Transcript QAV 507

QAV 507 Club

Cameron  00:07

Wel­come back to QAV the pod­cast, as opposed to the film which will be hit­ting cin­e­mas lat­er this year. I’m kid­ding. The Tony Kynas­ton-QAV, the Tony Kynas­ton Sto­ry. How are you TK?

Tony  00:23

Straight to YouTube. Ah, good. Yeah, just still down at Cape Schanck, enjoy­ing life. It’s been real­ly good. Golf’s been great.

Cameron  00:33

That’s good. Head­ing back next week, is that right?

Tony  00:36

Cor­rect. I’ll do one more record­ing down here next Tues­day and then I’ll push off and go via Wag­ga. Catch up with Rud­dy for a while and then get to Syd­ney on the week­end.

Cameron  00:44

Cas­es in your apart­ment build­ing in Syd­ney under con­trol?

Tony  00:50

Well, they’ve dropped but they’re still there. Still a cou­ple last time I heard. They’re down from sev­en to two apart­ments. But yeah, I can’t stay here for­ev­er, unfor­tu­nate­ly.

Tony  00:58

Unfor­tu­nate­ly.

Tony  01:01

I’m real­ly enjoy­ing it.

Cameron  01:03

Yeah. How long have you been down there now? A cou­ple of months.

Tony  01:06

Yeah, since just before Christ­mas. Although it is start­ing to chill down a bit. It’s still pret­ty good dur­ing the day, get­ting a bit cool­er at night. Autum­n’s com­ing.

Cameron  01:15

And you’ve got no one to cud­dle up with.

Tony  01:17

Yeah. Luck­i­ly enough, Jen’s com­ing down on the week­end. Her father’s hav­ing his 90th birth­day, so we’ll catch up then which will be nice.

Cameron  01:25

All right. I want­ed to start this week, Tony, talk­ing about our port­fo­lio, the QAV port­fo­lio, and the analy­sis that you’ve done on Navexa and the big prob­lem that you found?

Tony  01:36

Yeah, so I guess it’s a prob­lem. I think Navexa just sent us an email say­ing they’re going to release a new ver­sion of Navexa which will address it, but I think our port­fo­lio has been under­re­port­ing its per­for­mance. Because, Navexa, when it gets div­i­dends or any sort of return of cap­i­tal, or even if we sell some­thing and then don’t rein­vest all that cash, Navexa isn’t account­ing for that cash any­where. So, it kind of got me a bit wor­ried when I was look­ing at the — not wor­ried, but scratch­ing my head — when I was look­ing at our week­ly per­for­mance fig­ures. And I’m think­ing, we’ve dropped a lot since the prob­a­bly the high point in the mar­ket around Octo­ber last year, and I could­n’t rec­on­cile how the num­bers could add up. So, I down­loaded all the trans­ac­tions from Navexa and ran it through Excel, and what’s hap­pen­ing is all of that cash that’s com­ing in for what­ev­er rea­son, it’s just sit­ting nowhere in Navexa. It is being added to our per­for­mance, but it’s not being added to the dol­lar val­ue of the port­fo­lio. And it’s also not being rein­vest­ed, so the cash bal­ance is big enough to have bought a cou­ple of more stocks along the way. So, we actu­al­ly have too few stocks in the port­fo­lio and they haven’t been com­pound­ing, so the cash has been sit­ting there earn­ing noth­ing for the last what­ev­er it is, two- and a‑bit years. So yeah, so I think Navexa is going to address that, so we’ll see what comes out of that. But, I think what I might have to do for a while any­way is to drop the trans­ac­tions into a spread­sheet again and just do our port­fo­lio per­for­mance from that. The oth­er thing which is still both­er­ing me is the way that Navexa cal­cu­lates our per­for­mance, and I’m not say­ing it’s wrong, the way that they do it, they claim it’s the way that fund man­agers do it, but it does­n’t kind of suit our fund, which is a closed amount of mon­ey with­out mon­ey com­ing in and mon­ey going out reg­u­lar­ly. So again, I dropped that into Excel, and since the port­fo­lio was ful­ly invest­ed in Sep­tem­ber 2019 which is just a lit­tle under two and a half years, we’re achiev­ing 20.3% com­pound growth. That’s using the sim­ple CAGR for­mu­la in Excel, which is RRI, is the name of the for­mu­la. And in fact, as I said that’s prob­a­bly under­per­form­ing what should have been hap­pen­ing because there’s a large cash com­po­nent sit­ting in that that we did­n’t rein­vest. So yeah, a cou­ple of issues there with the Navexa port­fo­lio. We’ll rec­ti­fy them and going for­ward will rein­vest the cash and report our per­for­mance using a CAGR for­mu­la.

Cameron  04:07

So, you know, we’ve talked on and off over the last year or so about the dif­fer­ent port­fo­lio tools — Share Sight, Navexa, Stock Doc­tor — that we’ve played around with and I mean, we’ve been hap­py with the way that any of them report but just a heads up for any­one else out there that’s using those tools, that you might want to not real­ly take their report­ing num­bers as being gospel. Might have to try doing your own CAGR.

Tony  04:36

Absolute­ly. I’m just, I might actu­al­ly reach out to Brett. I know that he put togeth­er an Excel spread­sheet to track per­for­mance for some of his work, so if we can get a copy of that, down­load our Navexa trans­ac­tions and use that going for­ward that might help. And if he’s amenable to it, make it avail­able to oth­er peo­ple so they can do the same; down­load from what­ev­er port­fo­lio ser­vice they’re using and just dou­ble check things as a bit of a san­i­ty check.

Cameron  05:00

Yeah, good think­ing. Alright, mov­ing right along, then. There was this arti­cle I think Stephen Mabb sent you to, Chris Light­ner’s arti­cle, “You’re prob­a­bly over­con­fi­dent and what can you do about it?”-“Why you’re prob­a­bly over­ly con­fi­dent and what you can do about it.” Real­ly good arti­cle, I thought.

Tony  05:17

Yeah, I did too. So, I think Steve point­ed me towards Chris Light­ner in the past, but this arti­cle came up recent­ly and yeah, it’s every­thing we’ve been talk­ing about, that peo­ple, par­tic­u­lar­ly if they’re — well, the arti­cle points out if they’re male, but also too if they’ve had a bit of suc­cess in the share mar­ket, that they might become very over­con­fi­dent and that might be their down­fall longer term. Espe­cial­ly if they’re buy­ing into, you know, the dot­com stocks or the buy now, pay lat­er space, or Bit­coin or what­ev­er. Yeah, great arti­cle. It’s on Live Wire if peo­ple want to read it. I did post it in the group, so chances are peo­ple have, but there’s a lot of good quotes from it, too.

