Transcript QAV 403

Episode Name: QAV 403 Club

File Length: 01:30:52

Tony Kynaston [00:03]: Are you supposed to go, “Welcome back to QAV.”

Cameron Reilly [00:04]: Welcome back to QAV. This is Episode 403. TK, you’re on your way back to Sydney. I believe you’re in Wagga Wagga. Wukka Wukka, like a Fozzy Bear. Named after Fozzy Bear’s famous catchphrase Wukka Wukka.

Tony Kynaston [00:26]: I am. I’m in Wagga Wagga. And I have to call it Wagga Wagga. Apparently, you can only call it Wagga if you’re a local.

Cameron Reilly [00:31]: Is that right? That’s the rules.

Tony Kynaston [00:35]: That’s the other [inaudible 00:00:34]. Yeah.

Cameron Reilly [00:35]: Dub, dub. No one calls it dub dub?

Tony Kynaston [00:38]: What’s dub dub?

Cameron Reilly [00:39]: WW, dub dub.

Tony Kynaston [00:40]: Ah! No, no one calls it that.

Cameron Reilly [00:42]: Right. Okay. Just me. I remember getting into trouble in San Francisco many years ago, calling it San Fran. And the locals, they were like, “No, no one calls it San Fran. It’s either SF or San Francisco. You don’t call it San Fran, you stupid Australia.” Well sorry.

Tony Kynaston [01:01]: But they call Maccas, Mickey D. So I don’t know who’s stupid.

Cameron Reilly [01:06]: And why? What do you call it?

Tony Kynaston [01:09]: Maccas.

Cameron Reilly [01:09]: Maccas. Such a bogan. I was watching an old Burt Reynolds film from 1973 yesterday. White Lightning, you have ever seen that?

Tony Kynaston [01:19]: Oh yeah. No, I can’t remember but I have seen it. Yeah.

Cameron Reilly [01:22]: That’s the first of his Gator McCluskey films. Then he did the Secret Gator a few years later.

Tony Kynaston [01:28]: Yeah.

Cameron Reilly [01:28]: Where he’s a moonshine runner, which is basically everything he did in the seventies.

Tony Kynaston [01:35]: [Crosstalk00:01:35] again. Yes

Cameron Reilly [01:38]: Yeah.

Tony Kynaston [01:37]: Yeah. And they were all written by [inaudible 00:01:41] man.

Cameron Reilly [01:41]: Well, as the Smokey ones were, yeah, that’s right.

Tony Kynaston [01:44]: I think so. It was Hooper and Gator and [inaudible 00:01:46]. Weren’t they?

Cameron Reilly [01:47]: Oh, well maybe. I don’t know.

Tony Kynaston [01:50]: Yeah.

Cameron Reilly [01:51]: But you know I said to Chrissy like the Smokey and The Bandit films was basically White Lightning. The guy just took the best bits of White Lightning and Gator and added comedy. And what’s the face? The…

Tony Kynaston [02:08]: Sally Field, The Flying Nun.

Cameron Reilly [02:09]: Sally Field. Yes. But anyway, the town where he’s running around is called Bogan County. Bogan County. I said to Chrissy. She goes, “Well, bogans, not a thing in America. We don’t have bogans. We have rednecks. We’re not bogans.” I thought it was funny. I was thinking about getting a sign made up to Brisbane. For Brisbane saying, you know, “You are now leaving Bogan County” when you leave the border. But it was directed…

Tony Kynaston [02:41]: Hello, Brisbane, listeners too.

Cameron Reilly [02:44]: Hey, I live here. I’m allowed to say that. It’s directed by Joseph Sergeant who also directed The Taking of Pelham One Two Three.

Tony Kynaston [03:55]: Walter Matthau.

Cameron Reilly [02:55]: Yes. That’s one of my favorite films. A great soundtrack on there too. Walter Matthau, Good Martin Balsam, Robert Shaw, Hector Elizondo. Music by David Shire who is married to…

Tony Kynaston [03:11]: Mrs. Shire.

Cameron Reilly [03:12]: Yes. Also known as…

Tony Kynaston [03:15]: David’s wife. I don’t know.

Cameron Reilly [03:18]: Well, they were married and they’re now divorced. Talia Shire AKA Connie Corleone AKA Francis Ford Coppola’s sister.

Tony Kynaston [03:26]: You pronounced it “Shear”. That threw me off a little. I thought it was “Shire”.

Cameron Reilly [03:29]: That could be. I don’t know. Anyway.

Tony Kynaston [03:31]: Right.

Cameron Reilly [03:32]: We are completely off track. This is an investing podcast in case anyone’s wondering. Australian shares have fallen in afternoon trade. Tony, according to the news, as US markets slipped from their record highs, get this, I like this, on concerns it may either be overvalued or in bubble territory. No. What!

Tony Kynaston [03:51]: Yeah. That’s right.

Cameron Reilly [03:52]: You don’t say. I’m shocked that there’s gambling going on in this establishment. They just worked that out, Tony. It may be the bubble.

Tony Kynaston [04:04]: Well that’s actually a good outcome if the market self-corrects before the bubble burst. I mean, some markets go sideways for a long time. So that’s not a bad thing. I suspect there’s going to be a rise in bond yields and a rise in inflation and a rise in interest rates, in any one of those will trigger a bit of a route, but who knows when who knows by how much.

Cameron Reilly [04:28]: Civil war. We’ll get to that. Well in Australia it’s meant that Fortescue Metals is down 6% today.

Tony Kynaston [04:36]: Oh really.

Cameron Reilly [04:37]: But yeah, so it’s only up 218% now since we bought it. So I’m a little bit worried about Fortescue. I read a great article about Andrew Forrest this morning in The Fin. Something about he’s decided he’s going to set up the world’s largest sustainable energy company.

Tony Kynaston [04:57]: An iron ore company, I think. Sorry. Not iron ore, steelmaker using hydrogen.

Cameron Reilly [05:04]: Oh, okay. Well, you know, more than I do.

Tony Kynaston [05:07]: No, I think we read the same article.

Cameron Reilly [05:07]: That’s what he was running…Well, you paid more attention than I did. Running around the world when he got COVID that’s what he was setting up or something.

Tony Kynaston [05:14]: Yeah. Yeah. Well, I think there are actually two things there. You’re right. He was going around the world looking for alternative energy sources. But he’s also now talking about setting up a steelmaker. A steelwork that uses hydrogen rather than whatever, coal power I guess is what’s normally used. Yeah.

Cameron Reilly [05:34]: Well for people listening if you’re wondering why Tony’s voice sounds a little bit sketchy, it’s because he’s in a Wagga Wagga and he’s using a dodgy headset, microphone, Apple microphone thing. Not his good microphone.

Tony Kynaston [05:51]: Yeah. Brand new. I had to go to buy one today after golf. That’s why I didn’t know the market was down this afternoon. By the way, it’s the 27th of January today too while we’re recording.

Cameron Reilly [06:05]: It is the 27th of January, 2021. Well, let’s say we’ve got a big show today. Lots of questions. Lots of stuff. Let’s get stuck into Howard Marks’ memo. Can we start there, Tony?

Tony Kynaston [06:15]: Yeah, sure.

Cameron Reilly [06:16]: Well, I was just going to say Stephen Mab brought this to our attention last week, Howard Marks from Oak Tree for new listeners. Somebody did point out to me, one of our new subscribers sent me an email during the week saying, “I tend to listen when I’m out doing a walk. And I can’t Google things. Can you explain things and not just assume that we know them all the time?” You’re right. We should do that more. I apologize if we assume an a priori level of knowledge too often. So for new subscribers, Howard Marks, if you don’t know, an American billionaire investor runs a company called Oak Tree. One of the guys that we talk about from time to time. He puts out a memo on a fairly regular basis about what he thinks is going on. And he put out one recently talking about how he sat down with his son, Andrew, who’s also an investor and he’s starting to think about moving away from value investing and looking at investing in growth stocks. Tony. Something of Value was the name of his memo if people want to Google it. Howard Marks, Something of Value.

Tony Kynaston [07:23]: Yes. They say that you can’t, no one rings a bell when the market tops, but when a value investor like Ray Dalio starts to talk about internet stocks.

Cameron Reilly [07:32]: Howard Marks.

Tony Kynaston [07:33]: Howard Marks, sorry, starts to talk about internet stocks, it’s called capitulation. And it probably is getting closer to the top of the market when a dyed-in-the-wool value investor is starting to think about buying internet stocks because his son has talked him into it. That reminds me of the old Buffett quote that Wall Street’s the only place that people travel to work in Rolls Royce’s and take advice from people who run in the subway.

Cameron Reilly [08:00]: I’m pretty sure Howard Marks’ son doesn’t ride to work in the subway though.

Tony Kynaston [08:04]: No. I think according to the article he’s been seen as a successful investor in growth stocks and tech stocks in particular.

Cameron Reilly [08:11]: Yes.

Tony Kynaston [08:12]: But I was disappointed by the article because the premise was that Howard’s son had taught him the way to invest in these growth stocks. In other words, you know, pick this one, not that one because of these things. But that didn’t really come out in the article. It was just basically, you know, buy the one that’s going up and then hold it. So it was a very strange article, especially from someone as experienced as Howard Marks. And in fact, almost every paragraph in the article started with, I remember back to this crash or that crash, you know, the 87 crash or 2017 crash or the…

Cameron Reilly [08:54]: Or The NIFTY 50.

Tony Kynaston [08:55]: The NIFTY 50. That’s right. How I cut my teeth and these things went wrong. You know, people were buying the NIFTY 50 stocks because they were told to buy them and they were going up and there was fear of missing out and you should buy them. And then they crashed with your old shock in 72. So he’s basically, you want to take out all the bits in the articles that come from his son and just follow his advice, which is to watch out for bubbles.

