QAV 547 CLUB

Fri, Dec 02, 2022 10:54AM • 1:05:57

Cameron  00:06

Wel­come to QAV. This is episode 547. We’re record­ing Tues­day the 29th of Novem­ber, 2:14pm Bris­bane time, 3:14pm Syd­ney time — where you are present­ly, but the head­ing back to Cape Schanck this week. Is that right, Tony?

Tony  00:22

Yeah, cor­rect. Via Mel­bourne. Gonna play some golf in a char­i­ty event.

Cameron  00:25

Oh, love­ly. Well, it’s been a crazy old week in the stock mar­ket, Tony. Stock mar­kets been up, had a good cou­ple of weeks, and then it’s sort of crashed this morn­ing. It went back­wards yes­ter­day and down this morn­ing, and now back up this after­noon. I don’t know what’s going on out there today, why its bounced back up today. Do you? Visu­al joke from Tony there. Ah, you had to see that one to get it. 

Tony  01:04

No, I don’t sor­ry. And nor do I care, it’s just the way the mar­ket works. It just goes up and down.

Cameron  01:09

Well, speak­ing of up and down: some­body, I think it was one of our club mem­bers, Stephen, asked me the oth­er day if I had a spread­sheet of your his­tor­i­cal returns. I don’t have a spread­sheet of the full list, but you have sent me a par­tial list before which I sent to him. We’ve talked about it on the show before but I thought it was a good time to revis­it it, because I think it’s a good reminder for peo­ple that even the great Tony Kynas­ton has his bad years as well as his good years. And that’s how invest­ing works, right? There are bad years, there are good years, and it all bal­ances out over the long haul. The good years out­weigh the bad years, but there are always bad years. 

Tony  01:50

Absolute­ly. And this isn’t, like, as bad as it gets, by the way. This is pret­ty tame in the his­to­ry of the stock mar­ket. 

Cameron  01:59

Yeah. So, I’ve got your annu­al num­bers going back to FY08, but obvi­ous­ly you have num­bers that go way back before that. But I think from mem­o­ry, it’s a bit hard for you to track your num­bers going back pri­or to the GFC or some­thing?

Tony  02:15

Oh no, I’ve got some there. It gets murki­er and murki­er the fur­ther back I go, because of poor record keep­ing on my path, and mix­ing mon­ey for, you know, oth­er things like buy­ing hous­es, etc. 

Cameron  02:26

You did­n’t know back then that one day you’d be doing a pod­cast about this, and peo­ple would want to know?

Tony  02:31

Oh, yeah, yeah, I had crys­tal balls back then, and I thought, “I need to invest in pod­cast­ing.”

Cameron  02:38

Well, the num­bers that I’ve got from, just for peo­ple’s inter­est, FY08. This is the first year of the GFC: ‑19.9%.

Tony  02:49

Let me stop you there. I’ll go back a few years before that, because I’m pret­ty sure one lis­ten­er is going to plug all these num­bers in and work out the CAGR for it. So, going back five years pri­or to that: 10% up. 

Cameron  02:59

What year is that? ’03? 

Tony  03:01

Oh, I don’t have those num­bers in front of me, sor­ry. So, prob­a­bly, yeah. Finan­cial year ’03. Up 10%. Next year up 98%. So huge year, then.  

Cameron  03:11

Woah. 

Tony  03:12

The fol­low­ing year up 35%. 

Cameron  03:15

Yeah.

Tony  03:16

38.4, up 41.4 up. Then what you’ve got in that list, so minus 19.9. So, near­ly ‑20, ‑31. So, you can see in the lead up to the GFC some real­ly stel­lar returns, and then about half giv­en back in the GFC. But then the fol­low­ing year after the GFC up 111.5%. So, big kick out of the GFC. 

Cameron  03:41

111.5 or 115? 

Tony  03:45

115, you’re right, sor­ry. Yep, my typo, I’m sor­ry: 115. The year after that, up 32. Then 0.8, 39%, 6.5%, 6.6%, 14.3%, 12.4%, 1.2%, ‑10%, 14.2%, and FY21 19.4%, and then FY22, the year just gone, down 17. So, a dip there. What changed in FY22 for us as a fam­i­ly, is Jen­ny stopped work­ing full time and we stopped liv­ing off her wage, and so I’m pay­ing the mort­gage and liv­ing off div­i­dends, which is tak­ing prob­a­bly $800,000-$1 mil­lion out of the port­fo­lio. So, it’s affect­ing per­for­mance. Because these num­bers are after tax, or after costs, and I haven’t gone back and tried to break apart what’s what and add it before cost posi­tion, but that’s how it is. So, before some­one does all the CAGR cal­cu­la­tions, I’ve done it. So, all those num­bers, if I plug them into Excel, get to 16% as the CAGR over that time peri­od. But if I take out that last year, it’s actu­al­ly 19% over that time peri­od. I may have to, sort of, break things up from now on if we will con­tin­ue to have to live off the div­i­dends and pay the mort­gage and all that rather than rein­vest it, or have the div­i­dends cov­er the mort­gage pay­ments. So, that’s some­thing I’ll work out in time.

