Transcript QAV 354

Name of Audio: QAV Episode 354

Length of Audio: 56:58

[Intro] Cameron Reilly [00:04]: Welcome back to QAV, Tony Kynaston Episode 354 recorded, Monday the 16th of November. How are you?

Tony Kynaston [00:14]: Very, very good, thank you. As I said before, a little bit hot it’s a humid day in Sydney today.

Cameron Reilly [00:20]: Yeah, that’s unusual.

Tony Kynaston [00:25]: Yeah. It has been a good winter, but summer is getting very close.

Cameron Reilly [00:28]: Doesn’t get humid in Sydney a lot though. Does it?

Tony Kynaston [00:31]: Not as bad as Brisbane, but it does. Yeah.

Cameron Reilly [00:33]: Yeah. Thought it was more of a dry heat, like in Melbourne.

Tony Kynaston [00:39]: No, it’s kind of halfway in between,

Cameron Reilly [00:40]: Speaking of Melbourne, depending on what happens with Adelaide, I believe the borders might be open for all of us by Christmas, the premiers are saying the national cabinet say. I’m thinking we might plan an event in Melbourne for maybe mid-January. What do you think?

Tony Kynaston [01:00]: Yeah. Well, even a bit earlier, if you can, we’re going down Cape Schanck, I think around December 12 and staying for a month

Cameron Reilly [01:11]: I was talking to Brooke at Stock Doctor-Lincoln Indicators down there last week and I was talking about doing an event and she said, yeah, good luck finding a venue like everyone in Melbourne, Christmas time is obviously usually hard to find venues anyway, which she said, everyone has just come out of hibernation now and all the venues are booked solid, but maybe if we target early January, we might be able to find something.

Tony Kynaston [01:36]: Yeah, I’ve heard the same thing from friends and relatives that because of COVID, they’re only taking like a quarter of the bookings they used to have.

Cameron Reilly [01:43]: Yeah.

Tony Kynaston [
01:43]: And they were giving preference to people who had existing bookings before the shutdown.

Cameron Reilly [01:49]: Which is us! We did have an existing booking,
Tony Kynaston [01:52]: Yeah, we did. You’re right.

Cameron Reilly [01:52]: Have to reach out to our mate who owns the seafood place in St Kilda.

Tony Kynaston [01:57]: Yeah.

Cameron Reilly [01:57]: Where we were going to have our event, whenever that was July? We just did a great interview with Andrew Page, the founder of Strawman; that’ll be out later this week, a lovely chap, had a great chat. Looking forward to using that maybe a little bit more as we go forwards?

Tony Kynaston [02:21]: Yeah. I will do a deep dive into it too. Now I think I know a bit more about it.

Cameron Reilly [02:24]: Yeah, put some of our thoughts up there. But we got a big show today, lots of questions this week, so let’s get into it, but before we get into the questions, I wanted to talk to you about a couple of things. Hawthorne, it’s in our portfolio, took a beating last week. Have you had a look at what’s going on there?

Tony Kynaston [02:52]: Well, not really. I have had a look at it but I think most gold stocks have had a beating in the last because gold price went down and gold is seen as a safe haven in uncertain times. And the market got a rush of blood to its head when they thought there was a vaccine coming and gold price shot down and gold stocks went down. So, my guess is Hawthorne’s been tied up in that right.

Cameron Reilly [03:21]: Right. Well, we’re nowhere near a three-point train line for Hawthorne, but it did come back quite a bit in the last week. So, there you go.

Tony Kynaston [03:29]: Yeah, it has. This is no way a prediction, but my gut says that as soon an outbreak happens again and it will for COVID somewhere where it isn’t already, maybe it’s in Australia, maybe it’s in New Zealand, maybe it’s in the U.K or whatever, or the U.S or Mexico. The thoughts are going to turn back to how uncertain the future is, so I don’t know. I think gold, I wouldn’t write gold off yet.

Cameron Reilly [03:59]: America had over a million new cases of COVID last week, they’re tracking at 160,000 cases a day at the moment. But apparently that’s not bothering the markets, everyone is cool, it’s nothing, be fine.

Tony Kynaston [04:16]: Well, the market looks nine months in advance, it’s usually what it does. And so, it’s saying Biden will tighten things up as far as the spread of COVID and that’s saying a vaccine will help eliminate it, so that’s where the money is going. But as we know, forecasts have an asterisk attached to them, which is may or may not happen. Might not happen the way we forecast.

Cameron Reilly [04:38]: Yeah. Good luck to Biden to getting the red states to wear masks or go on a lockdown. I can’t see that happening.

Tony Kynaston [04:46]: And that’s the problem, isn’t it? Unless you have uniformity, there’s no point even some people locking down.

Cameron Reilly [04:56]: Yeah.

Tony Kynaston [04:56]: It’s still going to spread.

Cameron Reilly [04:56]: Yeah. Anyhow, that’s their problem. Speaking of our portfolio, Regis is very close to its three-point cell line; Regis Resources. We have two trenches of that?

Tony Kynaston [05:12]: A double holding.

Cameron Reilly [05:14]: Two holdings.

Tony Kynaston [05:14]: Yep, double holding.

Cameron Reilly [05:16]: Yeah. I think we’ve got the sell price in at $3 88, It’s currently at $4.09. So just above that, it’s come down quite a bit. We might be getting rid of that soon, I think.

Tony Kynaston [05:31]: Well, again, who knows it’s in the same boat as Hawthorne. It’s another gold stock, which has come off.

Cameron Reilly [
05:36]: Right.

Tony Kynaston [05:36]: But I’m not trying to defend Regis, if it breaches its three-point trend line we’ll sell and the same with Hawthorne, but have a look at the Regis share price graph and you can see it, this is nothing unusual for the stock to go up and down with these kinds of patents, but in general trend that goes up right.

Cameron Reilly [05:56]: But we will still sell it if it bridges its three-point trend line because rules is rules.