Cameron Reilly [09:19]: I think it’s a good article. Like there’s a lot of history on Buffett and Munger and all of this kind of stuff in there. And like you, I mean, this was part of an ongoing conversation we’ve been having with Steven recently about something that we’ve talked about on the show many times over the last couple of years, you know, we’re not, you’re not, shouldn’t say we because I don’t know shit, but you’re not philosophically averse to buying quote-unquote growth stocks, tech stocks. You don’t have any sort of religious objection to them. It’s not like, you know, you’re a Jew and they’re not clean, they’re pork. But you just don’t know how to place a value on them. You haven’t figured out yet a methodology for working out how to put some science behind investing.

Tony Kynaston [10:10]: Correct.

Cameron Reilly [10:11]: In these sorts of stocks. So we’ve had a number of guests on over the last couple of years that are investors in these things and you always ask them the same sort of questions. Like how do you decide, how do you value these things? What’s the methodology used to figure out what they’re worth and when to sell? And so far, nobody has been able to give us not even the beginnings of an answer that I can recall. They’re just like, “Well…”

Tony Kynaston [10:38]: Yeah. There have been some beginnings of the answers when Johannes Risseeuw was the Executive Chairman of Damstra. He was saying that the bankers that floated his company would look for things like, I think from memory, you know, sales growth 20% every year for the last three years or whatever the number was. Software as a service type business so you have recurring revenue. He had two or three things that they were looking at. So I kind of get that, but you know, there’s no checklist for quality in that kind of thing. If we are doing is buying a stock because the sales are going up 20% year on year, what happens to it when they don’t? And you know, where’s the measure of quality? What if you have 10 stocks they’re doing that? Which one do you pick first? So yes, I agree with you, Cam. I’ve struggled to have a checklist for the growth stocks, which is something more than just buy the one that’s going up.

Cameron Reilly [11:33]: So we’ve been looking for some way where you could apply some side of this. I was on the ASA Queensland Australian Shareholders Association, Queensland conference call last week with Stephen and he was talking about something that the Motley Fool guys have been talking about recently, which is looking at gross revenue growth per share, as one metric to tell which companies in a particular sector are doing better than other companies. And he said like, we take the maybe the buy now, pay later stocks, looking at those sorts of things. But you know, Howard Marks says in his memo that you shouldn’t have knee-jerk dismissiveness around tech/growth stocks. And he says the same thing that I know you’ve said and I know Buffett and Munger have said many times is that there’s no real difference between value investing and growth investing. All investing is value investing.

Tony Kynaston [12:40]: Value investing.

Cameron Reilly [12:42]: It’s just how you measure value. How do you determine value, right?

Tony Kynaston [12:46]: What that’s the other question is, I mean, like, yeah, you’re right. Munger has said that in the past and Buffett said something similar. And Buffett goes on to say, if I can pay a dollar an hour for something which will make me $20 over 10 years, I’m going to buy it. It’s a good deal.

Cameron Reilly [12:59]: Yeah.

Tony Kynaston [12:59]: And he’s right. But the problem is there are so many things that can go wrong with these growth stocks that projecting out even a couple of years is very hard. Let alone 10 years or 20 years and then discounting back. I mean competitors can come into the market. Governments can regulate against them. They can be broken up as they might happen in the States with the big tech companies. So there are all sorts. I don’t know how you could build a discounted cash flow for these kinds of stocks, really. Even if you want one or two.

Cameron Reilly [13:30] And getting back to the very basics as we talked about in our very first episodes. And when we did the reboot for 301, the coffee shop analogy, we’re trying to value a coffee shop. You figure out, okay, I think a share based on its turnover, its track record, its profitability, all these sorts of things that we look at. Here’s what I think a share of it is probably worth. And if I can buy a share in the business for less than that, then I’ve got a safety buffer, a margin of safety in the sort of classic value investing terms. But how you figure out what a value in the buy now pay later coffee shop looks like, is the question here? How do we do it? How do we work that out? Anyway, so just enough on the Howard Marks thing you say…

Tony Kynaston [14:24]:  Can I just say, I just have one more thing. I would think the only legitimate strategy for buying tech stocks or growth stocks comes from Peter Lynch’s went up on Wall Street, where he talks about, if you find a new product or service that you or your friends or your family members are using, then that might be a good investment. So if you were someone who’s maybe, yourself started using Afterpay or your kids did and thought, okay, this is interesting. This is new. This is gaining traction and you bought some shares in it. I totally get that and respect that. But that’s different from looking at the NASDAQ and can try to pick the next Amazon and making bets such as speculation.

Cameron Reilly [15:05]: Well, so it was buying a share just because you’re using and you think it’s okay.

Tony Kynaston [15:09]: [inaudible 00:15:09] It’s absolutely speculation. But there is some science behind that. I mean, Peter Lynch did point out that it was an early indicator of successful companies that they can break into your circle of use. And if they’re doing that, they’re doing something right, and therefore they’re worth investing in. So I do have some sympathy for that argument. And if you think about it, you know, if I applied that logic to myself, I’ve never used Afterpay. No one I know uses Afterpay. So I can’t apply it to Afterpay. But you know, when I first bought an Apple iPod, I think their shares were 200 bucks or something. So that would have been a good time to buy them, even though I, you know, I couldn’t value them. I had no idea how they’re going to grow. When I first used Amazon you know, it would have been a good time to buy this stock. So I think there is some methodology in that at least. And if you’re disciplined to know you do it for those things, which are new to you, then I think that follows Peter Lynch’s dictum. But you’re only talking, I mean, how many times does it happen to, you’re only talking about a handful of stocks probably in your lifetime if that happens to you.

Cameron Reilly [16:23]: When did you buy an Apple iPod? Like last year?

Tony Kynaston [16:27]: No, I bought an Apple iPod back in like 15 years ago, probably.

Cameron Reilly [16:33]: The share price was 200 bucks?

Tony Kynaston [16:35]: I think so. Yeah. What’s it now?

Cameron Reilly [16:37]: One hundred and forty-three.

Tony Kynaston [16:38]: Oh, it must have a split. It was kind of bucked up to. But went up to, I think, $1,200 or something. 

Cameron Reilly [16:44]: What!

Tony Kynaston [16:45]: Yeah. It must have gone through some splits.

Cameron Reilly [16:47]: According to the share chart, I’m looking at, back in like 2001, the share price was 35 cents. 

Tony Kynaston [16:54]: Yeah. Has Apple ever been 35 cents? I think it’s been through a few splits, Cam.

Cameron Reilly [16:57]: Probably. Yeah. 

Tony Kynaston [16:59]: Yeah. 

Cameron Reilly [17:01]: Yeah. Well, explain capitulation for new listeners. What is the concept of capitulation? 

Tony Kynaston [17:07]: Yeah. So as we know, the stock market is bizarre, but the trading bizarre that involves haggling and people trying to sell you things and you trying to find the best bargain. So it’s a Petri dish or you know, a laboratory of human psychology. And one of the things that are often a harbinger of a change in sentiment is when somebody who has been on their soapbox banging on about one type of investment or one type of investing style or about the stock market in general, suddenly changes tune. So obviously how it Marks being a value investor for the last 50 years probably, is now starting to open up to growth investing. And so he’s capitulated. He’s changed his style of thought. He’s basically saying, “Okay, I’ve held my value investing theory as being sacred for the last 50 years, but I’m now starting to question that.” Which is probably the worst time to question it. And it often indicates there’s a change in the market coming because as more and more people change their mind and piling into growth stocks, they get into a bigger and bigger bubble, and of course, one day it crashes. 

Cameron Reilly [18:25] Anyway, moving on speaking of other value investors putting out memos. So tweets, in this case, Ray Dalio did a tweet, six tweets actually the other day. Ray Dalio, another American billionaire value investor runs an organization and investment company called Bridgewater Associates, been around for forever and a day, very, very successful. Founded the firm in 1975. Current only got 138 billion US under management. He did a series of tweets saying he thinks the US is heading for a civil war unless it can solve its political-economic and social divisions pretty quickly. Well that does the [crosstalk 00:19:19]

Tony Kynaston [19:20]: Which it can’t.  

Cameron Reilly [19:22]: No. Not a chance in hell.

Tony Kynaston [19:24]: Hopefully he is wrong, but yeah. What will it do for the market, the tweets, by the way, I think there’s been enough commentary in the US to stay open.

Cameron Reilly [19:31]: No, not the tweets. The civil war. What a civil war do to the markets?

Tony Kynaston [19:36]: Oh, it depends. I mean a good question. I have to go back and have a look at the civil war in America, and if there was a stock market back then. But oftentimes in wartime, the share market can go up because the government’s pumping heaps of money into the economy, particularly to manufacture things, whether it’s armaments or whether it’s manufacturing things to feed people at home when there’s a disruption in the economy. It’s a bit like the COVID cough. But you know, there’s obviously fear out there as well. So I’d have to go back and have a look at what the wartime market looks like. But I suspect that’s probably up sometimes and down others, but I’d have to go and have a look.

Cameron Reilly [20:19] He says, I believe we were on the brink of a terrible civil war where we are at an inflection point between entering a type of hell of fighting or pulling back to work together for peace and prosperity that addresses the big wealth values and opportunity gaps we’re now seeing. Yeah. It’s been interesting recently, you know, I’ve been talking about a coming US civil war on some of my political shows for years, and I just seemed like it was just me and I don’t know, think extreme right, like Breitbart for all these years. And now to see guys who are billionaire investors like Ray Dalio talking about it as kind of a little bit freaky. 

Tony Kynaston [21:02] Do you really think there’ll be a civil war on the States?