Cameron  05:21

Just send Jen­ny back to work, Tony, what are you doing?

Tony  05:24

Well, that’s the eas­i­est one. I mean, there’s a vacan­cy at Bank of Queens­land now, appar­ent­ly, so…

Cameron  05:30

Can’t talk about that. But yeah.

Tony  05:32

Can’t about that, yeah. Don’t men­tion the war. 

Cameron  05:35

But yeah, just tell Jen­ny, you know, she has an oblig­a­tion to the pod­cast that she goes back to work, because it’s just mak­ing things too con­fus­ing for your book­keep­ing.

Tony  05:45

Well, the longer-term plan is to sell this place and pay off the mort­gage and then buy some­thing cheap­er and then, you know, live off the div­i­dends and keep rein­vest­ing. But we haven’t done that yet.

Cameron  05:56

You should have done that before the real estate mar­ket crashed, Tony.

Tony  05:59

Oh, tell me about it. I want­ed to. It was prob­a­bly a bit too soon for us, because we want to find out where Alex set­tles down. I want to go and live where she’s putting roots down. Which is prob­a­bly going to be Mel­bourne. 

Cameron  06:10

Yeah. 

Tony  06:11

We thought it’d be fool­ish to sell this place in Syd­ney and move to Mel­bourne and then find out she gets offered a job in Syd­ney once she fin­ish­es study­ing.

Cameron  06:18

She works for QAV, so she’ll work wher­ev­er we tell her to work.

Tony  06:23

That may well be the case.

Cameron  06:26

You did a pulled pork on GNG a cou­ple of weeks ago, Tony.

Tony  06:30

No, I did­n’t. That was months ago.

Cameron  06:32

What? No. When did you do GNG?

Tony  06:38

Last year.

Cameron  06:39

No. 

Tony  06:41

I don’t remem­ber talk­ing-it’s Grange engi­neer­ing, isn’t it?

Cameron  06:44

Yeah, Novem­ber. You did it on episode 543 on the third of Novem­ber. 

Tony  06:49

Real­ly? Okay.

Cameron  06:51

Yeah. And, you know, I said to you at the time as I always do, don’t put the kibosh on it. Well, you put the kibosh on it. It took a while, took a cou­ple of weeks before the full effects of it.

Tony  07:03

When are these CEOs gonna learn; they’ve got to pay their pro­tec­tion mon­ey.

Cameron  07:09

Pay the pro­tec­tion mon­ey, yeah. Yeah, well, I had to sell that this week, GNG. 

Tony  07:16

Acci­dents hap­pen…

Cameron  07:19

So, I told you a rule from now on: no pulled porks on stocks that I own. Check with me before you do a pulled pork. 

Tony  07:28

Sor­ry about that. You don’t own DDH, do you?

Cameron  07:31

I do. Yeah, it’s in the port­fo­lio. It’s in the dum­my port­fo­lio. 

Tony  07:35

Its today’s pulled pork. 

Cameron  07:37

I’ll just go sell it before you do the pulled pork. 

Tony  07:40

Yeah, okay. 

Cameron  07:40

I want­ed to ask you about SKT’s con­sol­i­da­tion. Or not talk to you about it, maybe just high­light it for lis­ten­ers. So, if any­one out there hap­pens to own SKT, they had this thing hap­pened in the last cou­ple of weeks where there was a cap­i­tal return and some sort of a con­sol­i­da­tion, where out of every six shares you owned you lost one. This is Sky Net­work by the way, for folks at home, SKT. Navexa auto­mat­i­cal­ly includ­ed the cap­i­tal return in our results but did­n’t do the con­sol­i­da­tion, but the share price jumped. So, for a week or two there it said that SKT was up 120% for us in our port­fo­lio, which looked good, but it was­n’t right. I checked with Navarre at Navexa, and I had to do the con­sol­i­da­tion man­u­al­ly in the end, which reduced it down. It’s still been real­ly good for the port­fo­lio that we hold it in, one of the Light port­fo­lios. It’s been a cork­er because it was like $2.40 a share, they paid out. It was crazy. 