Tony Kynaston [05:59]: Absolutely. Yeah, definitely. There’s no point having rules if we’re going to break them as soon as we feel emotional about a stock.

Cameron Reilly [06:11]: Unless you want to “fudge” something.

Tony Kynaston [06:15]: Yeah fudging is allowed I think but it’s going to make sense I think before you fudge.

Cameron Reilly [06:22]: Right, you got to make sense before you fudge that’s tiny’s tip of the week.
Tony Kynaston [06:29]: Well, what I’m saying I guess is that we have rules and I stick by them but the markets are such a diverse place that if you see something which the rule precludes, but you can make a case for bending the rules and I think the fudge makes sense, we don’t want to shoot ourselves in the foot by being robots about this.

Cameron Reilly [06:54]: We’ll wait and see what happens with gold stocks.

Tony Kynaston [06:57]: Yeah. I think they’re in a bit of a cyclical downturn, but who knows if they keep going low, we’ll sell them, but it’s not unusual to see the gold price oscillate around a bit too, depending on what’s happening in the wider world.

Cameron Reilly [07:11]: All right. You wanted to talk about a few things this week, the ASA conference?

Tony Kynaston [07:17]: Yea. So, the ASA; Australian Shareholders Association has a conference on at the moment it’s virtual this year because of COVID and we just wanted to talk about a guy called Trevor Salt, who is a Demographer and I used to go along to presentations he would make when I was working in corporate and they were always very entertaining, but also very good and he basically, every 12 months comes out with a report on the latest movements and trends within society. And just a couple of things I picked up from that mostly around COVID, he was saying that cities are starting to change their designs and will in the future into what he calls a “Fried Egg Scenario”, so instead of having everyone around the hub in the CBD, there’ll be out in the outer suburbs, which will have like a hub-and-spoke arrangement.

So, there’ll be like a yoke for a fried egg somewhere out in the suburbs, maybe Parramatta or in Sydney or Mentone or Melbourne or I don’t know Sunnybank and Brisbane and then it’ll have the other part of the egg surrounding it. And people won’t leave that Friday footprint to live their lives, they’ll work in it, they’ll have all their needs met by local shops and providers in that area. And in some respects, that’s what urban planners have been trying to push for decades, for Huntsville for a long time and maybe it’s now starting to come true because of COVID and the work from home movement that’s going on. And he also out that people were changing the way that they lay out their homes because of work from home and he called them “Hobos”, so people were making sure they had a zoom room in their house or a Broadcast Office from their house. And I thought that was interesting because we certainly do and he also pointed to a trend that’s occurred this year and in terms of regional cities getting growth.

 So, Regionalization; people leaving larger urban areas, which are COVID invested and then moving out into rural areas, but still able to do their same jobs because of improvements in technology. So that was probably the biggest trends, which I found quite interesting and in the last one that I wanted to talk about was he said that by 2025, 75% of the workforce will be millennials, which just kind of blew my mind that the generational shift was happening that quickly.

Cameron Reilly [09:54]: What!? How does that work?

Tony Kynaston [09:57]: Yeah. He didn’t give us any evidence behind it, but that’s what he said.

Cameron Reilly [10:01]: So, by 2025, five years from now, 75% of the workforce will be millennials.

Tony Kynaston [10:07]: So, the baby boomers are moving into retirement and the millennials are taking over.

Cameron Reilly [10:13]: Wow! That’s Interesting. Yeah, that is going to bring a lot of fascinating trends with it you would imagine?

Tony Kynaston [10:20]: I agree. And that was the start off point for quite a wide-ranging discussion about ESG in the workforce and working from home a lot and quality of life and overtaking the monetary rewards for a job. So yeah, a really long list and very interesting implications from that when it happens, whether it’s 2025 or 2030 or whatever, it’s going to happen. So, it will bring about dramatic change.

Cameron Reilly [10:47]: The fry the egg thing you were talking about, that’s been my life for the last 20 years and yours too, I guess. Right? I really go very far. Weekends is the only time I ever really leave the house these days. It’s kind of sad and tragic, but there you go.

Tony Kynaston [11:06]: We’ve always been 10 years ahead of our time.

Cameron Reilly [11:10]: Yes, yes.

Tony Kynaston [11:11]: Anyway, I just thought that was nice and thanks to the ASA for putting on that pretty good conference.

Cameron Reilly [11:18]: I actually saw an ad for it today and went oh good I should have checked that out, I kind of missed it. Let’s talk about the Aurelia Metals Capital Raising.

Tony Kynaston [11:31]: Yeah. So, I dug into this last week when I heard it was going on. So, Aurelia Metals one of the stocks I own, but it’s, I think it’s also near dummy portfolio as well, a gold mine, but also with other ores or that mines in New South Wales. And I decided to expand into the gold mining tenements and I’ve done a deal to purchase a nearby mine also within new South Wales, but certainly near enough so that they can leverage their current infrastructure off it. So, they’re counting it as a good deal to do this deal that I’ve got to raise money and they’re doing it via an equity raising and at the time the share price was around 49 cents. It’s now dropped back in the last few days and this is what often happens with these book bills is that the share price is dropping back to the capital raising price which is, I think around 43 cents is what they’re going to ask for. Yeah. 43 cents for new shares and the share price today for AMI, I think it was about 45 cents and today being the 16th of November and it’s 44.5.

So, it’s going to drop down to around what the capital raising price is which means that, as investors, we’re not going to get much upside in this particular capital raising it doesn’t always work this way, but I think it’s what’s happening here. And so, it comes down to whether we think we want to put more money into AMI, there’s pros and cons for these things. So, I’m never a fan of being on the acquirer side of a transaction, I would rather be on the acquiree side or the acquired side of the transaction, that’s when you tend to make more money, but if they do get the synergies they’re saying, and that’s always a big if because again, companies historically tend to overstate the synergies when they actually take over the new company, they often find reasons why they can’t gain enough for the synergies that they said they were going to gain.

