Audio Name: QAV 412
Audio Length: 56:03
[Intro] Cameron Reilly [00:06]: Welcome back to QAV. We’ve just been recording for like 40 minutes and realized we weren’t recording at all, so we’re doing it again.
Tony Kynaston [00:16]: Luckily, we were interrupted so we could check it.
Cameron Reilly [00:17]: Yes, we would’ve kept going. This is episode 412 recorded Monday, the 22nd of March, 2021, still the 22nd of March. I’m up here in Sydney with Tony sitting in his office, hand on his knee, looking out over the rainy Sydney. We’ve got a QAV dinner on here in Sydney tonight and last night we went to the inaugural Australian Whiskey Awards,
Tony Kynaston [00:48]: Which were great. Thank you, Niko.
Cameron Reilly [00:51]: Yes, my mate Niko Devlin put that on, and it was a terrific night. What was your highlight of the night apart from the whiskey?
Tony Kynaston [01:00]: I enjoyed the whiskey. I would think Bill Lark’s, well he’s a whiskey maker from Lark Distillery who was in the inaugural hall of fame with it. And he made a great speech about how he had when he was first starting out back in the eighties or nineties, the distiller from.
Cameron Reilly [01:19]: Glenfarclas.
Tony Kynaston [01:19]: Glenfarclas called him up and said, whatever I can do to help you.
Cameron Reilly [01:23]: In Scotland.
Tony Kynaston [01:24]: Yes.
Cameron Reilly [01:24]: Call him up from Scotland.
Tony Kynaston [01:25]: And he’s in Tasmania and he said, whatever I can do to help you make better whiskey, let me tell you. And so, Bill Lark talked about how he approached the industry in that way and now was helping and mentoring other people and how the industry was collegiate, not competitive, which I thought was really nice.
Cameron Reilly [01:45]: Yes. He said it when the guy introduced himself. Bill said, how can I help you? And the guy said, no, you don’t understand, I’m ringing to see how I can help you make great whiskey. And they were talking about how in Scotland, there’s the sense of friendly, rivals in the whiskey business.
Tony Kynaston [02:01]: Yes
Cameron Reilly [02:01]: How they all help each other out and it’s all about a rising tide carries or ships, the better the whiskey, the more people who appreciate whiskey, more people buy whiskey. And I thought it’s nice to hear that from an industry that kind of sentiment.
Tony Kynaston [02:16]: It is. Yes, it is, and it reminds me of a discussion I had with Phil Muscatello once when I first went on his show and he said, well we’re competitors and I said what? We were both doing investing podcasts, but I was like, no we help each other.
Cameron Reilly [02:33]: Yes. It’s not people are only able to get to listen to one investing podcast. Yes, no, that’s great. So, Yes. Thanks again to Niko. That was a great night and we were on a table with the people from Archie Rose, which I’d never heard of, but apparently, it’s a very successful Bar/Distillery here in Sydney and I think we’ll have to do our next Sydney event at the Archie Rose Distillery.
Tony Kynaston [02:58]: In Rosebery, which is how it got its name. Wasn’t it?
Cameron Reilly [03:01]: Yes.
Tony Kynaston [03:02]: In the middle of Rose Mall or something like that?
Cameron Reilly [03:04]: Something like that. Yes.
Tony Kynaston [03:07]: Archie Rose.
Cameron Reilly [03:08]: Yes!
Tony Kynaston [03:08]: It was good. And I basically got the awards ahead [inaudible 03:09] I think.
Cameron Reilly [03:11]: Yes.
Tony Kynaston [03:12]: For various things?
Cameron Reilly [03:13]: Yes.
Tony Kynaston [03:13]: Good night. But enough Banter!
Cameron Reilly [03:16]: Yes. One of our new subscribers said I love the banter, but I don’t have time, can you cut it out? I said, well I’ll try, No, no, no!
Tony Kynaston [03:24]: Time is money.
Cameron Reilly (03:25): But I did. So, we were sitting at the table sorry, this is banter, apologies to the people who don’t like the banter. But we were sitting at a table, there was one couple that owns a resort in Tasmania and we had a lovely chat too and then there was another guy sitting next to us who sells Rolexes.
Tony Kynaston [03:45]: And he more importantly has a Tequila bar.
Cameron Reilly [03:48]: Yes. Rolexes and Tequila and he had a $27,000 Rolex on his wrist, which I’d had a look at and I asked you if you would spend $20,000 on a watch and you said.
Tony Kynaston [04:00]: No, I don’t even wear a watch. I get the time off my phone, it’s cheaper that way.
Cameron Reilly [04:07]: And you also mentioned that you’d heard recently that the Loch Distillery was coming out with a new bottle and you went to place an order and then found out it was how much?
Tony Kynaston [04:16]: $9000.00 a bottle.
Cameron Reilly [04:18]: And so we ended up having a conversation about your attitude towards spending money. You could afford to buy a Rolex and you can afford to buy a $9,000 bottle of whiskey, but you don’t.
Tony Kynaston [04:29]: Drink.
Cameron Reilly [04:30]: And I said you’re the least flashiest, rich person I’ve ever met.
Tony Kynaston [04:34]: You seem disappointed when you said that.
Cameron Reilly [04:37]: No, I’ve known you long enough. You said, well, I live in a nice house and I drive a nice car and I go, well it’s a Mercedes, it’s an okay car, but it’s not a Lamborghini or a.
Tony Kynaston [04:46]: [inaudible 04:46]
Cameron Reilly [04:48] Maserati. Why don’t you spend more of your money on big bling items?
Tony Kynaston [04:57]: Just does not appeal to me, I don’t know, just don’t see the sense in it. I really don’t.
Cameron Reilly [05:04]: I was trying to figure out is it because you’re trying to be Warren Buffet and drive a 50-year-old car and live in a 60-year-old house you’ve lived in for 60 years. Is it a financial discipline thing? Is it a mindset? Because I remember when I was telling you to upgrade your Mac Book last year and you’re like ugh! you said like you don’t get rich by spending money.
Tony Kynaston [05:23]: And I’ve had nothing but heartbreaks since I’ve done that.
Cameron Reilly [05:23]: Since you got a new Macbook, yes.
Tony Kynaston [05:26]: I’m not a miser in any sort of way.
Cameron Reilly [05:34]: Right.
Tony Kynaston [05:35]: I buy racehorses as you know that’s my passion.
Cameron Reilly [05:37]: Yes.
Tony Kynaston [05:38]: And I play golf and all that and join golf clubs and all that sorts and travel the world.
Cameron Reilly [05:42]: So you’re happy to spend your money.
Tony Kynaston [05:44]: Yes. I’m not like Buffet who says if I save on a new car now, that’s worth a million dollars in 20 years, can’t.
Cameron Reilly [05:50]: Wouldn’t let his wife buy curtains.
Tony Kynaston [05:51]: That’s right. Yes. Did the DCF on curtains.
