QAV 544 CLUB

Cameron  00:06

Wel­come back to QAV, Ladies and Gen­tle­men, TK. This is episode 544. Time­stamp Tues­day the eighth of Novem­ber, 1:13pm in Bris­bane, 2:13 pm in Cape Schanck. How are you, TK?

Tony  00:23

Good. Weath­er is great down here now. This will be the short­est pod­cast record­ing in his­to­ry and I’ll be out in the golf course after­wards.

Cameron  00:30

I’m sur­prised you’re not hit­ting the balls off the deck while we’re talk­ing. Well, you know, get it in while you can, because it’s the US midterms tomor­row and accord­ing to some of our friends over there, the world’s going to come to an end if the Repub­li­cans win one or both of the hous­es. It will all be over. The end of democ­ra­cy as we know it.

Tony  00:51

That’s a cer­tain­ty, isn’t it? The Repub­li­cans are almost a shoo-in to win both hous­es, which we see every midterm, which the stock mar­ket will like, because the Biden admin­is­tra­tion can’t pump any more mon­ey into the econ­o­my. Every­thing will go into a halt gov­ern­ment wise, frack­ing is back on the agen­da, oil pipelines are back on the agen­da. The stock mar­ket will go nuts.

Cameron  01:12

How’s that good for the stock mar­ket? The Biden admin­is­tra­tion’s pumped $70 bil­lion into Ukraine aid, which real­ly is just all going into the US econ­o­my. Isn’t that good for the econ­o­my? War is good for the econ­o­my. That mon­ey is just get­ting pumped back in.

Tony  01:26

Well, the Repub­li­cans will prob­a­bly want to pump more when it comes to mil­i­tary?

Cameron  01:30

Well, they say they’re going to pull it back, but I can’t see that hap­pen­ing. By the way, at the end of this episode I’ve invit­ed Den­nis to record a lit­tle bit of an update.

Cameron  01:40

Yeah, great.

Cameron  01:40

He’s back in Kyiv. Well, no, not great. He’s back in give Kyiv. I just saw the may­or of Kyiv warn­ing all the cit­i­zens to be pre­pared to leave town because they have been hav­ing black­outs and water short­ages, but it looks like it could get worse accord­ing to the may­or. So, hope­ful­ly Den­nis is still there and still okay and still able to record some­thing for us today. But any­way, I’ve asked him to give us a eagle eyed update, an eye­wit­ness update on what’s going on.

Cameron  01:42

Wow, good luck, Den­nis. You should be fine for the next day or two, because appar­ent­ly all the Rus­sians are work­ing on the Amer­i­can elec­tion.

Cameron  02:18

Putin’s chef is say­ing that, “yes, we have inter­fered, we are inter­fer­ing, and we will con­tin­ue to inter­fere very strate­gi­cal­ly.” Good on him. Speak­ing of bad news, I don’t know if you remem­ber Mick Stanek? I don’t know how ear­ly you start­ed lis­ten­ing to G’Day World, but I found out a cou­ple of days ago the guy I start­ed pod­cast­ing with, my orig­i­nal co-host Mick Stanek — back in 2004 we start­ed G’Day World, the first Aus­tralian pod­cast, a few months lat­er we start­ed The Pod­cast Net­work, the first pod­cast net­work in the world. I had­n’t spo­ken to him for years and years and years, we had a falling out, and I Googled him to see what he was up to. I was think­ing, well, we’re com­ing up to the 20th anniver­sary of pod­cast­ing in Aus­tralia, maybe we should do a reunion. Found out he died ear­ly 2020, passed away at age 51, he had ear­ly onset demen­tia. And it was shock­ing. Shock­ing that it had hap­pened, shock­ing I had­n’t heard about it. He was one of the founders of pod­cast­ing in the world, along with myself, and he died and no one told me. There you go.

Tony  03:25

So, I’ve got about fif­teen years until I’m dri­ven crazy by this and get ear­ly onset demen­tia?

Cameron  03:30

Yeah, I won­der if work­ing with me had any­thing to do with it. Yeah, so any who. There you go. Life moves on. The dis­mal sci­ence, Tony, what’s the dis­mal sci­ence do you think? Which one of them is the dis­mal sci­ence?

Tony  03:44

There’s only one: eco­nom­ics is the dis­mal sci­ence.