But it’s kind of does make sense on paper anyway, that if you have another gold mine near current gold mine you will get some synergies from taking it over. So, it comes down to, whether we think we should invest Aurelia Metals. I’ll just have a quick look, it was on the buyer list I’ll just see if it still is, yeah it still is. So, unless the share price keeps dropping and it breaches its three-point trend line, which it hasn’t yet, then I would probably take up and the fact that if I have enough spare cash, I will take up my rights. Normally I do that anyway, because, oftentimes in these situations you can buy 50 cents for 43. It’s not going to happen in this one, I don’t think so that kind of knocks out argument out, but it is on the buyer list. And, if it comes back to 43 cents and the always around that, it’s basically just a top-up, and you’re banking on the fact that the extra gold mine will give synergies and the company will benefit from that, but it’s really a line ball.

The downside for these situations is if you don’t take up the rights, then your shareholding as a percentage or ratio of company’s overall market cap goes down as Steven Hein likes to push that argument. It doesn’t always mean much in a company like Aurelia Metals because it has a dividend payout but it’s fairly small, It’s 2%. So, you will get diluted in terms of dividend payments and you will have if you are inclined to vote on things at the AGM, you’ll have a list of votes. I would feel worse if retail shareholders weren’t able to take out their rights and an institution has got to buy a share that’s vague on the market, 50 cents for 43, but that’s not happening. So yeah, it comes down to whether you have the spare cash and whether you think a real year is a good bit going forward, and it’s only a buy list so I’m probably going to take up those rights myself.

Cameron Reilly [15:46]: What kind of QAV score does it have at the moment?

Tony Kynaston [15:51]: Yeah, let me have a look.

Cameron Reilly [15:52]: By the way we don’t have it in our portfolio. I solved that a year ago,

Tony Kynaston [15:57]: Okay, thanks. It’s 0.17.

Cameron Reilly [16:01]: Right. So, it’s not high at the moment like there is Tellus, 30 stocks above it on the buyer list. So why would you buy more of that and not buy something at the top of the list, both on resources, speaking of which is at the top of the buy list.

Tony Kynaston [16:19]: Good question Cam. In the absence of getting a benefit out of paying 43 cents for more shares when they’re listed for 50, there’s not a compelling argument at the moment. They’re at 44.50 cents and you can buy them for 43, if that holds up or the share price raises and it becomes compelling because you’re getting an extra discount, but now you’re making a lot of sense if we have spare capital, maybe we should put it into something higher up on the list.

Cameron Reilly [16:47]: I wouldn’t say Hawthorn Resources right now.

Tony Kynaston [16:54]: Maybe. Well, it’s in the same boat, right? It’s another gold mining company as well. So, look once it’s kind of wide open, I don’t think I have that in front of me we have until the 3rd of December. So, the offer hasn’t actually opened yet, it opens on the 20th of November, which is Friday, and it goes through until the 3rd of December. So, I’ll wait until that last few days there and make up my mind about this one.

Cameron Reilly [17:23]: Right.

Tony Kynaston [17:23]: And a large part of it will be whether I’m getting a discount to the current share price. If I take up the offers.

Cameron Reilly [17:28]: Yeah. Well, I get the rationale there, but if you’re not getting a bargain and it’s a way down on the buy list, I don’t really get the point.

Tony Kynaston [17:38]: Yeah, no. I can see the sense in that. I agree.

Cameron Reilly [17:42]: Well, there you go. I talked you out of a deal tell your mama I saved you.

Tony Kynaston [17:48]: But I still might do it.

Cameron Reilly [17:50]: Okay. Well, if you do, get back to me and justify yourself.

Tony Kynaston [17:54]: All right, thank you. I’ll see you on Strawman.

Cameron Reilly [17:57]: Yes, I will. We’ll battle it out on Strawman. Updates, you wanted to give some more updates on the buy list I think this week?

Tony Kynaston [18:06]: Yeah, I did a download last week and there were quite a few changes. So, I know you put out the journal, but we’ve added a few. So, N.W.H and R.W Holdings, it’s called A.K.G, which is Academies Australia, N.H.C New Hope Corporation, West gold and West gold Worldwide, Macquarie. And it’s been a few interesting reports, because it’s the third quarter and that we have a number of companies that report a September end deadline. There’s been a flurry of new companies coming out to report. So, Macquarie group, we have new numbers for, and I hold shares in Macquarie group. And even though it’s dropped down on off the buyer list because of its share price rising, I’m still going to hold it until it’s a three-point sell and other interesting ones were Qantas which is on an uptrend. And this is one where people may want to consider fudging on. I’m not suggesting they should, but if I have a look at Qantas, we have new numbers. But the thing with Qantas is of course, the airline airplanes haven’t been in a sky so operating cash flow is down, but it has, risen from sort of 4.40 a share up to $5 .19 since the results came out and it’s approaching its buy target actually may have gone through it. Just let me have a good chart.

Tony Kynaston [19:39]: It’s been on an uptrend; I’m just calling up the five-year graph and I’ve got to rearrange things on my desktop here. It’s getting very close to its buy price, which is going to be around not much harder than its current share price, but unfortunately, it’s because of its operating cash declining it has fallen off our list. So, I’m not suggesting we buy it because it’s off the buyer list, but this is one I think, which is again, I guess a bit like what Andrew was saying from Strawman. I can see a case where if the vaccine comes out and planes are in the air next year, that we’re going to look back and say $5 a share for Quantas was a steal. So, if people are doing their own research, they might want to have a look at Qantas. I’m not buying it. It doesn’t meet my QAV buy list score, but we’ve had it in the past and it’s in an uptrend at the moment and I expect at some stage they’ll have enough planes in the air to justify a rewriting of the shares.