Cameron Reilly (05:53): Yes. We could spend $10,000 on curtains today or I could invest that and it’d be worth like million dollars. There are million-dollar curtains you’re asking me to buy.
Tony Kynaston [06:02]: Correct.
Cameron Reilly [06:02]: I’m not spending a million dollars on curtains, are you Crazy?!
Tony Kynaston [06:04]: But his wife never says when you get the million dollars, can I have curtains? He still said,
Cameron Reilly [06:07]: Yes. Well, I think he had a million dollars, a lot more than a million dollars when she asked him to buy the curtains.
Tony Kynaston [06:14]: I like to enjoy life along the way. I mean, that’s why I invest it’s to enjoy life.
Cameron Reilly [06:18]: But you just aren’t interested in no bling.
Tony Kynaston [06:22]: Bling, Rolex watches.
Cameron Reilly [06:23]: Yes. Just doesn’t float your boat.
Tony Kynaston [06:26]: No, we buy out and you’ve seen me out.
Cameron Reilly [06:27]: Yes. You Love.
Tony Kynaston [06:27]: Yes.
Cameron Reilly [06:28]: But that’s an investment, in theory, buy your daughter’s art, that’s a good investment.
Tony Kynaston [06:35]: I think it will be.
Cameron Reilly [06:35]: Alex Kynaston, check her out. Okay. well, we don’t have a stock of the week because we were drinking whiskey and we don’t have, well Australian whiskey that’s our stock of the week.
Tony Kynaston [06:48]: No more banter either, We can’t [cross-talking 6:50]. I did buy Commonwealth Bank first during the week, so that can be stock of the week.
Cameron Reilly [06:55]: Right. And you sold Bendigo after just buying Bendigo?
Tony Kynaston [07:00]: Yes, probably a month earlier. And I went back and had a look at it again and either I made a mistake with the buy line or it’s gone back down below its buy line.
Cameron Reilly [07:09]: Right.
Tony Kynaston [07:09]: So, I sold Bendigo soon after buying it may be a month after buying it and swap to the next big-cap stock on the buy list which was Commonwealth Bank.
Cameron Reilly [07:21]: So yes. You think you just jumped the gun there. You don’t normally buy and sell that quickly, but you think you bought and then you thought it had turned around sentiment-wise, but then it kept declining. So, you just said, okay. I jumped the gun on that one.
Tony Kynaston [07:36]: Correct I’ll just call them up and have a look. You can look from this chart, you can see it’s a falling knife basically, but in the last of the war, it’s gone up again; it’s below the buy line.
Cameron Reilly [07:49]: Right.
Tony Kynaston [07:50]: So, Highpoint was back here in January 2017 and then probably that peak there in September would be the next peak.
Cameron Reilly [07:59]: Well, it hasn’t gone above that at all. When did you buy it?
Tony Kynaston [08:02]: Yes, that’s what I thought. So, I think I either made a mistake or it dropped back from last month being up a bit higher.
Cameron Reilly [08:09]: Mid-Month, it might’ve done one of those shares went up and then came back.
Tony Kynaston [08:12]: Yes. I think that’s the case.
Cameron Reilly [08:13]: Right,
Tony Kynaston [08:13]: Yes. But it’s now backed by the buy line and I think also below the sell line too, which is the other reason why I got out of it.
Cameron Reilly [08:21]: Right. It’s got one of these COVID Sell lines.
Tony Kynaston [08:26]: Yes. It’s gone below the sell line as well.
Cameron Reilly [08:28]: Right.
Tony Kynaston [08:28]: Which it just cross recently in the last couple of weeks.
Cameron Reilly [08:30]: So, CBA stock of the week?
Tony Kynaston [08:33]: Yep! Big bank. I think bank stocks are on the improve.
Cameron Reilly [08:36]: Right.
Tony Kynaston [08:37]: Watson Ham coming up on our borrowers now I think with people not being as affected by COVID because of government stimulus, that’s certainly helped mortgage repayments. The banks took lots of provisions against that, which then they’re riding back and I think if interest rates do rise, that will benefit the banks as well. But all that aside there they’re flooding our buyers at the moment.
Cameron Reilly [08:57]: Right. Just purely on the numbers?
Tony Kynaston [08:59]: On the numbers.
Cameron Reilly [08:59]: Yes. Okay. Well, we’ve got a ton of questions this week and one of them just came in this morning on Facebook and I am going to give it a boost up the list because it’s slightly controversial and that’s always good like that. So, Chris posted on our Facebook group, “How is your QAV portfolio performing? I’ve been running a QAV portfolio for just under 12 months, however, I’ve been struggling to track overall portfolio performance as I’ve been injecting cash multiple at times along the way. I know the performance of individual stocks since purchase, but it’s not as simple to track overall portfolio performance as say Cam’s dummy portfolio, which started with a set $20,000 of capital. Anyway, I finally got around to entering all my historic trades in a QAV portfolio and Stock Doctor, which has generated a time-weighted return and a dollar-weighted return since I started. Like a few other club members, I kicked off my portfolio just after the COVID cough. It’s been an interesting time since the 3rd of April last year, my QAV portfolio has returned 35.6% as a time-weighted return or 29.62% as a dollar-weighted return, not bad for just under 12 months. However, I’ve also benchmarked against the All-odds Total Return Index, which as you will see from my Stock Doctor portfolio chart below has returned 40.02% for the same period, so higher than his QAV portfolio”
Tony Kynaston [10:36]: Right, yes.
Cameron Reilly [10:37]: So, his question is what’s up with that? How come his QAV portfolio hasn’t outperformed, the total return index
Tony Kynaston [10:49]: Isn’t double markup, yes.
Cameron Reilly [10:50]: Yes, well it isn’t even meeting the benchmark. So, we went back and looked at the QAV portfolio from the end of March 2020, right about the same time that Chris is talking about through the end of February 2021, which is the last time I did our end-of-month numbers. According to that, the QAV portfolio, since the end of March 2020 through to the end of February 2021 is up 72% versus the All Ords total return index up 39% in the same period, which is about the same as what Chris said. I think he’s probably calculating those numbers as of today so he’s got a couple more weeks in there which is counts for the other percent and so.
Tony Kynaston [11:36]: What’s different?
Cameron Reilly [11:37]: What’s different? Yes.
Tony Kynaston [11:38]: I think the difference is without knowing the detail, I think the Stock Doctor portfolios is assuming that you invested a hundred percent of your portfolio on day one, and so it’s giving you the All Ords performance as if it was a hundred percent invested, which is the 40%, but I’m thinking that looking at what Chris said and his question he hasn’t been a hundred percent invested from day one. So, it looks like maybe he had $10,000 and in day one and put another $10,000 in three months later, and again and again, so the lighter investments are going to drag his performance down.
Cameron Reilly [12:14]: Because you’re only getting three months.