Cameron  03:48

There’s a great arti­cle in the Fin today, yes­ter­day actu­al­ly, a Joe Aston col­umn Stephen Mabb sent us a link to. I’m going to read it because it’s fun. I think our audi­ence will like it. “Com­mon­wealth Bank of Aus­tralia chief econ­o­mist Stephen Hal­mar­ick had some pun­gent feed­back for the Reserve Bank of Aus­tralia last month. In a research note released in Octo­ber 28, he por­trayed the insti­tu­tion as a closed shop, rec­om­mend­ed an over­haul of its board struc­ture to include exter­nal eco­nom­ic exper­tise and in rela­tion to Philip Lowe’s unfor­tu­nate dec­la­ra­tion that inter­est rates would remain at the emer­gency set­ting of 0.1% until 2024. He said the RBA’s for­ward guid­ance should nev­er be cal­en­dar based, either implic­it­ly or explic­it­ly.” And he went on talk­ing about the dam­age to the RBA’s rep­u­ta­tion, but then says “let’s go back to August 2020 when Hal­mar­ick pre­dict­ed the Aus­tralian reces­sion would extend through that cur­rent quar­ter, a third con­sec­u­tive quar­ter of neg­a­tive growth. Near­ly eight weeks through that quar­ter he could make this pre­dic­tion with pro­pri­etary con­fi­dence. Cour­tesy of the large role the Com­mon­wealth Bank plays in the Aus­tralian econ­o­my, we can see the most recent dete­ri­o­ra­tion in the labour mar­ket. Of course, when the nation­al accounts land­ed in Decem­ber 2020, we learned that the Aus­tralian econ­o­my had grown by 3.3% in that quar­ter. Hal­mar­ick also pre­dict­ed that the Aus­tralian econ­o­my would not return to its pre-COVID-19 size until the sec­ond half of cal­en­dar 2022 at the ear­li­est. It actu­al­ly reached its pre-COVID size in the first quar­ter of 2021. We give you the dis­mal sci­ence.” And he goes through and basi­cal­ly smacks him and a few oth­er guys around. So, you always say about pre­dict­ing…

Tony  05:28

Well, you can’t pre­dict. Econ­o­mists are flogs. They can tell you what hap­pened and why it hap­pened, but they can’t tell you what’s going to hap­pen. No one can. It’s a fool’s game.

Cameron  05:39

I can’t remem­ber who it was now, Howard Marks or one of those guys said, “those who live by the crys­tal ball will end up eat­ing bro­ken glass.”

Tony  05:49

That’s a great one, isn’t it. I think it was way back in time, who was the guy? I’ve for­got­ten. He said “there’s two types of fore­cast­ers: those that know they can’t fore­cast and those that don’t know it yet.”

Cameron  06:03

Yeah, so we don’t try to fore­cast, we just play it day by day.

Tony  06:07

Yeah, exact­ly. I mean, just think about the log­i­cal fal­la­cy here; if any­body could fore­cast, if they could do it accu­rate­ly, why the fuck are they work­ing for the Com­mon­wealth Bank? Seri­ous­ly, why don’t they own the Com­mon­wealth Bank?

Cameron  06:26

Yeah, good point. They’d be sell­ing their tips for a mil­lion dol­lars. A bil­lion dol­lars.

Tony  06:34

Yeah. Or just back them­selves.

Cameron  06:38

Well, I’ve got anoth­er AFR arti­cle I’ll read a lit­tle bit lat­er on, but before that, let’s do a port­fo­lio update. The QAV dum­my port­fo­lio has been run­ning since the sec­ond of Sep­tem­ber 2019. Last week on the show, we talked about bench­marks. Steven Mabb again had sug­gest­ed we changed to the BetaShares 200 ETF, which we did, and you did­n’t like it, so I changed it back to the SPDR 200. Now, I remem­ber last week when we were doing this seg­ment, our port­fo­lio since incep­tion was up about 15/16% ver­sus the ETF, which was up 1% for the same peri­od. I was like, well, that’s obvi­ous­ly wrong. That’s bro­ken. So, I switched it back to the SPDR 200 fund as the bench­mark. Today, since incep­tion, our port­fo­lio accord­ing to Navexa is up 17.00% per annum CAGR ver­sus the SPDR 200 which is up 0.62% per annum over the same peri­od. It’s even worse or bet­ter, depend­ing on which way you’re look­ing at it.

Tony  07:43

Yeah, I think the SPDR 200 is prob­a­bly not an accu­mu­la­tion index fund, or accu­mu­la­tion bench­mark, to use. It does­n’t include div­i­dends. I’m not 100% sure…

Cameron  07:55

It is, though. Well, I looked this up when I was talk­ing to Steven about this a week or two ago, I’m pret­ty sure. Let me read what it says in Invest Smart. STW is the code for this.