Cameron Reilly [21:06] Yeah. I don’t see any way out of it. I don’t know how bad it will be, and I don’t know when it will happen, but the tensions are so high that something needs to give. And I just don’t know. I just can’t see any way out of it. Just yeah. Unless some political leader comes along that can unite the country again and address the divisions and all of the problems that they’ve got. I don’t think Biden’s that person. I don’t know who that person is. Yeah. I just see they’re tearing themselves apart over there. The hatred between the left and the right is so deep and endemic.

I just like a historian, amateur historian, but, you know, somebody makes his living out of talking about history and doing deep dives on, you know, what’s happened in history and from 2000 years ago through to the Cold War and the Renaissance and all that kind of stuff, looking at how societies build themselves up and how they tear themselves apart. I just see it all playing out in the US again. I’ve seen this. Yeah. I keep saying this to Ray on my history shows and Chrissy, I’ve read this book before, many, many times, right. These things never end well. When countries get like this, they need either a global war as Germany did in the 30s and 40s to tear them apart so they could be rebuilt or it’s a civil war that tears them apart and rebuilds them. I can’t think of many or any examples in history where a country has been at this level of divisiveness and has figured out how to put itself back together again. So I hope it doesn’t happen.

Tony Kynaston [22:55] I have a slightly different view. I wouldn’t say I’m worried. I think there’s a high chance that there’ll be some kind of conflict with China, whether it’s you know, a cold war type conflict or an economic type war that Trump tried to start or whether it’s a fallout old-style type war. So I think that’s more likely than a civil war in the US. The US at the moment reminds me of the US when I was growing up as a kid when there was this Black Lives Matter protest. Now, there were lots of civil rights protests back then. There were lots of people driving around in cars with Confederate flags, waving from them. The South Will Rise Again was a chant and the KU Klux Klan was recruiting and all that kind of stuff again. But it all came to nothing.

And I suspect it probably will this time too, because I don’t think that the Trump base can ever militarily get enough support to launch any sort of effective clash or assault or take over. I mean the Capitol Hill assault was a rebel, basically. It was never going to actually overthrow any sort of government. I don’t know what the generals are like in the Pentagon, but I’d suspect that you know, you’d have to win over a lot of those before you could launch any sort of worthwhile assault on the government in America. I don’t see that happening. I see it more likely to be your other hypothesis, which is an external some kind of skirmish with China.

Cameron Reilly [24:32]: Well, we’ll see. Anyway, that’s Ray Dalio that’s gross revenue growth per share. Let’s move on to…

Tony Kynaston [24:41]: Just, I should answer some more about growth revenue, growth per share that was to give people some more background on that. So Steve Mab had sent that through because he had, I think, read about it, Motley Fool, and how they were using it as a key metric to base their investment decisions on and I haven’t investigated in any sort of detail. And I suspect that it probably is a good metric to embrace basically the investment decision on, because if a company’s gross profit is rising year on year, then it’s doing something right. Either the market’s favoring it or the market operates in is favoring it economically, or it’s cutting costs or it’s growing in size either by sales or by expanding overseas or whatever. So I don’t dismiss that as a good metric. It’s not readily available on Stock Doctor or any other place I’ve seen.

So it will be hard to use that as a checklist either because even if you have entered it manually, you still have to calculate it. You’re probably manually as well, year on year. So if anyone knows of a source of that, we could have a look at it. I’m not averse to putting it into the checklist, but I’d need to do a whole heap of testing, or Steve or someone like that can do some testing for us to see if it’s worthwhile. But that’s exactly how the checklist was formed. I read something somewhere that they had a good idea using one metric and I investigated it and it seemed worthwhile. So it gets out of…

Cameron Reilly [26:06]: [crosstalk 00:26:06]

Tony Kynaston [26:08]: I’m not dismissing gross revenue growth per share it out of hand. I’m just saying it’s difficult to do the analysis, to work out which stock is growing their gross profit year on year. And we’d rather then, try and do some kind of testing on it.

Cameron Reilly [26:23]: But my guess is it would take a lot to shift you from what you’ve been doing successfully for 25 years into investing in these companies to move much of your portfolio into the sorts of companies.

Tony Kynaston [26:39]: Well, from what I saw, from what Steve shared with us, there were some, I’ll call them QAV Stocks on the list of companies with that metric growing growth, revenue growth, per share growing. The one that comes to mind is Vocus Communications, which I think, well, certainly was on the buyer list last year or the year before. And I think we may have had it in a dummy portfolio for a while. So my point being is that I’m not going to make a one-dimensional checklist just using that metric. And so if we add it to our current checklist, we’re probably not going to pick up the growth end of that universe. We’re probably going to pick up the value in like, shares like Vocus.

Cameron Reilly [27:19]: Right. 

Tony Kynaston [27:19]: Yeah.

 Cameron Reilly [27:22]: Okay. Moving on…

Tony Kynaston [27:23]: I guess another important point; the checklist is a blend. You can certainly have challenged your portfolios where you just use one metric to see if that’s outstanding. But I think that in the end, the better thing is to add that metric to the checklist and give it a weighting if you need to. But you don’t want to dismiss all of the other good things in our universe and focus on one thing. You want to blend in the new thing into the checklist.

Cameron Reilly [27:51]: Moving on. John Matrons sent us an article the other day from the Financial Review, miners sell elsewhere as China shuts the door on Aussie copper. That’s no good, particularly since we’ve got at least one copper stock in our portfolio, C6C.

Tony Kynaston [28:11]: Well, it’s Australian listed but it’s actually a Canadian copper miner. So it won’t be affected by Chinese bands on Australian imports. 

Cameron Reilly [28:18]: Woo-Woo! 

Tony Kynaston [28:19]: In fact, I may even benefit. 

Cameron Reilly [28:24]: It’s down today with the market. But anyway, it was doing well before that.

Tony Kynaston [28:30]: Yeah. I recall reading the article and not being too concerned. But most of the copper exporters were saying, “Look, we’re busy finding other markets besides China, and we think we’ll be okay.”

Cameron Reilly [28:41]: Right. 

Tony Kynaston [28:42]: And you wonder whether China’s sort of picking and choosing who it picks on, whether it really wants to damage Australia or whether it’s just firing shot across the bow to make political points. 

Cameron Reilly [28:54]: Yes. 

 Tony Kynaston [28:55]: Yeah.

 Cameron Reilly [28:55]: I would suspect the latter. Just trying to turn up the heat and ScoMo’s feet. 

 Tony Kynaston [29:02]: Exactly. Yeah. 

Cameron Reilly [29:03]: Particularly now that Trump’s out of office, but I don’t see any signs that Joe Biden’s going to particularly change the anti-China rhetoric that was coming out of the Trump administration, at least so far.

Tony Kynaston [29:15]: Yeah. I agree with you. I wonder whether it will become much more of behind the scenes things. Like it will be a lot more diplomatic discussions rather than open terraform.

Cameron Reilly [29:26]: Rather than Twitter.

Tony Kynaston [29:27]: Yeah. Rather than Twitter. Exactly.

Cameron Reilly [29:32]: Yes. Business as usual business.

Tony Kynaston [29:35]: Business as usual. Exactly. What’s that old saying, America means business, and business is America.

Cameron Reilly [29:41]: Okay.

Tony Kynaston [29:42]: Something like that. 

Cameron Reilly [29:43]: Right. 

Tony Kynaston [29:44]: Yeah.

Cameron Reilly [29:44]: So you’re not worried about that for now, for our portfolio anyway. 

Tony Kynaston [29:49]: No. I mean, if China wanted to damage us, they’d stop taking iron ore, but that’s not in China’s best interest. So I really think it’s picking and choosing ones that they can probably source, like commodities they can source from other places, at least in the short term until they’ve made their point. And I think certainly in that article, most of the copper exporters are saying, “We can get by without China. It might be a slight disadvantage to us, but we’ll get by.”

Cameron Reilly [30:16]: And anyway, we don’t really care because we just buy and sell based on what’s happening. 

Tony Kynaston [30:21]: Exactly. 

Cameron Reilly [30:22]: We don’t always worry about. 

Tony Kynaston [30:23]: We don’t try and predict.

Cameron Reilly [30:24]: Anything else you want to cover before we get into the Q and A.

Tony Kynaston [30:27]: No, I can do a Stock of the Week if you want. 

Cameron Reilly [30:30]: Oh, let’s do that.

Tony Kynaston [30:30]: Or I can do a group. 

Cameron Reilly [30:32]: Yeah.

Tony Kynaston [30:33]: So I haven’t done a download since about last Wednesday, I think, or even earlier maybe. But I was reading another article a lot on Eureka Report from a guy Alan Treadgold, let’s check that name, Tim Treadgold, sorry. Funny name for an analyst in the mining sector, but he’s very good. And he went through talking about the fact that he thought coal was in an upturn. So I went on to Index Mundi and had a look and yes, it looks like coals just start their three-point upturn. So I decided to go back into the QAV master spreadsheet and have a look at all of the companies in the classifications for energy and materials, which is one of the early columns in Column C in the QAV master spreadsheet. 

And if people aren’t aware of what that means, is ASX has grouped companies into industry classifications to allow people to analyze a particular industry quickly, whether it’s financial, retail, materials, which often means things like coal or energy. Because I don’t go back to every download and check every three-point sentiment on the watch list because there are a couple of hundred shares on the watch list, whatever the number is. It’s a lot. I tend to look for catalysts or sentiment changes or interesting articles that make me go and have a look. So in this case, I went and had a look at those companies on the watch list that was in the material sector, which would cover coal and the energy sector because he spoke about some new oil changes as well, I think in the article.

But anyway, I came up with a whole host of companies that had gone through three-point trend changes since I last looked at them. I put it out as a stock journal. Well, I’ll just go through some of those now. NGE Capital with a QAV score of 0.31. So NGE is a listed investment company, which invests in resource companies. But it’s a small company itself, but it has now a good QAV score and a three-point upturn. Yancoal, I think we may have talked about it in the past has a QAV score of 0.3. And it has had a recent upturn. The interesting thing about Yancoal, even though it’s a very large coal company, it has large owners, one of at least is Chinese. And so it doesn’t have a large average daily traded amount, which I think sits at about $94,000 when I last looked last week. So even though it’s a large company, it’s thinly traded. It can be hard to get in and out of when you have a situation where there’s thin trading because the company has large shareholders. That’s Yancoal. 