Other ones I mentioned Samphire last week, and I had to look at that today when I was preparing for the podcast and today being Monday the 16th, I think it’s now a sell again. So, it’s turned back to being a falling knife. We spoke about it, I think in our last episode, but yeah, it’s a share prices turned down again. I think it’s a falling knife, so I’ll be taking it off the buyer list and just like Supercheap Auto, which we spoke about a couple of weeks ago, it’s also turned down. Samphire is close to a sell, Supercheap is a sell in terms of their share prices and that kind of brings me to what I’d like to highlight to people.

Tony Kynaston [21:30]: We can call it stock of the week, if you like, and that’s JB Hi-Fi. So have a look at JB Hi-Fi out there, people it’s just crept onto the buy list because the share price has come down, and I guess similar for Supercheap Auto. Both those retailers have had good Omni-channel strategies, which means they’ve had internet sales and stores open, during the COVID lockdowns. Sometimes in Victoria, they haven’t been opened, but across Australia they’ve been open but now that the market is getting excited about a vaccine their share prices are rewriting down again on the basis that they were inflated because of their internet sales. JB Hi-Fi has come onto the buy list because of that and I think it may prove to be a goodbye. It does get onto the bottom of the buy list from time to time and then variably, it goes up from there so I’m just highlighting it. The QAV score for is only about 0.15 I think all this. So, it’s not going to stay long on the buy list I don’t think, I will just have a look at what that score is.

Cameron Reilly [22:36]: Just looking at its chart while you do that, it’s five-year chart its share price now is the highest it’s ever been outside of where it was in August peaked at the end of August at 50 bucks, it’s down to 46, but that’s like before COVID it was only running at 39 and that was the best it had been in five years. So, its share price is a lot higher than its historical highs.

Tony Kynaston [23:04]: Yeah. Like I said, I got a good boost because of the internet sales increasing and holding up during COVID and the market was looking for retailers that fit that profile and was selling down retailers like Moho [cross-talking 23:17] reverse anyway.

Cameron Reilly [23:19]: My question is with that in mind, and I know that’s a little bit more industry analysis than we would normally do but if we’re back out of COVID for a decent stretch, I wonder if it would come back to its sort of normal trading regions?

Tony Kynaston [23:40]: It could, I’m just looking at the share price, now it is trending down. I grant you that, so you might want to hold off and see whether it trends up in the future before you buy. But just look up the QAV score, it’s 0.10 so if it does go up from here, it’s going to fall off the buy list because of the share price rise and it definitely is a quality company, I think we all know JB Hi-Fi. But anyway, I’m not recommending it, just people could use it as a starting point for their research.

Cameron Reilly [24:07]: Okay. Getting back to Sandfire Resources, didn’t we decided was shredding anyway, recently.

Tony Kynaston [24:16]: Yeah. I thought we said it might’ve been a falling knife.

Cameron Reilly [24:18]: Yes. Well, that.

Tony Kynaston [24:19]: And I think in the intervening week, it’s turned out to be a falling knife.

Cameron Reilly [24:23]: Yeah, okay.

Tony Kynaston [24:24]: Yeah.

Cameron Reilly [24:24]: Cool. Okay. Anything else you want to talk about before we get into   Q&A?

Tony Kynaston [24:30]: Nope. That’s it. Thank you.

Cameron Reilly [24:32]: Thank You Tony! Well, first question this week is from Zimon, he asks for your thoughts, he also asked for my thoughts, which I thought was very generous of him, but I’ll let you handle this one just for a change. I’ll let you run with its Tony so you don’t feel left out. Unity group, U.W.L, what do you know about Unity Group?

Tony Kynaston [24:58]: Well, “sweet FA” is my answer. I don’t know much about it at all but if I look at it in terms of the QAV lens, it wouldn’t be something I’d be interested in, let me just call up its score. The cash flow the last, I think I had looked at it was around 30 times, I’ll just confirm that.

Cameron Reilly [25:19]: Wow.

Tony Kynaston [25:19]: Yeah, 30, 35 times. So, I think from memory it’s a relatively new company it’s been going for a couple of years and it’s some kind of Telco that’s doing Fiber Networks and also, I think telecommunications towers for mobile phones and so it’s probably still in its investment phase, which is not normally the type of share I invest in. So, price, the operating cash flow is 36 times, which would make me just move on straight away.
I’m looking at Stock Doctor at the moment and I can see the percentage shorter of the stock has risen from 0 to 6% since about to the end of June, which is also a worrying trend. Doesn’t always mean the share price will go down, the shorts can get it wrong, but when they’re rapidly increasing, there’s a bit of negative information out there about the stock. The three-point trend line though is still a buyer on the graph and even though we haven’t got much data there and certainly operating cash flow, even though it’s low is on the increase and so is balance sheet equity ends and the financial health rating and Stock Doctor is good. So, there are things which are attractive about it, but that’s not something I would invest in with a price to operating cash flow 35 times, I think that’s just too risky.

Cameron Reilly [26:44]: Certainly, there are more attractive things on the buy list.

Tony Kynaston [26:46]: Yeah, that’s right. And this is probably one for Strawman or for Andrew to have a look at because he would do a different type of analysis and try and work out in five years, what it might be worth, but that’s not my skillset. And I do focus on cash, I think cash is king and I like to not overpay for cash that’s there at the moment. And as business isn’t throwing off a heap of cash just yet, probably will in the future. This is typical of a telco where they invest heavily at the start, when they become mature businesses quite quickly, then they throw off lots of cash flows. So, we may come back to this in the future.

Cameron Reilly [27:23]: Okay. Thanks for the questions Zymon. Chris says “Hi Cam. I’m struggling to get similar scores to the buy list. Could we run through a couple, for example, I score accent group at 0.11 versus 0.34 in the buy list” Should have asked Chris to send me his worksheet so we could look through it but let’s bring that up and have a look. Well, Tony just spent 10 minutes going through his analysis before I realized that actually the buy list has a 0.11 as well, Chris. So, I don’t know what version of the buy list you were looking at, but certainly the most recent version has it at 0.11. So yeah, maybe you were looking at an outdated version, although that still would be a big difference in a score. I don’t know what would have happened to change the score that dramatically, but there you go. And if you have any others where you have a differential between your score and Tony’s score, let me know and shoot me a copy of your checklist, which would be good. So, then I can compare your workings to our workings and we can see where the difference lies.

