Transcript QAV 413

QAV 413
Duration: 1:21:08

Cameron Reilly [00:05]: Welcome back to QAV Episode 413 TK recorded this day of March, the 30th 2021. What’s new with you?

Tony Kynaston [00:18]: Hi Cam, had a fun weekend, we had time together before that with the whiskey awards that was great. I’ve been out shopping bought some whiskey. Based on when we tasted this.

Cameron Reilly [00:31]: What did you buy? We drink all the AWAS stuff; how did you get your hands on that?

Tony Kynaston [00:36]: Yeah, one of the AWAS is for sale on their site.

Cameron Reilly [00:39]: Actually, Niko said that. He said Tony just bought some stuff. I said I would buy Tony some whiskey for his birthday. And he goes he just beat you to it. He just bought some stuff. I was like oh shit. Just FYI for people, your birthday is coming up in 5 days.

Tony Kynaston [00:58]: It is April 4.

Cameron Reilly [01:00]: 29 now, I think.

Tony Kynaston [01:02]: Yeah, that’s right. Yeah, so luckily, we will have Alex up from Melbourne to help celebrate. And it’s Easter so it’s always a busy time for us because there is horse racing, well it’s been delayed a week [inaudible01:18]. Randy is up so he’s going to spend Easter with us. It’s really nice. We have a Barbeque every year with some friends every year on Good Friday. The Fishy Q it’s called. So that will be a big day for us. It’s going to be a long celebration. The Fishy Q.

Cameron Reilly [01:35]: Fishy Q?

Tony Kynaston [01:35]: Yeah, they are Catholic, so they have a fish barbecue on Friday. On Good Friday. A Fishy Q mind you, I think it’s Catholic in [inaudible01:42] like with all the alcohol drank.

Cameron Reilly [01:44]: Well Catholics love alcohol. What are you talking about? Jesus liked alcohol. Wine and the loaves and the fishes and all that. Yeah,

Tony Kynaston [01:56]: Yeah, I think Easter coming up. Randy and I going away to play some golf, which will be good fun in the Southern Highlands. Which is I haven’t explored yet so that will be good. We’re trying to find your place [inaudible02:05] it’s a golf course in Australia. So, we are going down to the Southern Highlands.

Cameron Reilly [02:10]: Will you be drunk when you are flying there?

Tony Kynaston [02:13]: We will have a few celebratory drinks while we are down there.

Cameron Reilly [02:16]: Couple bottles of AWAS whiskey?

Tony Kynaston [02:18]: Yeah, that’s a good idea, I’ll take some wine. Yeah, so it’s been good fun. Last Saturday we had a horse racing at Rose Hill, on [inaudible02:25] which is a huge day there. Ran third which was good for us.

Cameron Reilly [02:30]: Hey which horse was that? Did I have money on that?

Tony Kynaston [02:34]: Remember the race got postponed by a week?

Cameron Reilly [02:36]: Yeah,

Tony Kynaston [02:37]: If I carried your debt forward that would be good.

Cameron Reilly [02:40]: Holy crap, let me check. Pulling up Betfair on my phone.

Tony Kynaston [02:47]: And then the friends who are having the fishy cue they had a horse running as well so. Their horse ran third, so it was a good day all around. My trainer was up from Melbourne, so I got to have a chat with him. In a day which was nice.

Cameron Reilly [03:00]: Hold on a second it says void.

Tony Kynaston [03:03]: Yeah, it might get canceled.

Cameron Reilly [03:09]: You’re kidding me, I had it down to a place.

Tony Kynaston [03:12]: Oh, I had paid 7 bucks for a place too.

Cameron Reilly [03:19]: Oh, that’s shocking.

Tony Kynaston [03:20]: So, I had my whole supply center [inaudible03:22] supplies, think I got about 8 or 9 to 1 for that which was good.

Cameron Reilly [03:27]: Unbelievable, the one time I got it right. And they screwed me.

Tony Kynaston [03:35]: There will be another one. We have a new horse running on Thursday, at [inaudible03:38], so you can put your money on that. And potentially, another one coming up on the weekend too, called Arabian Dawn. In South Australia but I haven’t got the details yet on that. That may run on the weekend. So yeah, lots of horses coming back in the works. So yes, it’s good fun tine.

Cameron Reilly [03:54]: Well, we’re in lockdown here in Brisbane as you know. I was going to wear a mask for this episode but left it in the car.

Tony Kynaston [04:03]: Yeah, Alex was going to come to visit your wife Chrissy and Fox and all that.

Cameron Reilly [04:06]: And me, jeez

Tony Kynaston [04:07]: Also, and you. Taylor, Hunter, Fox, Chrissy, and you.

Cameron Reilly [04:16]: Yeah, after you told me Alex wasn’t coming up, I texted Chrissy and said hey Alex isn’t coming up. She goes I know we’ve been talking all morning. Anyway, let’s get on with this show because it’s a big one. Top marginal tax rate clarification Tony.

Tony Kynaston [04:33]: So last week when you were down, we recorded. I said, the top marginal rate was 47.5 and you said, 45, I think you’re righter than I am, you’re right. So, the top marginal rates 45% But then, the income as they all put together with the other income and they charge you may be on top of that. Of up to one and a half percent or two. So yeah, it’s 45% CGT but then the [inaudible04:59] gets added to the total income. Just wanted to clarify that. So, people knew.

Cameron Reilly [05:04]: Good to know. MRC one of the stocks in our portfolio. Fired their CEO abruptly, last week and the price dropped by 25%. Has it come back?

Tony Kynaston [05:19]: What’s it done today? I haven’t immersed myself into that yet. It was up 9% yesterday.

Cameron Reilly [05:23]: Pulling it up, I’ll have a look. What do you think about all that anyway the firing was a kind of skill? It’s up 10 point one 7% today.

Tony Kynaston [05:35]: And 9% yesterday. So, it’s the same perspective where it was.

Cameron Reilly [05:38]: Yeah, it was 36 cents on the 25th of March. It’s at 32 and a half cents now, so yeah.

Tony Kynaston [05:50]: The CEO has been embroiled in controversy for a while he was up on assault charges, I think. In WA, some kind of, I forget now exactly what the details are. I should be careful because these are all alleged charges at the moment. I think they tried to repossess something from somebody.

Cameron Reilly [06:09]: A house.

Tony Kynaston [06:11]: A house was it. I was going to say he was being charged with invading the house. So, he’s up on a couple of charges. Again, these small companies aren’t great at telling you what’s going on. So there has been no announcement from the company other than the single line that they have moved on from the CEO. But you know reading between the lines you have to say they have had enough. Even if the guy gets off these charges, it’s still a distraction for someone who is trying to run a company.

Cameron Reilly [06:40]: Well, I’m glad we didn’t sell it when it dropped down to 26 cents late last week. I’m glad I had you to talk to because I would have panicked and sell. And you were like it doesn’t affect the company. It’s just the guy it’s unrelated to the company. The guy’s issues.

Tony Kynaston [06:58]: Because I think I think officially they said there were some related party transactions they weren’t happy with.

Cameron Reilly [07:04]: Yes.

Tony Kynaston [07:04]: That was in the announcement. They haven’t said what they are yet, so it’s hard to make a decision based on that, but I wouldn’t have thought related party transactions will affect the running of the business. So just to explain what they are. In general, what the related party transaction is. It means that either the CEO or someone close to them or a company they own are transacting with the company, which means, you know, it looks like he’s on both sides of the deal. And that then means it’s not independent and may not be in the best interest of the company but in the best interest of the individual. Companies quite rightly don’t like that so. But they haven’t said what’s involved, whether you know whether they are renting space in their offices from a building he owns. All the way down to his wife works for a PR company providing services. We just don’t know what the party transactions are.

Cameron Reilly [07:55]: Well, why do you think the share price plummeted, when it did if logically it wasn’t really a big deal for the company.

Tony Kynaston [08:05]: There are other people out there like you who panicked and sold. Yeah, we should have bought it on that day.

Cameron Reilly [08:15]: Well, I was reading just the other day in something Tony that the market always knows what it’s doing. Efficient market, a lot of really, really smart, intelligent people that know what’s going on.