Tony  08:12

Sor­ry, STW does. You’re right. Oh, so you’ve gone back to STW. Sor­ry, I thought you’re using some­thing else.

Cameron  08:20

No, it’s STW. We’re out­per­form­ing it by rough­ly sev­en­teen times.

Tony  08:28

Well, we should just pack up and, you know, stop giv­ing tips. Just keep back­ing our­selves, because we are pre­dict­ing the future.

Cameron  08:40

Like, our goal is to beat the mar­ket by dou­ble, to dou­ble it, to beat it by two times. We’re cur­rent­ly beat­ing it by sev­en­teen times. That’s nev­er hap­pened in the three years we’ve been doing this. We’ve been three times a lot in the last year since the col­lapse. But sev­en­teen times?

Tony  08:59

Does­n’t make any sense, does it?

Cameron  09:01

No, it’s ridicu­lous.

Tony  09:03

Yeah, it’s got to be a short term hori­zon or some­thing that’s caus­ing the prob­lem.

Cameron  09:06

Or Navexa.

Tony  09:08

Or Navex­a’s CAGR could be wrong, because you said it was 15% last week, and now it’s 17%. That sounds a bit fishy as well. It’s gone up 2% per annum in the last week. But even if it’s 15%, your points still hold.

Cameron  09:21

It’s just, It’s out­ra­geous. I mean, well, look, we’re good. You’re good. The sys­tem is good, don’t get me wrong, but most peo­ple would­n’t believe is if we said on aver­age, we beat the mar­ket by two times, let alone by sev­en­teen times. That’s just ridicu­lous.

Tony  09:37

I think the prob­lem is that the mar­ket’s using too many econ­o­mists to fore­cast where to invest.

Cameron  09:42

They’re lis­ten­ing to the guy from the Com­mon­wealth Bank.

Tony  09:44

Yeah, that’s right.

Cameron  09:47

Any­way, what­ev­er it is, we’re doing okay, I guess. In fact, we’re doing okay, across the board. Since the mar­ket crashed in April there was a peri­od there where I was say­ing, “well, we’re under­per­form­ing the mar­ket. We have been under­per­form­ing the mar­ket.” That has changed. We’re no longer under­per­form­ing the mar­ket, which we’ll get into when we tell one of our lis­ten­ers sto­ries a lit­tle bit lat­er on. We’ll talk about that. Speak­ing of things that have changed: gold is a buy again, I think, TK. Have you had a look at the gold charts in the last day or so?

Tony  10:20

I have not.

Cameron  10:22

Alex point­ed it out to me yes­ter­day that she thought it was a buy and I had a look, and I think she’s right. It’s ticked back up, I think I can draw a sec­ond buy line, and I think it’s prob­a­bly good to go. Not that there’s any­thing to buy, nec­es­sar­i­ly, no gold stocks were on my buy list yes­ter­day, I think they’re all Josephine’s still, but gold itself is back to being a buy.

Tony  10:48

Yeah, that makes sense. I haven’t looked at that chart but sounds right though, because I noticed all the gold min­ers jumped yes­ter­day — some as much as near­ly 10%.

Cameron  10:56

Right. Yeah, I noticed some were bump­ing up, too. So, maybe as of today they’re no longer Josephine’s. I haven’t gone through and looked at the buy list yet today.

Tony  11:06

Yeah, I’m just try­ing to do it now. No, I can’t do it eas­i­ly now, sor­ry. I’ll have to fid­dle around with the chart a bit. But I would trust Alex, she comes from good stock. She’ll know what she’s doing.

Cameron  11:20

“Comes from good stuck.” Well, it’s true.

Tony  11:26

By the way, she won her vol­ley­ball cham­pi­onship on Sun­day night. I drove back from Cape Schanck to Mel­bourne Uni to watch them, they did very well.

Cameron  11:33

Oh, fan­tas­tic.

Cameron  11:34

Con­grat­u­la­tions, Alex. I’m refer­ring to her as The Mas­ter now as per our dis­cus­sion last week. She said she has­n’t been giv­en her Mas­ter’s yet, but I was like, “yeah, you come from good stock. You’ll get it.” Mel­bourne din­ner update. So, for peo­ple in Mel­bourne, we were talk­ing about doing some­thing for lunch down at Cape Schanck. Not enough peo­ple could make it because, sad­ly, they still have real jobs. So, we’ve moved it back to Prahran, how­ev­er, Andy who owns the venue where we were plan­ning on hold­ing it emailed me today and said he’s not sure he can make it, which prob­a­bly means his office won’t be avail­able. So, he’s going to con­firm with me lat­er today. So, by the time this goes out, peo­ple should know, but hope­ful­ly it will be on at Andy’s place in Prahran where we’ve done it before on Thurs­day night.