Tony  08:45

Oh, wow. 

Cameron  08:46

They’ve got a tonne of mon­ey thrown into it as a result. Any­way, I just want­ed to let peo­ple know if you own Sky Net­work, just check that what­ev­er report­ing tool you’re using has got both the cap­i­tal return and the con­sol­i­da­tion in there. SGM, Tony. I added it to a port­fo­lio this week, a light port­fo­lio, and then you emailed and tut­ted. You did this thing **. Visu­al joke, we’re back to the same visu­al joke from ear­li­er. You said, “oh, it’s iron and steel scrap”, which we had talked about, and I’d for­got­ten. I need a bet­ter, sort of, knowl­edge base of these things to go through every­thing you’ve said about every stock and makes sure it pops up when I come to look at it. So, it’s a scrap met­al recy­cling com­pa­ny. 

Tony  09:01

It used to be called Sims. 

Cameron  09:39

Sims. It still is. 

Tony  09:41

Oh, is it? Okay, I know it changed its name. 

Cameron  09:44

In our buy list we weren’t track­ing iron and steel scrap, so this was­n’t show­ing up as a com­mod­i­ty adjacent/commodity affil­i­at­ed stock. I fixed that now, so start­ing from next week in the buy list iron and steel scrap are some­thing that we will mea­sure and will show up against SGM.

Tony  10:05

I think, from mem­o­ry, when we talked about Sim — I may have even done a pulled pork on it — we decid­ed just to use the iron ore chart for it, I thought, because the scrap has an almost one-one cor­re­la­tion with the iron ore chart. 

Cameron  10:21

I thought you said it did­n’t map to iron ore. But the week we did that show Alex was too busy, did­n’t do a tran­script, so I did­n’t have her tran­script to check. I saw it was in the notes, but I did­n’t know what you actu­al­ly said. I might have to go back and lis­ten to it.

Tony  10:39

Tech­ni­cal­ly, you’re doing the right thing. You use the prop­er graph, which is the — what’s it called? The Turk­ish 8020? Yeah. So, that is the right graph. So, if you can be both­ered putting that in the buy list, then that’s fine. But I think we did say that iron ore would be a good proxy for a final graph.

Cameron  10:56

I sold it any­way, because iron and steel scrap is a Josephine or a sell, I think a Josephine, so we scrapped that and I replaced it. But yeah, it’s just anoth­er one of these sneaky ones. Like, what was that one a while back? Oh, the one that’s always going out of busi­ness? SGD or SDG, I think. 

Tony  11:14

Oh, Sun­land Group, yeah. 

Cameron  11:15

There’re all these ones that I have to flag some­where in the buy list, and I’m devel­op­ing sys­tems to remind myself of that, but it’s just too com­pli­cat­ed. There’re too many things going on. Speak­ing of things going on, War­ren Buf­fett just donat­ed $750 mil­lion to his chil­dren’s var­i­ous char­i­ta­ble endeav­ours on Thanks­giv­ing Eve. He said, “this is the ulti­mate endorse­ment in my kids, and it’s the ulti­mate state­ment that my kids don’t want to be dynas­ti­cal­ly wealthy.”

Tony  11:47

They just want to be wealthy.

Cameron  11:50

Yeah, but who does­n’t want to be “dynas­ti­cal­ly” wealthy? I want to be dynas­ti­cal­ly wealthy. 

Tony  11:57

I think the kids are pret­ty wealthy, but they just don’t want to man­age hun­dreds of bil­lions of dol­lars, I guess. 

Cameron  12:02

Right. 

Tony  12:03

No, the kids are pret­ty good. They’re pret­ty even head­ed. One’s a farmer, one’s a com­pos­er of music for movies, and I think the daugh­ter is pret­ty heav­i­ly into wel­fare issues and wel­fare caus­es. So, yeah, no, the kids are pret­ty lev­el-head­ed. But they all get, I mean, they’re all still rich. What Buf­fet­t’s doing is fan­tas­tic, and I don’t want to make light of it, but the kids are well off.

Cameron  12:30

I thought I read years ago that he said his kids weren’t get­ting any of his mon­ey.