Tony Kynaston [08:29]: Yeah, that’s right, remember this story in the wisdom of crowds. When the Space Shuttle blew up. Took about half an hour for the stock market the work out which company was to blame, it was an ironing manufacturer, but it took NASA, like, months and months to work out what went wrong. Sometimes it works out quickly but it’s human nature. It’s a great social experiment, we saw lots of panicking. Within this case, which wasn’t running, and it could be some more information coming out, but at this stage. It looks like the guy has distractions. They have asked him to leave. It’s been some kind of related party transaction, which may be the excuse. And generally related party transactions. One sinks the company, so they will unravel that and work out some better way of doing it. So, I wasn’t too worried.

And that reminds me too Hawthorn Resources results are out. So, I saw them in Stock Doctor this week. They just got their December numbers in. And, you know, they’re terrible and the share prices have gone down again. So, I think we did the right thing, in selling Hawthorn Resources. I’ll announce the stock journal now, it’s not on the buyer list anymore, because it’s got negative cash flow, operating cash flow. So, I think, what’s his name, the guy who ran the logistics company called cargo, he sold out, probably not what was coming. So, I think, I think there might be a few questions asked by the regulator of that kind of transaction. That I think we did the right thing to sit and wait and then decide to sell, based on user exit.

Cameron Reilly [10:07]: I’m just looking at our transaction log to remind myself what we sold it for.

Tony Kynaston [10:16]: It was around seven cents, wasn’t it?

Cameron Reilly [10:19]: Seven cents, precisely, and today it’s 5.6 cents, good call TK.

Tony Kynaston [10:28]: Opportunity profit.

Cameron Reilly [10:32]: Speaking of results, Lincoln indicators, our good friends, published their results.

Tony Kynaston [10:40]: Well, they do every month to be fair. They do it monthly. So, what we’re talking about here are the funds. So, they have three funds. Which you can be a retail investor or a wholesale investor, so they have some different versions but anyway. They have a retail fund. Sorry, a star stock grows fund. A star income stocks fund, and a US fund. And every month they report their movements in underline assets.

Cameron Reilly [11:10]: So, I was looking at their performance to the 28th of February 2021 for the Lincoln Australian Growth Fund investors seeking growth, they say that’s who it’s for. Should I be looking at the wholesale or the retail numbers?

Tony Kynaston [11:27]: You can look at either. I usually use the retail one because it’s probably more accurate for our audience.

Cameron Reilly [11:34]: So, the fund, return for one year is 7.41% versus all ordinary’s accumulation index of 9.56%. It’s the funds returned for three years, per annum is 8.51% versus all ordinaries total return of eight point 11%. They did beat it there, but by a very small margin, the five-year fund return PA is 8.96% versus all ordinaries 11.19%.

Tony Kynaston [12:17]: The financial year-to-date number I think that’s the one I sent through to you.

Cameron Reilly [12:18]: 1.92% financial year to date versus all ordinaries 17.69.

Tony Kynaston [12:28]: That’s a big miss, isn’t it?

Cameron Reilly [12:30]: Since inception, which is 2007. 3.83% per annum for the fund versus 4.89% for all ordinaries. The all-ordinaries accumulation index is only achieved 4.89% per round since 2007.

Tony Kynaston [12:50]: Yeah, so that was, that’s including the middle of the GFC. So, I think that’s what’s causing that.

Cameron Reilly [12:54]: No, the GFC kicked in 2008.

Tony Kynaston [12:58]: Yeah, but if they started the fund at the high, it would look like they are underperforming. I kind of get that, so I forgive them for that one. Yeah, that was a financial year to that one that I was interested in. I don’t know where the blog post is Cam, but I remember writing a blog post last year about how Lincoln has gone away from taking the value out of the equation. So, they are buying quality stocks at any price and they started to buy all of the high-flying internet top stocks, the growth stocks. Putting them into their portfolio. I wrote a blog post saying I didn’t think that was a good thing to do. Now, it’s probably coming home to roost for them now and this kind of environment when those growth stocks are coming down a lot.

Cameron Reilly [13:50]: So, they’ve also reported on their Lincoln Australian Income Fund for investors seeking a reliable income and reduced equity market risk exposure, its financial year to date is 3.08%, and its five years per annum is 8.64. So,

Tony Kynaston [14:11]: To be fair, that one’s all about giving dividends for people so what’s the dividend yield on that one?

Cameron Reilly [14:17]: It doesn’t say here. Benchmark. That is the fund distribution yield, sorry, the fund distribution yield is 8.64% 3.08% for the financial year to date 8.64% Five years per annum. So, it doesn’t actually tell you what the growth of it is. So, the dividend.

Tony Kynaston [14:44]: So, if you can get that kind of yield and you’re not losing your money that’s probably a good result I think so. That one’s probably doing its job. I only raised the performance I do; I do track my performance against the Lincoln, Lincoln numbers, and the star stock numbers, and the interesting thing is when they publish on the website about the star stock stocks is always a different number to their fund. So, I don’t know if they have other investments in the fund or what they’re doing, but they’re different, and the fund is always you know, tracking the index, I suppose, hasn’t done much better than the index over a long period of time. So, the interesting, interesting situation for them but the point I was making was. They left that sort of. they used to have a value overlay somewhat. And about two years ago they started buying heavily into the SAAS, Software as a Service stocks and the growth stocks and Internet stocks. The LTM’s of the world. And I think that’s come back to bite them as I thought it would now.

Cameron Reilly [15:44]: But in Tim Lincoln’s introduction to the report, he says, the fund team remained committed to a bottom-up high-quality approach.

Tony Kynaston [15:54]: There was I read something else from them recently which said that they were looking at tweaking their model so maybe they are going back to a more valuable approach. In this situation.

Cameron Reilly [16:03]: While with the tide remaining firmly against quality says Tim, the fund team made a number of changes to the portfolio over the period adding diversity to the portfolio whilst disposing of a number of stocks following their removal from our star stock universe. With the market continuing to chase low quality the fund team has decided to reduce its downside risk from further irrational selling and bulk up its cash position.

Tony Kynaston [16:29]: I think the markets going to lower quality. I wouldn’t call [inaudible16:33] Commonwealth Bank those kinds of companies’ low quality. They are high quality.

Cameron Reilly [16:38]: Afterpay. [crosstalk16:42] well maybe time to get Kien back on and we can grill Kien again on their performance numbers and say, oh what’s going on Kien?

Tony Kynaston [16:50]: I think we’re giving up; I think they do a good job. I just really wanted to highlight the fact that, I think, when they changed from being granted any costs from what they used to do I think they may have strayed from those straight and narrow really. Anyway, it’s up to them.

Cameron Reilly [17:07]: ASA webinar you and I both set in on last week by James Holt from perpetual investments. I thought it was a good primer on value.

Tony Kynaston [17:19]: It was a great, great way

Cameron Reilly [17:22]: Awesome for him to come on and warm up the ASA webinar audience for your webinar which you’re doing when there?

Tony Kynaston [17:29]: Middle of April I think it’s the 15th from memory.

Cameron Reilly [17:32]: Okay. So, what’s that couple weeks, two weeks away maybe.

Tony Kynaston [17:36]: That’s right.

Cameron Reilly [17:36]: Thank you again to Steven Maab for helping us set that up. Any thoughts, we’ve got James coming on the show, I’ve organized I think he’s coming on your show maybe in May, I think. May or something like that. We wanted to know what you think of his presentation.

Tony Kynaston [17:56]: Well, I, I liked it a lot, because he was, I think the thing that stuck in my mind was he was basically saying value and price are cyclical and there’s a switch from one to the other and as a cycle the player over the next few years where value stocks will do well. That was interesting, that he’s from perpetual I think from memory, isn’t it? So, they have a long history of value investing and, you know, it might have been going tough recently, they’ve been running lots of ads and the financial press sign to the people who invest with them to stay the course and wait for the value to come back in. So, this is obviously what they are waiting for, and it just reminds me again, sort of the late 90s When people like perpetual was saying, you know we’re not performing as we have in the past but, you know, things will turn, and they did. And we had the.com crash and then suddenly, companies like perpetual perform really well again.

Cameron Reilly [18:52]: Perpetual has been around a long time right like 1000 years or something, I think they came out of the Knights of Malta or something, been around a long time. Speaking up ASA the annual conference is happening on the 31st of May and the first of June at the Sheraton in Sydney, thinking I might come down for that. You might even, you might get a speaking gig there, depending on how your webinar does I guess in a couple of weeks.