Tony Kynaston [12:17]: Correct.
Cameron Reilly [12:17]: Return on those or six months or whatever right?
Tony Kynaston [12:20]: And the COVID Cough was the bottom of the market. So, if he hadn’t been fully invested there, you will get a higher return. So, you’re comparing kind of like a slow drip average investment over that timeframe with everything invested on day one for the All Odds, so it’s different.
Cameron Reilly [12:33]: Which is why with the QAV portfolio. Like we started the show early 2019, but you’ll note in the portfolio that I do my first end of month comparison after September 2019, because it wasn’t until September 2019 that we had fully invested the original 20,000 pretend capital that we’d set aside for. It took us six months to that’s how hard it was to find a stock back in 2019 [cross-talking 12:59] also it was in late stages of this massive bull run the market had there wasn’t as many buying opportunities pre COVID.
Tony Kynaston [13:08]: Yes.
Tony Kynaston [13:11]: Our first reporting season was that August reporting season too.
Cameron Reilly [13:15]: Yes.
Tony Kynaston [13:15]: So it was that too.
Cameron Reilly [13:16]: Yes.
Cameron Reilly [13:17]: So what could Chris do to get maybe a better comparison between his portfolio and the All Odds?
Tony Kynaston [13:28]: I think if he goes, I’m assuming he’s fully invested now, so you could start comparing it from when he was fully invested, it would be the first way to do it.
Cameron Reilly [13:35]: It’s probably never fully invested if somebody is taking a paycheck and putting it in, they never fully invested.
Tony Kynaston [13:43]: Going out of my way to do it then is to take portions. So, compare like if he had 10,000 for the first two months, compare that performance to the All Ords
Cameron Reilly [13:50]: Yes.
Tony Kynaston [13:50]: And then if he had another 10,000, so he’s got 20,000 invested, compare that to that next period of All Ords
Cameron Reilly [13:57]: Yes.
Tony Kynaston [13:58]: And just kind of wait it at that time.
Cameron Reilly [14:01]: Yes. Right.
Tony Kynaston [14:03]: And then to explain it a bit further, he asked questions about the difference between time-weighted and dollar-weighted.
Cameron Reilly [14:08]: Yes
Tony Kynaston [14:08]: So most personal investors use dollar-weighted or sometimes called money-weighted, which basically means it’s the finishing amount of money for the year minus starting over the starting and that gives you the percentage return. Now in portfolios where there’s more money coming in or money coming in and going out, that’s going to be affected by those movements. And so that’s where time-weighing comes in, which is usually what big fund managers use, because there could be a big redemption this quarter, which affects the amount of money in the fund, which affects their performance figures which makes them look bad. So, they generally try and do time-weigher, which means you take where there was no money or money out, get a return for that take the next period, which might be two or three months where there’s money out and compare that towards the next money comes in and you get this sort of maybe half a dozen different time periods where you add up the returns and then average that for 12 months.
Cameron Reilly [15:08]: Right.
Tony Kynaston [15:09]: So it’s kind of trying to take out the ins and outs of that due to share market performance or investing performance due to money sloshing around.
Cameron Reilly [15:17]: Right. So not really useful for most of us in terms of calculating return.
Tony Kynaston [15:21]: Correct. And then I did want to talk about; the calculation for [inaudible 15:27] Compound Annual Growth call up. You can google it, just google “CAGR Formula” and “Compound Annual Growth Rate”. So, this is more useful if you had your portfolio for a long period of time, because if you just did the finishing position minus the starting position over the starting position, that’s going to give you like an average over the number of years you’ve been in, but you really want to know to compare to things like yours what the average has been per annum over that time period.
Cameron Reilly [16:04]: Right
Tony Kynaston [16:04]: And so, the formula is the final amount over the beginning amount raised to the power of one over the number of years that you’ve been invested for minus one, it sounds complicated, but basically, it’s taking into account that the time effect over the period,
Cameron Reilly [16:18]: By the way, if you can hear any banging in the background, that’s renovations going on next door, but at least it stopped bucketing down outside, we don’t have the rain hitting the window thing now. All right. Well, I hope that helps who is this? Chris? Maybe if you want to shoot me an email, Chris, if you need help working that out, Tony and I can help you work it out and maybe try and do more of a side-by-side comparison, apples-for -apples comparison, see how you look. Another question from Glenn, “Hi Cameron, just wondering with MAH. I noticed that on Friday, the price dropped to 20 cents. When I looked at the daily trade data, it was interesting to see that at 3:59 PM, they had approximately $965,000 of trades at a minimum of 21 cents, then from 4:10 PM, they had 5.6 million trades all at 20 cents. Their average day trade amount is usually $500,000.
It prompted me to check in the announcements, and I found that on the 12th of March 21, they announced they were being removed from the S and P 300 index effective prior to open on Monday. So, my thoughts were the institutional S and P 300 index funds had to sell out their holdings. I’m not sure if this is a question for Tony, but was intrigued about this event and the trade volumes, hope these questions make sense. Is removable from an index, a macroeconomic event that impact on the intrinsic value of the company?”.
Tony Kynaston [17:52]: Correct, it is, Yes.
Cameron Reilly [17:53]: It is?
Tony Kynaston [17:53]: It is not going to do with the company itself. It’s got to do with the market cap of the company.
Cameron Reilly [17:58]: Right.
Tony Kynaston [17:59]: So just this company happens to be on the cusp of an index, between the 300 being in the index or outside of the 300 index which is just circumstance really , not to do at all with the company itself. So, when they rank the top 300 companies again, this quarter, that one fell out, fall out. Yes.
Cameron Reilly [18:19]: Yes. And after pay ends up in their top 10 [cross-talking 18:22] Yes. And something needs to get pushed out.
Tony Kynaston [18:26]: Correct.
Cameron Reilly [18:26]: It’s got nothing to do with how well they’re doing as a business.
Tony Kynaston [18:28]: Correct. Yes.
Cameron Reilly [ 18:30]: [cross-talking: 18:31] size.
Tony Kynaston [18:31]: But it does raise a good point. You could check before you buy to see if there is an index free weighting, coming up. And I get where they occur on the quarter, March, September, et cetera.
Cameron Reilly [18:40]: Right.
Tony Kynaston [18:41]: So generally, though I find it goes the other way for out our stocks as they’re generally rising and they go into the index and we get a boost, but this is one where it didn’t happen that way.
Cameron Reilly [18:52]: In 30 years, how many times have you seen it gone this way?
Tony Kynaston [18:54]: MAH ?
Cameron Reilly [18:54]: Yes.
Tony Kynaston [18:58]: There’re probably some other ones, but Yes, I haven’t seen it much at all.
Cameron Reilly [19:00]: So it’s not a common thing, but it is something you could put in a checklist and test for.
Tony Kynaston [19:05]: You could, Yes, and I’ve also seen cases where they come out of the index, it doesn’t make any difference to the share price.