Tony  12:35

I think the clas­sic line was, “I don’t want to give them too much so they don’t have to work, but I want to give them enough so they don’t have to work hard,” or some­thing like that. They all got mon­ey along the way, and I think that may have bought Buf­fett junior’s farm, and all that kind of stuff. And I think from time to time, you know, he says that, and then you’ll see… I can cer­tain­ly remem­ber one year he gave them all 10 mil­lion bucks. So, you know, he’s giv­en them mon­ey along the way. And I would­n’t be sur­prised if they also get paid by these funds that he’s donat­ing to. But be that as it may, yeah, they’re not get­ting $100 bil­lion each out of the Buf­fett for­tune, he’s giv­ing it away. So, it’s a good cause.

Cameron  13:17

Well, there you go. $750 mil­lion. Appar­ent­ly, this is the first year in a long time he did­n’t give any to the Bill and Melin­da Gates Foun­da­tion. 

Tony  13:26

Why is that Cam? 

Cameron  13:30

Well, they’ve had a few issues, a few chal­lenges in the last year. I don’t know if you’ve noticed.

Tony  13:36

A few PR issues. 

Cameron  13:38

Yeah. The RBA has been tak­ing a lot of heat, Tony.

Tony  13:41

It has. 

Cameron  13:42

Not all of it’s your fault. 

Tony  13:44

My fault? 

Cameron  13:45

You’ve been stick­ing the boot into the RBA.

Tony  13:49

I’m sup­port­ing the review.

Cameron  13:51

Dr Lowe appar­ent­ly half apol­o­gised. I saw this arti­cle in the Fin this morn­ing by Steven Hamil­ton, a colum­nist: “Sor­ry you lis­tened isn’t good enough, Dr Lowe. The most impor­tant tool of a cen­tral bank is its inde­pen­dence of action, which has to be earned through cred­i­bil­i­ty. Over time, cracks in it can start to grow. Call me crazy, but ‘I’m sor­ry if peo­ple lis­ten to what we said’ seems a rather puz­zling com­mu­ni­ca­tion strat­e­gy for an insti­tu­tion for which cred­i­bil­i­ty is its most valu­able asset. And yet, these were reserved by Gov­er­nor Phillip Lowe’s exact words as he appeared before Sen­ate esti­mates on Mon­day morn­ing. An unprece­dent­ed admis­sion in prin­ci­ple, but a spe­cif­ic choice of words that spoke to both Lowe’s inabil­i­ty to ful­fil even his most basic func­tions, and deep­er dys­func­tion with­in the cen­tral bank he leads.” Sor­ry if you lis­tened to us.

Tony  14:43

Well, you know what the issue was there. I sus­pect this is… I don’t know what the legal sit­u­a­tion is, but it could be poten­tial­ly a start of a legal defence, too. Because cen­tral banks ever since Mario Draghi came out and said he’d do what­ev­er it takes to keep the economies afloat dur­ing the GFC, and cut inter­est rates to neg­a­tive back to zero, and then the banks went neg­a­tive, ever since then, it’s been a core part of the cen­tral banker’s armoury to talk about what they think the econ­o­my is going to do, and try and guide it. So, what Philip Lowe did eigh­teen months ago, he came out and said that he reck­ons inter­est rates will be low for as far as he could see — at least the next twelve months — which meant peo­ple relied on that and went out and bor­rowed more mon­ey to pay for COVID inflat­ed asset val­ues, par­tic­u­lar­ly hous­es. Now inter­est rates have risen, and so they’re being squeezed by high­er inter­est rates on their mort­gages than they thought they’d have to pay, at least in the short term. And there’s been some talk by some com­men­ta­tors that a class action should be raised against him for say­ing that. A cen­tral bank, or the head of a cen­tral bank, car­ries a fair bit of weight in the com­mu­ni­ty. It’s not like it’s a Via­gra com­mer­cial where at the end of it they go “side effects may include: leaky bowls and hair loss,” and all the rest of it like you see on the US com­mer­cials. The cen­tral banker does­n’t get up and say, “I think inter­est rates are going to be low for as far as I can see. *#My crys­tal bal­l’s bro­ken.” It’s like, you know, you’re meant to rely on that per­son, and so he’s destroyed all of that trust and cred­i­bil­i­ty and being able to influ­ence what peo­ple do by just say­ing some­thing, not chang­ing inter­est rates, just say­ing. Peo­ple fol­low what he says, and it’s wrong. He should apol­o­gise for it, should­n’t do it. I mean, we had that email exchange with Steve Mabb where there was anoth­er arti­cle about how econ­o­mists are bad at pre­dict­ing, which is some­thing I’m always on about. And then I sent him an arti­cle which said that the cen­tral bank, the Reserve Bank in Amer­i­ca has four hun­dred PhDs on the pay­roll, so it gets worse. So, you can­not rely on any­one to fore­cast. Just get that through your heads, peo­ple: you can­not rely on fore­casts, and par­tic­u­lar­ly econ­o­mists who fore­cast. Because there’s almost like this men­tal con­di­tion where they get to the stage where they go, “oh, I under­stand the stand the econ­o­my now. And that means that next week, it’s going to do this.” It’s does­n’t work that way. It’s inher­ent­ly unpre­dictable. Just get that through your heads. And even if you have four hun­dred Econ­o­mists with PhDs on the pay­roll, I reck­on prob­a­bly it means you’re gonna be four hun­dred times worse when you try and pre­dict the future. It just can’t be done.