Tony Kynaston [19:25]: No pressure.

Cameron Reilly [19:25]: No pressure just screw it up, Tony.

Tony Kynaston [19:27]: I’ll screw it up that’s right.

Cameron Reilly [19:30]: That’d be great if we have a little QAV presentation at the Australian shareholders.

Tony Kynaston [19:36]: Would be. It would be fun. Actually, Steve will be in town too so we should catch up with him too.

Cameron Reilly [19:40]: Yes, yeah. I think he’s also going up there to go to Hamilton.

Tony Kynaston [19:47]: He might have already done that.

Cameron Reilly [19:49]: You’re going to come to Hamilton with us Tony?

Tony Kynaston [19:54]: If I have to. If that’s the only way I can meet you guys yeah okay. My hip-hop musical really.

Cameron Reilly [20:01]: That’s great like my whole thing is about with my other history shows it’s about and the film. It’s how do you make history entertaining for an audience right and you have to do something different with me it’s dirty jokes and humor. With them, it’s hip hop and it works it’s really good. It’s really clever, innovative trying to get Americans to understand a bit about their own history is turning it into a hip-hop thing. It’s clever, it’s really well done. Even an old fuddy-duddy like you, I think would enjoy it, Tony.

Tony Kynaston [20:36]: Thank you. I like for you to come down before I see it.

Cameron Reilly [20:38]: I bought you tickets for your birthday because you already beat me to the punch on the whiskey.

Tony Kynaston [20:48]: Thank you.

Cameron Reilly [20:48]: I’m actually going to come to your house and do a private performance of the whole thing myself. Yeah, it’s a visual joke for people who aren’t on our live stream because we didn’t.

Tony Kynaston [21:01]: I was throwing some signs. Is that’s what it’s called?

Cameron Reilly [21:01]: Yeah, gang signs. I wanted to talk about wax performance, Tony, I saw this in the review this morning. I was kind of shocked not shocked about this, there was a little chat in the fin. Tech stocks looking at the wax tech stocks their performance in 2020, and so far in 2021. Now we talked about after pay a lot. After pay had 300% growth in 2020 but has come back in 2021, but the rest of the tech stocks like we’re always talking about growth stocks and how you value them and how do you know which one’s going to do well and bla-bla-bla-bla. According to this number, the matrix has been hard to see on the graph, but it looks like Happen may have had 15, 20% growth in 2020 and has come back, probably 30% in 2021. LTM. Another one of the WAAAX stocks went backward in 2020 by maybe 5% And so far, gone backward in 2021 by about 25%.

Zero had a reasonably good year in 2020 It looks like it was probably up about 80%, but a lot of our stocks did well, but better 80% or better, obviously. And it’s gone backward so far in 2021 by 20%. After pay, I’ve mentioned. Wise Tech went up by about 35% in 2020, again okay but not stellar, and have gone backward in 2021 by probably 10%. And Nearmap. Wasn’t that one of Alan stocks, I think when he came on, Rudy, or somebody, somebody mentioned Nearmap [inaudible22:55], it went backward by 20% in 2020 and so far, is down another five or 10% in 2021. And then they’re like, they’re like the Wax stocks. They’re like the creme de la creme of the Australian growth stock industry and 2020 COVID was supposed to be a boom year for tech stocks 2019 was a boom year. Another boom year but again okay so if you picked After the payout of those 6 stocks you did okay, last year if you pick any of the other five. Not so good.

Tony Kynaston [23:31]: And the perennial question is do you sell or do you buy at the moment. Yeah, right, because I’ve got no idea because I can’t put a value on them.

Cameron Reilly [23:40]: Yeah, because after pay I think is off again for a bit, as I said this year so do you double down, or do you pull out?

Tony Kynaston [23:49]: Yeah, like with our stocks, you know, if you look at their price operating cash flow, are they still on the buy list and that kind of stuff I can decide whether I’m going to buy or sell them but with these stocks, I don’t know how you do that. Anyway, I don’t think we have to get into a value versus growth debate.

Cameron Reilly [24:09]: Well, it’s not a debate. I’m just looking at the figures like okay. I wasn’t. I don’t hear that like I hear after pay all the time. The other five.

Tony Kynaston [24:21]: Maybe all those people who are their shareholders sold out and bought Bitcoin, we’ll never know.

Cameron Reilly [24:26]: Maybe they sold out and bought after pay. Maybe they all dumped those other stocks and they all weighed in on after pay, right.

Tony Kynaston [24:31]: And now they’ve got a MasterCard credit card that goes with their after-pay app.

Cameron Reilly [24:34]: So, I signed up for that this morning, I begin. So, I said,

Tony Kynaston [24:38]: Do you have to do a credit check?

Cameron Reilly [24:39]: No, you just download the after-pay app on your iPhone. And then it pops up a thing and you want a MasterCard to go yes please it goes boom. You’ve got one. Good luck you’ve got a $1500 spending limit, go nuts.

Tony Kynaston [24:56]: So that must be the only, only place in the world you can get a $1500 credit card immediately with no checks, no credit checks at all.

Cameron Reilly [25:03]: Maybe they do a background check because I know they originally sort of were developed and spun out of touch. When I was involved with touch at the time, I was doing some branding design stuff for touch. And the guys there my friends who worked there at the time were telling me all about this after pay thing they were building and what it was going to be and bla-bla-bla. They were the founders, but I think Nick Molnar the other founders sort of had their offices in touch in Sydney for a while and they saw Sydney, Melbourne. And, you know, they, they, they, the touch guys helped them build the back end of it because they were doing, you know, credit score checking all this kind of stuff for a whole bunch of financial networks, so they may have done that in the background, but if they did that on me, I would have failed that so.

Tony Kynaston [26:01]: Six-year-old kids.

Cameron Reilly [26:02]: If anyone’s a credit risk, it’s me. They should not be giving make money, no one should be giving me anything, so I don’t think there is much going on in the background. Yeah. It’s just maybe it’s just you got a heartbeat. Yeah, okay.

Tony Kynaston [26:15]: That’s just mind-boggling. How can you let people take out a credit card without any sort of due diligence, on whether they are getting into trouble by taking out the credit card?

Cameron Reilly [26:22]: Well, I don’t know. I mean, I don’t think it’s a credit card I assume it just goes along the same terms as after pay. So, it’s just the card that you have on your phone now in your iPhone wallet, your apple wallet that plays the same way as after pay you still at the same payment terms, I think, I haven’t read through the details, but you’ll still have to anyway.

Tony Kynaston [26:47]: What does MasterCard get out of it? Probably credit.

Cameron Reilly [26:55]: Well, they probably get some 10% fee. Well, let’s just say, after pay prepaid. It does have the MasterCard logo on the bottom right so.

Tony Kynaston [27:09]: Yeah, that’s it.

Cameron Reilly [27:09]: I don’t know man.

Tony Kynaston [27:09]: Anyway

Cameron Reilly [27:11]: I did see in the thing though this morning. There was a big article about Nick Mulder. And what a fashion guru, he is as well. And it was saying that one in five after pay customers are in arrears.

Tony Kynaston [27:28]: Really, one in five? 20%.

Cameron Reilly [27:31]: And the Australian government ASIC and whoever else decided it’s not credit. Self-regulation is all that’s needed, but one in 5, 20 percent of after-pay customers are behind in their payments.

Tony Kynaston [27:50]: Wow. I’m just boggled by that because you know in this day and age of post-Haine Royal Commission financial..

Cameron Reilly [27:58]: Which the government didn’t want to have, by the way, wasn’t necessary industry is fine, leave them alone. Doing a great job of self-regulation.

Tony Kynaston [28:09]: 20% of Afterpay’s customers can’t pay their bills. Well, if they’re getting away with it now. Good luck to them but won’t be for one because I’m sure it’s going to be a big story.

Cameron Reilly [28:22]: Depends on how many people in government are using after pay to fund their lifestyle yes. CVL is down 30% since we bought it, Tony.

Tony Kynaston [28:36]: Which one?

Cameron Reilly [28:36]: CVL

Tony Kynaston [28:39]: The mechanical engineering one. What are we going to, I haven’t kept a look on, is it gone below its three-point trendline?