Cameron Reilly [19:10]: So maybe before you buy, you can check their announcements and see if there’s anything like this showing up.
Tony Kynaston [19:18]: Yes, definitely. That’s worth doing and it’s got to do with the market cap and average daily traded too. So, this one I know in the question that Chris had average daily traded was 500,000, Stock Doctor is showing 200,000.
Cameron Reilly [19:31]: Right.
Tony Kynaston [19:31]: So, if someone traded $5 million on Friday, it’s going to crunch it down.
Cameron Reilly [19:35]: Yes.
Tony Kynaston [19:36]: But these sorts of things tend to be short term. So yes, there is less buyers in the market for the stock now, but that’ll just mean the price is depressed and it becomes even a stronger buying opportunity for other people.
Cameron Reilly [19:49]: Yes.
Cameron Reilly [19:50]: Reversion to the main?
Tony Kynaston [19:51]: Yes.
Cameron Reilly [19:52]: We would expect?
Tony Kynaston [19:52]: Yes. So, look, it’s not something I worry about normally.
Cameron Reilly [19:56]: Right. Thanks Glenn. This one’s from Mark, “Hi Cam DSK is an interesting addition to the buy list. It only has six months of data. How does Tony make buy decisions in such cases?”
Tony Kynaston [20:10]: Yes, well, DSK was when I made stock at the week of a while ago, and it’s a retailer of smelly bath bombs and, the slopes and things, which my daughter was addicted to when she used to live with us and probably still is. But Yes, it’s listed towards the end of last year, which means we have their six-monthly figures soon after listing, which is a nice thing to have. Oftentimes you have to wait until the next maybe six months until you get the figures coming out, so you can’t do a full checklist on them. So, you can’t do things like six PEs or six halves of increasing equity, but you can still do the rest of them price to operating cashflow, dividend yield, all those kinds of things, directors’ holdings. So, it’s an abbreviated checklist, but it’s still worthwhile, still worth investing on. And this Diaz care reminds me of when Colston marched out of Wesfarmers and listed on the stock exchange by itself. Same thing we had knew six months to go on, but it was a biomed checklist and has done well since then.
Cameron Reilly [21:13]: Right. So, you just look at it like you would any other stock look at the numbers, et cetera.
Tony Kynaston [21:17]: Yes. So, if you recall a checklist only adds up the numbers, but works out how many things you have scored. So, you get a percentage of the [inaudible 21:27] universe, I guess.
Cameron Reilly [21:27]: Right.
Tony Kynaston [21:28]: Yes.
Cameron Reilly [21:28]: So the fact that it doesn’t have a consistently increasing equity score, lowest dividend score, just nets out at the end of the map.
Tony Kynaston [21:36]: Lowest PE Yes, correct.
Cameron Reilly [21:43]: Thank you. Gary says “On the checklist for new three point up turn since last report in the manually entered data tab, does Tony score a zero or leave blank after current reporting season is so new or still looks back to previous reports? ” So, I think what Gary is saying is if the reports just come out in February and we’re looking at it a week later what timeframe are we looking at for the recent upturn?
Tony Kynaston [22:16]: I’m going back to February, so basically from the end of January. So, the reporting period, the most recent reporting period. So, it’s now 22nd of March. I’ll look at the graph and whether it’s gone up or not since February since the start of February,
Cameron Reilly [22:30]: Start of February.
Tony Kynaston [22:30]: Yes.
Cameron Reilly [22:31]: So the end of the period closes in December?
Tony Kynaston [22:36]: Yes. I think it’s around in February.
Cameron Reilly [22:38]: Right.
Tony Kynaston [22:39]: So, it’s the start of February as well.
Cameron Reilly [22:42]: The start of February.
Tony Kynaston [22:42]: And that’s because even though it is supposed to be continuous disclosure, confession season, can really start before the figures are out and that usually happens in the last weeks of January, first weeks of February, and so I’ll go back at that end of the start of the month of the reporting season. So started February and started August.
Cameron Reilly [23:04]: And what we’re trying to find here is if the stock has suddenly change direction, jumped up after the new figures have come out, we want to get in on that.
Tony Kynaston [23:15]: Correct. Exactly.
Cameron Reilly [23:17]: Or at least give them an extra point for that.
Tony Kynaston [23:19]: Correct.
Cameron Reilly [23:19]: We don’t make a buying decision based on that loan, everything else is looking good. That gives it an extra tick. Thank you, Gary. Petra, “Question about share buybacks. I have noticed S32 has put out a lot of announcements about buying, back its shares throughout March. They seem to relate to an earlier announcement of its intent to buy back shares over a longer time period. Can Tony please unpick? What is going on generally when a company does a share buy back over what period these can relate to whether this is something we should be considered, how to find all the intentions of share buybacks, which may not be on the ASX announcements anymore, but can still be exercised and then specifically what S32 might be looking to achieve?
Tony Kynaston [24:05]: So, they’re looking to achieve an increase in the shareholders’ returns. So, a share buyback won’t change the underlying company, but the directors have looked around and said, we have this much free cash to allocate this year to spend, we can invest that in buying another mining company, we can invest it in replacing our mining equipment or expanding our drilling or we can buy back our shares. And they’ve said that the best use of our capital or our best way to allocate that capital is to buy back our own shares. Why is that a good thing? Well, it’s a good thing because there’s less shareholders in the market getting a share of dividends, getting a share of the earnings per share. So that all goes up and all things being equal, having a shareholder means the share price is improving as well.
So, a couple of things Petra might want to go back and read Warren Buffett’s and other shareholders, the most recent one, where he talks about Berkshire Hathaway buying back its own shares. And he’s said in the past that if he’s buying shares in Berkshire Hathaway, it’s a good indication that he thinks it’s undervalued. So, people should be buying shares in Berkshire Hathaway, so that’s the first thing. The fact that the directors of Saturday too, are buying shares in South 32, suggests that they think it’s a good value and they have confidence in the future of the company. Otherwise, they’d be wasting their money as well and Warren Buffett also spoke about his 5% stake in Apple, which has become, I think, 7% over time, even though he’s out by no more cash. And there has been buybacks by Apple and they’ve canceled the shares so, he now has a bigger stake in it. So, he’s creeping up the register without spending any money, which is a good thing too, as if you’re a shareholder.
Cameron Reilly [25:45]: So I read that in Warren’s report. What I don’t really understand is I kind of get it from a Berkshire perspective. Berkshire is an investment company and why they would say, well, the best investment we can make right now is in our own stock, but for a company like a mining company, like S32, why is that the best thing for them to do with their money as opposed to buy a mine, or I don’t know, built new facilities?
Tony Kynaston [26:08]: Yes. Well, they looked around and said, that’s the best thing to do. So, I’m guessing that like a lot of the other mining companies that are on our buy list, they’re all benefiting from the upturn and commodity prices in the last few months. And so, I’m guessing that the mining companies that they might want to acquire becoming more expensive so they said, no, we’re not going to buy any.