Tony  15:16

So, the basic rule is “don’t lis­ten to any fore­casts. don’t fac­tor in any fore­casts, just play the ball.”

Tony  17:46

Cor­rect. Play the card that’s dealt, absolute­ly.

Cameron  17:49

It’s a hard thing though, because, you know, like a cou­ple of years ago when there was so much hype around BNPL stocks and cryp­to, it’s the same with fore­casts. I mean, we’re sat­u­rat­ed with these things in the finan­cial media. We’re sat­u­rat­ed with peo­ple fore­cast­ing, peo­ple pre­dict­ing, peo­ple telling you this is going to hap­pen, that’s going to hap­pen, you got to get in and you got­ta get out. It takes a cer­tain lev­el of for­ti­tude, I think, to just go “nah, ignor­ing all of that, just gonna stick with what I’m doing. Good luck to every­body out there.”

Tony  18:25

That’s right. But it’s not just ignor­ing it. It’s like, you know, I grap­pled with try­ing to val­ue BNPL stocks. I did­n’t real­ly try hard with Cryp­to, because I could see what it was. But I just took what I know, which is how to val­ue things, and applied it to this new par­a­digm, because “this time it’s dif­fer­ent”, and I could­n’t do it. So, I ignored it. My for­ti­tude isn’t being strong enough to turn off that stuff, it’s being smart enough to say, “here’s the way I val­ue an invest­ment, and it spits out zero for this par­tic­u­lar invest­ment — or worse than zero — so I just ignore it.” But you’re right. I mean, it’s turn­ing off the noise. It’s a bit like if you look at a lot of the indus­tries in soci­ety, they’re designed to make up for some kind of per­son­al­i­ty defect that we all have, you know, the weight loss indus­try, the hair loss indus­try. We also have the “future is unpre­dictable” indus­try, but we’re going to try and sell you some­thing which cures that prob­lem for you. I put them all in the same camp.

Cameron  19:23

Yeah. I mean, one thing that we can pre­dict, though, to a cer­tain degree of con­fi­dence, is that the mar­ket will recov­er at some point.

Tony  19:33

That’s a real­ly good point, right? So, we’re using past expe­ri­ence. We read out that whole list of returns and so we’ve seen the mar­ket go up and down, we’ve seen our returns go up and down. We’re com­bin­ing the fact that we’ve seen it before with the fact that we don’t expect — bar­ring nuclear events or what­ev­er and cli­mate change in the next fifty or one hun­dred years — we don’t expect busi­ness­es to shut down on mass tomor­row. So, I expect when I wake up tomor­row, I’m still gonna look out the win­dow and see the CBD in Syd­ney. David Jones is going to be there, Myer is going to be there, all the invest­ment banks are going to be there, ANZs gonna be there, Comm­Bank is going to be there, Qan­tas is going to be there, etc., and they’re still going to keep grow­ing, they’re still going to need cap­i­tal. So, my pre­dic­tion isn’t that any one of those com­pa­nies I just read out is going to do bet­ter than the oth­er one, it’s that when I wake up tomor­row, they’re gonna be there. Right? That’s all I’m pre­dict­ing. And it’s just like, the sun is gonna rise tomor­row. It’s been that way for hun­dreds of years, it’ll con­tin­ue to be that way until some­thing very dras­tic hap­pens, which is unpre­dictable. So, I can rely on it. It’s a reliance rather than a pre­dic­tion, is prob­a­bly a bet­ter way of say­ing it. I rely on two things: that past per­for­mance indi­cates future per­for­mance, and that bar­ring unfore­seen cat­a­clysmic events, the world tomor­row is going to look like the world today, in a broad sense.

Cameron  21:00

But beyond that, his­to­ry, and we can go back a hun­dred years of record­ed stock mar­ket returns, his­to­ry teach­es us that these things go in cycles. There are good years and there are bad years, and there have always been good years and bad years, and we’re hav­ing a bad year, so there­fore we think there will be a good year maybe next year, maybe the year after? But cer­tain­ly. 