Another question from Chris though, he says “Not sure Duketon should be on the buyer list. Revenue in 2020 was profit from sale of mining tenements, and there is no ongoing operating cash flow being generated and Jamie a.k.a PeaHead agreed”, this is on Facebook he said. “I agree, wholeheartedly Chris. I was thinking perhaps for mining stocks, we should have a filter for, as a producing asset, otherwise, very speculative a.k.a DKM not really what we’re aiming for with a QAV score.” Tony – thoughts.?

Tony Kynaston [29:26]: Well, yeah. I can agree with Jamie and with Chris on this, but I don’t do that level of analysis. If I see an operating cash flow, which is good, I’ll still buy the company and we had similar discussions around some of the ETFs, which crept onto the list this year and like GEAR and like GGUS and some of the other ones. And it was pointed out by one of our listeners or some of our listeners that the operating cash flow that was coming through there was boosted by the fact that they were selling shares during the COVID cough and that wasn’t a normal operating activity. But I think in all these kinds of abnormal cases, you can, if you feel like you can, eliminate them from the list, but without doing detailed research on Duketon, I wouldn’t know whether it’s in the business of turning over mining tenements, which some miners are that they have a large exploration slate. And when they find something rather than develop it themselves, they’ll sell it off.

So that could be the business they’re in, but I take the point that it’s an abnormal looking at Duketon, and now it does have positive cash flow for the last two halves. So, either it’s been selling off a number of mining tenements, like I say, they’re in the business of exploration and then flipping those tenements, I’ll have to take Chris and Jamie on their words that I would suspect it may have some kind of operations going on to have 12 months’ worth of operating cash flow coming through, but I don’t know, I haven’t done the research. So, I’ve never filtered out abnormals in the past, whether it’s an ETF, which has sold some shares and therefore has higher operating cash flow that are half the normal, or whether it’s a mining company flipping tenements, or whether it’s anything else, an industrial company selling a factory. Well, I guess I’m saying is I rely on the management of the company to take that cash flow and redeploy it better than if they had sat on the asset and I think that’s legitimate strategy and point of view to take. So, I’m not disagreeing with what Chris and Jamie are saying but I’m not going to change the checklist to filter out. My thoughts are that cash into a company, as long as it’s deployed well, is a good thing.

Cameron Reilly [31:53]: Yeah. And you’re not just looking at that one-line item when you’re doing an analysis, how much cash they have, right? You’re looking at.

Tony Kynaston [32:00]: Correct.

Cameron Reilly [32:01]: Whatever it is now, 17 odd metrics and the relationships between those metrics and if it’s getting a good score across the board, then it’s getting a good score across the board.

Tony Kynaston [32:12]: Yeah. And like, I’ve always said, I invite the listeners who don’t like that to filter out for that and let’s compare results in a year’s time or two years’ time and see how we go.

Cameron Reilly [32:23]: Yeah. So, the bottom line though, is that whilst you recognize the point that they’re making, it’s not something you worry about too much, correct?

Tony Kynaston [32:33]: Yes, or a fault. By the way, their website says Duketon Mining Limited is an Australian Mineral Exploration Company focused on discovering nickel deposits within the Duketon Greenstone Belt; North of the town of Lavington, Western Australia due to mining as a portfolio of tenements perspective for nickel and his family focused on maximizing shareholder returns. But it doesn’t really say if they’re in the business of discovering and flipping them, but I’m sure people that have read into it more will be able to tell us,

Tony Kynaston [33:04]: Yeah, I would’ve thought they probably are and it’s like strike the metal line and then they’ll keeping developing, I guess.

Cameron Reilly [33:09]: Right, but thanks for highlighting that anyway, Chris, let us know your thoughts on Tony’s rationale. Paul White “HI Cam long time listener, first time caller, more a statement than a question really, as I understand it, Tony’s rate of return of plus minus 80% is net of CGT transaction costs, et cetera, Stock Doctor, for example and I assume most others when tracking their performance don’t factor in the CGT and transaction costs associated with tracking their star stock recommendations and relative performance. One could argue the same for benchmarking against the all-odds accumulation index, you have to sell/ trade sometimes and when you do CGT will substantially reduce your real returns. So, in order to compare apples with apples, shouldn’t you at least disregard CGT when calculating Tony’s return, Also, not sure of your treatment of notional CGT in the dummy portfolio, but it probably should mirror the method used for calculating Tony’s return, Stock Doctor’s regular chopping, and changing of their star stock /borderline star stocks prompted this email. It’s one thing to claim higher returns, but if anyone actually followed their portfolio recommendations to the letter, it would seem their apparent outperformance would be eaten up in tax kind regards Paul White”. Well, at least half of that went over my head, Tony. So, what are your thoughts on Paul’s comments?

Tony Kynaston [34:39]: Yeah, so just a discussion on how I calculate my returns. Paul is actually incorrect, my returns of circa 18% do include taxes and brokerage and any other costs like accounting and very small legal fees, but there are some legal fees in there. So, if I was to just do what the all odds does, which is just to continue chugging along without taking into account capital gains tax, If I applied that to my portfolio, the number would be much higher.

Cameron Reilly [35:11]: Now. Hold on. I think what he said, as I understand it, Tony’s rate of return is net of CGT transaction costs. So, he’s assuming you’ve already taken those out.