Cameron  05:59

Yeah, that was in our QAV club group, so peo­ple who aren’t mem­bers of QAV club would­n’t have seen that. But yeah, you can look it up: “Why you’re prob­a­bly over­con­fi­dent and what you can do about it.” A cou­ple of real­ly good quotes. I liked this thing he said about IPOs “that, even if they know it — which most appar­ent­ly don’t — it does­n’t mat­ter to the over­con­fi­dent that for exam­ple, the aver­age ini­tial pub­lic offer­ing is at best a mediocre and often a los­ing propo­si­tion. They believe that they can dis­tin­guish the small num­ber of even­tu­al win­ners from a large num­ber of losers. Accord­ing to the Aus­tralian on the 27th of Jan­u­ary, more peo­ple lost on new stock mar­ket list­ings last year than made mon­ey. The loss­es dur­ing such a strong year for equi­ty mar­kets should be a wake­up call. Quite the con­trary, such results should sur­prise nobody because they’re the norm. Accord­ing to NASDAQ, ‘What hap­pens to IPOs over the long run’ 15th of April 2021, since 1981, three years after they float­ed almost two thirds of IPOs sig­nif­i­cant­ly under­per­formed the over­all mar­ket. It’s true that a few soar spec­tac­u­lar­ly. Equal­ly, how­ev­er, many more sink abysmal­ly,” then he’s got a quote from this report; “ ‘such mis­ap­pre­hen­sions leave the over­con­fi­dent to trans­act too fre­quent­ly, invest in areas that are much more risky than they realise, and time the mar­ket. The over­con­fi­dent sub­sti­tute their mis­tak­en rec­ol­lec­tions and unre­al­is­tic expec­ta­tions for base rates and plau­si­ble esti­mates of risk, and where such assess­ments aren’t avail­able, they assert blind faith in their abil­i­ty to steer a suc­cess­ful course through uncer­tain­ty.’ Which I know we’ve talked about a lot when we’re talk­ing about tech stocks like After­pay over the last few years or Bit­coin when they’ve gone through these mas­sive runs, which look fan­tas­tic and it looks like a lot of peo­ple would have made a lot of mon­ey out of it. But I’m always stuck with this ques­tion for myself per­son­al­ly, if I invest in any­thing like that, and it’s not based on fun­da­men­tals like you teach us with QAV, but it’s just based on FOMO — Fear Of Miss­ing Out — how will I know when to sell? And yet my instinc­tive reac­tion is always well, I’ll just, you know, when it starts to drop, I’ll just sell. But, I know that in prac­ti­cal sense it’s not that easy. Drop by how much? 5%, 10%, 20%, 50%? When do I sell and how do I know it’s not gonna turn around and… like I was hav­ing some fun with our old friend Torsten Hoff­man the oth­er day, the pro­duc­er of our film and also a cou­ple of films on Bit­coin. He’s a big Bit­coin advo­cate. And he was bug­ging me, he was again plug­ging Bit­coin “oh, its the great­est thing ever. It’s gonna be huge.” And I go, “well, you know, what about the peo­ple who bought it when it was $90,000 a few months ago? Now it’s down to 50,000.” And he said some­thing like, “oh, that’s such a, that’s such a lame response that there are memes around it all over the inter­net. Like you got to dou­ble down, you buy the dip.” And I go, “real­ly?” Not easy to say to some­body who invest­ed every­thing they had in it when it was at $90,000 and it’s now down to 50, you know?

Tony  09:12

Yeah, I remem­ber read­ing an arti­cle last year in the Fin Review about some­one who sold their house and invest­ed in Bit­coin. So, I hope they did okay, but prob­a­bly not. I mean, Bit­coin in par­tic­u­lar, but it’s just like the dot-com boom and some of the dot-com stocks now. They’ll be great behav­iour­al invest­ing psy­chol­o­gy case stud­ies one day for some­one like Daniel Kah­ne­man, because it’s fear of miss­ing out, it’s anchor­ing. There’re all sorts of behav­iour­al psy­cho­log­i­cal rea­sons why peo­ple do this — and the Dun­ning-Kruger effect, which is the over­con­fi­dence angle that peo­ple think they’re bet­ter at invest­ing than what they real­ly are. That’s, as I said in my post on the Face­book group, there was a test in the arti­cle and I scored pret­ty high on the over­con­fi­dence scale and it made me realise that with­out a QAV sys­tem, you know, I’d be mak­ing a lot of mis­takes and I did make a lot of mis­takes when I first start­ed invest­ing, because of all these psy­cho­log­i­cal things. You know, you think you’re suc­cess­ful because you’re doing well with your career, but that’s got noth­ing to do with invest­ing.

Cameron  10:10

Or, you can even be suc­cess­ful as an investor for six months or a year or two years, right? And think, “oh, I’m pret­ty shit hot at this. Look at me. I’m a leg­end.” But, you know then it all goes pear shaped and you back to where you start­ed.

Tony  10:24

Yeah, and like with your Bit­coin exam­ple, like, the ques­tion is now it’s come back do you byy more or or do you enter the mar­ket? Well, with­out a sys­tem, with­out fun­da­men­tals, how do you ever answer that ques­tion?

Cameron  10:35

So, that’s the point of this is, you know, the great thing with QAV is that it gives us the rules. It tells us what to do, when to do it, what not to do. And you don’t have to, like, even if you are over­con­fi­dent, if you’re fol­low­ing the rules QAV will get you out when things are going pear-shaped. And it’s not just, you know, aver­age pun­ters like me doing this too. Light­ner writes “over­con­fi­dence is rife in finan­cial mar­kets. It’s not just retail investors; finan­cial advi­sors, cen­tral bankers, fund man­agers, jour­nal­ists and senior exec­u­tives also suc­cumb to it. In this con­text it’s worth men­tion­ing that men and women tend to make dif­fer­ent kinds of finan­cial mis­takes. On aver­age, women are less pre­dis­posed than men do over­con­fi­dence. Indeed, they often lack finan­cial self-con­fi­dence. They there­by com­mit few­er invest­ment errors of com­mis­sion than men but their ret­i­cence to invest is an error of omis­sion.” Good point. Then he says, “egged by ‘bull­ish experts’ ” in invert­ed com­mas, “peo­ple’s views about present and future eco­nom­ic con­di­tions, over­all mar­kets and par­tic­u­lar com­pa­nies’ prospects, etc., when com­pared to sub­se­quent real­i­ty are unre­al­is­ti­cal­ly con­fi­dent and opti­mistic. If its con­se­quences weren’t so cost­ly the sit­u­a­tion would be com­i­cal. Ana­lysts, cen­tral bankers, jour­nal­ists and strate­gists who rou­tine­ly, and some­times gross­ly, over­es­ti­mate their abil­i­ty to proph­esy, issue over­ly opti­mistic prog­nos­ti­ca­tions based part­ly upon CEOs and econ­o­mists over­ly san­guine bias­es about com­pa­nies and the econ­o­my as a whole. More­over, investors who are over­con­fi­dent about their skills and exces­sive­ly cheer­ful about the future grav­i­tate towards com­pa­nies run by arro­gant-about-their-skills and over­ly-buoy­ant-about-the-future exec­u­tives.” Like I said, so true.

Tony  12:29

Yeah, it is true. And that’s not with­stand­ing all of the con­flic­tions, the incen­tives for peo­ple to pump stocks or to say how good their future is going to be for their own com­pa­ny. That’s all in there as well, not just over­con­fi­dence, but the fact they have a vest­ed inter­est.

Cameron  12:45

Or jour­nal­ists plug­ging com­pa­nies based on how many times they’ve been tak­en out to din­ner or the races.

Tony  12:51

Yeah, poten­tial­ly, or even, I mean, jour­nal­ists are inter­est­ing too in that they’re look­ing for the sto­ry, whether it’s, you know, nec­es­sar­i­ly right or not or good invest­ment. They’re one of the rea­sons why CEO’s spin sto­ry so they can get pub­lic­i­ty for their stock, and sto­ries aren’t a great way to invest.