Tony  11:34

Yeah, her and Sean.

Tony  12:20

Yeah, so I think the Face­book group said six o’clock, but I’m gonna strug­gle to get there by six. So, maybe sev­en o’clock as the start time.

Cameron  12:27

Okay. Because of your horse?

Tony  12:29

Yeah, Cast­er’s run­ning on Thurs­day at Pack­en­ham at five o’clock, which I only found out today. So, sor­ry for stuff­ing things around.

Cameron  12:35

Are you rid­ing it?

Tony  12:36

If I was rid­ing it I would­n’t back it, that’s for sure. I’d be rid­ing overs. No, the per­son who rides it has got to be 56 kilos or less.

Cameron  12:46

Just one of your legs, you could throw over.

Tony  12:49

Yeah, exact­ly.

Cameron  12:52

56 kilos. Oh, my God.

Tony  12:54

it’s hard to find an adult that light, isn’t it?

Cameron  12:56

I haven’t weighed 56 kilos since about 1982, I think.

Tony  13:00

How old were you then?

Cameron  13:02

Twelve.

Tony  13:03

Yeah, I reck­on I would’ve been about that. Yeah, I was always the tallest kid in the class, I would have been about that prob­a­bly when I was twelve as well.

Cameron  13:12

All right, I want to talk about this email we got from a QAV club sub­scriber a cou­ple of days ago. I’m not going to men­tion his name, we’ll call him Bob just so we have some­thing to call him. Not his real name. Its a very nice email, very, very polite email, but he said he’s been doing QAV for a year and it did­n’t go well for him, and so he’s quit­ting, can­celling his sub­scrip­tion. But he did send me all of his expla­na­tion why and his charts and every­thing, his table with the per­for­mance, and it was fas­ci­nat­ing. It was real­ly inter­est­ing and it high­light­ed a num­ber of things, but the most impor­tant thing, and the main point I took away from it, and I want­ed to talk about on the show, is for any­one lis­ten­ing out there, if you’re a QAV club sub­scriber and you’ve been fol­low­ing this sys­tem for some time, dili­gent­ly, and you don’t think your per­for­mance is where it should be — and the met­ric for that, I think, is our dum­my port­fo­lio. So, if your per­for­mance isn’t at least as good with­in a mar­gin of error as our dum­my port­fo­lio over the same time­frame — obvi­ous­ly, you haven’t been run­ning from three years, but over like a three­/six/twelve-month peri­od, what­ev­er it is — if it’s not with­in mar­gin of error, please let me know. Con­tact me. Say, “hey Cam, I think some­thing’s going wrong here, can you have a look at this with me?” Because when I looked at Bob’s, it was imme­di­ate­ly obvi­ous to me why his per­for­mance was­n’t what it should have been. Now, this is no attack on Bob. Again, very nice, very thought­ful email. He thanked us for all of our time and effort and the pod­casts etc., just said it did­n’t work for him. Now, his twelve months return con­clud­ing in Novem­ber — he start­ed in Novem­ber, con­clud­ed in Novem­ber — was neg­a­tive 39% ver­sus the ASX 200 which was neg­a­tive 8%, he said. Now, this sur­prised me because our dum­my port­fo­lio over the same peri­od of time, over that same Novem­ber to Novem­ber twelve month peri­od was down only 5% ver­sus the 200, which Navexa tells me was down 9%. He said 8, I said 9, what­ev­er, split the dif­fer­ence. So, we, you know, we’re down over that peri­od, but only half as much down as the bench­mark, which is a win. We can’t affect what the over­all mar­ket does, our job is to out­per­form the mar­ket, and if we don’t drop as much as the mar­ket that’s an out per­for­mance, and we only dropped as half as much, rough­ly, as the mar­ket. So, we’re on tar­get there. Def­i­nite­ly a big dif­fer­ence between drop­ping 5% and 39% over that peri­od. Now, I just had a quick look through Bob’s results that he sent me and there were a cou­ple of basic errors that leapt out at me. The first was he had a lot of sells that he clas­si­fied as rule one sells, but a lot of them were well over 10%. They were 16/18%, I think one was 21%, before he sold, and he called it a rule one sell. Now, look, there are going to be instances where I don’t sell exact­ly on 10%, might be 11, might be 12. You know, I leave it to the next day and then… I can think of one instance in the last year where some­thing plum­met­ed the morn­ing before I could sell it. I think it was like a scan­dal of some sort, a CFO sud­den­ly resigned, or con­tract was lost or some­thing, I can’t recall the details. And there’s been one or two instances where it was com­plete­ly my fault. There was one just recent­ly where I missed the alert until the next day and I got dis­tract­ed, did­n’t see it and by the time I got to it, it had dropped down a lot more than the 10%. But it’s only been a cou­ple. Usu­al­ly, I mean, I check my alerts every day and if some­thing’s get­ting close, if it’s get­ting to 8% or 9%, you know, I’ll be pay­ing atten­tion to it the next day and as soon as it goes over the 10, I’ll exe­cute a sell on it. But you know, there’s not many instances where I’ve sold more than 10 or 11%. And I sent Bob a reply about this, and I said, “well, it looks like you weren’t real­ly rule one­ing.” He was com­plain­ing that he did­n’t think rule one worked. He said “yeah, well, to be fair I did leave it a lit­tle bit long some­times.” Some­times he felt they had plum­met­ed too quick­ly for him to sell on rule one, but that has­n’t been my expe­ri­ence. Sec­ond­ly, one of his big loss­es was on GRR, Grange Resources. He bought it around about the same time we did, Jan­u­ary this year, and we sold it ear­ly Sep­tem­ber when iron ore became a com­mod­i­ty sell. And we lost about 1% on it. We bought it at 77 cents the same as he did, we sold it at 76.5. He sold it in Octo­ber, like six weeks lat­er, when it had mas­sive­ly plum­met­ed as iron ore had plum­met­ed. So, he took a bath. I think that one was 21% he lost on that. And then I also said to him, “well, are you hold­ing on to any stocks that have gone up over that peri­od of time that bal­ance it?” Because every­thing he sent me were all sells, there was noth­ing… He said “no, I don’t hold any­thing any­more. I bailed out in Sep­tem­ber. After I’d done a bunch of rule ones I bailed out.” Now go look at the awards for the last twelve months, the bot­tom of the All-Ords was Sep­tem­ber, and then in Octo­ber and Novem­ber so far, it’s been a chop­py upturn, but it’s been an upturn. There was quite a sig­nif­i­cant upturn in October/November. So, by bail­ing out ten months into his twelve-month exper­i­ment, he hap­pened, unfor­tu­nate­ly, to miss the last two months of rebound in the mar­ket as well. And you know, you’re always bang­ing on about stay­ing ful­ly invest­ed because you nev­er know when it’s going to turn around. You can’t pre­dict it unless you’re the chief econ­o­mist of the Com­mon­wealth Bank. You can’t pre­dict it.