Tony  21:23

Maybe next week. 

Cameron  21:24

Yeah. The mar­ket’s up since Sep­tem­ber, right? Like, I’ve been say­ing this for the last cou­ple of weeks look­ing at the peo­ple who capit­u­lat­ed at the end of Sep­tem­ber, who start­ed, you know, at the begin­ning of the pre­vi­ous Sep­tem­ber when the mar­ket was at its peak and then capit­u­lat­ed this Sep­tem­ber when the mar­ket was at its bot­tom, and then it picked up in October/November. The mar­kets up, right.

Tony  21:51

That’s the oth­er thing, too. Expe­ri­ence tells me that when peo­ple capit­u­late it’s prob­a­bly get­ting close to the bot­tom. May not be, but again, my expe­ri­ence is that capit­u­la­tion is a sign that things are about to get bet­ter, usu­al­ly. 

Cameron  22:03

Yeah.

Tony  22:04

Unfor­tu­nate­ly. It’s unfor­tu­nate for them, but for­tu­nate for us. It’s just basic maths, I mean, noth­ing’s gonna go up in a straight line. It can’t, there’s too many inputs into the econ­o­my to make things con­tin­u­al­ly go up at 10% year on year. To give you that aver­age, and know­ing that the econ­o­my is going to oscil­late, and that over time it’s gonna go up, yeah, it’s got to have peri­ods of under­per­for­mance and then peri­ods of out­per­for­mance to catch up. It’s basic maths.

Cameron  22:30

So, the bot­tom line is don’t lis­ten to pre­dic­tions about the econ­o­my, even when it’s com­ing from the RBA.

Tony  22:37

Gov­er­nor of the Reserve Bank of Aus­tralia. Yes, that’s right. And we’ll put him in the class that he belongs in, which is he’s an econ­o­mist.

Cameron  22:48

Don’t lis­ten to econ­o­mists, don’t lis­ten to the Lib­er­al Par­ty in Vic­to­ria. Don’t lis­ten to Scott Mor­ri­son when he says, “Oh noth­ing to see here with all of my secret port­fo­lios, it’s fine.” He’s get­ting, what are they giv­ing, cen­sured?

Tony  23:06

Cen­sured. Today or soon. Yeah, big deal. As if that’s gonna hurt. It’s like the peo­ple’s front of Judea. “This will show them, we’ll pass a motion.”

Cameron  23:19

Just speak­ing of more port­fo­lio stuff. So, I had a chat this morn­ing with anoth­er club mem­ber. I won’t call her Bob; I’ll call her Sal­ly. Bob and Sal­ly. Sal­ly want­ed to walk through her port­fo­lio with me just to make sure she’s not doing any­thing obvi­ous­ly wrong. Now, the chal­lenge is, well, the first thing I do with these peo­ple when they say “hey, can you have a look at this with me,” is I look at their port­fo­lio returns over what­ev­er peri­od they’ve been invest­ing with QAV, and then we’ll look at our dum­my port­fo­lio over the same peri­od. Because my think­ing is that over the same time­frame, if you’re fol­low­ing the rules, then our per­for­mance should be rough­ly sim­i­lar over a set peri­od of time, right? There’ll be some anom­alies, but it should be with­in the ball­park. And in Sal­ly’s case, I think, she’s only been going for about six months with QAV. I think in that six-month peri­od, our port­fo­lios down about 5%, but hers was down about 15%. So, I was like, “oh, that’s dra­mat­ic. We should have a look at what’s going on.” But when I was look­ing at her trans­ac­tion his­to­ry, she seemed to be doing a pret­ty good job sell­ing stuff when she should have sold it, like at the 10% lev­el, 10/11/12%. There were a cou­ple of anom­alies where she got out a bit slow­ly, but most of it was pret­ty good. But it was real­ly tricky because — I think she was she was track­ing it in Share­sight — you look at the stock, where they have the sum­ma­ry of the per­for­mance of each stock, and there was one, I think it was Bendi­go Bank, it said she’d lost 25% on Bendi­go. But when we drilled down into the trans­ac­tion his­to­ry, it was only about 12%, but Share­sight are annu­al­iz­ing that.

Tony  25:12

Ah, right. Okay.