Cameron  13:09

Yeah, and jour­nal­ists don’t get held to account for say­ing some­thing pos­i­tive about some­thing that went pear shaped a year or two lat­er.

Tony  13:17

No one gets held to account, Cam, except for the poor investor. The buck stops with them. I mean, like how many times have I seen the CEO spec­tac­u­lar­ly explode and then pop up a cou­ple of years lat­er as CEO of some­thing else? Or, how many times have I seen invest­ment bankers change banks and go back to work again after they blew up the com­pa­ny they just left. It’s just ridicu­lous.

Cameron  13:42

Get to wash your hands of it and just move on. No one remem­bers, there’s no insti­tu­tion­al mem­o­ry for stuff like this. You just move on.

Tony  13:49

It’s like the old clas­sic, that quote of yours just then from Lightner’s like the clas­sic one from Buf­fett that Wall Street’s the only place that peo­ple who take Rolls Royce’s to work take advice from peo­ple who take the sub­way.

Cameron  14:01

Alright. Good arti­cle. Any­way, mov­ing right along. Murph resigned from the Berk­shire board. Peo­ple that have been lis­ten­ing to you for a long time will know the name of Tom Mur­phy, “Murph”. He had an influ­ence in when at least one of the num­bers in QAV, right?

Tony  14:17

One of the impor­tant ones, yeah, the price to oper­at­ing cash flow lim­it. Yes, when he built up a net­work of TV sta­tions which even­tu­al­ly became one of the big net­works, ABC I think from mem­o­ry, in the States. And so, he must be get­ting pret­ty old now, Cam, I imag­ine that’s why he’s retir­ing from the board. And the book was The Out­siders, which I rec­om­mend to any­one, not just because of the Murph sto­ry but there’s, I think, about sev­en or eight dif­fer­ent sto­ries in there about almost unsung heroes of invest­ing and what they did. You know, there’s a guy who ran a com­pa­ny called Tele­dyne and used strict finan­cial invest­ment mea­sures to grow his busi­ness into a huge aero­space organ­i­sa­tion and tech­nol­o­gy organ­i­sa­tion. There’s the Tom Mur­phy sto­ry. I think Buf­fet­t’s even in there. And you know, and Buf­fet­t’s always made the case that there’s only one job a CEO should be good at, and that’s decid­ing where the cap­i­tal goes, where to invest. You know, but as we just said before, these days most CEOs seem to look sharp, dress sharp and talk sharp rather than invest their cap­i­tal wise­ly.

Cameron  15:21

Yeah, Murph is 96 and retir­ing from the board of Berk­shire. Like, he’s just a slack­er. What’s his prob­lem?

Tony  15:33

Well, it also tells you how sticky Buf­fett is, how peo­ple want to spend their lives with him they stay on the board until they’re pret­ty much over. ‘Till they fall off their perch, usu­al­ly.

Cameron  15:43

Or vice ver­sa. Like, he’s stick­ing to them. I have a quote from War­ren about Mur­phy, he says “most of what I learned about man­age­ment, I learned from Murph. Tom Mur­phy. I just kicked myself because I should have applied it much ear­li­er.” So, that’s a pret­ty good endorse­ment.

Tony  16:00

Yeah, so def­i­nite­ly, if you haven’t read The Out­siders, it’s a great book. I rec­om­mend it.

Cameron  16:05

Con­tin­u­ing with Berk­shire, got a lot of Berk­shire stuff in my notes this week. There’s a sto­ry in For­tune I read about Berk­shire tak­ing a posi­tion in a cryp­to fund, which I think shocked every­one. “Years after call­ing Bit­coin rat poi­son,” I think that’s actu­al­ly Char­lie’s term, but still, “War­ren Buf­fett”… in his Q&A this week, Munger’s gone from call­ing it rat poi­son to a vene­re­al dis­ease, which I love.

Tony  16:35

I think he called it “rat poi­son squared.”

Cameron  16:37

Yes, that’s right.

Tony  16:39

And then he also said, “none of my daugh­ter’s bet­ter turn up mar­ried to some­one who’s a cryp­to investor.”

Cameron  16:48

His daugh­ters have all got to be in their 70s now, so…

Tony  16:51

Yeah, prob­a­bly.

Cameron  16:53

Any­way, “years after call­ing Bit­coin rat poi­son, War­ren Buf­fett just invest­ed a bil­lion dol­lars in a cryp­to friend­ly bank. His com­pa­ny has bought a bil­lion dol­lars’ worth of stock in a dig­i­tal bank that focus­es on cryp­to, a com­pa­ny called Nubank,” NU, “a dig­i­tal bank based in Brazil, the largest of its kind in Latin Amer­i­ca, a so-called Neo bank, a type of bank that oper­ates dif­fer­ent­ly from the tra­di­tion­al bank­ing sys­tem by not rely­ing exclu­sive­ly on phys­i­cal loca­tions, and instead focus­es pri­mar­i­ly on dig­i­tal ser­vices.” Are you gonna start invest­ing in cryp­to now, Tony? Are you capit­u­lat­ing?

Tony  17:32

No, I’m not, and I don’t think Buf­fett is either. I haven’t researched this very much, but two things spring to mind. First of all is that this could be a Tod or Ted invest­ment. So, these are the two chaps that now run a large part of the Berk­shire Hath­away port­fo­lio as a back­up to War­ren but also as a replace­ment for War­ren when he does shuf­fle off. And they’ve been the ones who’ve kind of spear­head­ed the invest­ment in Apple, and aren’t as con­strained around tech as Buf­fett has been in the past. And that’s, that’s because Buf­fett cheer­ful­ly admits that it’s out­side his cir­cle of com­pe­tence, he does­n’t know how to val­ue it. So, the first thing is that could have been done by some­body else besides War­ren, but not sure. And sec­ond­ly, Brazil was the thing that flagged my atten­tion, because for a long time Berk­shire Hath­away and War­ren Buf­fett have been part­ner­ing with a group called 3RCapital, which are based in Brazil and this could be one of theirs. So, often in the past Berk­shire Hath­away have either fund­ed 3RCapital into invest­ments, or they’ve actu­al­ly tak­en a posi­tion side by side or a blend of both. So, it’s entire­ly pos­si­ble that this is a fund­ing deal with 3RCapital. 3RCapital are real­ly inter­est­ing. If we’re talk­ing about books, you can get a hand on their sto­ry, too. I’m just try­ing to look it up. It’s real­ly inter­est­ing. So, it’s an invest­ment bank from Brazil found­ed by an ex-pro­fes­sion­al ten­nis play­er who decid­ed he was­n’t good enough to be world num­ber one so he moved away from his life in ten­nis and got a job in an invest­ment bank. And its just a, it’s an inter­est­ing man­age­ment phi­los­o­phy, it’s very much incen­tive based and it’s a very con­tro­ver­sial com­pa­ny. So, for exam­ple, when Berk­shire Hath­away tried to buy, I’m gonna say Kraft, a big com­pa­ny like Kraft any­way, they were rebuffed because 3R were also in the deal and 3R are known for your clas­sic, sort of, pri­vate equi­ty takeover of a com­pa­ny and rip­ping all the costs out; either slash­ing and burn­ing with the staff or clos­ing the sta­tionery cup­boards and not let­ting peo­ple have pens or paper clips. So, it’s a con­tro­ver­sial part­ner­ship, and even when I went to the Berk­shire Hath­away AGM they were being asked ques­tions about, you know, did they con­done the ruth­less behav­iour of 3R? But that aside, I think this is prob­a­bly one of the rea­sons why it’s in Brazil, and bear in mind that the Brazil­ian bank­ing sys­tem won’t be as devel­oped as West­ern bank­ing sys­tems. So, Nubank may well be a good invest­ment. And you’re often see­ing this in the emerg­ing coun­tries, that they sort of leapfrog in indus­try. So, they go, I remem­ber the clas­sic exam­ple was lap­tops aren’t sell­ing well in the third world because they’ve all jumped to phones, and use apps on their phones. So, this could be the case as well, if bank­ing has­n’t been that great in Brazil or in South Amer­i­ca, they may have jumped to online bank­ing which Nubank would be part of.