Grand Gulf Energy GGE is now in an upturn, it has a QAV score of 0.14. I’m not sure what happened, but when I looked at GGE it had a qualified audit flag set. But when I check the annual report for GGE, it didn’t have a qualified audit. So I suspect at some stage I either copied the wrong thing into that line of the buy list or have some other occurred. But that’s been changed now. Again, it’s a small company, average daily trade of only $5,000. But people might want to have a look at it if they fit their profile. Australis Oil and Gas ATS is now a buy with a QAV score of 0.1. So it’s way down the list. Kingrose Mining, I’ll probably make that my stock of the week, KRM. So I think it has been on our buyer list in the past, but it fell off again and it may do again because it’s sort of bouncing along the bottom of its share price graph, but it has had a recent upturn. It has a QAV score of 0.58. So quite high. So that’s the Kingrose mining. It owns gold and silver mines in Indonesia. So there is a bit of sovereign risk there, but it’s certainly on its way back. It’s small, I think that the share price is only about 3.80 cents. So I don’t think it’s necessarily a small company, but certainly, the share price is in a sense. 

Essential Metals has a score of 0.14. But I do want to draw people’s attention to the fact that there are only two points in the trend line at the moment after the upturn. So we might wait a bit longer, one more month anyway, to see if we have a three-point trend for ESS. OM Holdings is on the buy list with a QAV score of 0.1. Aeris Resources. That’s A E R I S. AIS is the code, has a QAV score of 0.12. So quite a few came up in that latest scan of sentiment for those companies and all based on Tim Treadgold’s article and me going and have a look at Index Mundi for the coal price increase.

Cameron Reilly [35:41]: So for new listeners, this is something we’ve talked about before. We’ve added some stocks a few months ago, based on you noticing that some of these resources pricing has been ticking up.

Tony Kynaston [35:58]: Yes, it’s certainly a pattern. So it happened to me a couple of years ago with gold. The gold price had been in the doldrums and being in a downtrend. But then I saw that it had turned up and I applied the same three-point trend logic to the five-year monthly gold price charters. I did two [inaudible 00:36:17] stocks and that’s when I started buying gold companies. Last year, it happened with nickel and it happened with iron ore and it happened with, maybe iron ore was the year before. And it’s happened most recently with copper, and we seem to get good results out of that kind of turn and sentiment, which makes sense. I mean, these are all companies which trade these things and the prices going up. So they expect their sales to go up. And as we know, with the minors in the industry once the price goes above their cost base, their growth profit increases dramatically as the commodity price goes up. Because it’s just all those extra, all that extra income just drops to the bottom line, once they’ve covered their costs. So yeah, I think without wanting to be a commodities trader, it’s certainly been a driver of some good results within the companies that mine in those in those areas. 

Cameron Reilly [37:09]: And if people want to check out Index Mundi. It’s Mundi with an I., basically looks at the commodities markets and tracks the prices and commodities markets.

Tony Kynaston [37:22]: Yeah. And that’s part of it. It actually tracks a whole heap of other things, like world population and other things like economics, GDP. 

Cameron Reilly [37:28]: Oh really. 

Tony Kynaston [37:29]: Yeah. I think Mundi, isn’t that Italian for the world. So it’s Index World and sort of different graphs in it, a little different indexes in it that it tracks.

Cameron Reilly [37:38]: Right. Yes. Famous Leonardo Da Vinci painting, what was it called? The Mundi or was just the Salvator Mundi, Savior of the World. 

Cameron Reilly [37:53]: Right. Long thought to be lost. Anywho. He’s in the news a bit recently, that’s why I mentioned. So KRM stock of the week, Kingrose Mining. And so again, for new listeners what we have done in the past most recently with copper and aluminum, I think, is we bought a couple of stocks, even though they weren’t the highest on the buy list, but they were relatively high on the buy list. But that combined with the Index Mundi uptick in the commodity price, you decided that they were worth elevating in terms of our buy list. We did well out of those.

Tony Kynaston [38:33]: No. Exactly. Again, these aren’t recommendations, please do your own investment analysis.

Cameron Reilly [38:41]: Indeed. All right. So onto Q and A. Doug. Doug says, “Hey, CR and TK, [inaudible 00:38:51] a technical question. I’ve been reading a bit about using logarithmic, I can’t say that, logarithmic price scale for long-term share price charts. And I find they give a much better overview of a percentage price change. However, I’ve also noticed that it can impact the three PTL quite a bit. That is sentiment can go from being a confirmed to two QAV points to not crossing the line at all. Have you ever investigated this? And do you think it is worth investigating? Doug”.

Tony Kynaston [39:23]: I haven’t investigated it. The logarithmic charts aren’t that wildly popular. From memory, they’re used more when you want to compare the performance of two stocks on the same graph because a logarithmic chart shows you the percentage increase. Whereas the charts that we regularly use to show you the dollar increase or dollar movements in a share price or cents per share movements in a share price. So yes, it will provide a different shape to the share graph. It’s interesting that you’re getting different results. I mean I can’t explain that. I’ve always used the ones that we use now, which are the dollar share charts and that’s how I read about and learned to use the three-point trend line system. So I’ll be continuing with that. So I don’t know much about logarithm charts other than they use for comparisons.

And just to explain that, so if you’re trying to compare Fortescue Metals with BHP on the same graph, you know, one will be much higher on the graphs than the other. And because BHP is a, I don’t know, what is today $40 and Fortescue Metals is $24. And so you’ve got to have a fairly big y-axis to compare them. And then, you know, a dollar movement in the smaller stock, who’s going to make the graph go up a lot more than the dollar moves on the BHP stock. So that’s why you use a logarithmic chart. Generally, they’ll start then at the same point on the y-axis and they’ll move according to their percentage changes and you’ll see which one has done better over time. So I’ve only used it for price comparisons or sorry, company comparisons on the same chart.

Cameron Reilly [41:03]: Okay. Thanks, Doug. Greg, “My only question right now would be if Tony or you have any thoughts on the blue chippers in the ASX, and which currently looked like the best ones to buy for someone with only a little bit of cash to invest who wants to buy and hold for the long term as a relatively stable, but small start to their own portfolio to build over the long term.” My guess is that you would say the most undervalued out of the Top 20. 

Tony Kynaston [41:31]: Yeah, it’s a timely question because we’ll know that in the next month or so. So by the end of February, all the companies will have given us their December results. And we can construct a fairly simple spreadsheet of the Top 20 Stocks and look up their current share price compared to their future IV. Hopefully, Greg’s been able to listen to some of our past episodes where we talk about putting the earnings per share over the hurdle rate, or sorry, the future earnings per share, the forecast earnings per share over our market hurdle rate, which sits at about 6.1% now. And that gives us what we think is the best guide to valuation for next year. And then look at the difference between the share price now and that valuation and then buy the one that has the biggest gap. That’s been a fairly successful process for me over the years. And it’s a great way to get into the market and start to understand concepts like valuation and the differences even between blue-chip companies. So yeah, so if Greg can hold on for a month, I’m sure he’ll have his answer towards the end of February.

Cameron Reilly [42:39]: And if you want to know more about Tony’s thoughts on that process of the most undervalued, I think Episode 301 or 303, we probably go into that where we talk about Tony’s investment letter concepts. So if you haven’t already, Greg, check those out 301, 303 and it’s in the Bible on page nine. But it’s only a couple of bullet points there, better listen to the podcast where Tony goes into it in some depth. Thanks, Greg. Here’s one from Alice. “Hi Cameron, I have a couple of questions about net equity. First one, the manual entry for consistently increasing equity.” Talking about in the spreadsheet. “To find this out. Do you use the Stock Doctor financial statements, statement of cash flows, operating cash flows line? For example, TRS.” I love TRS. “The latest June 20 amount is 167, 380,000 consistently increasing equity.”

Tony Kynaston [43:48]: No. That’s not quite what we do. So she’s in the right ballpark. We use the financial statements, but we’re going to the tab that’s headed up Stock Doctor, [inaudible 00:43:59] a statement of financial position and then brackets balance sheet. So it’s basically the balance sheet page, and we take the last 300 last, sorry, 600 hours or three years and we see if the equity, in other words, assets minus liabilities is increasing over time consistently.

Cameron Reilly [44:18]: And as a reference you said the statement of financial position, the equity row. 

Tony Kynaston [44:22]: Yes, that’s right. 

Cameron Reilly [44:24]: Yeah. If you look at page 25 of the Bible, Alice, that’s what it says. Source Stock Doctor financial statements, statement of financial position equity row. For our listeners and any other new listeners, if you’re trying to figure out where to get the data from, go to the Bible, AKA, the getting started guide. We refer to it only semi-jokingly as the Bible. And you can find everything about where we get it and how we calculated it, et cetera, et cetera. Hopefully, it’s pretty clear. And if it’s not, let me know and I’ll make it more clear. But yes, Column V consistently increasing equity, page 25 of the Bible. If you don’t know where to find the Bible, go to the Club Member Resources page on our website Go to that page that gives you links to the Bible and the portfolio and the videos and the checklist and everything. 

Tony Kynaston [45:22]: Just adding to what Alice has said. So for TRS, The Reject Shop, the equity hasn’t been rising over the last six halves. On December 7th, so we’re going back from June 20, for six halves, December 17 was 154.32 million and then, but July 18 was 150.986. December 18 went up to 158.6, but then June went down to 125.3. So it fails our test of consistently rising equity.