Tony  19:17

You’re sure that’s not Bob’s actu­al day job?

Cameron  19:20

If it’s not you, he should apply for it.

Tony  19:23

Well, that’s called capit­u­la­tion, though, Cam, isn’t it? The hour gets so dark before the dawn that he’s sold and packed up and gone home. And then, of course the mar­ket turns.

Cameron  19:32

And again, I’m not hav­ing a go at Bob. I under­stand it’s been a bru­tal year for investors and par­tic­u­lar­ly new investors who don’t have the ben­e­fit of…

Tony  19:44

Well, we’re play­ing with house mon­ey, right? Even the dum­my port­fo­lio. It’s been up long enough so that even though it’s been down in the last twelve months, it’s prof­its that we’ve been play­ing with. We haven’t been los­ing our orig­i­nal cap­i­tal.

Cameron  19:56

Like a year ago we were up 40%, now we’re up 17%. So, you know, it’s come back a long way. But you know, that’s how it works, right? We go up, go down, you know, it bal­ances out over time.

Tony  20:08

It is how it works. But the psy­chol­o­gy comes into it, so I under­stand where Bob’s com­ing from. He’s giv­en it a go, it’s a par­tic­u­lar­ly bad time to start, mar­kets been going down, inter­est rates ris­ing, blah, blah, blah, tur­bu­lence, Ukraine war chop­pi­ness, and it has­n’t worked for him. And look, it’s not going to work for every­one, Cam. You’re point­ing out that he per­haps was­n’t as dili­gent as, you know, some­one who’s going to adopt QAV needs to be. That’s going to be an issue and it’s not going to be for every­one. So, he’s, you know, he may be doing the right thing. If he can’t mas­ter the process, mon­i­tor the alerts, be dili­gent in sell­ing and then stay­ing in the mar­ket, then he’s bet­ter off prob­a­bly not doing it him­self. Or the alter­na­tive is using some­thing like QAV light to get a reg­u­lar update on what to do.