Tony Kynaston [35:22]: Sorry, I read that the other way. No, haven’t taken those out, they are still in there. So, I have tracked my overall portfolio and I think we’ve discussed this before that my overall portfolio from time to time can be misleading in terms of its percentage return, because I will all take money out to buy a new house or put new money in as it comes along from bonuses, et cetera. So, everything it’s all inclusive, including taxes, including interest, including me taking money out and putting it in. So, I also track my Self-managed Super Fund, which is a portion of the overall portfolio, but a very sizeable one of about 30%. And that one is like a little goldfish bowl or a terrarium, its sealed.

So, nothing is going in or out, even though taxes have been paid and accountants have been paid to audit the Superfund, et cetera, Stockbrokers have been paid each time I trade.

So, the 18% return or thereabouts, I think it’s just a bit higher than that at the moment for the Superfund, it is actually inclusive of all those other charges as well. So, if I did back them out and make them net of those charges, that the returns would be much higher.

Cameron Reilly [36:41]: Okay. I’m confused.

Tony Kynaston [36:43]: Understating my returns when I compare it to the all odds and Stock Doctor.

Cameron Reilly [36:50]: So, it is net. You are taking those things out, the C.G.T, that kind of stuff. Isn’t that what [cross-talking 36:55]. You’re leaving them in by haven’t taken them out.

Tony Kynaston [37:00]: By having paid them.

Cameron Reilly [37:01]: Paid them. Yes

Tony Kynaston [37:02]: Yes, yeah.

Cameron Reilly [37:04]: That’s what I taking.

Tony Kynaston [37:04]: I read that the other way around.

Cameron Reilly [37:09]: Let’s get a dictionary and try and get on the same, let’s do this in Italian, so we’re maybe.

Tony Kynaston [37:16]: Let’s, get a few medicines into us and see if it makes more sense.

Cameron Reilly [37:19]: Yeah.

Tony Kynaston [37:20]: What I’m saying is that my returns include having paid tax.

Cameron Reilly [37:25]: Include having paid, yes.

Tony Kynaston [37:25]: And brokerage charges, whereas notional returns for things like the all odds, and I guess also for Stock Doctor, don’t include those taxes as being paid.

Cameron Reilly [37:38]: Yes, I think that’s, the point Paul is trying to move.

Tony Kynaston [37:42]: Oh sorry, okay. I take it back then, good point.

Cameron Reilly [37:42]: That your return would actually be much higher and that maybe, you shouldn’t take those things out before you calculate return. So, it compares more accurately with the X.A.O.A, et cetera.

Tony Kynaston [37:57]: Yeah, look, good point but that’s what the dummy portfolio is there for. So, we haven’t been taking taxes out of the dummy portfolio or brokerage, so we can compare it to the all-odds accumulation index as a benchmark on a like-for-like basis.

Cameron Reilly [38:12]: Yeah.

Tony Kynaston [38:13]: That’s also why we said before we weren’t going to put franking credits in because the all odds doesn’t do that.

Cameron Reilly [38:17]: Yeah. Well, that was a confusing way of getting to the same point.

Tony Kynaston [38:22]: Yeah, so sorry.

Cameron Reilly [38:24]: You worry me there because when people email me and ask me this rate of return, is it net? has he taken all these things out? I always say, yeah, he has and I was thinking, oh no, I’ve left, I have a strike.

Tony Kynaston [38:32]: I haven’t taken them out of the calculation. They’re still included in the calculation, but I have paid them with the cash in the portfolio.

Cameron Reilly [38:40]: Yeah, I get it. Yeah. Is everyone else confused or is it just me?

Tony Kynaston [38:49]: I think we should use different terminology that the numbers I quote for my own portfolios are inclusive of taxes and charges and the numbers that we quote on the dummy portfolio and the all odds are exclusive of taxes and charges.

Cameron Reilly [39:03]: Yeah. That’s good. I understand that. Yeah. Good, thanks Paul, for pointing that out and leading to that extremely confusing conversation. John, “Hi Cam looks like, how are you?” I’m good. Thanks John. I’m hot. It’s 30 degrees in my studio right now. I wish Tony would talk more so I could turn the air conditioning back on and mute my mic.

Tony Kynaston [39:31]: Apparently, I just confused people more.

Cameron Reilly [39:33]: Yeah. That’s okay, as long as I’m cool with, it doesn’t matter. Question for Tony “In the Bible of QAV we use a five-year chart with monthly intervals. Is this because we are trying to establish medium/long-term trends that Tony has found work best? Does a weekly or daily interval over five years give too much fluctuation from the trend? Cheers, John”.

Tony Kynaston [39:56]: John. Yes. That’s the bottom line.

Cameron Reilly [39:59]: You come on, confuse us a little bit here Tony.

Tony Kynaston [40:06]: Yeah. I use the five-year monthly trend because it is much smoother than using either daily or weekly trends and also five years because it makes it even smoother than using one or two year or three year. So, I found from my experience, I trade a lot less using a five-year monthly trend and an example would be some of these gold stocks, which have been trending downwards could possibly have been sold out already, but they may bounce back. So yeah, I find that the smoother, the graph, the less I trade, which is a good thing in terms of the share market, because every trading curse cost.

Cameron Reilly [40:44]: Okay, well also from John, he’s talking about Sandfire, he said, ” Sandfire are confident that they can divert copper to other customers outside of China, as mentioned in response to my query below” I guess we were talking about copper last week, he sent them an email and they said, hi, John, this is from Sash Koski head of corporate affairs. Hi, John, the company has yet to see the report on potential ban on imports of copper or into China materialized. As advised last week, we’re continuing to operate at full production with sales of copper concentrated, continuing. We maintain regular contact with our key customers, concentrate trading and smelter partners, both in China and other markets and have traded into both over recent years, we are able to increase sales volumes to our concentrate customers in other well-established and robust Non-Chinese markets E.G.P in Europe, Philippines as and when required with minimal impact on our business. More information will be disclosed to the market as it becomes available and if required. So, there you go, and I noticed that we signed, was it the R.C.E.P? This weekend was announced the big, trading whatever you want to call it? The successor T.P.P?