Cameron Reilly [28:49]: No,

Tony Kynaston [28:49]: I haven’t checked it for a long time. CVL, it’s getting close to a three-point trendline, isn’t it?

Cameron Reilly [28:55]: It’s getting close but hasn’t gone below it, not even really close if I put my see my big ruler?

Tony Kynaston [29:02]: Now it looks like it’s about 45 cents and we’re currently a sell price and we’re currently at 51 and a half.

Cameron Reilly [29:06]: I would say the sell line is more like 42 cents. Okay, it’s got quite a way to come back. Yeah, but still stay like stick to it.

Tony Kynaston [29:27]: Keep it’s on the buy list.

Cameron Reilly [29:30]: Alright Q&A time?

Tony Kynaston [29:30]: I had a couple of things I wanted to update people on first sorry yeah. So first of all, just let people know there have been some new figures in stock doctor. I think we for the retailers here you have a January 31 financial year and so my Katmandu they ring a bell straight away there are probably other ones in there. Oh, excellent one the shoe company. They’re, they’re all giving us new numbers so just be aware of that, if you’re haven’t run a download lately, you might want to. And I was going to mix my stock of the week because it’s still on our buyer’s list. After I went through the new numbers. And its graph is just sort of slowly still edging up from that low point last year, it’s still, you know, got a lot to do to fix the business. But it’s scoring well on our metrics, I’m going to leave it there and make it stock of the week. Have a look at the people, I’m not saying rush out and buy it, do your own due diligence, but it’s tugging away nicely.

Cameron Reilly [30:33]: Wow, okay.

Tony Kynaston [30:35]: One other thing I wanted to update people on was I had, another thing after we spoke last week on the show about MAH, and that was a stock that was on the buyer list briefly so, it broke through its bind and it went back down below the buy. But it was above its sell, and so likewise [inaudible30:53] is now, and I call it a hole. But I think, you know, on reflection I don’t think we should have holes. It’s a bit like a Bendigo and Adelaide bank that I bought and sold again because of a perfect setup about the buyer line and went back down again, almost straight away so I sold it. And MAH is in the same boat, it’s not a buy, it’s not a sell, like that it’s not a buy. So, if you have bought it. When it poked it head up and it’s now below, it’s up to you whether you want to sell it or hold on hold on to it but yeah, I don’t think, on reflection, I’m not going to label things a hole. I’m going to take MAH off the buyer list, given its buy line now.

Cameron Reilly [31:30]: Groundhog?

Tony Kynaston [31:32]: It’s a Groundhog, yeah that/s right. It stuck it head out and went back in. So, another three months of pain. I mean rain, so that was in my head, what else we’ve been talking about the top marginal rate. I wanted to pose a question to people, again in my thoughts after the last, last podcast we did we talked about dividends and payout ratios and things like that. and one of the reasons I’m pretty sure that companies pay out dividends in Australia. And I think we have the highest payout ratios in the world. And even though people like Warren Buffett and Jeff Bezos said. I don’t want to pay out dividends because I can use the capital better than you can. They don’t say that, but it’s what they mean. We in Australia we tend to pay out profits as dividends and very high. Right. And I think probably one of the big reasons for doing that is because we have franking credits, so the dividend comes attached with a credit to the tax that’s been paid by the company. In making that profit it’s paying out of.

So, if a company doesn’t pay dividends, and it’s making money in its tax, then the franking credits sit on its balance sheet, and they can’t be used in any other way than to attach itself to a dividend and give the recipient of that dividend tax credit, which they can offset on their other income, or including that dividend. So, companies are under pressure a lot to unlock that those franking credits sitting on their balance sheet, and someone described it recently as being a free lunch the Tax Office is sitting there the credits which belonged to the shareholders are not being distributed. So, the tax office doesn’t have to worry about them so it’s actually a free line to the Tax Office. So, one of the things that I’ve been thinking about this week is how can we unlock those franking credits without going to the trouble of paying a dividend. In other words, if I were running a company, and I was publicly listed, how can I somehow unlock those dividends I’m going to pose it to our listeners and see if the hive mind could come up with a good answer.

But I think if we can come up with a good answer and start posing it to some of the companies that we’re invested in you know that, to me, that’s a good result because then the companies pay out less on dividends and reallocate their capital more towards their growth, which might serve as beta return holders. So, here’s a question for the week to people. And there have been some examples in the past where companies have done buybacks that somehow will unlock franking credits so that might be an option. But yeah, I don’t think anyone’s cracked it yet but if there is, if we can crack it, I think it’s going to be a good boom for shareholders in Australia.

Cameron Reilly [34:23]: You’re left to feed it back to ASA via Steven Maab and we’ll put pressure on boards to do it.

Tony Kynaston [34:29]: And Stephen Miller and Steven management too.

Cameron Reilly [34:34]: Before we get into Q&A, I just wanted to let people know on our Facebook page that we launched the Andrew Flitman version of your master checklist into the wild, last week and been getting some feedback on it. People are loving it, few questions about some of it but nothing major yet so if you have any questions if you want to test it go away to and Dropbox folder where the other checklists are, and you can download it there the AF model. Test it, play around with it, if you have any questions, email them to me and I’m sort of collecting the questions and I’ll funnel them back to Andrew I want to create another job for Andrew because he’s already got one, but he has said Yes, happy to get some questions from you. So, shoot me your emails I’ll collect them and feed them through to Andrew and then feed them back out to everyone as we go on try not to overload.

Tony Kynaston [35:29]: Thanks for your help Andrew, that’s great.

Cameron Reilly [35:32]: Did a great job, okay Q&A?

Tony Kynaston [35:35]: Yeah, let’s go for it.

Cameron Reilly [35:36]: The first one is from Glenn, he says, there were three stocks removed from the S&P 300, FAR, FNP and PET, which have either become insolvent or placed in a lower trading halt, wondering, would it be worth Tony commenting on these three companies in the red flags in their P&L balance sheet, etc. Prior to the trading halt announcement. For example, I noticed that a couple of the companies have negative operating cash flow sort of a high-level overview of what stands out to Tony straight away. That would be a concern, etc., also wondering what happens if you own shares in a trading halt. Must be a rough ride where you don’t know the outcome and can’t sell out. I think we were talking to Petra about this at dinner in Sydney last year, right, she was in that situation.

Tony Kynaston [36:29]: I think her husband had a friend who had a stock that was in a trading halt. Yeah, well let me go through those questions. So, the first one about the three companies that were removed from the S&P 300. So, FAR is fire resources, and they’re an oil Explorer, and a couple of years ago they had a qualified audit, so they had problems with the company going forward. And I think in the interim, they tried to arrange the sale of their assets which basically oil leases or oil exploration leases, and I think they originally had a sale to Woodside petroleum worked out. And then somebody else to be so they’ve been trying to work through that whole sale process since then. That’s that 1. The point I wanted to make they had a qualified audit. So that’s the red flag there which we don’t touch.

The second one freedom foods interesting one. If people want to have a look at the share price example of what can happen when a company gets halted from trading and then comes back on it drop like a stone. Right, right down to a low price. Freedom food has never been on the watchlist and this is kind of an interesting way to look at things, it’s what is bad in the share market that we can sort of learn from and then reverse engineer and put them into a checklist so freedom foods. It had, it had for the last couple of years its dividend payout ratio was greater than 100% so, it’s been either raising capital, through capital raising or borrowing money and paying out more than its profit in dividends. So that’s the red flag. It had negative cash flow from December 18 I think it could go positive for maybe one-half but negative cash flow. Another red flag. And its PE was over 100. So, you know, it was basically a high-flying growth stock, and this is a really salient example of what can happen with high-flying growth stocks. When there is a problem, they really drop like a stone. Which this company has, Freedom Foods.

And a bit like the next company PET which is I think is called [inaudible38:44] which is a company which has a solution to taking LG out of order ways. Which has become a problem over the last 10 years. And they suffered from some alleged fraud in China as they tried to expand up there. So again, this was one of the [inaudible39:01] stocks a couple of years ago. That all the growth gurus were pushing. Lots of growth on the sales line, no profit. So, it’s the price to cash flow. The last time that it appeared, so I went back through my old backup from the master spreadsheet. The last time I had numbers or the earliest that I had numbers in this form, was back on December 19 after those results. And the price for cash flow then was 17 times. That’s way above what we look for, so it was trading on a higher valuation as well. And again, something happened where there is an alleged fraud in China. And the share prices have dropped dramatically from there.