Cameron  25:15

12.5% in six months, but that’s 25% over a year. Makes it real­ly hard to run your eyes down over a list to see where it’s going wrong. So, any­way, I asked Sal­ly to check with Share­sight about how they’re cal­cu­lat­ing these and we’re going to have anoth­er ses­sion on it. But yeah, I mean, annu­al­iz­ing num­bers makes it a lit­tle bit… I mean, Navexa annu­alise our num­bers as well, but it makes it a lit­tle bit tricky for me to fig­ure out where peo­ple might be going wrong. But I was just won­der­ing if you had any thoughts or insights on how to do that?

Tony  25:49

I think, from mem­o­ry, prob­a­bly think­ing of Share­sight which is the prod­uct I use, Navexa prob­a­bly has a sold secu­ri­ties or per­for­mance report that you can prob­a­bly run and get the actu­al buy price and sell price for a secu­ri­ty, or buy price and cur­rent price. And then you can work out what the per­for­mance is with­out annu­al­is­ing it.

Cameron  26:09

Well, that’s what I sug­gest­ed to Sal­ly. I said, “send me a full list of the trans­ac­tion his­to­ry and I’ll drop them into a spread­sheet and run some analy­sis over it.” But there was anoth­er crazy one, like GRR, I think, she had, where when I broke down the trans­ac­tions, she actu­al­ly made a prof­it on it but it was say­ing she lost 52%. But again, it was like if you look at it in a six-month peri­od, I think she bought GRR in Jan­u­ary and got a div­i­dend in March, but her port­fo­lio was only ful­ly invest­ed in May. You know, she had fif­teen or twen­ty stocks or what­ev­er. So, when Share­sight looks at the last six months, like six months ago GRR was rid­ing at a mas­sive high, it was like at its peak, and then it col­lapsed. So, if you look at it in just a six-month peri­od, she lost 52%, but if you look at her trans­ac­tion his­to­ry with GRR going back to Jan­u­ary, she made a prof­it on it. But if you just look at it from May onwards, which is what Share­sight does, if you say, “just give me my port­fo­lio per­for­mance in the last six months,” it goes, “you lost 52% on GRR.” She did­n’t, she made a prof­it on GRR, but some of that div­i­dend came ear­li­er and she bought at a low­er rate. It’s real­ly hard to get some clean num­bers on these things with­out doing it your­self, drop­ping it into Excel. Any­way, I just want­ed to flag that for peo­ple to be care­ful when you’re look­ing. Because I know for Sal­ly, she was like, “oh god, that makes much more sense.” And I get caught out on it as well all the time, these annu­alised num­bers over short time­frames, they extrap­o­late what that prof­it or loss would have been if it had con­tin­ued that trend over a year when that’s not what’s hap­pen­ing, you know? Any­way, heads up for peo­ple out there. When you’re look­ing at your num­bers, take into account the annu­al­iza­tion of prof­its and loss­es.

Tony  28:04

It’s good that you’re there with your expe­ri­ence to be able to do a san­i­ty check on those things, because these tools are so pow­er­ful. I’ve fall­en into that trap myself using Share­sight just run­ning a report, and going “okay, that’s doing real­ly well” or “that’s not doing very well.” But you’ve got to drill down and work out, if that does­n’t look kosher to you, just try and work out why. Is it the report­ing peri­od, is it the way that it’s cal­cu­lat­ing CAGR, or what­ev­er.

Cameron  28:28

Speak­ing of port­fo­lios, the dum­my port­fo­lio as of today since incep­tion is up near­ly 16%, 15.78, ver­sus the STW up 7.5%. So, again, track­ing well, we’re about dou­ble the index over that peri­od of time. All things as they should be, Tony.

Tony  28:50

Good. Job done, let’s go. 

Cameron  28:54

What have you got on your list of things to talk about, TK?

Tony  28:56

A cou­ple of things. So, it’s AGM sea­son, we’ve had a few AGMs for some buy list stocks and I’ve not­ed that Qan­tas had its sec­ond upgrade in about a month. Qan­tas is on the buy list, and I own it, so hap­py days for me. Which is good, because it costs so much to fly with them, so I can see how their prof­its are increas­ing. But any­way, Qan­tas has had an upgrade, and I think you’ve post­ed on Face­book CLX had an upgrade, CTI Logis­tics also had an upgrade.

Cameron  29:26

Boom. Boom times for peo­ple who own CLX, it’s had a great week.