Tony Kynaston [42:07]: TPP without the U.S yes.

Cameron Reilly [42:09]: China was part of that. That must have been a fun signing ceremony you would think?

Tony Kynaston [42:15]: Well, I haven’t done it yet. I think the prime minister is flying across to Japan to sign next week.

Cameron Reilly [42:21]: Oh, is he allowed out of the country? I thought we weren’t allowed out of the country.

Tony Kynaston [42:24]: He’s allowed, but he has to quarantine for two weeks on his way back apparently.

Cameron Reilly [42:28]: Oh, wow. Yeah, good for him in parliament house.

Tony Kynaston [42:32]: He hasn’t said, well he maybe he hasn’t picked it up. Yes. He might want to get away from it all for two weeks.

Cameron Reilly [42:39]: [cross-talking 43:39] it’s coming up to bushfire season, that’s his thinking, I’ll just quarantine in Hawaii for two weeks again, get away and they can’t get angry at me. I’m just quarantining, not on a holiday this time, I’m quarantining.

Tony Kynaston [42:55]: Yeah. Sorry, if you can’t hear me, I’ve got my mask on. Yeah look, this is really interesting and good one John for emailing the company. That’s the first thing to highlight that always questions that sometimes come to us can also go to the company and they’ll be all too pleased to provide an answer. So good one on you, John, for that. Yeah, Interesting China has a history of making threats and not carrying through, and that can cause ructions on the share market. I haven’t heard yet whether they actually have carried through their threat of not buying Australian copper, so it’s quite possible that they won’t and now, as you say that they’re signing up a trade agreement with us you would hope that that would stop them from doing it otherwise the trade agreement may not be worth the paper it’s written on as far as we’re concerned, but the market at this stage, I still think that the copper market in China is going to be sharp and Sandfire went down and as we said, it’s a falling knife. So as far as the market goes, they haven’t cottoned onto the fact that China may be bluffing for its own political reasons, they could be potentially trying to weigh just with the new U.S President or they could be trying to stop us for pushing for an independent evaluation of the Wuhan original outbreak. There are all sorts of reasons that China does these things and I’m not party to them, but as far as I know, we still haven’t actually seen China carry out the threat of not buying Australian copper.

Cameron Reilly [44:30]: Right. Well, that’s certainly what [inaudible 44:33].

Tony Kynaston [44:34]: Yeah.

Cameron Reilly [44:35]: Is indicating there. So, yeah. Good on your John, thanks for that. And if anyone else wants to send emails to companies and get some inside track for us, that’s great. Let us know. Very interesting. Next one is from Mark” Hi Cam, could you please discuss R.R.L with Tony? ” Didn’t we just do that?

Tony Kynaston [44:56]: There’s a different questionnaire which we can go through. So, we did talk about it and it’s getting close to itself. But what I think Mark is asking is if you call up with a five-year graph, we bought R.R.L back in about April, I think. And you’d had gone through a sell prior to the COVID cough. The sell happened in around about, or I’d say December, 2019, and then after the COVID cough became a buyer again in around April, 2020. So just after the COVID cough, it recovered quite quickly and what Mark is asking is if he looks at it now, the highest point on the graph occurs after that, which is July, 2020. And if he uses that and the next highest point to the right to base his byline on it, it’s still another by. So again, we have to go back to the sell line follows the buy line. So, the last sell line we had was prior to the COVID cough, which after the COVID cough, we had a buy in the buy price buy line followed the sell line. But since then, it hasn’t been a sale, even though it’s approaching your sell again. So, Mark’s right, but I guess I’ll probably say, is that the first thing I looked at when I looked at this graph was to see that it wasn’t a cell using its five-year graph. And so that kind of already says to me that the last transaction was a buy and you can trace it back and look at when we bought it. So, if you trace the sell lines back and buy lines back, the last transaction was a buy and it’s not a sell yet. So, it’s still a buy and your buy list,

Cameron Reilly [46:50]: Right. We did buy it Mid-April and then I think again in early May.

Tony Kynaston [46:56]: Okay. But Mark’s right. I think maybe the Bible might say that you look at the highest point on the graph on the next right. The next highest point to the right of that and if you do that in this case then Regis is not a buy it hasn’t yet turned up enough. But we did do a podcast since then, which said that we need to find the last sell line and see if there was a buy line after that.

Cameron Reilly [47:21]: Yeah. I’ll have to go check the Bible. I think ideally, I have added a little bit more buy line follows the sell line wording in there at some point.

Tony Kynaston [47:31]: Yeah. I think you have, so maybe Mark can go and check that out, but technically he is right, but if he expands on that he’ll see that it’s not a sale, so it’s a buy.

Cameron Reilly [47:40]: Right. Good. Okay. Mark’s got another one ” HAW is top of Tony’s buy list. The share price has been in fairly rapid decline losing around a third of its value in the last six months. It’s nowhere near its sell line, so it’s presumably a hold question. Would Tony buy the stock today or wait until the price starts to tick upwards? If so, what is the criteria for upwards a month or two trends? Thanks, Mark”.

Tony Kynaston [48:11]: Yeah. Good question, if I was being very literal, I would buy it at this stage, it’s the top thing on our buy list and it’s in a buy situation, but I think I also said at some stage in the past that what I do is I will wait for a ticket before I buy, because I mean the share price can go one of two or one of three ways. It can go sideways up or down at the moment the trend is down, so I’d probably hold off and just see if that trend continued. Obviously, if it goes long enough, it’ll become a sell, but at the moment it’s a buyer. So, I’d be waiting for an uptick of perhaps a month before I’d be venturing into it.

Cameron Reilly [48:49]: Right. Okay. So, it’s at the top of the buy list, but you wouldn’t buy it.