In terms of where they are in their own business, I’m not sure, but they would be comparing, say expanding a mine and what the value of that might be over time versus buying own shares at the moment, and sort of just done a simple calculation and think it’s better to buy their own shares.
Cameron Reilly [26:48]: But why is that a good thing for them to buy their own shares? How does that make it a better business?
Tony Kynaston [26:53]: It doesn’t affect the underlying business. So, they’ll still be the same number of mines, they’ll still pump out the same gold, silver, whatever they’re doing, but it’s better for shareholders. So, if you think about the coffee shop example, so the directors of South 32 are working behind the counter at the coffee shop, they own it. They have lots of money coming in because the coffee shops going great, but they look around and they say, well, we don’t need to replace the cappuccino machine. The place had a paint last year, we don’t need to spend money on improving how it looks. But I’ve got this cash, I can put it in the back. I can go and try and buy a competitor down the street, but the coffee shops are booming now. So, it’s not the right time to buy them or I can go to my 10 shareholders with me, 10 partners and say, does anyone want to sell? And if I spend my money doing that, then the other nine that are left, have a bigger share of the profits from the coffee shop and therefore the next time someone gets bought out, it has to be for a high price.
Cameron Reilly [27:55]: So, when a company does a share buyback, they are literally eliminating those shares,
Tony Kynaston [28:02]: Correct? They’re buying them and canceling them.
Cameron Reilly [28:04]: Right?
Tony Kynaston [28:05]: Yes.
Cameron Reilly [28:05]: So the existing shareholders own a greater share of the company. Therefore, they get a bigger profit distribution and the company would do this because they have a fiduciary responsibility to do what’s best for the shareholders?
Tony Kynaston [28:20]: They do. It’s supposed to act in the best interest of shareholders.
Cameron Reilly [28:23]: Right.
Cameron Reilly [28:23]: And if they conclude that reducing the number of the shares on the market is the best thing, they can do to financially reward their shareholders. That’s what they do.
Tony Kynaston [28:32]: Correct. Yes. Right. So, it’s generally seen as a good thing. Under the continuous disclosure laws, they have to announce that they’re thinking about it. So that’s why they put out an ask and saying the next six to 12 months, we’re going to consider buying our shares back, and then they tell you, they usually announce it afterwards after they bought them back, how much they bought in at what price.
Cameron Reilly [28:51]: And this can go on for a long period of time. Petra’s asking, “How do you find out if this is something that they’ve maybe announced a six months ago or a year? And what do you just have to look back over the announcements?
Tony Kynaston [29:02]: You do Yes.
Cameron Reilly [29:02]: And what would you bother?
Tony Kynaston [29:05]: No,
Cameron Reilly [29:06]: Cause it’s a good thing, right?
Tony Kynaston [29:08]: It’s a good thing, Yes. Definitely. And again, it’s certainly the case that companies I invest in, I probably shouldn’t say regularly, but often have share buybacks because the director is also considered value in the companies.
Cameron Reilly [29:20]: You’ll buy it when it’s undervalued, they realize it’s undervalued.
Tony Kynaston [29:24]: And just like sometimes the companies we buy get taken out by somebody else for the same reason, [cross-talking 29:29] what’s the value. And it’s actually a good takeover defense too. If the directors of South 32 didn’t do something close the share price, then they could be taken out.
Cameron Reilly [29:39]: Yes. Hope that makes sense Petra. Here’s one from Alice, Alice says, “Hi. I recall in a previous podcast, Tony mentioning about DPS versus EPS, doughnuts per salesman, versus dividend per share versus earnings per share and he said that if DPS is greater than EPS, this is a red flag. There are a couple of stocks on the buy list where DPS and EPS are nearly the same, AX1 has a DPS of 12 cents, an EPS of 13.7, 8 cents. And FBU has a DPS of 9.5, 4 cents. And an EPS of 9.27 cents. Is this a cause for concern? ”
Tony Kynaston [30:25]: Not necessarily. It’s not something I like, but some companies get run like an infrastructure type company and what I mean by that is if you look at, there was this company called Australian Pipeline Trust, which is, I think still listed, maybe taken out by an overseas buyer. But anyway, for a long time or all that company does is pump gas from one part of Australia to another part of Australia. And so, the directors of that company realized they’re not going to get great growth out of it, but it’s profitable. So, they pay out most of their income in dividends as a way of getting money back to shareholders. And so that’s an infrastructure type company, that’s often how they run. So sometimes a company like AX1or FBU is managed as if it was an infrastructure type company. So, what it’s basically saying is the directors have formed a view that they’re not seeing much growth in the industry. So, they’re paying out their profits as dividends. I don’t like that because I think companies should be reinvesting in themselves. Again, it’s kind of a vote that the company is not worth investing in because the directors aren’t taking their money and putting it back into the company, they’re taking and give you as dividends to shareholders, so I’m not real fan of that. If I look at AX1 which is a shoe retailer, the Accent Group, I’m just going to go back over their history. They sometimes, this can be a short-term thing, just want to check that out. So, here are we earnings per share? So, I’m in Stock Doctor at the moment I’m in the financial statements section and I should see payout ratio here somewhere.
I can just find it for a minute, Dividend payout ratio. So Yes, it’s AX1 paid out near enough to 86% and then it’s been around that sort of 85 to 90% for as long as we can go back. So, it’s a high dividend yielding company, but they’re not putting money back into the company, which I don’t think is a great thing. Now, there could be doing it by borrowings or capital risings, but that’s again, a strange way of doing it. So as much as it scores on the checklist, it’s not a company that I particularly light for that reason.
Cameron Reilly [32:40]: Can you explain the Dividend Payout Ratio to me? What does it mean?
Tony Kynaston [32:44]: It’s the earnings per share over the dividend per share?
Cameron Reilly [32:46]: Okay.
Tony Kynaston [32:46]: So it’s 9.7 [inaudible 32:51] 13.78 cents per share, end of this December, half dividends.
Cameron Reilly [32:56]: 12 cents, according to ours.
Tony Kynaston [32:57]: So almost all being paid as dividend. The ones that particularly worried me were Telstra, and sometimes the banks in the past where they’ve actually had dividends higher than their own, earnings per share and they’ve had to borrow or take from equity to pay out those dividends. And that’s another risk with a company like this is that the people get used to the sort of dividend income they’re getting from it and if they have a bad half, the directors will want to keep paying the same level of dividend, even though they can’t fund it from earning. So, they’re funding it from equity or they’re funding it from borrowings.
Cameron Reilly [33:31]: How was this intrinsically different though? From the situation we just talked about, share buybacks, they’re going well, we don’t have anything better to do with the money. One hand we’ll buy our shares and cancel them out, on the other hand, we give the money back to the shareholders. How are they intrinsically different? You said first was good. This is bad.