Cameron Reilly [45:55]: No. Not TRS.

Tony Kynaston [45:58]: That has it, I guess, that may be increasing equity corresponds to Steve Mavs metric of gross profit rising, gross profit growth per year. In that, if gross profit is rising it’s probably dropping more equity onto the balance sheet. Just a guess, but we might actually be doubling up with that metric.

Cameron Reilly [46:21]: Okay. That’s interesting. And it depends on how much debt they’ve got, wouldn’t it?

Tony Kynaston [46:27]: Oh yeah. Look at it. I’d say the correlation wouldn’t be one to one, but there might be a correlation there. But again, I haven’t researched that.

Cameron Reilly [46:33]: Right. Okay. Let’s see. TRS is down to 670 today. Glad I sold them when I did. 

Tony Kynaston [46:45]: And I still own them. 

Cameron Reilly [46:47]: Do you?

Tony Kynaston [46:47]: Yeah. It’s been going sideways; I think since I bought them too. Anyway.

Cameron Reilly [46:53]: Well, they’re up to like eight bucks at one stage. I think I sold it for about 780, only because I needed the cash to pay bills. But yeah, well I did very well out of TRS. I was very happy. Much to Eddie Donato’s chagrin, I did very well out of it. Another one from Alice. I think you just answered part two of a question, right about, you know, it’s looking in the wrong place. She’s got to look in that other place. 

Tony Kynaston [47:24]: Yeah. 

Cameron Reilly [47:24]: Her second question, “Is for the manual score, is there a recent positive upturn? I understand this being, it says the share price breached the buy line since the last report. Using TRS as an example, the last report was the 30th of June 20, but I’m unclear what the answer is.” I think we’ve got another question about that too recent upturn. So maybe we can kill two birds with one stone here. 

Tony Kynaston [47:52]: Yeah. So Alice is right. It has the three-point trend line been breached since the last results or at least the last results were announced which usually occurs two months after the results staged. But anyway and it gets a bit long in the tooth in February that we’re still going back to June of last year or at least August of last year. And it will click over again in February coming up that the recent upturns won’t be recent anymore. We’ll have been in the last six months. So it has less and less many, I guess, as it goes forward. But yes, so when the TRS breach, it looks like it went through its three-point up turning around May of 2020. So it probably doesn’t have a recent upturn because we’ve got June’s results which would have come out in August. So it’s been going sideways since then. So Alice is right. We’re testing for a new three-point upturn since the last results were announced.

Cameron Reilly [48:54]: So the first peak with TRS is obvious. The second peak, you’re taking it sort of around, was it February 2020?

Tony Kynaston [49:03]: Yeah. January 2020, probably. Yeah. There are actually three peaks here. I’m taking March 2016, and then I’m taking July 2016, then I’m taking March 2018. And that three-point trend line then crosses in that peak in January 2020. And that the share price doesn’t retreat back to the sell line since then. 

Cameron Reilly [49:30]: Yeah.

Tony Kynaston [49:31]: That happened back in January 2020. In fact, it crossed again on that same line around April 2020. So yeah, it’s not a recent one.

Cameron Reilly [49:39]: Well while we’re speaking about 3-point trend lines and recent upturns. Let me find the other question. Duncan said, “I’ve got a question I’ve been meaning to ask. What is the difference between the checklist questions that you have listed Columns H and I, they sound very sommelier, what, similar? Clearly calls…

Tony Kynaston [50:00]: Someone said sommelier?

Cameron Reilly [50:03]: Column H. I need a sommelier right now. Column H is a sentiment. Column I is a recent positive upturn. He says, “Column I simply question about there being a hockey stick moment, as well as a breach of the buy line. And if so, is it since the date of the last report, the date it was issued, or is it reported in the Bible a reference to the last time I did the analysis.” No, it’s of the last financial results and I’ve just changed that in the Bible to make them more clear, since the last financial results. 

Tony Kynaston [50:38]: Yeah. 

Cameron Reilly [50:39]: But can you explain for us again, just the thinking around this?

Tony Kynaston [50:46]: What’s the reason why it’s on the checklist, you mean? 

Cameron Reilly [50:49]: Yes. For Column I.

Tony Kynaston [50:51]: Yeah. So it’s a bit like the…

Cameron Reilly [50:52]: Recent positive upturn.

Tony Kynaston [50:53]: It’s a bit like the Index Mundi thing. I’ve found that if something’s in an upturn, you may have missed the start the upside by definition won’t be as much. But if it’s just recently turned and that’s probably the maximum upside you can get from it, it’s basically picking the start of the upturn from the trough. So, you know, these all go in cycles, and if something is going to rise 30% and then turned down or whatever the number is, trying to get in as close to the start as possible, it gives you that 30%, or as much as you can raise. Whereas, if we come along in six months’ time, and we’re halfway through that upturn, you’ll get 15%. So, yeah, getting the upturn as close to the bottom is the most profitable way of buying. And so it gets an extra point on the spreadsheet.

Cameron Reilly [51:43]: And to take The Reject Shop, as an example, you just said that it’s been in an upturn since March of 2020. So that’s a lot longer than six months.

Tony Kynaston [52:00]: Yes, that’s right. So it’s been in an upturn for longer than six months. But again, that’s my point. I think I said just then, just let me have a look at The Reject Shop. I think I said it was in an upturn from January 2020. So January 2020, the price was 4.60. It’s now 6.70. That’s a better return than if you hadn’t bought in, as I did when it’s been going sideways. So, you know, after the upturns already started, you know, buying at say, I don’t know, I can’t remember when I bought in. Say June 2020 where the price was $7.04 you might actually lose a bit of money since then. So yeah, the whole point of that recent upturn is to try and get in as close as we can to the bottom.

Cameron Reilly [52:45]: But it was $4.66 in January 2020. Then it was back down to 2.69, 2.70 in March. 

Tony Kynaston [52:53]: Yep.

Cameron Reilly [52:53]: Isn’t that where the upturn started after that?

Tony Kynaston [52:56]: Well, I think it was an upturn probably back in you know, the real bottom would have been the lowest price, which is June 2019 at $2. But we’re looking for the sentiment to be confirmed. And if you just look at the graph without knowing what’s coming, so you kind of cover the last couple of months or last 12 months and you look at how it turned up in January 2020, it does look like it’s beginning to start its growth. But in this case, in TRS’s case, in particular, you have plenty of time to get into that, as you say, went down for a while first and it starts to grow again. 

Cameron Reilly [53:33]: Right.

Tony Kynaston [53:33]: Yeah. 

Cameron Reilly [53:34]: Okay.

Tony Kynaston [53:34]: And that’s the only thing I should say that the caveat is that this is statistical in nature. Not every upturn will continue. And so, you know, there’s been cases with their own dummy portfolio where we’ve said, okay, so recent upturn let’s buy it and then next month it’s turned down again and we’ve sold it. So it can be volatile, that sort of change of sentiment, but it can also be profitable. 

Cameron Reilly [53:58]: Right. So getting back to Alice’s question, the last report for TRS was in June, but it sort of it started cracking up before that. 

Tony Kynaston [54:08]: Yeah.

 Cameron Reilly [54:09]: Yeah. So the answer would be a no in the checklist for that.

Tony Kynaston [54:12]: Correct. That it would be a blank. Yep.

Cameron Reilly [54:14]: Mark says, “Hi Cam, could you please run through GGE, NHC, and ESS three PTLs from Tony’s journal entry on Thursday.” He says, “The sell lines are unusual.”

Tony Kynaston [54:31]: Yeah. It could be. Let me have a look.

Cameron Reilly [54:33]: Let’s do them one at a time and I can post them on our website and everyone can have a gander. GGE Grand Gulf…

Tony Kynaston [54:43]: Energy.

Cameron Reilly [54:46]: Not golf. 

Tony Kynaston [54:48]: Yeah.

Cameron Reilly [54:49]: No. You’ve got grand golf energy. How many games of golf have you played in the last month, do you reckon?

Tony Kynaston [54:57]: I’d say…

Cameron Reilly [54:57]: One a day?

Tony Kynaston [54:58]: No, not that much. I’d say maybe 15, one every second day. 

Cameron Reilly [55:02]: Right.

Tony Kynaston [55:03]: On average. Yeah. 

Cameron Reilly [55:05]: How’s your golf game? How’s your back holding up? 

Tony Kynaston [55:09]: Back’s good. I’ve got lots of exercises the physio has given me, so that’s good. And my golf game is improving, which is good. 

Cameron Reilly [55:14]: Wow. Good. Good to see. Did you know, I meant to mention this to you. I saw this in the financial review this morning, too. So I think a 16-year-old kid won the US Fortnite Championships. Do you know what Fortnite is?

Tony Kynaston [55:30]: Yes, I do. 

Cameron Reilly [55:32]: Computer game for those who don’t. He took home $3 million which was more than Tiger Woods took home for winning the US Masters.

Tony Kynaston [55:40]: Wow.

Cameron Reilly [55:42]: So that’s what you need to get into now, Tony, is Fortnite.

Tony Kynaston [55:48]: I’m not sure how much time I’ve got in my golfing career left because it’s getting harder and harder. 

Cameron Reilly [55:55]: Really. 

Tony Kynaston [55:55]: So maybe play the games. Well, yeah, I mean.

Cameron Reilly [55:57]: I thought golf was one of those games you could play until you’re really old.

Tony Kynaston [56:01]: Well, you can. But yeah, eventually you’ll ride in the car and rather than walk it and you deal with all the back issues, et cetera, which I deal with now, but it gets harder and harder as you go through it too. Yeah. Hopefully, I’ll be playing it for another couple of decades, but we’ll see. 

Cameron Reilly [56:17]: Oh, okay. And then you’ll get into Fortnite.

Tony Kynaston [56:19]: Yes. Yeah.