Cameron  20:34

Might it be called 3G Cap­i­tal? I found a book called Dream Big: How the Brazil­ian Trio behind 3G Cap­i­tal…

Tony  20:42

Thank you, 3G Cap­i­tal. I got that wrong, sor­ry. acquired and

Cameron  20:45

… Acquired Anheuser Busch, Burg­er King and Heinz, and there’s a quote here from Buf­fett in Ama­zon: “my friend and now part­ner Jorge Paulo and his team are among the best busi­ness­man in the world. He’s a fan­tas­tic per­son, and his sto­ry should be an inspi­ra­tion to every­body as it is for me.”

Tony  20:54

Yeah, so it’s a good sto­ry to read I guess with­in the frame­work that they are pret­ty ruth­less when they take over a com­pa­ny, and Heinz was a clas­sic one that they did rip out a lot of costs from and made a lot of peo­ple unhap­py.

Cameron  21:17

Alright, mov­ing right along. What have I got here? Oh, yes, high­lights from Char­lie Munger’s dai­ly jour­nal Q&A. Now, the rea­son I said that Murph is a bit of a lazy piko for retir­ing at 96 is Char­lie just turned 98 on Jan­u­ary 1, and just did this lengthy Q&A for the oth­er busi­ness that he’s on the board of, the Dai­ly Jour­nal, his newspaper/tech com­pa­ny. Did you catch that? Did you watch any of that?

Tony  21:50

I did­n’t, no.

Cameron  21:52

Oh, some­body post­ed it on our QAV Club Face­book group. I watched most of it. Fan­tas­tic. I mean, 98 and he’s as sharp as a tack, direct, straight to the point. And you know, he real­ly shines when he does­n’t have War­ren there. Like, you know, when he and War­ren are togeth­er, War­ren fields most of the ques­tions in a sort of folksy man­ner and then Char­lie just comes out with a lit­tle barbed com­ment every now and again about vene­re­al dis­ease. This one, you know, when it’s the Dai­ly Jour­nal, unless its like a day to day busi­ness top­ic where his part­ner takes it, he takes all the ques­tions and yeah, there’s so many great quotes. The one that I just want­ed to men­tion, though, is he said- some­body asked him about val­ue invest­ing, “is it going out of style?” or some­thing, and he said “the idea of get­ting more val­ue than you pay for is nev­er going to be obso­lete.” You know, pret­ty much sums it up.

Tony  22:44

True, exact­ly. It’s amaz­ing, though, isn’t it? I mean, we’re lucky to have these peo­ple in our lives, because they pro­vid­ed the link to val­ue invest­ing for us. But, I mean that, the per­son who asked that ques­tion is like prob­a­bly 98% of peo­ple who are invest­ing, they just don’t get val­ue invest­ing. And you can count the num­ber of peo­ple on one hand who preached val­ue invest­ing, like your Gra­ham and Dodds, your War­ren Buf­fetts, Char­lie Mungers, and I start to run out of names there. And it’s been around for a long time, it’s been proven to be the most suc­cess­ful way to invest, why don’t peo­ple get it?

Cameron  23:19

Yeah, look, I think it was Ben Gra­ham or might have been Buf­fett, some­body I read a while ago talk­ing about it’s a per­son­al­i­ty type, maybe a cer­tain dis­po­si­tion that it takes. Do you think there’s any truth to that?

Tony  23:37

I think it could be that. It does require patience, as Buf­fett has said, it does require tak­ing the emo­tion out of things, ignor­ing the mar­ket, ignor­ing — or not ignor­ing the mar­ket, well yeah, prob­a­bly ignor­ing the mar­ket — ignor­ing the noise. Buf­fett was in Oma­ha, Nebras­ka to get away from Wall Street — well, I mean, I think he want­ed to live there — but the ben­e­fit from being away from Wall Street and not hav­ing his phone ring every five min­utes with anoth­er offer. But yeah, there’s some truth in that. And look, there’s plen­ty of peo­ple out there who don’t get spread­sheets, who don’t like num­bers, so I get that too. But you’d think after the Intel­li­gent Investor was writ­ten in 1930/1920, some­thing like that, it’s a hun­dred years old, you’d think that almost every­one by now would be a val­ue investor. I just find it strange that Char­lie still gets asked this ques­tion.

Cameron  24:28

Yeah, like, I think Tay­lor has said to me in a cou­ple of cas­es “what are you going to do when QAV is so big that every­one’s doing it?”

Tony  24:41

Cel­e­brate?

Cameron  24:44

Yeah, buy a yacht. Buy an island off of Richard Bran­son. I say “yeah, it’s just not gonna hap­pen, man. Peo­ple have been try­ing to teach peo­ple val­ue invest­ing for a hun­dred years and, you know, it’s still not some­thing you real­ly hear talked about a lot in the media.” It’s sort of the red­head­ed bas­tard stepchild, every cou­ple of years they go “oh”…

Tony  25:09

I hate that anal­o­gy.

Cameron  25:10

Yeah, I know. I said stepchild, not orphan child, stepchild. It’s dif­fer­ent. Peo­ple go, “oh, yeah, val­ues com­ing back.” Looks like, yeah, when every­thing else crash­es they go “oh, val­ues back again.” And then that lasts, what, six months? And then they’re like “oh, tech stocks are back, growth stocks are back.” They don’t like val­ue, you just don’t hear many pos­i­tive sto­ries about it in the invest­ing press. I don’t any­way.

Tony  25:37

No, you’re right. And that’s the prob­lem. It’s not, it’s not sexy. It just does its thing year in year out.

Cameron  25:42

It’s not a prob­lem, it’s good. I mean, it’s good for those of us that are val­ue investors, right?

Tony  25:46

Exact­ly.

Cameron  25:47

That no one else is doing it.

Tony  25:50

You don’t want the roller coast­er ride, you don’t want some­thing blow­ing up and mak­ing the front page all the time. You don’t want your CEO smok­ing crack on video and being sacked. All those kinds of things are what hap­pens to all the oth­er com­pa­nies, not to the val­ue invest­ing com­pa­nies.

Cameron  26:05

Yeah, it’s bor­ing and pre­dictable and that’s why we like it.

Tony  26:12

Yeah, I mean, the Fin Review would be half a page long if it report­ed on val­ue invest­ing. There’s no sto­ry.

Cameron  26:21

Alright. BFG, Tony, you’ve got a BFG? A Big Eff­ing Gun?