Tony  29:31

Yeah, right. So, yeah, so it can’t hap­pen at this time of the year, the com­pa­nies have had enough trad­ing now for this finan­cial year to be able to con­fi­dent­ly pre­dict whether they’re going to be up or down at the end of the finan­cial year. So, that’s good. I men­tioned last week I was talk­ing about Self­wealth and fol­lowed up about the leav­ing your mon­ey with them, and I said the deposit guar­an­tee was $200,000. It’s actu­al­ly $250,000 for banks in Aus­tralia. So, just a quick update on that. And last­ly, I know we’re a bit light on ques­tions this week, but I’m gonna answer a ques­tion, or just com­ment on a ques­tion, I heard some­body else ask on a dif­fer­ent pod­cast. It was around fixed bank loan rates, and the ques­tion was about whether… So, peo­ple are rolling off their two-year fixed rates from a cou­ple of years ago, when Philip Lowe was say­ing inter­est rates are gonna be low for a long time, and they’re try­ing to decide whether they need to go vari­able at quite a high rate or try and fix some­thing again. I just want­ed to talk gen­er­al­ly about this deci­sion that needs to be made, and it does­n’t just hap­pen now, it’s a ques­tion for any­one who’s bor­row­ing mon­ey in the hous­ing mar­ket. But I guess my obser­va­tion over the years is that, how do you know where rates are gonna go? Well, you don’t, because that’s fore­cast­ing. But when you decide whether you’re gonna go float­ing or fixed, you’re basi­cal­ly play­ing pok­er with expe­ri­enced peo­ple on the oth­er side in the banks. And so, you can’t lose sight of that. The fact that, when you take out a mort­gage, there’s some­body else on the oth­er side of that mort­gage and the inter­est rate is set by them try­ing to make mon­ey, and they’ve had a lot more expe­ri­ence at it than you have, it just leads me to always look at where fixed rates are going. It’s a good indi­ca­tion of where the peo­ple who do this for a liv­ing think rates are going to go. I know it’s fore­cast­ing and all the rest, but this is, you know, they’re being risk con­ser­v­a­tive, they’re try­ing to keep their jobs and progress their careers. They’re in a high­ly com­pet­i­tive mar­ket, so there’s always pres­sure on them to low­er the rates from their com­peti­tors. But any­way, if you look out along the future spec­trum of rates, they’re stay­ing rea­son­ably flat. So, the cur­rent vari­able rate — I looked up the ANZ web­site, which is who I bank with — for a res­i­den­tial prop­er­ty where you have an LVR of at least 80% or less, so you have 20% equi­ty in the house, the vari­able rate is cur­rent­ly quot­ed as 5.75. And that’s the com­par­i­son rate, 5.75%. So, that’s the one you’re meant to use to com­pare to oth­er banks, because indi­vid­ual banks will have slight­ly dif­fer­ent prod­ucts and they’ll have dis­counts avail­able from time to time in the mar­ket, but cur­rent vari­able rate 5.75%. Fixed one year rate, 5.72%. So, that says to me the bank thinks they’re gonna stay about where they are or maybe go a lit­tle bit low­er than what they are, but not dra­mat­i­cal­ly low­er. Two-year fixed rate, 5.75%, so that’s the cur­rent vari­able rate. Three-year rate, 5.87%, so not much above it. Four-year rate is 6.09%. So, 0.35 above it, rough­ly 0.34 above it. Five-year rate goes down to 6.03, but about the same as the four year. Sev­en-year, 6.75%, so 1% high­er than cur­rent­ly. And ten-year, 7.03%. So, one and a quar­ter per­cent above where it is now. So, that says to me that bankers think rates are gonna stay about where they are. And that’s inter­est­ing enough in itself, because regard­less of what the cen­tral bankers say, the com­mer­cial bankers are say­ing, “prob­a­bly no more rate increas­es, but prob­a­bly not com­ing off any­time soon.” My best guide to where inter­est rates are going to be in, say, five years’ time, and the fixed rate at ANZ is 6.09%… Now, bear in mind, they think they’ll make mon­ey if you take out that rate, so that says to me the rates are prob­a­bly going to be a lit­tle bit low­er than that. So, they’ve enticed you into a fixed rate, you’re locked in for five years, and they’re mak­ing a bit of a mar­gin on the cur­rent vari­able rate from there. To me, rates aren’t going any­where at this stage. And look, who knows, but I would­n’t lock in a fixed rate, because the bankers at the oth­er end are say­ing the inter­est rates are gonna remain at this lev­el. So, if you lock it in, you don’t have the flex­i­bil­i­ty of reap­ing any ben­e­fits if they go down. But you’re safe­guard­ed against going up. So, it depends on your per­son­al cir­cum­stances, too; if you’re at your absolute pain point with your mort­gage, lock­ing in for five years at the cur­rent rate might not be a bad thing for you.

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Cameron  1:05:15

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 invest­ment deci­sions.

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