Cameron  20:57

Yeah. And even that requires sell­ing when I send out an email say­ing it’s time to sell or buy­ing when I say it’s time to buy. The sys­tem is only as good as the peo­ple who fol­low the sys­tem. I know there is a bunch of rules, you know, there’s a learn­ing curve, we all make mis­takes. I con­tin­ue to make mis­takes. As I said, just recent­ly I missed a sell alert.

Tony  21:21

Me too.

Cameron  21:22

We all make mis­takes, even TK, and he’s part machine. And the oth­er part is ice.

Tony  21:29

Wash­ing machine.

Cameron  21:34

But you do have to fol­low the rules if you want to get the sort of per­for­mance that we get. But my main point, the main thing I just want­ed to stress is if there’s any­one out there lis­ten­ing who feels like they are fol­low­ing QAV dili­gent­ly and your per­for­mance isn’t rough­ly what ours is… Because every­one’s per­for­mance should be rough­ly the same. It’s going to dif­fer depend­ing on what stock you buy at what time, and all those sorts of things. If you’re large caps and small caps and all that kind of stuff, yeah, but it should be with­in a rough band.

Tony  22:09

A stan­dard devi­a­tion. Yeah.

Cameron  22:10

That’s fan­cy talk. Don’t hit me with your fan­cy talk at this hour of the morn­ing.

Tony  22:15

it’s the after­noon.

Cameron  22:16

Don’t kiss me with that mouth. Sor­ry, we were talk­ing about strip­pers off air before. My boys are in Vegas at the moment, and I’ve been hear­ing some hor­ri­fy­ing sto­ries that I was shar­ing with Tony, I’m not going to share on the show. We don’t know who’s lis­ten­ing, sen­si­tive stom­achs and that kind of stuff, I don’t know whether or not you’ve just eat­en. Let me know. And to Bob’s cred­it, Bob had emailed me a lot over the last year and asked a lot of ques­tions, ques­tioned rule one, and we’ve asked a lot of his ques­tions on the show. He was scep­ti­cal about rule one. Now I know why he was scep­ti­cal about rule one, because he was­n’t actu­al­ly doing rule one prop­er­ly. But that’s the thing, I’m just say­ing to every­body, please. And I say this to every­body who signs up, I say, I’m here to help. Email me any time of the night or day, any ques­tion, that’s what I’m here for, that’s my job, is to answer your ques­tions and help. But please, please, please, if you don’t feel like your per­for­mance is where it should be, don’t keep los­ing mon­ey and then capit­u­late and then say QAV does­n’t work. Email me and let me see if I can fig­ure out where you’re going wrong. Because look, here’s the thing, I’m an idiot. Any­one who’s lis­tened to this show for any peri­od of time knows that, par­tic­u­lar­ly when it comes to invest­ing and eco­nom­ics and the mar­ket and spread­sheets, I’m as dumb as they come. But it works for me because I can fol­low a sys­tem, you know, rel­a­tive­ly well. I still screw up, but I’m the proof that this thing works. Because if it works for me, it can work for any­one. I’m as stu­pid as they come. If I can make it work, any­one should be able to make it work.

Tony  24:10

Well, you’re paus­ing there for me to say “no, Cam, you’re not stu­pid.” I just want to add a cou­ple of things. It’s like bak­ing a cake. We’re fol­low­ing a recipe. You’ll get bet­ter at bak­ing cakes as you keep fol­low­ing recipes, and occa­sion­al­ly, the souf­fle won’t rise. But over time, if you do it dili­gent­ly, it’ll work. I mean, a cou­ple of things. I want to thank Bob for writ­ing in with these details. That was inter­est­ing to go through, I under­stand com­plete­ly where Bob’s com­ing from, and I think Bob’s approached it in the right way, strange­ly enough. He’s talked about not putting all his mon­ey into QAV, he was run­ning it as a tri­al, gave it twelve months and worked out it was­n’t for him. So, I think he’s done every­thing right from that point of view. The sec­ond thing I want to say, Cam, is just be care­ful that we’re not giv­ing per­son­al advice. So, we’re hap­py to guide peo­ple and say, you know, “this is how you apply rule one” or “this is com­mod­i­ty sells,” or “pay atten­tion to alerts.” But if peo­ple do email you, we can’t pick over what you’ve done and tell you what to do on a per­son­al basis. So, it’ll be gen­er­al advice. But what you’re say­ing is true. We’re all busy in oth­er things, and it’s prob­a­bly become more my pri­ma­ry focus over the years, although I have oth­er things going on. But for a lot of peo­ple, invest­ing isn’t their pri­ma­ry focus; they’ve got day jobs, they’ve got fam­i­lies, dis­trac­tions, what­ev­er. And so they do miss alerts or what­ev­er. So, it could help, I think, to touch base with some­one like your­self every six months or twelve months and say, “hey, how am I going? Could I improve?” I can see some ben­e­fit in that. I think, you know, it was inter­est­ing and a bit sad read­ing Bob’s emails, but I think he approached it in the right way. I think he’ll do fine in the longer term by approach­ing things that way, and he prob­a­bly learned a bit about him­self and his risk tol­er­ance and what he needs to do to secure his own future via invest­ing,