Tony  26:27

Big Friend­ly Giant. Yeah, so I think it’s gonna be a ques­tion lat­er on, too, when we get to it so I don’t want to pre-empt it too much. But we did sell it from our dum­my port­fo­lio last week on a bad news sto­ry, which was around anti mon­ey laun­der­ing. But we can get to that in a while. Plus, their results weren’t received very well, they were down a lit­tle bit, and the stock was down I think 7% after the results announce­ment and the AML inves­ti­ga­tion announce­ment. So, it was clear­ly some bad news that we had to sell the stock for.

Cameron  26:57

One of the very few instances where we’ve sold some­thing due to bad news that I can recall.

Tony  27:02

Yeah, that’s right actu­al­ly. Good point. Oh, so the Fin Review gets a half page sto­ry today from val­ue invest­ing.

Cameron  27:11

Because we sold some­thing? Yeah, right.

Tony  27:13

No, because one of our stocks is being inves­ti­gat­ed for anti-mon­ey laun­der­ing.

Cameron  27:18

Okay, well, we’ll talk more about BFG lat­er. HUM, Humm is dumb I used to say, and then I invest­ed in it, then I had to sell it. It’s been tak­en out by LFS, Lat­i­tude. New IPO.

Tony  27:30

Yes, that’s right. So, and LFS actu­al­ly on the num­bers appeared on the buy list, although it’s a Josephine. But they’ve bought out HUM. Again, there’s a few of these cas­es crop­ping around in the mar­ket at the moment where stocks that we find attrac­tive are being found attrac­tive by oth­er com­pa­nies or oth­er play­ers, and they’re start­ing to either take stakes or buy them out. Some­thing I see all the time, so it’s not sur­pris­ing, but it does rein­force the fact that, you know, we’re sort of play­ing with the pros in terms of how we invest. The oth­er one that came to mind was GMA, Gen­worth, which was the mort­gage insur­ance com­pa­ny that hit our buy list last year. A com­pa­ny called Ares, one of the pri­vate equi­ty firms from over­seas has tak­en a 15% stake in GMA last week. So, again, they’re see­ing some val­ue. And I remem­ber doing the pulled pork on GMA towards the end of last year, and one of the issues at the time was they were hav­ing to go through a request or pro­pos­al, or a ten­der, a con­tract ten­der, to con­tin­ue with Com­mon­wealth Bank which was a large part of their mort­gage insur­ance busi­ness. And just recent­ly they received the go ahead and that con­tract has been renewed and extend­ed, and straight­away a big pri­vate equi­ty firm takes a 15% stake in the com­pa­ny. So again, some­body else can spot val­ue out there, not just us.

Cameron  28:53

Yeah, and I think the share price for GMA’s done very nice­ly too. It went from $2.18 on the 25th of Jan­u­ary, it’s now $2.86. So, it’s like a 70–80% bump in under a month. Not bad if you own that.

Tony  29:12

Yeah, and as you’d expect because of the fact that they got the con­tract with CBA, that was the big risk in the mar­ket.

Cameron  29:18

HUM has also not done well actu­al­ly. HUM was trad­ing at 71 cents in the mid­dle of Decem­ber, went up to 94 cents on the 10th of Jan­u­ary then dropped back. It’s down around 86 cents. Still okay if you hap­pen to buy it, sort of, in the month of Decem­ber by the looks of it, but if you bought it at any oth­er time in the last six months you’ve bro­ken even or has­n’t nudged much. I don’t know why their price has­n’t sky­rock­et­ed as a result of this takeover.

Tony  29:50

Yeah, I agree. And also, I was always sur­prised they had­n’t sky­rock­et­ed on the back of the BNPL wave because they were a sol­id mon­ey-mak­ing buy-now, pay-lat­er com­pa­ny.

Cameron  30:00

Yeah, it’s ’cause they had a dumb brand as I said last year, Humm is dumb. What a dumb brand, Humm.

Tony  30:07

Yeah, I agree.

Cameron  30:09

I think some­body on Face­book just ear­li­er today — I think it was Brent — asked about the GMA thing and asked if it’s com­mon that you find that stocks that turn up on the QAV buy list end up being acqui­si­tion tar­gets. And I said, I think you have said in the past that that does hap­pen quite a lot.

Tony  30:28

Yeah, it does hap­pen quite a lot. Well, it’s not over­ly com­mon, but yeah, two or three, maybe up to half a dozen a year that will hap­pen too, for sure.

Cameron  30:36

Because, you know, we’re look­ing for under­val­ued com­pa­nies and if we think they’re under­val­ued, then oth­er peo­ple out there prob­a­bly also think they’re under­val­ued and have the where­with­al to take a big chunk of them.

Tony  30:47

Yeah, exact­ly. And I find that quite reas­sur­ing, that these big PE firms and fund man­agers etc.… In this case it’s Lat­i­tude Finan­cial Ser­vices, a com­pa­ny with Humm, but they’ve just list­ed it, got their hands on some mon­ey and now they’re invest­ing it. And they see things the same way we do, which is reas­sur­ing in a way.

Cameron  31:04

CGF back on the buy list, Tony.

Tony  31:07

Yep. So, they’ve had some good results. I was gonna make them my pulled pork this week, but I’m not because as of this morn­ing the new results haven’t hit Stock Doc­tor yet. I did­n’t want to do a pull pork on the old results, because we did that last year. But yeah, so their div­i­dend, well both div­i­dend and prof­it are up 21%, which is good. This has kind of been a bit of a sur­prise, real­ly, because Chal­lenger was sold out of the port­fo­lio a lit­tle while ago as its stock was drop­ping, and it was sold down even heav­ier last month which is usu­al­ly a sign that the results are going to be bad, that peo­ple are start­ing to put num­bers togeth­er which sug­gests they’re gonna be bad, but it’s sur­prised the mar­ket and it’s jumped. Increas­ing funds under man­age­ment, increas­ing sales, and a cou­ple of inter­est­ing events. So, they, they bought a com­pa­ny which offers term deposits and they’re going to start rolling that out as part of the Chal­lenger brand. And if you remem­ber when I did the pulled pork, Chal­lenger is a com­pa­ny that pro­vides annu­ities to retirees, so guar­an­teed income. So, the fact they can start sell­ing term deposits would be, you know, right in their mar­ket space of pro­vid­ing steady income to retirees. And they’ve also done a deal with a com­pa­ny called Apol­lo Glob­al Man­age­ment. Again, anoth­er big, I think pri­vate equi­ty firm prob­a­bly, but cer­tain­ly a big fund from the States. And they’re going to start offer­ing lend­ing ser­vices as well. So, cou­ple of deals there which I think might also be dri­ving the share price appre­ci­a­tion in CGF.

Cameron  32:37

I just got a shiv­er down my spine when you said Apol­lo.

Tony  32:42

Com­plete­ly dif­fer­ent com­pa­ny.

Cameron  32:44

Mm-hm.

Tony  32:45

Like, if you take a gener­ic name like Apol­lo you’re always gonna come up against oth­er peo­ple with the same name. It’s like wear­ing a dress from Myer to a par­ty, right? My wife would nev­er do that because she’s afraid she’ll meet some­one else in the same dress. But, when you have a name like QAV, we’re nev­er gonna wor­ry about that prob­lem.

Cameron  33:03

I got to par­ties dressed in a white t‑shirt and pair of blue jeans. Chances are no one’s gonna have that on. South 32 is going to be your pulled pork today, Tony.