So, I know I’m going on about these high price growth stocks and the risks that they have. But they are at least 2 good examples of what can happen as soon as those companies which are priced to perfection have a problem. And in a couple of those, there were some irregularities. Alleged fraud in China, I think there was even a problem with some potential fraud in Freedom Foods. And that’s another issue, I mean I’m not talking about those 2 stocks in particular but generally if you’re the management team for a high-flying growth stock. You know its price to perfection. You’re under a lot of pressure to get the stock increase by a lot each year. There is an awful lot of pressure on you to either turn a blind eye to something bad that’s going on. In the hope that it will go away or you can fix it before it’s discovered. Or in the worst case to actually do something a bit on toward yourself. So, it’s not you that sometimes these growth stocks have problems and then their price plummet. So that’s the first part of the question.

What do I look for if I started to investigate some of these companies? The first red flag I have is when I open Stock Doctor and on the front page is a sea of red ink. So, you’re seeing things like negative return on equity, negative PE’s, or no PEs. You might see the growth line going up but you’re seeing negatives in some of the other items. So, seeing red on the front page of stock doctor is a big red flag for me. And in terms of, also taking it further for companies like saying Foss lock. I might click on it and look at the cash flow, the operating cash flow. And if that’s negative, that’s just a big turn-off for me. So, I don’t even go any further in terms of analyzing it. So, there are the things I look at quickly. And in terms of what happens when a share goes into a trading halt, it’s not pretty. Generally, if that happens and there is no obvious reason for it. Like someone logs, the bid or the CEO has resigned. Generally, it’s a bad sign and I pretty much write the stock off there and then.

The rule of thumb is the longer it goes the worst it gets. Management will try really hard to salvage what they can probably bring in the administrators. The administrators are ruthless, and they’ll just try and sell whatever they can. And they’ll, first of all, deliver those proceeds to the secured creditors, which are often the banks’ property. And then shareholders who are last in line. So, well the staff should get the next tranche of those proceeds to pay entitlements like long service leave and annual leave. Generally, the poor old shareholder who footed the bill all the way long gets paid nothing. Or cents, pennies on the dollar, so it’s never a good thing to either share that goes into a long-term trading halt. So, Glen, stick with a checklist and try and steer clear of these, these kinds of companies and look to be fair, I’ve had 1 or 2 blow up in my face in the past and it’s not pretty and it does happen even, even to QAV stocks, but we do get much less of those than the general market does.

Cameron Reilly [43:05]: So basically, what you’re saying is these companies wouldn’t have passed the checklist in the first place.

Tony Kynaston [43:12]: Correct. Yeah, and if you sort of look at why they didn’t pass is because they had negative cash flow, they had high PEs of 100. So, their price for operating cash flow was going to be way above what we will pay for them. Some companies like FAR I don’t even think have cash flow. So, you know they’re in trouble because they have a qualified audit which is a red flag for us. So yeah, taking sort of flip it on its head and look at the reasons why we don’t buy into companies like this is because they are all just red flags for us.

Cameron Reilly [43:42]: I’m just looking at the Phoslock PET share price chart. In March of 2019, it was trading at 37 cents. By July of 2019, it was trading at $1.5.

Tony Kynaston [44:03]: Happy days. Rocket to the moon.

Cameron Reilly [44:10]: Yeah, and then by February 2020 Just before COVID It was down to 52 cents and now it’s at 24 cents. So yeah, but looking back at some of the news stories of the market Herald, I think, which is put out by hot copper. Now I think that’s the hot copper new site. They had a story in December 2019, where the Phoslock’s Chairman Lauren Freedman said they were forecasting a 100% sales increase for 2020. Wonder how that went for them? Anyway,

Tony Kynaston [44:51]: Might have been illusory.

Cameron Reilly [44:56]: illusory? You’re just a loser-ree. You’re a loser if you bought into that story. Yeah, yeah. Let’s get back to the WAAAX stocks. Like how do you know, all these companies, have great stories. But as you always say you want to read; you want to hear a story buy a book.

Tony Kynaston [45:15]: But also, it’s not just that, but it’s when they hit a roadblock the share price just plummets because they’re all priced to perfection.

Cameron Reilly [45:25]: And because people, people investing and smart institutional investors know that this is, you know, the dog and pony show right. As soon as it hits the wall. It looks like it’s hitting a mighty wall, they’re like, yeah, well we’re out, thank you very much.

Tony Kynaston [45:46]: Yeah, they got out beforehand, they’re just in it for the feast. Like they’ll probably come along now and say we can, you know, refloat your company and fund your balance sheet. Just do a capital rising for you, and we have no doubt that Phoslock will continue as a company that they’ll do well, and they will solve the algae problem in various waterways is that’s a good thing but

Cameron Reilly [46:06]: We have no doubt about that?

Tony Kynaston [46:08]: Perhaps, they are closer to the right price than they were last year.

Cameron Reilly [46:13]: Yeah, I think it’s, like, so the point for Glenn is that. The checklist is designed to weed out as best as you can companies that are doing well. By doing well generating a consistent amount of creasing cash. You know, growing their equity. Well run businesses it’s designed to the basic theory behind QAV and the checklist. You told me on day one when we started this is. If you weed out the companies that are doing well as a business. The ones that are left theoretically should outperform.

Tony Kynaston [46:56]: Correct the markets and index and if you take out the best stocks. The rest should perform better than the average.

Cameron Reilly [47:01]: Yeah, so the checklist is designed to weed out the bad apples and find the 20 that’s left. I mean there’ll be 100 or 50, depending on where the market is. Then we try to pick the top 20 of those. And we know that we’ll probably get it right. Six out of 10 times. That’d be prepared to jettison the ones where we go wrong, but it’s just about trying to try to find the ones that are going to do good businesses that are going to perform well.

Tony Kynaston [47:32]: Correct, yes. And it’s the experience that gets you to this type of checklist, like having cycles, having seen companies that go broke, having seen kick boom that goes bust, you can put, put together a checklist based on all those things which you can point to and say well this didn’t work out then, let’s just make it across on our checklist. Yeah, it’s not like that again.

Cameron Reilly [47:55]: Yeah, hope that makes sense Glen. Gary is someone able to explain the math and logic behind the fallen share price we might see on many stocks after they go ex-dividend.

Tony Kynaston [48:09]: Only in general terms, I don’t think, I think the logic and math is not very scientific, but what should happen is if the company pays 2% yield or a 4% yield, and then every half pays out half of that, so that’s a 2% dividend and this half and a 2% dividend. At the end of the year, and some franking credits on that which have a value. Then the share price should fall by, you know, two and a half percent. This half and then recover because the company hasn’t changed except it paid out some of its profits as dividends, but there’s a whole lot of other things that take place because it’s a stock market. So, these dividend reinvestment plans can have an impact. So, the big banks, for example, when dividends come around, will let people buy back shares using the dividend to pay for that sometimes at a discount. So that can have an effect on that can be a slight dilution of the share the shares because of that, so that can affect the share price and drive it down a little bit.

There are also quiet traders out there and momentum traders out there. And if the share price drops by 2% in a day, and they’re not kind of on the ball about when dividends are paid. They can for some selling which becomes a bit of a cycle of selling. There are also dividend harvesters out there. You know there are funds out there who might buy the bank sort of three months out from a dividend, and then take that dividend, which is using a reasonable, sort of amount say it’s 3%, plus the franking credits, maybe it’s worth 4% of the firm. And if they bought it far enough in advance and the banks gone up by three or 4%. Then they can sell the dividends paid probably wipe their face from a capital point of view, but they make three or 4%. If they do that four times a year. They’ve got 16% That’s a great return so those kinds of plays in the market and they’re obviously sellers, after the dividend is, announced or the stock goes ex-dividend. So, they are selling pressure from them.