Cameron  26:06

As you said ear­li­er, and I know Buf­fett says this and I know Ben­jamin Gra­ham said this, you know, this style of invest­ing isn’t for every­body. It takes a cer­tain amount of, you know, risk tol­er­ance, it takes a cer­tain amount of dis­ci­pline, will­ing­ness to trust a sys­tem, fol­low a sys­tem, all that kind of stuff.

Tony  26:25

There’s so much psy­chol­o­gy going on here, which is why we sys­tem­a­tise things, so we don’t fall for the psy­cho­log­i­cal traps. But you know, like even Jen­ny, my wife who’s far smarter than I am, has held very senior roles in multi­na­tion­al com­pa­nies, she’s open in say­ing she could­n’t do what I do. She’d get freaked out by it, she has a low­er risk tol­er­ance than I do. I’ll often sit down beside her and go “shit, I just lost a mil­lion bucks.” And she’ll go “I don’t know how you do what you do.” I should­n’t say I often do, I have from time to time said that to her. She just could­n’t do it. And that’s the same for a lot of peo­ple. It’s a bit like being inoc­u­lat­ed; you build up resis­tance as you go along and become bet­ter at it.

Cameron  27:10

Yeah, it’s actu­al­ly my goal to lose a mil­lion bucks and to be able to tell Christy about it and laugh it off.

Tony  27:17

Real­ly? Okay.

Cameron  27:19

Yes, must be a nice place to be. Well, speak­ing of risk bias, that leads me to the sec­ond AFR arti­cle I want­ed to talk about. I saw this this morn­ing. This one is called “How your loss aver­sion bias is los­ing you mon­ey.” Sub­ti­tle, is “the rea­son you over­re­act to mar­ket drops and for­get about the good years.” This is from Ben Smythe, con­trib­u­tor. “If you’ve recent­ly start­ed a self-man­aged Super­fund and are expe­ri­enc­ing your first bear mar­ket, you might be ques­tion­ing that deci­sion. All major asset class­es have suf­fered neg­a­tive returns in 2022. Equi­ties are down 20%, bonds are post­ing their worst annu­al return in thir­ty years, prop­er­ty which is meant to dou­ble in val­ue every ten years is falling, Bit­coin is worth 60% less than twelve months ago and gold, once seen as a safe haven is drop­ping in val­ue,” except for today. “In these unusu­al times, the next log­i­cal ques­tion is when will returns turn around?” Just ask the chief econ­o­mist of the Com­mon­wealth Bank and then do the oppo­site, he says. No, I’m kid­ding. He does­n’t say that. That’s what I insert­ed. “Fore­cast­ing the future when it comes to the invest­ment mar­ket sits with­in the sto­ry telling realm. It’s great to hear and read what the experts pre­dict will hap­pen next, but the evi­dence shows that these papers and reports should real­ly be filed in the fic­tion sec­tion. What SMSF investors can do is to be more aware of their invest­ment bias­es, which if man­aged and min­imised, can save them a lot of mon­ey. Iden­ti­fy­ing behav­iour­al chal­lenges can stop you mak­ing an impul­sive deci­sion that could take years to cor­rect. His­to­ry shows that over the long term, the stock mar­ket aver­ages a neg­a­tive return once every four years. Investors often for­get that what this means is that three out of four years are then, on aver­age, pro­vid­ing pos­i­tive returns. For exam­ple, the US S&P 500 index is down about 20% for the 2022 cal­en­dar year, how­ev­er, con­sid­er pre­vi­ous returns of 29% in 2021, 18% in 2020 and 32% in 2019. The aver­age return for the US S&P 500 index over the past five years includ­ing 2022 is still aver­ag­ing a lit­tle over 10% a year. Why then do investors pan­ic when that neg­a­tive year hits? The rea­son that pos­i­tive returns of pre­vi­ous years are often for­got­ten when mar­kets fall is because most investors have what is called a loss aver­sion bias. Daniel Kah­ne­man, the Nobel Prize win­ner known for his work on the psy­chol­o­gy of judge­ment and deci­sion mak­ing, notes that investors tend to expe­ri­ence twice the amount of psy­cho­log­i­cal pain from loss­es com­pared with the psy­cho­log­i­cal plea­sure from gains.” Pret­ty sure you’ve men­tioned that state­ment from Daniel Kah­ne­man in the past on mul­ti­ple occa­sions, hurts twice as much to lose mon­ey as it feels good to make mon­ey.