Tony  33:15

It is, yep, that’s my pulled pork. So, first things first, I own shares in South32. So, this is not a rec­om­men­da­tion to buy it, but do your own research. The rea­son why I picked it though, I was look­ing for a large cap stock and the ADT on this one is $61 mil­lion, so it’s huge. And I want­ed to get a large ADT stock that had report­ed recent­ly and the num­bers are now in Stock Doc­tor. So, that’s why I went down that list so far to South32. There’s been plen­ty of com­pa­nies report­ing in the last few days, they haven’t hit Stock Doc­tor yet, but they will. So, peo­ple just might want to keep alerts or to mon­i­tor Stock Doc­tor on the recent update sec­tion if they have a par­tic­u­lar stock that they’re inter­est­ed in. Inter­est­ing stock and it’s done well for me in the last, sort of, twelve months that I’ve owned it. It was spun out of BHP back in about 2015, from mem­o­ry. At the time, the mar­ket sort of dubbed South32 “bad BHP”, and it was spun out because of, well, it was basi­cal­ly the non-iron ore sec­tion of BHP. BHP was going through a cleanse, both of man­age­ment and assets, and so all the things that were seen as a dis­trac­tion or too small and not the way of the future was spun off into South32. And as often hap­pens with these kinds of spin offs, South32s per­formed a lot bet­ter than BHP since it was spun off. So, Stock Doc­tor is telling me that since 2015, South is up 108% ver­sus BHP which is up 56%. So, there you go. But that’s not a crit­i­cism of the board because often­times these spin offs hap­pen because the board knows that if all the small parts of the com­pa­ny are kept in the com­pa­ny, they often are under­val­ued com­pared to what they be val­ued as a stand­alone busi­ness. Because the big dri­ver of val­u­a­tion for a com­pa­ny like BHP is the iron ore price. So South32 was spun off it. It includes coal, baux­ite, alu­mini­um, nick­el, sil­ver, lead, zinc, and man­ganese. And you know, peo­ple who’ve lis­tened to us for the last year or so will know all those things are com­modi­ties, which are in their, in their three-point trend line buy space at the moment. So, it’s real­ly hav­ing its kind of day in the sun, with pret­ty much every­thing it mines and sells improv­ing in terms of its com­mod­i­ty price. So, that’s a bit of a pock­et his­to­ry of South. In terms of the num­bers, the lat­est results are in Stock Doc­tor, they’ve been well received. Sales are up 32% and prof­it is up 638%. But that’s a bit of an exag­ger­a­tion, because last time they had a coal mine which they wrote down a large impair­ment on. So, prof­it was held down last time. But still, prof­its increas­ing and sales are increas­ing. The price I’m going to base these num­bers on is $4.57, which was the price on Sun­day when down­loads were done. Going through the scor­ing, the cur­rent price, 457, is slight­ly less than the con­sen­sus tar­get so it does score for that. It’s a bor­der­line star stock so it scores half a point for that. It does have a decent yield of 3.7% which is slight­ly above the mort­gage rate, and I should high­light to peo­ple now that they should be watch­ing for ex-div­i­dend dates too when they’re mak­ing buy­ing and sell­ing deci­sions. So, they’ll be com­ing up soon. Gen­er­al­ly, they occur after report­ing sea­son but some­times they can occur quick­ly, and you just need to fac­tor the div­i­dends into your cal­cu­la­tions both for buys and sells. Finan­cial Health for this com­pa­ny is strong and steady, so it scores well for that. Inter­est­ing­ly enough, the price to oper­at­ing cash flow is 7.56, and that’s above our cut-off of 7. So, it does­n’t score for price to cash flow but it scores high on the oth­er qual­i­ty matrix, so it does come in above our QAV hur­dle of 0.10. I high­light that because this com­pa­ny may dis­ap­pear from the buy list fair­ly soon because of rise in share price and the fact that its price to oper­at­ing cash flow is already high­er than what we nor­mal­ly see. It’s PE is 10 times, so that’s inter­est­ing in that the cash flow is 7.5, PE is 10, so the cash is real­ly flow­ing through straight to its bot­tom line. And we often find that with com­mod­i­ty-based com­pa­nies, as they’re high­ly lever­aged to com­mod­i­ty prices. As they increase, it’s basi­cal­ly just straight, you know, jam that goes to the bot­tom line with increas­es in the com­mod­i­ty prices. So, that’s some­thing to note about min­ing com­pa­nies. Price is up 60% in the last six months and still climb­ing, so I guess this high­lights the fact that a large cap stock can still improve dra­mat­i­cal­ly, cer­tain­ly been my expe­ri­ence if that’s the case, but this is a good exam­ple. The share price is cur­rent­ly above our IV 1 val­ue but it’s less than our IV 2 val­ue, and, in fact, it’s less than half our IV 2 val­ue so it scores an extra point for that. Net equi­ty per share is $2.86, so even with equi­ty plus debt equi­ty plus 30%, book val­ue plus 30, does­n’t score for that. It’s $4.50 is about 371, which is the book val­ue plus 30%. This com­pa­ny has the con­sen­sus fore­cast earn­ings per share growth of near­ly 40%, so its gonna score a 2 for growth over PE which is 3.7 times, which is more than dou­ble what we’re look­ing for at 1.5. Record low PE in the last three years — there’s a cou­ple of halves in there which did­n’t have a PE because it was run­ning at a loss, but of the ones where it did score, it’s the low­est in the last three years. But its equi­ty has­n’t been con­sis­tent­ly increas­ing, so it does­n’t score there. So all in all, the qual­i­ty score is 81% but the QAV score is 0.11. And the last point to make is that it’s been doing a buy­back and the buy­back­’s been expand­ed by anoth­er $110 mil­lion. So, that’s also help­ing to improve num­bers like return on equi­ty, but also is sup­port­ing the share price as it ris­es as well.

Cameron  39:24

Right. Thanks for that. S32. 60%, hey? That’s been a good run.

Tony  39:31

Yeah, it’s been great.

Cameron  39:33

All right, well, just fol­low­ing up, last few things. Top three movers of the Navexa port­fo­lio the last week, Tony, what were they?

Tony  39:42

Yeah, well unfor­tu­nate­ly two of them were down. So, FEX was down 10% and we sold it, and BFG was down 7%, and like I said ear­li­er on, we sold that. But Capral Alu­mini­um, CAA, was up 9%, so that’s anoth­er one that’s been doing well for our dum­my port­fo­lio since we bought it.

Cameron  39:59

Very good. We’ve had a cou­ple of stocks that have done very well recent­ly. And FMG is a Josephine fol­low­ing its results you said.

Tony  40:07

Yeah, so FMG results are out and prob­a­bly dri­ven a lot by div­i­dends, but also by not quite meet­ing ana­lysts’ fore­casts. The stock start­ed to come off since its results came out. So, lis­ten­ers will recall that the div­i­dend yield in FMG at the end of last year was real­ly good. Was dou­ble dig­it.

Cameron  40:29

And we sold out of it before we could get our hands on it.

