at­ing cash flow has increased because of the ris­ing coal price. The stock price is, there­fore, par­a­bol­ic and looks more like a tech stock than a val­ue stock. Since I have no knowl­edge of coal mar­kets, I just read the news like every­one else, it just seems inher­ent­ly risky. One approach is to fol­low the process and invest, say, 10% of my port­fo­lio, risk 10% on the trade and thus expose myself to a 1% loss of cap­i­tal. Inter­est­ed in insights here.” So, yeah, get­ting back to what we said before about GRR, the three-point trend lines for both coal as a com­mod­i­ty and White­haven Coal are going to be a long way below where the share price is at the moment because it’s going up very steeply from low left to high right. And the risk is, there­fore, that we don’t draw the right sell line, or we draw a sell line which is going to stay too low, and the whole thing crash­es to Earth. So, hope­ful­ly it does­n’t work that way and we get a guide by the com­mod­i­ty price when it starts to turn down, but again, I just draw your atten­tion to these Renko charts and that will give us an ear­li­er read, I think, on when to get out. So, I’ll be try­ing those with White­haven Coal in par­tic­u­lar.

Cameron  49:38

Oh, okay. Inter­est­ing. Things are chang­ing.

Tony  49:42

Maybe, we’ll see. It’s been one of the issues that we faced in the three years we’ve been doing the pod­cast, and me for longer than that, is that a three-point trend line works con­sis­tent­ly well, but we do have this “sell­ers regret” or buy­ers regret that we don’t get out soon enough when these stocks take off and then some­times crash back to where we bought them before we sell them.

Cameron  50:03

And, you know, we’ve talked about this before, obvi­ous­ly; the intu­itive solu­tion would be to sell, take your prof­it when some­thing goes up a cer­tain amount. If it comes back, as you said before, if it starts to fall, we sell, take out prof­it off the table. And then if it goes back up, buy back in. But the ques­tion I always have in my mind is, well, how much does it have to fall by before you sell it, and how much does it have to go back up buy before you buy back in? Is there a new buy line? A new sell line you could con­fig­ure some­how, I guess, so you could save it, put a per­cent­age on it. But there needs to be some rules and test­ing of those rules, and retroac­tive analy­sis of those rules.

Tony  50:47

It’s got to be sys­tem­at­ic. That’s the thing. Because we’re going to have to apply it in all cas­es. You can’t just say it applies to the Grange Resources of the world. You know, there’ll be oth­er stocks — like I’ve said before, FMG — where it does­n’t go just up in a straight asymp­tot­ic line. It goes up, pulls back, goes up, pulls back, goes up, pulls back…

Cameron  51:03

That’s what all stocks do, right?

Tony  51:05

Yeah, you could buy and sell a lot in that case or use the three-point trend lines which tends to keep you in longer.

Cameron  51:10

Well, thank you, Ed. Thank you, Tony. Thank you, Mr Renko. After hours…

Cameron  1:09:43

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.