And they are people who do things like, buy a stock and hold it for 13 months or they get it if they buy a stock, just before it goes ex-dividend. Then they hold it for the 12 months they get three dividends in 13 months so that’s if each dividend was 2 or 3% that’s 10% per year. And then they’ll sell it and move on to some other sort of given its dividend harvesting scheme like that so. Yeah, there’s a whole, there’s a whole host of things going on, because of dividends, and like I said before, Australia is a bit different from the rest of the world. In that, we are high dividend payers. So, people can construct investment models around harvesting dividends. And then they sell them when they go ex-dividend. And that pushes the price down. So theoretically it should be the stock falls by the dividend amount, but the ratings go on and it can be it can fall by more and in some cases, the stock can keep on tracking upwards too if its good news going on or if it’s a company which is in growth mode so there’s no real science.

Cameron Reilly [51:24]: Why, why should it come down by the same amount as the dividend, I mean is it just because people figure that the company is worth 2% less if it pays out a 2% dividend because it’s covering an amount of cash?

Tony Kynaston [51:39]: Correct it’s paid outside of its assets. You should well most people I think would say to themselves well I’m still whole. The company’s worth 2% less than it was yesterday but I’ve been given that 2% so I’m not going to sell. There is also that kind of factor playing into it as well. If everyone adopts that point of view, then the company, share price won’t change. And like I said there are these people out there who are buying and selling companies based on getting access to dividends. And so, they buy before and sell after which also pushes the price up a little bit before dividends, so that’s another reason why the company might come back. Are those people out in the market anymore, pushing the price up so there’s a whole host of things that play around dividend time with companies.

Cameron Reilly [52:24]: Right, I’m just thinking of a coffee shop analogy if I buy a coffee shop, buy a share of a coffee shop. And it’s profitable and it gives me some cash at the end of the year I wouldn’t think oh well, time to dump the coffee shop then just made me money, I’ll be like this is awesome. As long as the right amount of money they paid me was in line with what I expected it to return.

Tony Kynaston [52:46]: One of the proprietors of the coffee shop had a mate who wanted income. And he sold his shares to the mate just before the dividend came out with a deal to buy them back off him for the same price, after it goes ex-dividend, offer an agreed price. So, the mate held the shares for the period the dividends paid. They pocket that cash. The guy who sold the shares doesn’t need the cash. Maybe the guy who buys the shares has to pay a bit of a higher price to make it worthwhile for the guy who sells. That kind of trading goes on every year for the coffee shop because there’s a, there’s a, you know, some directors want cash and some directors don’t, so they prepare to trade their shares and buy them back afterward. That’s kind of the analogy that’s going on here.

Cameron Reilly [53:36]: Yeah, right. I hope that helps a little bit Gary. Britt, can you please ask Tony, how he decides what to sell when he needs to take cash out of his portfolio for example when he bought the property. Yeah, good question. How do you decide what to dump?

Tony Kynaston [53:53]: Yeah, so generally I sort of run through a couple of things. I’ll be selling losses first so if there’s a Signac like if we had that in my portfolio. I’d sell that first because it’s not going anywhere. In the short term anyway, it’s got good prospects so it will go somewhere in the long term. But in the short term, I’ll take that. So, what I’m trying to do is avoid selling something and having a capital gains tax liability against that sale. So, I’d sell the losses, first of all, sell the ones which are trending down even in the short term, so I’m trying to even though I may have a capital gains tax liability from that. But trending down like say,
some of the ramilius resources are doing at the moment one of our gold stocks I will probably sell that next. And then other dimensions, I’d look at is to priorities high dividend payers, so I probably sell the ones which don’t pay dividends after that, because I’m still trying to, you know, fund my mortgage and my lifestyle from that income. And so, I want to hang on to the dividend payer. So, I might sell that last as well. So that’s kind of the priority list, it will be different each time but that’s what I’m trading off.

Cameron Reilly [55:05]: Thank you, Brett. Daniel : would Tony still be comfortable buying into some of the commodity stocks that remain high on the buyer list even though they’ve had a massive upturn within the last few months basically with the market forward-looking, and they’ve already been priced in. I’m having a tendency with creating my portfolio to look at alternative sectors, other than resources, which come out stronger because of the recent upturn we’ve had that being said, any news on the more recent sell line if they sharply contract.

Tony Kynaston [55:35]: Yeah, so the first thing is you know, I still buy commodity stocks, but I think I’ve said in the past that if something is in a bit of a downturn, I wait for it to turn up first before I bought it. So, you know looking at [inaudible55:46] at the moment. It’s come down from $25 to $20, but probably hang off buying that until we see an uptick. So yeah, I’ve been going down the buyer list and buying other things first. While it’s still going up at the moment in the short term, rather than something which is going down. Some other value investor says, great it’s cheaper now. And I’ll buy it. I’m going to say great, it’s cheaper now once it starts to pick up again, I can buy it knowing in the short term, it’s probably going to go up. So, there’s that. In terms of the three-point trendlines, I’m still doing some research into that but thought it might be worthwhile just running through an example on the show so if you pull up stock doctor and look at their commodities. If I have a look at. So, you go to the homepage, Go to the market section on top right CMD terms, commodities. If we call

Cameron Reilly [56:51]: The top right home page. What am I looking at?

Tony Kynaston [56:54]: So, on the home page there’s a research portfolio on markets. We want markets, and then underneath the heading for markets, there’s a whole heap of tabs one of them is CMD for commodities. Yeah, so just pick one of those big gold for example, then click on Advanced charting so we can get to our five-year monthly graph. In fact, what I’ve been doing, I don’t know if you can but where it says find your monthly graph on that top line there, I click on that and then go down to a tab called monthly max line chart. Can you see that? Custom layout so we might have to set one up for you. Then go to the range. Click on all. Yep. Now we got a long-term monthly chart for gold as a commodity. If we used that to draw a three-point trendline for gold, you can see that back in. Prior to the current high back in August 2011, there is a high. Back in October 2012. There’s another peak. And if we draw, if we use those to draw a line it’s going to be a buy around December 2019.

So, the thing I’m sort of thinking about is if we use December 2019 as our starting position in terms of where the gold chart sort of starts to go up if I go back to the five-year monthly graph. Which we had before. If I look at everything to the right of December 2019. Yeah, we can see that it’s a much tighter line to the graph, is in the sell situation at the moment. So, it is

Cameron Reilly [58:56]: They are close, yeah.

Tony Kynaston [58:56]: So that’s what I’m just playing around with now. What I’m trying to do with commodities, in particular, is to look at the underlying commodity and try not to get back to much of the recent growth if we can because with commodities, in particular, they are very cyclical and they do tend to go through peaks and troughs. And if we have come off the peak then I want to try to limit the downside, so it doesn’t go all the way back to what we paid for it. That’s my sort of research at the moment it’s doing that. I’ve done it with oil, iron, or copper, and then they all give us a shorter-term graph than five years. In fact, the question I’ve got is I know we’ve had this question before from people like should we be taking a shorter timeframe to use to look at these graphs for commodities, so I know that some of our listeners have already sold out of some of these things. So, I’d like to get their feedback if anyone wants to email us or even talk to us on the show in the future about how they’ve gone in terms of selling out of some of these stocks. Because my experience in the past is if you use too short of time frame, you just buy and sell, buy and sell, buy and sell becomes very volatile.

Cameron Reilly [1:00:10]: Yeah.

Tony Kynaston [1:00:10]: I think probably my experience with commodities is limited to the gold stocks over the last four or five years and they seem to be coming off now. And the recent trend since the last upturn in gold is coming off. So that’s what I’m basing my thinking around, but I still haven’t sort of coming to any big insight yet into this. I’m still researching it.

Cameron Reilly [1:00:30]: But look at this gold graph chart, if I start low point at the end of November 2019. And then draw through March 2020. The next thing there. It cuts straight through. Straight on the line for November 2020. The next downward thing. It’s like somebody is way ahead of you here. The support point goes straight on the line.

Tony Kynaston [1:01:03]: Yeah exactly. And so that’s what sort of feeds into my thinking as well which means that gold is a sell at the moment.

Cameron Reilly [1:01:06]: Yeah, right. so that means our gold stocks. We should take a closer look at it.

Tony Kynaston [1:01:13]: Yes, give me some time to have a look at those and to get some clearer thinking on this. But that’s my thoughts at the moment.

Cameron Reilly [1:01:22]: Yeah. Okay.