Cameron Reilly [56:22]: I say GGE Grand Gulf Energy currently trading at $0.011, 1.10 cents. Wow!

Tony Kynaston [56:31]: Yeah. So small company. A small company of $5,000 on average daily traded. But you can see just from looking at the graph, it’s an upturn now.

Cameron Reilly [56:39]: So doing the sell line, which seems to be what Mark is interested in, say the lowest price on the five-year chart, March 2020.

Tony Kynaston [56:51]: Correct. 

Cameron Reilly [56:52]: And the second one would be April 2020 or June 2020. I think there were all the same.

Tony Kynaston [56:58] All the same. Yeah.

Cameron Reilly [56:58] Say 0.003.

Tony Kynaston [57:01]: Correct. A third of a cent each time. Yeah. 

Cameron Reilly [57:04]: Yeah.

Tony Kynaston [57:07]: Imagine what next week’s question will be. What’s the sell line? Is it 3.3 of a cent or is it going to be higher? If you do it by the numbers, it’s 0.3 of a cent. But you can fudge it if you like, if you’re worried about the share price going right up to, I don’t know, 20 cents and then falling all the way back to a third of a cent before you sell it. Then you can certainly take the last of those points. The 0.3 that occurred in June 2020 and use that and then go to the right for the next lowest point which looks like it would be October 2020 and draw a line from there.

Cameron Reilly [57:46]: You can do that because we don’t judge the fudge.

Tony Kynaston [57:49]: We don’t judge the fudge. You saw that link I sent you to the Uranus Fudge Shop.

Cameron Reilly [57:55]: I did.

Tony Kynaston [57:58]: That was so hilarious. So areas, where does fudge come from, Uranus?

Cameron Reilly [58:04]: Tip of the hat to whoever came up with that. That’s some pretty bold marketing right there. All right. New Hope Corporation. NHC is the next one Mark wants us to talk about. I see a low point in October 2020, and then the next low point would seem to be November 2020 which means the sell line kind of goes straight up.

Tony Kynaston [58:30]: Yeah. That was one of the reasons why I think I made the note that I’m going to watch it rather than put it on the buy list just yet. But it is a coal company, that was what triggered my look at these companies was the turn and the three-point trend line for coal. But yeah, it’s currently one of those recent upturns where the sell line is tracking the upturn as well. And it’s both a buying sell at the same time.

Cameron Reilly [58:56]: Okay. A Schrodinger.

Tony Kynaston [58:58]: Yeah. But it’s definitely a sell at the moment. It’s yeah. Its low point is October 2020 and then the next lowest point would be November 2020. So it’s well below a line. If you draw a line between those two points and extend it out.

Cameron Reilly [59:14]: And the last one Mark has asked us to look at is ESS, Essential Metals. And again, I’m saying the low point is probably December 2020 when it was at 0.0823 and it’s gone up since then, it’s 0.175 today. We’ve only got one low point.

Tony Kynaston [59:41]: Well, we have two. We’ve got today as well. So the sell lines going up along that current upturn line. So again, it’s a buy and sells at the same time. 

Cameron Reilly [59:52]: Really. 

Tony Kynaston [59:55]: We’ve had these before. We’ve only got two points on the line. So, you know, I’d wait until we see what the January point does and whether we have a trend there or not with three points in it.

Cameron Reilly [01:00:06]: With the buy line, what would you take as the most recent point? The second point?

Tony Kynaston [01:00:12]: The second point. So I’d start with the highest point and then just drop my ruler along. And there are two points on that line. What’s that, August 2019, and then September 2020 are also on that sort of line, which has just broken through in the last month. 

Cameron Reilly [01:00:38]: What! 

Tony Kynaston [01:00:39]: What? 

Cameron Reilly [01:00:39]: What!

Tony Kynaston [01:00:41]: I’ll start again. The highest point is May 2016. 

Cameron Reilly [01:00:45]: Yeah.

Tony Kynaston [01:00:46]: And if I start my line going down from there.

Cameron Reilly [01:00:49]: Yeah. 

Tony Kynaston [01:00:50]: I’m going through January 18 and August 19. And they’re almost touching. Certainly, August 19 is touching and so is September 20. But there’s actually a whole like a ridge of peaks along that line.

Cameron Reilly [01:01:13]: Oh, sorry. Yeah, it has gone above that. Yeah. I can’t see it’s gone up because I’ve got a red line over now where I drew the sell line. That’s why I was confused. 

Tony Kynaston [01:01:20]: That’s a buy and sell at the same time. 

Cameron Reilly [01:01:24]: Really. Really?

Tony Kynaston [01:01:29]: Yeah.

Cameron Reilly [01:01:30]: Come on, man. Can’t we fudge this one? Like it’s gone right above the buy line.

Tony Kynaston [01:01:34]: Yeah. Well, you can fudge that one. Again, it just depends on what your risk at the time is.

Cameron Reilly [01:01:40]: Yeah. So by the book, it’s a Schrodinger. But it kind of looks like a buy, it’s shot up massively in the last couple of weeks. 

Tony Kynaston [01:01:51]: Yeah. I agree. But an alternative argument is that all the way down, it’s a falling knife and it does have these upswings and they turn south again. So this could be another one.

Cameron Reilly [01:02:01]: It does. Yeah. Yeah. I wonder why that is. It’s done that over and over again. You’re right.

Tony Kynaston [01:02:06]: Yeah. And oftentimes when they’re being done periodically like that it coincides with announcements, usually the results. So the peaks, let’s have a look. Well, no, May doesn’t really fit the profile. But there is a peak in January. So that’s going to be just before the December results. There’s a peak in August, which is the half-year results. And then we’re seeing a peak now coming into their four-year results again. So I suspect that people get excited that this is going to be good news in the results and buy the stock. And then it doesn’t eventuate and they sell it.

Cameron Reilly [01:02:42]: Or they forget. And then a year later they do it again. It’s lithium and a cesium miner. 

Tony Kynaston [01:02:50]: Right. But yeah, that’s just my speculation. I don’t know why it had got that pattern.

Cameron Reilly [01:02:57]: Cesium was discovered by Julius Caesar, hence the name. A little known fact.

Tony Kynaston [01:03:04]: Probably named after him, I would think.

Cameron Reilly [01:03:06]: He was a chemist and when he was occupying gold, he has to dig around. You know dig up new minerals and melt them down. See what he could do with it. Fascinating guy. The guy is a scientist, politician.

Tony Kynaston [01:03:21]: What would JC use cesium for.

Cameron Reilly [01:03:26]: You know, he didn’t have a use for it. He was just curious. Just curious. You know the properties of radiation, very short shelf life cesium, I think, and he wanted to know what he could do with it. I don’t know. I’m just making shit up.

Tony Kynaston [01:03:42]: You sound like Cliff Clavin.

Cameron Reilly [01:03:44]: Clifford Clavin. Little known fact. Let’s move on. Thank you, Mark. Sam, “Bonjour Cameron, I was reading a book on investment and in the winter sell section, they talk about the few reasons why to sell, given that the book gives the principle on how to buy only the winners. It is unlikely you will ever want to sell naturally. And one of the reasons to sell was the change of performance, such as increased debt causing lower ROCE and others.” That’s the return on capital employed. I just had to look that up. “Now, I know that Tony’s philosophy is to sell only when the shares breaking the sell line. But let’s imagine that for example, a company we purchased in February 2020 presents a new set of financial statements in February 2021, showing a very poor QAV score due to, for example, a drop in return on equity, drop in profits, increase in debt which means it is no longer rated a star stock by Stock Doctor, et cetera. But the share whilst going down a little is nowhere near breaking the sell line. In fact, it would take a drop of 25% for it to break the sell line within the next six months. Would Tony not be concerned by the drop in performance or try to investigate more or would he stick to the market and the trend line trigger? I would like to end by thanking you for the podcast and all the resources online, as well as the community created around QAV. I enjoy it very much, Sam.” Well, Sam, as I said to you in my email, yeah, Tony sells on bad news, man. That’s one of the reasons to sell.

Tony Kynaston [01:05:21]: Yeah. But I don’t usually sell on bad news like that like he’s talking about increasing in debts or low ROCE or the QAV score goes down. I will follow the sentiment. The bad news I tend to sell on other things like the CFO resigning suddenly. 

Cameron Reilly [01:05:35]: Yeah. 

Tony Kynaston [01:05:36]: Yeah. And even then I might just wait and see what happens with the sentiment, but that could be a trigger. Yeah. I mean, companies, the share price can still go up, even if they increase their debt for example which were, you know, or do something else which reduces their return on capital employed. Even really good companies that happen to all the time. Amazons ROCE, I’m sure goes up and down generally up. But you know, there’ll be times when it goes back. So yeah, I wait for the trend to breach. But look, you know, Sam, as I say, all the time, the example you talked about there, whereas the shares went up. It’s 25% above its sell line. If it’s starting to trend down and you had some good reasons, it’d be a fudge, but yeah, you can sell it if you’re worried about it.

Well, I tend to find those Sam, there are a couple of things. First of all, if it’s a big company with you know large daily trades and lots of people looking at it, people are usually basing their investment decisions on the forward numbers or what they think the forward numbers might be, rather than the current numbers. And so if it’s possible, they could have had a bad result, but the market’s taken the view that the [inaudible 01:06:51] will turn it around again next half. And therefore the share price may not drop, even though there’s been some bad news. So there are lots of secondary effects on this and lots of complexities. And that’s one of the reasons why that the trend line and sentiment can be helpful for us.

Cameron Reilly [01:07:07]: Right. So the bad news for you has to be really bad.

Tony Kynaston [01:07:14]: Yeah. It’s going be a red flag thing, like a CFO resigning, like a qualified audit in the last results, that kind of thing. 

Cameron Reilly [01:07:24]: Yeah. 