Tony Kynaston [33:50]: I think so. Yes.
Cameron Reilly [33:51]: But how are they intrinsically different?
Tony Kynaston [33:53]: Well, one is the inverse of the other one.
Cameron Reilly [33:55]: But they’re both giving money back to the shareholders effectively.
Tony Kynaston [33:58]: Oh, sorry. Okay. The share buyback people, aren’t giving money back to the shareholders that they’re South 32 is buying back shares, which improves the share price for this year.
Cameron Reilly [34:09]: Same thing you’re doing. So, you’re taking your cash and using it to benefit your shareholders.
Tony Kynaston [34:15]: It’s the same thing in that respect. But on the one hand, South 32 are saying, Hey, we’re a good investment. We’re undervalued on this side of things that the directors here are saying, we don’t need that money to open new shoe stores or whatever. So, we’ll give it back to shareholders as a dividend, which is much more like an infrastructure company. Typically, you see this in low growth industry. So, Telstra, for example, is a classic example. There is no growth in telecommunications besides CPI and population growth in Australia, so they pay out at a high-level of their earnings per share as dividends back to shareholders,
Cameron Reilly [34:50]: Right.
Tony Kynaston [34:50]: The reverse is like Berkshire Hathaway, where they pay nothing out of its dividends never have because they want to take all the money that they make and buy other companies.
Cameron Reilly [34:57]: Right. So, whilst on one level, it’s the company taking their money and using it to benefit the shareholders. The share buyback plan says, what we think is shares are undervalued right now so we can use this money to benefit the shareholders. The second case they’re saying we’ve got a lot of cash, and we really can’t do anything productive with it, including a share buyback, so here just take our money.
Tony Kynaston [35:25]: Yes. I wouldn’t be surprised if a company like this being a shoe retailer, if they get presented with an acquisition, for example, they might raise money to fund it rather than doing it from retained earnings.
Cameron Reilly [35:36]: Right.
Tony Kynaston [35:37]: So that’s something else to watch out for. Look, it’s a really good question. A good analysis from Petra, I’ll think about it again, incorporating it with the checklist. I haven’t at the moment because, there’s lots of other things to like about this company, but it could well become something that I look at.
Cameron Reilly [35:55]: Okay. Thank you, Alice, hope that helps. Who’ve we got here, Calvin, “Hi Cameron, just a quick one regarding qualified audits. If a company has an annual report with a qualified audit in it, and then releases a half yearly report without a qualified audit, how would you score that on the checklist? I was looking at IGL – IVE group limited or IGL, which is IGE group limited. I actually made a mistake upon review. I was looking at their half yearly report. I was reading the company’s half yearly results page, although having found their half yearly report, it states that they have not conducted an audit, just a review of that half yearly report. Would you score the audit section on the annual report or the more recent half yearly report? ” Shouldn’t the half yearly report reflect the qualified audit.
Tony Kynaston [36:47]: Yes, it does. I’ll just come into a code is IGL, IVE group is the company name. So first of all, the things to note are that the annual report is obviously annual, so you don’t get a full report, the half yearly mark and the audit is usually just done annually as well, or it’s done annually and that’s when you get a technically qualified audit. However, the half year figures also have to be reviewed by the auditors and they’ll qualify it. And they’ll say, they’re not doing an audit, but they will say if there’s a problem. So, you just call up the half yearly report appendix for the half year results for December 31, 2020. Okay.
I’ll skip down to the bottom, which is where the auditors will have their blue and, in this case, okay. So, KPMG were the auditors, they have a conclusion. So, the conclusion says that they do think the reports give a fair and true value and comply with accounting standards. They give you their basis that conclusion and they say, based on our review, which is not an audit, we have not become aware of any matter. That makes us believe that the interim financial report of IVE Group limited does not comply with the corporations’ act of 2001. There’s nothing else there that has changed. If there was a problem, they will have to call it out and put it below that in the financial report. So I am using the half yearly report in this case, interim financial report to base my decision that there is no qualified audit for IGE.
Cameron Reilly [38:27]: But it sounds like there was one,
Tony Kynaston [38:30]: Sorry.
Cameron Reilly [38:31]: IGL.
Tony Kynaston [38:32]: IGL Yes.
Cameron Reilly [38:33]: It sounds like there was one.
Tony Kynaston [38:34]: There was one in the annual report.
Cameron Reilly [38:37]: And now there’s not one. So, it’s gone away.
Tony Kynaston [38:40]: Correct.
Cameron Reilly [38:41]: Okay so to answer Calvin’s question if there was one in an annual report, but there’s not one in the subsequent half yearly report, then we assume it’s been taken care of.
Tony Kynaston [38:51]: Correct.
Cameron Reilly [38:52]: Yes.
Tony Kynaston [38:53]: I’ll just call up the annual report and find out what David didn’t like about it. Here’s the audit section. No, I’m not seeing it qualified or [inaudible 38:58]. Okay. So, in our opinion, you coming financial report of the company is in accordance with the corporations act the basis for their opinion and key audit matters. I think it wasn’t a qualified audit Yes, I’m not seeing a qualified audit for IGL.
Cameron Reilly [39:14]: Alright, well.
Tony Kynaston [39:16]: That aside we are using every six months as the report to look now.
Cameron Reilly [39:23]: All right. If you think we are missing something like that, let us know Calvin. Jamie, “Hi Cam, I’d be interested to hear Tony’s view on the Vocus takeover by Macquarie. In this situation, would he normally take the approximate bid price and sell now to reinvest elsewhere or rather wait a few months until completion of the takeover, hold on to receive new company’s shares in the instance you own MQG and VOC, how does he weigh up the outcome? Would you just end up owning more Macquarie effectively?
Tony Kynaston [39:57]: Well, yes, but I think it’s actually like a joint venture of that Macquarie, one of Macquarie’s funds is doing it. I don’t think you’re getting Macquarie shares and just take over, but it was a whole playbook for takeovers. So just to give you some background on this, I’ll just call up their announcements and get what the announced the bid price was. And again, this is a scheme of arrangement on the 9th of March at 5.50 per share. So, I can store the consortia, including Macquarie infrastructure and real assets, which is a managed fund run by Macquarie group and aware, super have put a log debit at 5.50 per share. So that’s generally seen as being the opening salver in this, and I’ve looked at the share price today, it’s 5.44. So, what the market’s saying is that they’re not a hundred percent sure that the bid’s going to go through yet. What could stop it from going through? The directors will usually at this stage go and get the company independently valued so they can make a recommendation to shareholders to say, 50 years ago, it was a fair price or not. And then they’ll go after that and say, therefore, we recommend in the absence of a higher offer that you accept what else could happen. It could be another bid that comes in and as the third thing is, there’s been cases, particularly in Vocus past where the builder has walked away for whatever reason, like, new results come out or they’ve had done some further due diligence and that what they’ve seen. So, the first thing to note is that the share price, isn’t that the big price. So, you really taking the risk of that the bidder walks away versus the risk of the big going through or another big coming along, and that’s the kind of dance you do on these circumstances.