Tony Kynaston [1:01:22]: As I said last time, I think the fact that gold only dropped from 2000 US to 1700 US isn’t a big drop, and if you’re more clever that just happened in Queensland. And the recovery stalls and gold are going to come back into its own again. So, I don’t want to be too hasty to sell. Because sometimes these are just short-term downturns, But I’ve got the balance out against giving back the optimum we’ve had so far.

Cameron Reilly [1:01:50]: Okay, good question. Thanks, Daniel. Duncan has a question about sentiment I’d be grateful if some of these could be covered in the podcast it mystifies me some of these stocks would pass either the sentiment or the positive upturn since their report was released. I’m particularly curious about HAW, MAH, and AGD, we’ve already spoken about MAH. I think that IAS may be an example of passing sentiment but failing the recent upturn test would love to have this explained. Are these all Groundhogs, Tony?

Tony Kynaston [1:02:26]: No what they are. Apart from MAH, I think, certainly for Hawthorns and ADG may be for IAS. In the last release, we were still using June numbers. So, they’ve now been updated in Stock Doctor to December numbers. And those results have changed. So, as I said earlier on Hawthorns come off the buyer list for that very reason. So that was the last buyer release that was still on there, but that was June. That’s the same, it’s the same for AGD I think so. Yeah, so that’s, that’s what I was still showing racing up terms as a score in the checklist. Because that was based on the June numbers, not the December numbers. Right, yeah. And for AIS I think AIS is fine. Let me just have a look at AIS and the chart before.

Cameron Reilly [1:03:19]: I’m just doing some charts for MAH here. AIS Resources.

Tony Kynaston [1:03:30]: Anyways it is quite good. In fact, I was considering making AIS the stock of the week this week as well, because it’s a golden copper mine. It’s fine, it’s definitely got positive sentiment.

Cameron Reilly [1:03:42]: Well, it’s dropped from 12 and a half cents down to 11 cents. Yes, but is that enough as Duncan says for you to wait for an uptick,

Tony Kynaston [1:03:56]: Yeah, if you’re going to buy tomorrow, I’ll wait for the uptick for sure.

Cameron Reilly [1:03:59]: Yes, so it’s positive sentiment but you wouldn’t necessarily buy it.

Tony Kynaston [1:04:03]: Correct

Cameron Reilly [1:04:03]: Until it had a positive uptick.

Tony Kynaston [1:04:06]: Yeah, I expect they probably will, I mean the pattern of the graph is it goes down and up, like two steps forward, one step back. But you can’t really rely on those kinds of patterns. But that’s what it looks like.

Cameron Reilly [1:04:17]: Sounds like my bank account.

Tony Kynaston [1:04:19]: You got enough to pay credit card yuppie. Sign up Chrissy and Fox as well. Is that you or me? Is that after pay trying to offer you another credit card?

Cameron Reilly [1:04:42]: Pull the doorbell out of the bloody wall so they can’t ring the bloody doorbell. I’m looking at Austral gold AGD, yep. So, the sell line is very low. If you’re going to do the buy line for this, you’re starting in August 2020?

Tony Kynaston [1:05:04]: I’m just pulling it up now. AGD so the buy line I’m starting at. Yep, August 2020.

Cameron Reilly [1:05:10]: Then through October?

Tony Kynaston [1:05:12]: Yes, right.

Cameron Reilly [1:05:14]: So, it’s again, above that line, but is in a current downturn, so we would wait.

Tony Kynaston [1:05:25]: I think looking at it now. Yeah, I think it’s the last time I had a look at it. The sell line is going to start in November 2019. That’s the lowest point and then goes through November 2020. So, I think it’s actually a sell. It wasn’t the last time I had a look at it, but it’s become a sell so. Here we go, we can take it off the buyer list.

Cameron Reilly [1:05:48]: That’s not the lowest point. The lowest point is December 2018. 5.96.

Tony Kynaston [1:05:55]: I’ve got the wrong one sorry. What did I say 2020? Yeah, you’re right that’s yeah, you’re right, so the sell lines are way lower than that at the moment.

Cameron Reilly [1:06:04]: Yeah, so the sell line is coming in at three cents. No, yeah, something like that two or three cents. So, it’s above, it’s above the buy line would be 10 cents.

Tony Kynaston [1:06:21]: This is a bit like MAH isn’t it? So, it was a buyback in probably December. Yeah, but it’s dropping down again so. If I bought it in December and it turned down below the buy and then sell it again. Yeah, again, so it’s up to people what they do, it’s above the sell line, but it drops below the buy line, so I don’t like the term hold. But if people want to hold on, they can.

Cameron Reilly [1:06:48]: I know Duncan’s relatively new. So, the way this works Duncan is, it’s a positive sentiment, if you look at the buy line. It’s above the buy line so, in theory, it’s a positive sentiment, but because it’s come it’s in a downward trend at the moment, we wouldn’t buy it, we’re basically waiting to see what happens with it. If an uptick, if it has a confirmed uptick, then it’s definitely a buy but we’re this is the moment. It’s, wait and see.

Tony Kynaston [1:07:20]: Yeah. And I’m sort of getting to a point where I think that these situations are actually below the buy line. Even though it’s the right at the buy line. And, if you draw a line down to the Y-axis, it’s, it’s above that. It’s as if when the graph first became a buy the price was 21 cents. And it’s currently 18 cents so it’s below the buy price really isn’t it, does that make sense?

Cameron Reilly [1:07:53]: Well not if you, if you draw the line all the way down to the right.

Tony Kynaston [1:07:56]: Correct, that’s what I’m saying yeah.

Cameron Reilly [1:07:58]: So why are you cutting it off for 21 cents.

Tony Kynaston [1:08:03]: Well, because I think that was when, when the buy line intersected with the graph, it was a buy at 21 cents and now it’s not. I guess we’re saying the same thing it’s to the right of the buy line. So, it’s above the buy line but it’s dropping down. So, when it intersected it was 21 cents and now it’s 18. So yeah, I wouldn’t be buying it.

Cameron Reilly [1:08:23]: But if it picks back up and hit 19 cents or 20 cents.

Tony Kynaston [1:08:28]: Yeah, It’s a buy.

Cameron Reilly [1:08:29]: But it’s still below 21 cents.

Tony Kynaston [1:08:31]: Good point. Okay. Scrub that. I’m trying to find a way to scribe crosses the buy line but then immediately retrace below that. And then I wouldn’t buy it for a while. Is it go the buyer list or come off the buyer list is my question, I guess?

Cameron Reilly [1:08:54]: Yeah. I don’t know.

Tony Kynaston [1:08:56]: To date, we’ve been leaving them on the buyer list because it’s still above the buy line. Yeah, but we’re not buying it so it’s kind of a bit of a conundrum, isn’t it?

Cameron Reilly [1:09:05]: It’s got positive sentiment, but that positive sentiment is currently negative. Yes, [inaudible1:09:14] and slash Groundhog. We need a new term for it. There is a free coffee mug for whoever comes up with the right name for those kinds of things. Yeah. All right, the last question for the day from Joel, I’ve had a number of people ask me about this one, a GCY, is GCY now a sell? The five-year graph is so hard to read.

Tony Kynaston [1:09:43]: I’m sorry, Cam can I interrupt there for a minute?

Cameron Reilly [1:09:45]: Yeah sure.

Tony Kynaston [1:09:47]: I just wanted to talk a bit more about it, I think it’s AGD. Let’s check what that was. Yeah, Austral Gold I went to the Annual Report which has just been released. Because I like I said I got the new numbers this is the last day also for Austral Gold. And the first thing I do of course is going and check the auditor’s report. Towards the back page 90. They’ve been given a clean bill of health, but they kind of haven’t. So, this is something I hadn’t seen before, just going to read out what the auditors have said. So, again this would be great to have someone, one of our listeners who works in the audit space, come on and talk to us about this. But so, KPMG is the auditors, they have given their opinion that the company financial report is in accordance with the corporations’ act. Including giving a true and fair view of the group’s financial position and compliance with Australian standards. So that’s what we normally look for.