Tony  40:32

Yeah, we did. But what’s hap­pened this time round is that the pay­out ratio has been decreased and the div­i­dends been decreased as well. So, peo­ple who were buy­ing into Fortes­cue Met­als Group for the div­i­dend have been dis­ap­point­ed. And there’s, I mean, div­i­dends do dri­ve a lot of invest­ment in Aus­tralia because of the frank­ing cred­its and because super­an­nu­a­tion funds like the div­i­dends that helps their per­for­mance and helps them and SMS­Fs like them, because it helps retirees to get steady income. So when, when a div­i­dend is reduced, it’s not seen that well by the mar­ket. Plus, the iron ore price has retreat­ed a lit­tle bit, so that’s also fac­tor­ing into peo­ple’s cal­cu­la­tions. But yeah, all in all, the result was­n’t received as well as it could be.

Cameron  41:18

I bought them a lit­tle while ago too, they were 1860 then, 1920 now. So, they’re up but looks like if they keep going I might have to rule 1 them.

Tony  41:28

Yeah, see how it goes. You’ll get a good div­i­dend too, don’t for­get to take that into account.

Cameron  41:33

Yeah, good. Well, we got a ques­tion about the iron ore price, too, com­ing up a lit­tle bit lat­er on because that’s some­thing that’s on peo­ple’s minds. But unless you have any­thing else, we can get into Q&A?

Tony  41:45

Yep, sure. Let’s go.

Cameron  41:47

Ali asked us to talk about this arti­cle on Jere­my Grantham, says a super bub­ble crash may be under­way. Here’s where he’s stash­ing his cash, accord­ing to the ABC. Under his pil­low. For those peo­ple who don’t know the name, Jere­my Grantham is in this arti­cle referred to as one of the world’s most famous fund man­agers, the co-founder of GMO, claims to have pre­dict­ed the Japan­ese crash of 1989, the dot-com bust of 2000, the Glob­al Finan­cial Cri­sis of 2008, and the next five finan­cial crises in the next ten years, he’s already pre­dict­ed. He’s got it all mapped out. He’s also pre­dict­ed where Elvis has been in hid­ing down in Argenti­na with Hitler, and Mar­i­lyn Mon­roe and Andy Kauf­man. He’s now warn­ing of anoth­er sim­i­lar crash in asset prices with spec­u­la­tive tech stocks first in the fir­ing line. Well, I think it’s already start­ed, the tech stocks. “Oh, I’m pre­dict­ing that,” yeah, you’re about a month late, man. Yes, he’s, you know, we’ve talked about Gra­ham, you’ve talked about Grantham recent­ly — over the last few weeks.

Tony  43:04

Yeah, and I think it would be news if Grantham ever pre­dicts the mar­ket’s fair­ly val­ued and that we should invest.  He’s a per­ma-bear. Look, I ignore him basi­cal­ly. And he could be right this time, who knows? But, get Ali to look at an arti­cle that Richard Cop­ple­son wrote in Livewire which refutes Jere­my Grantham, because Livewire did an inter­view with Grantham last year where he was say­ing his dire pre­dic­tions were there for the share mar­ket, it’s over­val­ued, etc., etc. And Richard Cop­ple­son made out the fact that in ten of the last ten years, Grantham has pre­dict­ed a share mar­ket col­lapse, so.

Cameron  43:44

It’s a good busi­ness mod­el.

Tony  43:45

Yeah, you nev­er would have invest­ed and nev­er would have had the, sort of, tripling in the val­ue of the share mar­ket since the GFC. So, yeah, not a great per­son to fol­low. He’s a bit like a bro­ken clock, he’s right twice a day. So yeah, he did pre­dict the Japan­ese hous­ing cri­sis and the GFC and every­thing else, because he’s been pre­dict­ing crash­es every year to any­one that lis­tens, you know, for the last fifteen/twenty years. So, I’m not sure it counts so much. And the oth­er thing that’s not tak­en into account, or that he has­n’t tak­en into account at least pub­licly, he may take it into account pri­vate­ly, is that inter­est rates have been in decline for the last at least ten years, prob­a­bly even longer. That’s why the share mar­ket, par­tic­u­lar­ly in the bub­ble stocks, has been going up. So, he may be right this time if inter­est rates start to rise, although I also refer peo­ple to the Eure­ka report on the week­end where our friend — I’ve for­got­ten his name, the pro­fes­sor who found­ed mod­ern mon­e­tary the­o­ry — was inter­viewed, and he claims that inter­est rates won’t rise in Aus­tralia at least, and that they should­n’t rise in Aus­tralia. So, we may not be see­ing ris­ing inter­est rates or that they won’t rise to the lev­el that peo­ple think that they should. And that’s the oth­er point, too, which even Grantham called out in the Livewire arti­cle, that he does­n’t think Aus­tralia is in as much of a bub­ble as the US, if it’s in a bub­ble at all. So, his prog­nos­ti­ca­tions are real­ly around the US. And, you know, to give him his due, the NASDAQ has fall­en a lot in the last six months, and so he’s com­plete­ly cor­rect in say­ing that that was over­val­ued. But we’ve all said that’s over­val­ued, none of us have been touch­ing those kinds of stocks for a while. Well, for me for­ev­er.

Cameron  45:29

A lot of peo­ple have been, but just not us.

Tony  45:31

Just not us, yeah. So yeah, so Ali, I’m not wor­ried by his pre­dic­tions. And this is always the case even when I have thought the mar­ket was over­val­ued, it always has a great run up to the crash. And if you sort of get out too ear­ly, as some peo­ple do, and they start to build cash reserves which we’ve spo­ken about before, it does­n’t real­ly off­set the fact that you haven’t had those last cou­ple of good years. And if you have a way of sell­ing like we do, like we did dur­ing the COVID cough where you get out after the mar­ket’s start­ed to turn down, you get the best of both worlds; you get the run up, plus you get to get out at a rea­son­able price and stay intact. So, it does­n’t real­ly come into my think­ing as a QAV investor.

Cameron  46:13

Yeah, we just keep doing what we’re doing, keep fol­low­ing the rules. They’ll tell us when to sell and then they’ll tell us when to buy back in.

Tony  46:21

Yeah. And look, peo­ple like Grantham and who was the oth­er one we’ve spo­ken about a cou­ple of weeks ago? Howard Marks? They obvi­ous­ly use these atten­tion-grab­bing head­lines as a way of pub­li­cis­ing their funds and get­ting peo­ple inter­est­ed in to invest­ing in their funds. So, I think there’s a bit of self inter­est in these prog­nos­ti­ca­tions as well.

Cameron  46:40

We should do more of that. Just pre­dict­ing crazy things, just to get atten­tion.

Tony  46:46

I can make a pre­dic­tion now which was made on that over­con­fi­dence arti­cle, that the pre­dic­tors get things right a lit­tle bit worse than a coin toss. That’s my pre­dic­tion.

Cameron  46:56

Do you think we can get that in the Finan­cial Review? Tony Kynas­ton says pre­dic­tors aren’t very good at pre­dict­ing.

Tony  47:02

Yeah, it’s true.

Cameron  47:04

Chris sug­gests “in regards to a def­i­n­i­tion of the Josephine’s, I am won­der­ing if you can use twelve- and six-month trend lines. Could a def­i­n­i­tion pos­si­bly be,” and this is harken­ing back to last week when we were talk­ing about how do we know when some­thing’s not a Josephine any­more, etc., etc. A Josephine for new lis­ten­ers is the cutesy name I came up with for a stock that is cur­rent­ly trad­ing at below its month end price — price it was at the end of the last month.

Tony  47:33

Well, it’s more than that. It’s a stock which is a buy on our buy list but we’re not buy­ing at the moment because it’s in a down­trend.