So, I generally would wait at the stage and wait to see if we’re getting up closer to 5.50, when the share price gets up to that sort of 5.48, 5.49 type number that’s really the market saying, we think it’s going to go through, but we’ll take our money now rather than waiting for the month or two to get the check from Macquarie infrastructure fund. But I would say that at that stage, you don’t need to hang around for the extra 1 or 2%. And that’s generally when certain funds will come in and they’d play at time of arbitrage where they’re happy to buy 5.48 and get the check at 5.50 and that’s 2 cents a share for them. If they, do it enough times, they make their above index return or whatever they hope to get. So, at the moment I’d be holding and I’d be saying, watch it and look for more information to come out.
Cameron Reilly [42:33]: Right.
Tony Kynaston [42:35]: Okay. And as for, Yes, I don’t think you’re going to get shares in Macquarie Group anyway, if you do hold these. So, I wouldn’t worry about that, but even if you did, I’d be happy holding more of Macquarie Group it’s on the buyer list.
Cameron Reilly [42:45]: Yes.
Tony Kynaston [42:46]: I’ll be fine with that.
Cameron Reilly [42:47]: Cheers Jamie! Another question from Jamie, which we’ll leave for next week. Dave, ” Hi, Cameron. Just wondering now, the reporting season has ended. Could you ask Tony, or maybe the intern to run the QAV filter over the ASX 200 or ISX 300 and suggest which stocks have the highest QAV scores by those that would come closest to meeting QAV criteria. It would help those who want to make a portfolio of largest stocks. Many of us can invest in some QAV Buyer stocks because the average daily trade is just too low. Thanks, Dave”.
Tony Kynaston [43:23]: We do publish the average daily, traded them out in the Buy list, so.
Cameron Reilly [43:29]: Just sort by that?
Tony Kynaston [43:30]: Yes. Have a look at that day. Yes. That’s how I do it, I go down the list until I find a stock that has a big enough average daily trade for me to buy in.
Cameron Reilly [43:38]: Right.
Tony Kynaston [43:39]: Yes.
Cameron Reilly [43:40]: And that list does include all the ASX 200 and 300 includes the entire index, right? Yes.
Tony Kynaston [43:45]: Fortescue Metals, CBA. It’s got, big companies as well as all the small ones as well.
Cameron Reilly [43:50]: Right. Well, I hope that helps Dave. Ben, this is our last question. Ben says, “Hi, Cam and Tony given the recent discussions about sell lines and Tony’s musings a couple of episodes ago about looking at other chart-based indicators on when to sell, especially in cases where the three-point trend lines incredibly low and could wipe out any gains and then some, I thought I’d drop you a line in relation to the use of a short term, moving averages, crossing longer term moving averages. I noted that this is what SD max is. That’s a thing on Stock Doctor for people who aren’t on Stock Doctor yet. My suggestion for discussion and research in particular is the use of what’s known by the dark sorcerers of technical analysis as the golden cross in a rising stock or death cross in a falling stock put simply without the mumbo-jumbo magic spell names. It’s when a 50-day moving average crosses the 200-day moving average by use to simple moving averages. An example of where this might’ve been useful as NST, which Tony spoke about last week, it had a death cross on the 4th of January 21 at about 1350 when using a five-year daily chart. Yes, I know that there was also one on December 19, most suggesting this is a perfect model. Just another indicator that might be useful. Another example could be FMG where the three-point trend line looks to me to be somewhere around the $5 mark with the 200-day MA is currently around the $19 mark with the 50 day at about 2350. Basically, we’d still need to see a continued decline or for the full below 19-ish and trade sideways for some time before we would see a death cross, but also allowing enough time for the share price to recover all in all my thinking is that the use of a death cross gives us an idea of more recent market sentiment that is still looking over a reasonable timeframe and could be applied in cases where the three-point trend line might be considered to be extremely low. Cheers. Ben”
Tony Kynaston [45:56]: Thank you, Ben. Thanks for bringing death crosses [cross-talking 45:58].
Cameron Reilly [46:00]: Yes, we love that
Tony Kynaston [46:01]: Things I don’t like about SD max and that’s what the moving average is there, but it’s pretty similar to that. Anyway, it’s not the same is that you get more volatility in your share investing. And if we look up, take any sort of particular company, I’ll just put SD max over it. So, for example, I call up Northern Star, which was the company that we talked about last week and he just mentioned there’s in the last two years, there’s 17 buys and sells in that two-year period. Whereas using the five-year monthly chart, the way that we do it with three-point trend lines,[inaudible 46:41] it all the way through and then sold at the end. So that’s a big consideration for me, is not having to pay lots of capital gains tax on those buys and sells or brokerage, whatnot, or brokerage is as big as big an issue.
Not only are you paying capital gains tax 16 times during that period, but it’s, if you’re holding the shares for less than 12 months, so its double capital gains tax compared to holding it for longer than 12 months.
Tony Kynaston [47:01]: Yes.
Tony Kynaston [47:02]: So, there’re considerations if I take the point down, that’s not ruling it out. I have in the past used that kind of shorter term, moving average as in combination with the three-point trend line. So, in other words, if it was in the three-point trend buy period, but it was sentiment was going down, I’d look at the short-term sentiment like that sort of moving average that he was talking about and if that was a sell then I would sell, but I did try that for like a year or two and it just worked out to be too volatile. And I found myself regretting I’d sold something, which then went up soon afterwards. So, there was that I think the more scope down the moving average, the more volatile it becomes and of course there was all sorts of, maybe the one case where it helped me, there were three cases where I sold something and then forgot about it and moved on to something else, which didn’t go up as much. But the one I sold went up soon afterwards after selling it. So, all that kind of short-term volatility, things come into play. I still am doing some thinking about the three-point trend lines, particularly with commodity businesses. And my thoughts at the moment which I’m looking into is that if you take a company like Northern Star, it used to go back to the commodity price itself and Indexmundi or Stock Doctor or wherever, and look at when it turned upward. So, for gold, it was about four years ago. And I’m thinking that might be the timeline we should be using for the three-point trend line. So, get four years’ worth of data rather than five years, because the five years is giving us a very low sell line and what I’m trying to achieve in all this is to say that the commodity price went up, we know it’s going to come down at some stage because they go in cycles. Let’s just look at that last bit of the cycle and then apply it to the graph [inaudible 48:47] I’ve been looking at that, that seems to be working.