Further on down in key audit matters. The very first key audit matter is going concern basis for preparation. And I’ll read that what the auditors have said, the group’s use of the going concern basis of preparation and the associated extent of uncertainty is a key audit matter due to the high level of judgment required by us in evaluating the group’s assessment and growing concern. Like, spilling out a whole lot of reasons but I read through this and went back to the talk about, like, three financial reports on the financial reports, the annual report usually have notes associated with them to explain what sort of assessments management have made to get to that number. The assessment and management made in this case are to say that. Well, last year was shipped. We operate mines in South America, they were shut down because of COVID, where we’re saying that we can pay our debts, going forward because we want to treat the company as if it was a normal year post-COVID and on that basis, we can comfortably say if the mines reopen, and we sell the gold, and we get the money we can repay our debts, and what the auditors are saying here is that they’re just drawing attention to the fact that that’s the assumption that management has made.

And may not come to pass, so I haven’t quantified the audit because it’s getting down to assumptions, and of course, COVID may be eradicated in South America any day. And the company may, they may already have open mines. So, I’m just not sure whether this is a qualified audit, it’s a bit like Zimplats. Where they talked about an issue with the, with the way the accounting was prepared but wasn’t immaterial enough concerned to give it a qualified order, not sure so I think in the interests of risk, or the risk in the portfolio I would take AGD off the buyers’ list on the basis of the qualified audit. Right. Even though it’s not a qualified audit technically. In terms of trying to mitigate our risk or minimize our risk [inaudible1:13:04]. Let’s wait and see if what management thinks will happen does happen. Before we buy into it.

Cameron Reilly [1:13:17]: Okay,

Tony Kynaston [1:13:17]: So sorry I just wanted to talk about it. I found it interesting that the auditors could tick off the company as being okay. Which I guess they did. The accounts were put together and they’ll be using the right standard, but they’re drawing our attention to whether the company is going to be a growing concern or not.

Cameron Reilly [1:13:30]: They are fine unless they are not. If they survive, they are going to be fine.

Tony Kynaston [1:13:35]: Yeah, if there’s no COVID in South America if the mines reopened. That would be hunky-dory. That’s an assumption at this stage.

Cameron Reilly [1:13:43]: Last one Joel is GCY now a sell? The five-year graph is so hard to read, like a straight horizontal line. Tk said stock of the week for it. But wondering if it’s a three-point trend line sell now. GCY.

Tony Kynaston [1:14:06]: Have a look at the graph, what you’ll see is that it was listed for a little while I did a capital rate, which technically gives us their low point, and if you use that lower point, then they are still a buy because they’re above that.

Cameron Reilly [1:14:21]: Yeah,

Tony Kynaston [1:14:22]: Or do we take the point of view that they’ve been recapitalized that we should only look at things to the right of that.

Cameron Reilly [1:14:30]: Even if you did that, the next low point is November 2020 at 43 cents. And then December 2020 and 43 cents that’d be a straight line through to 43 cents wouldn’t it?

Tony Kynaston [1:14:43]: Well, that’s what I was thinking of Cam, I mean, again, we have to use a bit of common sense, yes, it’s a different proposition for when it was delisted and struggling to get funds. So yeah, if you look to the right of that period, there are two low points there, which means 43 cents is their sell.

Cameron Reilly [1:15:01]: And it’s currently 50 cents.

Tony Kynaston [1:15:03]: Yeah, that’s how I’m reading it.

Cameron Reilly [1:15:07]: Right, yeah. Okay, well the guy for everyone is asked to be a GCY. I read about like three or four emails about that today.

Tony Kynaston [1:15:14]: Yeah, it’s a tough one though. It does the low points strictly use the time it was delisted, but it’s pretty much a different company now. Right, it’s recapitalized.

Cameron Reilly [1:15:25]: Okay, well thank you, everybody, for the questions. Thank you, Tony. Good luck with your horses, this week. Put a punt on Jamie and Alex’s horse and hope it doesn’t get canceled.

Tony Kynaston [1:15:37]: Never say nay it’s called. If anyone else wants a punt.

Cameron Reilly [1:15:40]: That’s a clever name. They say neigh.

Tony Kynaston [1:15:42]: Exactly.

Cameron Reilly [1:15:45]: What else? Oh, I watched the Chicago 7 based on your, I liked it, all of it except for Sasha Baron Cohen’s American accent, which was horrible, and all over the place. His acting apart from that was great but the accent was a disaster. Terrible.

Tony Kynaston [1:16:04]: What a great film though. Sorkin is a genius.

Cameron Reilly [1:16:09]: Sorkin is very good. It’s very s Sorkin-y. Like it was like [inaudible1:16:13]. Everyone smart-talking fast, friendly, and jealous performances, the judge was fantastic.

Tony Kynaston [1:16:23]: Just like the guy, the black guy from the Black Panthers who were bound and gag in the courtroom that was just.

Cameron Reilly [1:16:28]: The guy playing Bobby Seale, we love that actor he was in. Who is the Australian director who did Strictly Ballroom?

Tony Kynaston [1:16:36]: Baz Luhrmann

Cameron Reilly [1:16:36]: Baz did a TV series a couple of years ago, that you would absolutely love called Get down, it’s about the birth of hip hop in the Bronx in the 80s. With the Grandmaster Flash and people like that.

Tony Kynaston [1:16:54]: What’s Grandmaster Flash?

Cameron Reilly [1:16:54]: Well, it’s a dramatic series but done Baz Luhrmann style so it’s fabulous. It’s about a bunch of kids from the hood who get into hip hop and you know there’s all the, all the big early hip hop stars, playing, you know, in a dramatic sense and then Grandmaster Flash teaches their DJ how he had to do scratching and he put a line on the record and Yep. Anyway, the black guy played a character called Cadillac in it and his mother was some sort of a gangster that owned the club, and then when he was into disco and they were trying to turn it into a hip-hop club he sort of a bit of a bad guy but a great performance like a very cool dude. That was shocking in the film when they gag and the judge getting gagged and bound in the room. Great story for people who don’t know much about the Chicago Seven. As I didn’t, I knew but I knew, Abbie Hoffman and I knew about some of these guys, Abbie Hoffman’s offsider. By the way, Abbie Hoffman, offsider, what was his name? Shit. the other guy with me Abbie Hoffman, played by [crosstalk1:18:07]. Anyway, do you know what happened to him?

I mean, quick thing. So, in the late 70s, he dumped the whole hippie activist thing and became a stockbroker, was one of the early investors in Apple, and became a multi multi-millionaire, and he got involved in multi-level marketing and made a ton of money out of that. And then he had a penthouse apartment in Manhattan, but he was crossing the road one day and got hit by a car, I think 1994 and killed. But yeah, he completely gets away from being this radical dope-smoking leftist to, you know, straight up, Reagan, conservative, money maker.

Tony Kynaston [1:18:51]: His name is not Phil Muscatello, is it?

Cameron Reilly [1:18:57]: He and Abbie Hoffman actually ended up doing a roadshow debate against each other and it was, it was called yippie versus yuppie. They were the founders of the Yippies. And then he became a yuppie,

Tony Kynaston [1:19:11]: And Abbie Hoffman put out that book called steal this book.

Cameron Reilly [1:19:16]: Steal this book. Yeah,

Tony Kynaston [1:19:18]: It’s great. I thought,

Cameron Reilly [1:19:20]: Great movie just about all these antiwar activists in the 60s. Really well done.

Tony Kynaston [1:19:27]: Really good. And his great ending as always was so powerful ending as well.

Cameron Reilly [1:19:32]: Yeah, with the big thematic music wasn’t Snuffy this time doing a little bit on the nose. Okay, we’re going to tell you when to get a tear in your eye by the music now. Aw part from that the dialogue and the acting were pretty good.

Tony Kynaston [1:19:47]: Yeah, I went back and re-watch it. So, I really enjoyed it the second time around as well. You get a lot more out of it too. Yeah, I recommend the book by Norman Mailer about the Chicago riots, that’s a great book.

Cameron Reilly [1:20:01]: Okay.

Tony Kynaston [1:20:01]: Read it about 30 or 40 years ago. It’s really good. I think it’s something like the Siege of Chicago, I can’t remember now. Yeah. Really good

Cameron Reilly [1:20:09]: Good stuff. Alright, mate.

Tony Kynaston [1:20:13]: Thank you.

Cameron Reilly [1:20:13]: Have a good week

Tony Kynaston [1:20:17]: You too.

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