Tony Kynaston [48:58]: I’d certainly be watching it and looking for it to turn up because, and you can buy it now at 11 and a half cents, the way it’s going now, it might go down to 10 or it might go down to, nine and a half and it’s a better buy. So, you either dollar cost, average or you wait to see if it goes to 12 and I’m quite happy missing out in that first half a cent gain, just to sort of try and see some confirmation that the sentiment that the downturn is turning up again.

Cameron Reilly [49:28]: Right. Okay. Good to know. what do we get next star? Okay, last question. This is from a listener who doesn’t want his name mentioned because we’ve mentioned it too many times in recent episodes and he doesn’t want anyone to think he’s just hogging the time I let people try and work out. Maybe that is for themselves, this person, male or female. I don’t want to give it away asks, “I just read Tony’s latest journal and reviewed the new download. I found a couple of discrepancies, maybe a copy and paste error since putting out, this is from your journal. You said the NRW, NWH who you mentioned earlier in the showed breached its buy line?

Tony Kynaston [50:19]: Yeah.

Cameron Reilly [50:20]: With a QAV score of 0.15, but listener X says that “it’s only 0.07 in the watch list”. So, I’m just bringing up the watch list of the buy list and NWH. Well, yes, it is in the watch list with a 0.07.

Tony Kynaston [50:49]: Let me just have a look because, so I can explain this, that watch list is out of date. So sorry about that. The buy list is the accurate one. What happened was I created the buy list then went back and looked for companies that have reported recently that I hadn’t seen. How do I do this?

Cameron Reilly [51:16]: It’s not at the buyer list either.

Tony Kynaston [51:18]: No, it should be in the buy list. Sorry. Okay. I’ve stuffed up. it’s in my buyer list here. I create that buy list and watch this by manually copying and pasting so something’s gone wrong there. But I remember now I did add NWH after I went through, do the download, created a buy list, then went back into the watch list and I possibly, it was one of those ones that had a zero and a three-point sentiment confirmed. So, I went back and added the manual data and then came back into the buy list and saw it was a QAV of 0.15, but I must’ve missed copying and pasting that to the watch-list or the buy list, sorry.

Cameron Reilly [51:57]: Oh, good spotting listener X. Thank you for pointing that out. We’ll get that fixed ASAP.

Tony Kynaston [52:01]: Yes, thank you.

Cameron Reilly [52:06]: Well.

Tony Kynaston [52:08]: Are you on your buy list? Okay.

Cameron Reilly [52:10]: I think that’s it, man. I think we’re done. We can turn our air conditioners back on.

Tony Kynaston [52:17]: Oh yeah. I’m sitting here sweating

Cameron Reilly [52:19]: Me too. Isn’t a good, nice. We should have the video on

Tony Kynaston [52:24]: I know you’d take your shirt off again.

Cameron Reilly [52:26]: I would. They’d Say I took my shirt off on tick-tock for one of my sons yesterday to make a funny video for him and Oh, geez people went wild.

Tony Kynaston [52:39]: In a good way?

Cameron Reilly [52:40]: No.

Tony Kynaston [52:41]: They threw their undies at you or something.

Cameron Reilly [52:48]: No, a lot of people try new, stick hot red, hot pokers in their eyes. I think Tony is what it was, but that’s all right. Bring on the hate, man. Dad bods are uniting. I say dad. Well, he convinced me to do it by saying dad bods are in right now. I was like really?

Tony Kynaston [53:04]: Is that right? Wow.

Cameron Reilly [53:05]: Wow. Wish he’d told me that earlier. Thanks. What does he got on for this week mate? Got any horses running?

Tony Kynaston [53:15]: No, you’ll be happy to know. A couple of them are injured. So, they’re out in the paddock for a few weeks. So, you don’t have to bet on them.

Cameron Reilly [53:22]: I didn’t need to know that. That’s terrible.

Tony Kynaston [53:25]: Yeah. Nothing running for at least two weeks, golf couple of times this week.

Cameron Reilly [53:30]: I don’t know how you’re going to fit that in because we’re doing like three interviews this week.

Tony Kynaston [53:35]: I know. I tried to fit around that. Yeah. It’s hard and this last weekend was full of the masters, which was just great to watch.

Cameron Reilly [53:43]: I hear tiger woods stuffed up.

Tony Kynaston [53:46]: Yeah. he had a 10 on the path three, just like I would have I’m sure if I had a plate at part three, it’s pretty hard.

Cameron Reilly [53:53]: Really! Wow.

Tony Kynaston [53:55]: Lots of water.

Cameron Reilly [53:55]: How do you explain that? How does a guy that good do something like that? Like, it seems impossible to me.

Tony Kynaston [54:03]: Well, golf is a tough game because he was complaining of a sore back, so that could have been part of it. He was out of contention, so I don’t think he’s mind was on the job and he just took it through lightly.

Cameron Reilly [54:17]: Right. Well, there you go. Sure, there’s a lesson in that for all of us, but I don’t.

Tony Kynaston [54:25]: Three balls in the water and it’s getting close to what we call a team cup.

Cameron Reilly [54:29]: Three balls in the water. No, but that’s also going to be the title of my autobiography. Three balls in the water, Cameron Reilly’s story. That’s the name of this episode, Three balls in the water.

Tony Kynaston [54:46]: Isn’t like Scaramanga, who has three nipples, the James Bond villain?

Cameron Reilly [54:50]: I’ve got three nipples.

Tony Kynaston [54:51]: I don’t want to say to them, [inaudible 54:54]

Cameron Reilly [54:54]: Well, if you look at tick-tock carefully, you’ll see that. I do. I have a three never sided my grandfather and one of my uncles. Yeah, we’re a three-nipple family.

Tony Kynaston [55:05]: Do you have a golden gun?

Cameron Reilly [55:07]: Not yet, but if QAV goes well, that’s my plan. Three poles in the water. Well, that’s it for this week. Thank you, Tony.

Tony Kynaston [55:18]: Thanks Cam. Have a good week.