So, I may well do that for commodity prices and I did also do some research into regression to the main, with the price to operating cashflow because my other thinking was if we buy a company that a low price to cash flow, that goes up to a high price to cash flow, maybe we should be lightening after it goes above the average. But what I was finding with these with these companies is that they price the cashflow is all over the shop. So, mining companies in particular, like for a six-month period, it might’ve have had a price, the cash flow of five or six, then it would jump up to a thousand, we’ll come back down to 10. It was like, there was no real sort of gradation in it. So, you didn’t, again, that would lead to volatile selling every six months, which I didn’t like either. So Yes, I’m still working at it. My thinking at the moment is let’s look at the commodity upswing and use that as a time period to judge these sell lines by.
Cameron Reilly [49:41]: Okay.
Tony Kynaston [49:42]: I’ll get back to you after I do some more research on that.
Cameron Reilly [49:44]: There you go Ben hope that makes sense. Well, we’re nearly at an hour.
Tony Kynaston [49:49]: Did you want to go back to that one we skipped from Jamie?
Cameron Reilly [49:51]: Sure.
Tony Kynaston [49:52]: With that exhaustive list of the questions Yes?
Cameron Reilly [49:54]: There’s also a second one from Petra that I throw in the next weeks we can have a crack at those. Okay. which one first, what have you got in front of you, Jamie?
Tony Kynaston [50:05]: Jamie
Cameron Reilly [50:05]: “Hi Cam. Is there a preferred method to balance out tax payable on portfolio gains for the tax year separate from dividends income? IE large winners are generally held long-term, but during each financial year, if you have some small wins along the way, would one remove a few non-performance from the portfolio prior to end of financial year to neutralize one’s net tax position on portfolios? Similarly, would it also be preferred to sell out of larger positions across the end of financial year period to spread the gain into multiple tax years when possible? ”
Tony Kynaston [50:41]: No.
Cameron Reilly [50:42]: I can see why he wanted to do that. That one is quick,
Tony Kynaston [50:45]: Quick, recap. This is not tax advice, please seek your own tax advice. The basics are that if you hold a stock for more than 12 months, you get half the capital gains tax levied on you when you do so.
Cameron Reilly [50:57]: Which is what?
Tony Kynaston [50:58]: Your Top Marginal Rate. Top Marginal Rate is, I think 47 and a half plus is a Medicare living on top side.
Cameron Reilly [51:04]: Right.
Tony Kynaston [51:05]: But Yes, 47 and a half percent. So Yes, that’s a big saving if you just hold it for a year and a day. So, selling it out to try and reduce capital gains tax over a couple of years actually makes it worse because you’re based on the first year, you’re paying more. But assuming that Jamie realizes that he was talking about year two and year three, the thing about capital gains tax is you can carry forward losses so, if he’s held a share the three years and he had losses in year one and two on other shares that he sold, those losses can still be carried forward if they haven’t been used up already to offset capital gains.
Cameron Reilly [51:40]: Right.
Tony Kynaston [51:41]: So that’s the thing to watch is the carry forward losses, rather than trying to spread you or your gains over a number of years. The thing also to which came in and probably the last five, maybe ten years is called the wash rule. Again, get your own tax advice. When I first started investing, it was allowable that if you had gains and losses in your portfolio and you hadn’t sold anything, you could sell shares on June 30th and buy them back on July 1 and try even out those gains and losses and that was in use of the way of managing your tax affairs, that’s now being stopped. So, the tax office became aware of that and that you now have to have a very good reason to buy something back after you sell it and you towards the end of the tax year. So, they will look at someone buying now, selling in June and buying back in July and unless there’s a really good reason, the circumstances of the company changed materially they’ll pay you and want to know why he did that and potentially charge you penalties and taxes on that, so be careful. You could, for example, sell it in June and buy it back later in the year, maybe in December or something like that and put enough time between the trades to say, well, circumstances change and I decided to buy back into it, but you can’t now do what’s called a wash trade. So, your gains and losses in June and buy them back in July to straddle the tax end of financial tax year. So is that, so yes, the only tax minimization I do is when I do sell something that is in profit or look to offset the current losses against it. And if I’m holding onto a share, it’s in the loss, I may well sell that too so I pay fewer capital gains tax.
Cameron Reilly [53:21]: Right.
Tony Kynaston [53:21]: But then I wouldn’t buy it back in July two. Yes. Because of that wash rule.
Cameron Reilly [53:25]: Yes.
Tony Kynaston [53:26]: Yes.
Cameron Reilly [53:27]: Okay. Well, let’s finish with Petra’s next question, “Can Tony cover quickly”, not likely, a summary
Tony Kynaston [53:35]: Yes
Cameron Reilly [53:38]: “Of the various notices that companies put out as announcements and which ones we should pay attention to? Does he take note of these from time to time, especially if he’s considering buying from his list or selling from his portfolio, in addition to the three-point trend line?
Tony Kynaston [53:54]: Yes, I do. As part of my investigations before I buy or sell, I’ll do look at the company announcements usually in Stock Doctor, but you could use the ASIC website as well. But I don’t follow company announcements, like I don’t set alerts to give me the latest announcements from a company it’s more around when I’m thinking of buying or selling and then I’m looking for things like director selling down or some material change in the business, the CFO resigning or whatever, all of those things are important. But if you read the financial review every day, the big-ticket items are going to be picked up and reported on so that’s generally how I will find out things about the companies that I’m invested in.
Cameron Reilly [54:33]: Yes. Right.
Tony Kynaston [54:34]: Yes.
Cameron Reilly [54:35]: Okay. Well, that’s a full lid. Thank you everybody look forward to seeing, I believe Petra’s coming to dinner tonight, so look forward to meeting Petra and her husband tonight.
Tony Kynaston [54:45]: Held off answering right?
Cameron Reilly [54:46]: Assuming we don’t get flooded out before dinner, but it’s looking pretty good right now and we’ll be back next week. Oh, the update on the Flitman model, I’m just waiting on Tony approving my step-by-step instructions for it.
Tony Kynaston [55:05]: And we’re doing that next now.
Cameron Reilly [55:07]: I think we have to.
Tony Kynaston [55:10]: Yes.
Cameron Reilly [55:11]: Yes. We’ll get a coffee and then we will do that. So hopefully fingers crossed, we will get that out to you this week.
Tony Kynaston [55:18]: Hate it when your boss comes to town.
Cameron Reilly [55:19]: Yes, I’m coming in to check up. What’s going on? Kynaston sitting here on.
Tony Kynaston [55:25]: Have to wash the car, probably [inaudible 55:27].
Cameron Reilly [55:29]: Iron a shirt.
Tony Kynaston [55:30]: Yes, Iron a shirt.
Cameron Reilly [55:31]: Oh my God. We had a photographer come in this morning to take some nice photos of us for the website. Took Tony half an hour to find a shirt that was ironed.
Tony Kynaston [55:40]: Never remembered to use an Iron.
Cameron Reilly [55:41]: Defy design, had to go buy an iron, plug it in. Oh God. All right, thank you everyone. Thanks Tony.
Tony Kynaston [55:51]: Thanks Cam. See you in a minute.