Tony  30:09

Which is per­verse, but it’s true.

Cameron  30:11

Yeah. “Essen­tial­ly, this means that you feel the pain of loss­es in your port­fo­lio much more than you enjoy the good years. In the good years, you expect the mar­ket to deliv­er pos­i­tive returns. But when mar­kets fall, you beat your­self up and con­vince your­self that you should have seen this com­ing and done some­thing to mit­i­gate the paper loss. This then leads to the next bias when mar­kets are falling, and that is an action bias. This means that investors believe that tak­ing action will improve their over­all invest­ment return. When mar­kets are falling, this becomes more pro­nounced, because cou­pled with a loss aver­sion bias, investors feel com­pelled to act to stop the pain. Whether this action is trad­ing in and out of asset class posi­tions or cash­ing out com­plete­ly, the evi­dence is clear in almost all cas­es, that react­ing to falling mar­kets by tak­ing such actions will not result in high­er invest­ment returns. The do-noth­ing advice in times of volatil­i­ty should be seen as a pos­i­tive action based on the infor­ma­tion and evi­dence rather than a neg­a­tive action by some­one who can’t fore­cast the future. Super­an­nu­a­tion by impli­ca­tion is a long-term game. What we do know is that invest­ment mar­kets pro­vide great returns for long term and patient investors. By get­ting out of the way of the mar­ket and being alive to the inher­ent invest­ment bias­es that we all face, you will give your­self the best chance to enjoy these pos­i­tive years and ratio­nal­ly inter­pret the neg­a­tive years. Ben Smythe is a part­ner and Prin­ci­pal Advi­sor of Minchin Moore Pri­vate Wealth,” not asso­ci­at­ed with Tim Minchin, who’s the focus of Aus­tralian sto­ry this week. Read a lit­tle bio on him in the ABC this morn­ing. Fas­ci­nat­ing, real­ly inter­est­ing sto­ry. Fas­ci­nat­ing guy, still mar­ried to his high school sweet­heart.

Tony  31:55

I mean, great arti­cle, thanks for read­ing it out. And I liked some of the phras­es, like “don’t get in the way the mar­ket,” just stay out of the way of the mar­ket. It is true. I mean, like, we have been trad­ing a lot more than we nor­mal­ly do, so per­haps I’m guilty of a sys­tem that does trade more in a pro­tract­ed down­turn, try­ing to pre­dict our down­side with rule ones and three-point trend lines. I think what we’ve done would be no worse than hold­ing on rather than apply­ing those rules, and I think prob­a­bly a lit­tle bit bet­ter.

Cameron  32:28

And you don’t change the rules dur­ing a down­turn, they’re the same rules that we apply all the time. So, it’s not like you’re tak­ing action, you’re just doing the same thing you would do at any time, right?

Tony  32:38

Yeah. But look, I get it. I mean, when the mar­kets going up and your port­fo­lio’s going up, you put your hands behind your head and your feet on the desk, you don’t real­ly ques­tion what you’re doing. You think it’s gonna last for­ev­er. And then when the mar­ket turns down, it’s like, “Oh, my God, what could I have done bet­ter?” You know, should I have sold out last year and short­ed the mar­ket? Well, yeah, pos­si­bly. But we did­n’t know. You apply an all-weath­er sys­tem, I guess, as Rudy would say. And yeah, the sys­tem’s going to work and be large­ly unchanged. I mean, it is good to go back and review it from time to time and try and improve it. But yeah, it’s not let­ting the psy­chol­o­gy get in the way, which is prob­a­bly the biggest ben­e­fit of a sys­tem, whether it’s QAV or any sys­tem, real­ly, that allows you to keep mak­ing deci­sions in tur­bu­lent times with­out being affect­ed by your emo­tions.