Tony Kynaston [01:07:26]: Which is more about the quality of the company rather than its numbers. The fact that the QAV score drops, you know, as I said, it might come back. And what I find, especially with well-run companies are when they have a bad half, they worked really hard to fix those problems. Management’s incentivized to do so. So they can turn it around quite quickly.

Cameron Reilly [01:07:50]: And of course, once we’ve bought a stock, the QAV score after that point is somewhat irrelevant. Right?

Tony Kynaston [01:07:58]: Correct. Yeah. We’re hoping that when we buy something, the QAV score drops off our buy list because that means other people are bidding up the stock. The stock price is increasing, which by the very nature of our process has to reduce the QAV score. But all that means is that we got in early. It doesn’t mean the company’s necessarily not investment growth. It just means that we did what we try to do, which is to buy as early as possible into a company that’s going up.

Cameron Reilly [01:08:24]: And if we’ve done well out of it, and it’s gone up, then you will tend to more often than not, you will just hold regardless of what their numbers are until it breaches the sell line.

Tony Kynaston [01:08:35]: Yeah. Or until something terrible happens that we just spoke about.

Cameron Reilly [01:08:38]: Really terrible. 

Tony Kynaston [01:08:40]: Yes.

Cameron Reilly [01:08:42]: Okay. Thank you, Sam. Damien Parker, “Tony and Cameron, I heard you referred to NTD in the last podcast. I am a fan as you well know. And Friday’s announcement after the bell was a cracker. This is a very conservative board having been nailed for the SP collapsed post-delisting. the upward movement in the AUD cannot be overstated for a company that imports everything. I believe…” This is National Tires, right? NTD, I seem to recall.

Tony Kynaston [01:09:13]: Yes. Correct.

Cameron Reilly [01:09:15]: I believe they might likely claw back as much as 8% on their gross margin, which makes a huge difference to the bottom line. Huge. You did reflect in a previous podcast as to why they fell so much after listing in 2017. The answer is they failed the fact in the fall in the AUD from around 80 cents to 65 cents. But hey, we are now back at 77 cents and it changes everything like rain in the Outback. I do believe we will see an impact in FY 21 of around 20 million, which is around 20 cents EPS and with a 50% DVFF.” What’s DVFF? Fully franked. 

Tony Kynaston [01:09:56]: Fully franked, yes it is. 

Cameron Reilly [01:09:56]: That’s good, that’s a great [inaudible 01:09:58]. Fantastic Four. I’m like, ‘” The Fantastic Four. Really, that’s awesome.” That’s what FF means to me. I’m a seventies superhero comic nerd. That’s a gross stock return of 14.3% worthwhile for the income stream alone. But there is still plenty of oxygen left in the SP, which I see at $1.60 to $1.80. Conversely, the KOV first-half results weren’t that exciting when you strip out the net effect of job keeper. Even including job keeper EPS for FY 21 will be around 39 cents on a $5 share. It is overvalued in my own opinion. And I sold a parcel this morning and added it to NTD. Why wouldn’t you? When a $1.10 gives you a 20 cent return versus $5 for 39 cents. But just my opinion, and don’t follow me as I may well be lost on the road to nowhere. Damien Parker. ” Oh Damien, that says a lot of good stuff in there. I didn’t understand most of it but I’ll throw it to Tony now for intelligent commentary.

Tony Kynaston [01:11:02]: I think Damien is much more intelligent on business analysis than I am. So he takes it to the next level of really drilling down looking at the…He’s a bit more like the chap we spoke to from Collin Street Fund, who does the deep dive and understands the company in detail. Whereas I, you know, look at the checklist numbers rather than going through lots of business analysis in terms of how the Australian dollar is affecting it, what’s happening with management, et cetera. But you know, he’s made some good points. I suspect just some comments on there. I suspect that if the Australian dollar dropping was a problem for them, that they probably have hedging in place now to safeguard against that happening again. Again, that’s the way, you know, this is kind of the self-correcting nature of our business, when they make a mistake, they insure against it ever happening again.

So the share price is going up. Certainly, the announcement on Friday, which Damien’s referred to as basically a profit upgrade. So it’s saying that trading in the first half of 2021 has exceeded expectations with all business units performing better than predicted. Blah, blah, blah. It goes into some more detail after that. So we’re in confession season. So that’s good to know. And you can see that reflected in the share price in the last couple of days. It’s gone up quite a bit sort of, I think it went up from about 95 cents to a $1.7ish. What’s it today? $1.65, today. Yeah, so that’s been well received in the market. 

As for Korvest, I had a quick look in Stock Doctor, the numbers haven’t hit Stock Doctor yet. I’ll just call up that company graph and have a look. And this is worth knowing is that the companies are making their announcements now because of confession season. So we’ll see whatever they’re announcing reflected more on the sentiment before we get the figures. At least the figures as they are released by the companies which we’ll see in the paper or because of the alerts we set, but certainly the figures in Stock Doctor. So it does pay to watch the sentiment graphs at the moment. I’m looking at Korvest though when it’s still in an uptrend. So, I’m not going to worry about taking any action with Korvest and we’ll see what the results I want to come into Stock Doctor in the next sort of three or four weeks.

Cameron Reilly [01:13:33]: Now for new listeners, confession season something sounds like something that the Vatican does when they’re in the middle of another child rape investigation. “Mea culpa. Yeah. Yeah, we did do that. Sorry, we did cover that up for 50 years. Whoops. Our bad. Whoopsies.” But that’s not what you’re talking about here. Would you explain confession season?

Tony Kynaston [01:14:00]: Definitely, not talking about the Catholic church in that way. The confession season is there’s a thing called a continuous disclosure, which is the policy of the ASX and binds companies that once they have information that may affect the share price, that they must declare it to the market. And so what’s going on right now is they’re ruling off their books for December 31 and they’re working out their P&L, et cetera. And again, by the ASX rules, they have to announce their figures to the market by two months after they rolled them off. But during that period, obviously, they brought a fair idea of what the results are going to be. So it’s called confession season because they have to disclose that they now have a particular view of what their profit has done in the last six months or their sales have done, whether they’ve gone up or down and they have to tell the market. And so if the sales have gone down or the profits have gone down, it’s a confession, sort of similar to reducing shareholder returns. But in some cases, it’s also they’re very proud to tell the market, like in National Tires case that they expect to have results exceed expectations.

Cameron Reilly [01:15:14]: Unlike the Catholic church, which will avoid telling you what they’ve really done until they really get backed into a corner. And they’re, “All right. We did it. Yes. Forgive us. That’s what Jesus would do.” Would he though? Really? I don’t know about that.  Anyway, moving right along. Before I get myself into more trouble. 

Tony Kynaston [01:15:36]: Yeah. 

Cameron Reilly [01:15:39]: Back to Duncan’s questions. “Hi Cameron, I’m looking to restructure my existing pre-QAV portfolio in light of all I have learned from the QAV podcast in recent weeks. I’m beginning to feel like I have the necessary knowledge to do this with a higher degree of confidence than I did previously. I am thinking that it would be wise given the time of year to await the new reporting season. Would TK considered this to be a smart thing to do? I’m trying to work out the trade-off between being out of the market in the interim versus the advantage of having new information after the reporting season.” I think you said last week that yes, you would hold off.

Tony Kynaston [01:16:16]: I would hold off, but I’m a little bit concerned by the comment there about being out of the market. So I don’t know how Duncan is transitioning from what he currently does to QAV but I’d try and minimize that period of being out of the market as much as possible, even if he stays in his current positions for another month. If the market goes up, he’ll get that. Conversely, if the market goes down, he’ll cop it as well. But yeah, I’d rather stay in the market and work out your decisions when the new figures come out. And then sell one and buy one and just transfer that way.

Cameron Reilly [01:16:48]: One of your basic rules is to ABT, always, ABI, always be invested.

Tony Kynaston [01:16:56]: Correct. Yeah. And times like, not like in the COVID cough when the market’s going down terribly, we sell and go to cash and wait for the upturn. But yeah, generally it’s always be invested. 

Cameron Reilly [01:17:05]: A related question is when it is best to start downloading and analyzing in the reporting season?

Tony Kynaston [01:17:14]: Yeah. So as quickly as possible because you know, the information travels at the speed of light, and as soon as the figures are announced and available to analyze generally within even a couple of hours, you’ll see movements in the stock price. So as soon as possible. One of the difficulties I have with Stock Doctor is it can take a couple of days for the figures to come through and you can see that the share price may have moved up already and you’re missing out. So that’s frustrating. But again, I wouldn’t jump in before I had the figures. Yeah, so I’d do it as quickly as possible. And in fact, I had looked just before we came on the show, in the tool section of Stock Doctor, there’s a thing called the Recent Updates. If you select that, you’ll get a page where you can select what to filter on. And if you select all companies and then look at the type of announcement, the update types, they call it and only click on company financials. In other words, click off, the other ones are there, and then refresh the screen, you’ll get the latest companies that have announced their results. 

And at the moment they’re all listed investment companies who don’t have much work to do to work out their P&L. So things like Jerry Warrah, Milton Corporation, BKI Investments, Australian Foundation Investments, they’ve all reported in the last week or so. So certainly Duncan can download those and get used to what it’s like to get new results to look at. Typically listed investment companies like those, those big ones that are popular, probably won’t score on the QAV system, but you can still do it. As for, he goes on to say that James Hardy has reported recently their numbers are September 2020. So the numbers are a bit old at least in terms of when they were announced. So sometimes in Stock Doctor, when you’re using these recent updates and announcements pages, they’re flagging that the company financials have been updated, but they may have just been updated slightly from their most recent results. And that could be either correcting an error in them, or it could be just something like that the analyst consensus forecast has changed for the earnings per share, for example. 

Cameron Reilly [01:19:39]: Okay. 

Tony Kynaston [01:19:39]: So basically no results yet. Wait till February.

Cameron Reilly [01:19:42]: Right. And as I recall from previous reporting periods, of the sort do them one at a time as they come through for a week or so. And then there’s just a flurry and there’s like hundreds and hundreds. And you do them in bulk.

Tony Kynaston [01:19:59]: Correct. Yeah. So usually for the first week to maybe 10 days, maybe even the first two weeks, there’s little activity, you can use this Recent Updates Page to go through one by one and have a look at them. But usually, by the second week, you enter the second week into the third and fourth week, there are lots coming through. So it’d be too hard to go through and just filter for the new ones and click on them manually and do the analysis. That’s why I start doing downloads in bulk, as you said.

Cameron Reilly [01:20:28]: But if your portfolio is full, why are you bothering to do all of this?

Tony Kynaston [01:20:37]: Good question. The changes in my portfolio that happened the most around reporting seasons. So if for example, someone comes out with bad numbers and we breach a three points sell the line, I’d like to have a buy list ready to go and I know what the next companies I’m going to buy. So I’m updating the buy list. It’s ready to go in case I need it quickly. 

Cameron Reilly [01:20:59]: Right.

Tony Kynaston [01:21:00]: And usually I do. Because usually, something bad comes out in reporting season. 

Cameron Reilly [01:21:04]: Right. But a lot of the stocks you’re sitting on, you’ve been sitting on for a long time. They must be like a billion trillion miles away from their sell price.

Tony Kynaston [01:21:14]: Yeah, there are. Yes. I don’t know how many. Probably have maybe probably half of the portfolio I’ve had for maybe two or three years now, at least. So, yeah. I’m hoping that we get the full portfolio invested for the rest of their lives and not have to touch it. That’d be great. But we will. There’ll be sentiment changes after the new numbers come out. There’ll be one or two, which I need to sell, and now I need to have a replacement ready to go. 

Cameron Reilly [01:21:43]: Right. Because you don’t want to lose even a couple of days.

Tony Kynaston [01:21:47]: Yeah. I don’t want to hold off on selling because it’ll go down even further. All the risks as it goes down, even further waiting to work out what the next buy is. I’d rather sell and use the results of that sale to go straight back into the market and buy something else.

Cameron Reilly [01:22:02]: All right. Duncan’s next question. “I’ve been listening upon the application of the sell line, but I cannot seem to figure out how to calculate how to set my sell alert. I’m happy enough knowing how to draw the sell line, but do I use the sell price based on where the sell line hits the right-hand side of the chart on the day of my purchase or the day I’m looking at.” I guess hear what he means. “Or do I continue to assess the sell line into the future and extrapolate it on an ongoing basis? If the latter, how often does TK revisit this in the period after an initial foray into the stock where the sell line might still be within spitting distance of the market price?”

Tony Kynaston [01:22:42]: Yeah, that’s a good question. So you do have to review both your sell lines and buy lines over time because they’ll change. It depends how close I am to the sell line Duncan if I’ve recently bought something, so it’s just going into its three-point upturn, it might be quite close to the sell line, so I might check it maybe every month. But if we’re into you know, a big uptrend, like Fortescue Metals and I won’t need to check the sell line, probably not at all until we get some new figures to have a look at maybe. Then, you know, do it maybe once every six months. So yeah, it’s horses for courses, if it’s close to the sell line and I check it maybe monthly. If it’s a long way from the sell line, maybe six monthly.

Cameron Reilly [01:23:28]: How do you imagine FMG ever breaching the sell line. 

Tony Kynaston [01:23:36]: I had not.

Cameron Reilly [01:23:38]: Yeah. You know, [crosstalk 01:23:40].

Tony Kynaston [01:23:40]: You never know. Iron ore prices are on a record high, so who knows. 

Cameron Reilly [01:23:43]: Yeah. But of course, as we move along in time that low price, you know, the previous low price falls off the edge of the left-hand side of the chart and we get another one central et cetera. 

Tony Kynaston [01:23:54]: That’s right. Yeah. And not just that the lines…

Cameron Reilly [01:23:56]: And it goes up.

Tony Kynaston [01:23:57]: Unless the line is completely flat, it will change from month to month. Just by the nature of the fact that you’re extrapolating one more month onto increasing or decreasing line.

Cameron Reilly [01:24:09]: Yeah. I like the low. The low for FMG at the moment is actually January 2016. It’s about to fall off at the end of this month. And because the share price has been going up quite well since then, the next low is probably, well, I guess the next low is the month after that. But yeah, it’s going to move along quite well. But you know, it’s going to be a while before it goes up too much though. Well, then the next low quite quickly is August 2018.

Tony Kynaston [01:24:41]: Yeah. So we’re probably waiting a couple of years before it starts to track the recent upturn, the sell line starts to track the recent upturn. Yeah. 

Cameron Reilly [01:24:48]: It’ll be a couple of years before it goes where a selling price goes, you know above $5 is currently trading at 23.68. So you wouldn’t have to plummet.

Tony Kynaston [01:24:57]: Yeah. You’d hope so.

Cameron Reilly [01:24:59]: Have to plummet a hell of a long way.

Tony Kynaston [01:25:01]: Yeah. It would.

Cameron Reilly [01:25:02]: But to get down to that.

Tony Kynaston [01:25:04]: We’re more likely in Fortescue Metals group to because of that large increase it might, I don’t know, it might be our sell decisions is caused by an announcement or caused by some kind of negative change to the company. Big negative change to the company. 

Cameron Reilly [01:25:25]: Yeah. They have to be big.

Tony Kynaston [01:25:26]: Yeah, it would be. Yeah.

Cameron Reilly [01:25:29]: Thank you, Duncan and we got a finish sharp, long episode. With Mark D, “Can you point me in the direction of the episode where Tony talks about adding new stocks to an existing portfolio with additional funds where he ends up with more than 20 stocks. He mentioned 30 to 40 stocks and how he allocates the new funds across the new buys. I can’t remember how those additional funds were apportioned across the new buys when the aim is to have 20 stocks, then the 5% rule applies. But not sure what to do in the case of a full portfolio and more funds available.” And I could not point him in the direction of that episode. It’s out there somewhere, but I couldn’t find it. So I thought it’s easy just to ask you again, to go over that for us.

Tony Kynaston [01:26:12]: I think it was only two episodes ago that we spoke about this because it kind of was a question at the Melbourne dinner. 

Cameron Reilly [01:26:18]: Right.

Tony Kynaston [01:26:19]: But yeah, so always buying from the top of the buy list. So if I’ve got 20 stocks in the portfolio, I come into some new funds, I’d start buying from the top down. And that might mean I’m increasing positions because, you know, for example, Fortescue Metals a year ago was at the top of the buy list for quite a while. So you might go double position in Fortescue Metals, but you might be adding more stocks. So chances are, you’ll have more than 20 stocks in the portfolio which doesn’t worry me that much. I don’t want to have a whole heap, a large number of stocks in the portfolio. Like I wouldn’t want to have 60 or 70, but I don’t think the process that Mark’s asking we’ll get to that sort of level. And eventually, over time, you’ll rationalize stocks down through sales and revise. But yeah, so if you started with a hundred thousand dollars and you had that allocated and you have another a hundred thousand dollars, your position size for each stock is going to be twice as big. And that probably means that your new buyers are going to be bigger than your old existing stocks. But that’s just how it is. And eventually over time that will sort itself out through sales and rebuys.

Cameron Reilly [01:27:30]: Can you do that again for me? I didn’t understand that. So you had a hundred thousand, you invested it in 20 stocks evenly proportioned. You get another 100,000. 

Tony Kynaston [01:27:40]: So you’re always buying 5% if you have 20 stocks. So you’re 5% of a 100,000 to start off with is, what’s that 50,000? Is that right? Yeah, 50,000. But then when you have a $200,000…

Cameron Reilly [01:27:53]: What?

Tony Kynaston [01:27:53]: Portfolio, it’s…

Cameron Reilly [01:27:54]: No 5,000.

Tony Kynaston [01:27:56]: So 5000 sorry. When you have a $200,000 portfolio, it becomes 10,000. So your next purchase is going to be $10,000 over the next thing on the buy list.

Cameron Reilly [01:28:08]: Okay.

Tony Kynaston [01:28:08]: I think I have a portfolio where you’ll have some things at $10,000. Some things have grown from when you bought them when they are at $5,000. So they might be at 7,000, $8,000. Some things will be less than what you bought and they might be at $4,000. And you know, obviously, as you start to sell stocks. Say you had a stock to sell, which was only $4,000 in the portfolio. But you need to buy $10,000. Then you’ll probably sit on some cash for a while. So you’ll have less few stocks in the portfolio until you sell something else, which will give you that $10,000 to reinvest in the next thing on the buy list. So over time, it tends to get back down towards that 5% holding for each stock.

Cameron Reilly [01:28:50]: Right. Okay. Thank you for going over that. Thank you, Mark. And that is a full lead, Tony.

Tony Kynaston [01:28:58]: Long show. Mark and I are heading off now to the birdhouse to have some Negroni’s on a hot night in Wagga Wagga.

Cameron Reilly [01:29:08]: Wagga Wagga Wagga Wagga. Really drinking. That’s such a shock for you and Mark. I’m shocked that there’s gambling going on in this establishment. Give my best to Rudy and you will be back in Sydney next week.

Tony Kynaston [01:29:24]: Yes, definitely. Planning to be back there on Friday.

Cameron Reilly [01:29:28]: Good stuff. Well, enjoy your time in Wagga Wagga Wagga Wagga and safe travels. And thank you, Tony. Thank you, everybody. We’ll be back next week. 

Tony Kynaston [01:29:38]: All right. Have a good weekend. 

Cameron Reilly [01:29:40]: Thanks, mate. You too. Bye.

Tony Kynaston [01:29:41]: Okay. Bye.