Cameron  47:39

Yes, thank you. That’s great. Chris says, “could a def­i­n­i­tion pos­si­bly be if the six- or twelve-month trend line is in an upward trend, no longer a Josephine when the cur­rent share price is above the last month close. How­ev­er, if the six- or twelve-month line is in a down­ward trend, it’s no longer a Josephine when the last month close is above the pre­vi­ous mon­th’s close, and the cur­rent price is above the last months close. E.g…” and then he’s got it as a for­mu­la. Any­way. “Maybe it needs to be three con­sec­u­tive gains or what­ev­er, food for thought, Chris.” What do you think about all that? It doesn’t‑I haven’t got my head around it.

Tony  48:28

Yeah, no, it’s food for thought. Chris’s is just try­ing to, I guess, put the for­mu­la around what a Josephine is and that’s some­thing that I haven’t quite cracked yet. What he’s sug­gest­ing is using a more recent graph to run our three-point trend lines over. And I have done that in the past with mixed suc­cess. In fact, prob­a­bly over­all neg­a­tive suc­cess in that it makes the port­fo­lio much more volatile and things can look like they’re trend­ing down in the short term and then they whip­saw and go up in the long term and if we had of held that would have been fine for us. So, I don’t dis­agree with what Chris is say­ing, and again, as I said last week, if you want to, you know, run some num­bers on that, and let us know, that’d be great. What Chris is sug­gest­ing is a lit­tle bit like SDMAX, which is the Stock Doc­tor ver­sion of three-point trend­lines, I guess, or their ver­sion of when to buy and sell based on the graph. And that was regres­sion test­ed by Stock Doc­tor and they claim, which I would believe, that the results have improved based on using SDMAX. So, that’s a two-year line with a six month, last six month over­lay on it. So, Chris might want to have a look at that if it inter­ests him. I still think that when I get around to work­ing out the for­mu­la that the con­cept of a sec­ond buy is going to be the one that I use, and I kind of use it now any­way, unof­fi­cial­ly. And that in sum­ma­ry is that if a stock is a buy based on “the buy line fol­lows the sell line”, which means it may have been a buy a long time ago, or six months ago, or one year ago or what­ev­er, but it’s been going up and we haven’t got a high point and a sec­ond high point based on the high­est point on the graph, then we still buy. But if it has got a high point on the graph, and it starts to trend down from there, I’m going to wait until it does have a sec­ond high point and the line cross­es that new buy line. So, that’s a bit wordy, but it’s a com­bi­na­tion of draw­ing a buy line using the high­est point on the graph and sec­ond high­est point on the graph, and the buy line fol­lows the sell line. So, I think that’s going to be the answer but I just haven’t had, or haven’t done enough research into that yet to see whether it works or not.

Cameron  50:33

Thanks for that, Chris. Ris asks about iron ore: “is it hit­ting a sell line?” Now, long term lis­ten­ers will remem­ber that late last year, I think it was sort of Novem­ber-ish, you decid­ed that we were going to use a fudge sell line for iron ore and use that as a rea­son to get out of our iron ore stocks like FMG, because it had such a big run up in the pre­vi­ous, what­ev­er it was, eigh­teen months. The real buy line was quite low and the share price had gone up extra­or­di­nar­i­ly high; I think it was trad­ing at 20 odd bucks and the sell price was like five bucks or some­thing, and we decid­ed to fudge a sell line. Then we bought back in and so peo­ple are won­der­ing — and the share price has gone up again, iron ore price has gone back up again — are we fudg­ing an iron ore share price now Tony, what are we going to do?

Tony  51:30

Well, no. So, the first thing to answer is Riz’s ques­tion, and no, the iron ore isn’t hit­ting a sell line — the iron ore com­mod­i­ty. And I’m using TR#, which is defined as iron ore 62% FE, which is the grade of the iron ore, Chi­na, and that’s avail­able in Stock Doc­tor. You’re right, Cam, I did fudge that par­tic­u­lar line, and the rea­son I did that was because out of all the com­modi­ties iron ore seems to be on a two-year cycle and you can see that if you go back and look at the long-term his­to­ry of iron ore. And so wait­ing for it to reach its sell line did­n’t appeal to me. Iron ore has dropped back from, sort of, 240 odd dol­lars a tonne, went all the way down to around 100, and is back up to 141. So, it has bounced back. If you look at the more, sort of, the end of that graph on a dai­ly basis or a week­ly basis is trend­ing down because iron ore’s price has been — large­ly because Chi­na’s been jaw­bon­ing the price down and telling it’s smelters not to buy any iron ore for a while, etc., etc., which it often does from time to time. How­ev­er, if you look at the five-year month­ly graph of TR#, iron ore’s def­i­nite­ly in an upturn. So, I think the short answer to Riz’s ques­tion is no, it’s still a buy.

Cameron  52:50

So, peo­ple who’re try­ing to find this graph, if you go into Stock Doc­tor advanced chart­ing, go into the fold­ers tab, look under com­modi­ties then under the sub fold­er futures, and there are three iron ores in futures and we’re using the third one, the last one of those which is TR# as Tony said. Yeah, okay. So, don’t wor­ry about it.

Tony  53:16

Yeah, that’s right.

Cameron  53:17

It’s all good.

Tony  53:18

All good.

Cameron  53:18

It’s all good, for now. Thank you, Riz. Sue: “hi, Cam and Tony. Is there any sci­ence or research on stock per­for­mance on stocks pur­chased clos­er to their sell line than stock pur­chas­es which are fur­ther away from the sell line? From per­son­al expe­ri­ence, I found my biggest returns were that of stocks bought fair­ly close to their sell lines ver­sus stocks that were much high­er than the sell when I’ve bought in. Is buy­ing close to the sell line an indi­ca­tion of being clos­er to the bot­tom? Maybe just a ran­dom pat­tern, but some­thing I’ve noticed. Thanks to you both, take care, Sue.”

Tony  53:59

Yeah, thanks Sue. I haven’t noticed that myself, and I’d have to research it in more detail then I have before I have an answer. But it’d be inter­est­ing if you have some data you could share with us, that’d be great. It’s a valid point, we often get ques­tions to the pod­cast about “do I still buy this stock? It seems to have gone through a run recent­ly. It’s way above its sell line?” And my answer is always yes, that there’s still plen­ty of upside often in those stocks. But, I can also think anec­do­tal­ly over the last cou­ple of months, we’ve had a lot of stocks we bought close to their sell lines and they’ve gone below their sell lines and we’ve sold out of. And we spoke about one before, HUM, when it was around $1. I remem­ber buy­ing it and hav­ing to sell it again soon after that. So, my gut feel is that it cuts both ways. But yeah, I haven’t done the research sor­ry, Sue. But good ques­tion, I’ll add it to our list.

Cameron  54:51

I think our two stocks of the week this week, TGA and CGF, were both new three-point upturns and both sort of just above their three-point trend­line-their sell line.

Tony  55:06

Yeah, actu­al­ly thanks for remind­ing me of that. I have noticed in the past that stocks that have a recent upturn tend to go on with it, and they prob­a­bly are the best buy, and that’s why they score a 2 on the check­list. And there’s still ongo­ing work to work out, you know, the weight­ings of things; whether we should be weight­ing that high­er or not, but there might be some­thing in that if Sue’s talk­ing about recent upturns.

Cameron  55:27

Well, there’s, there’s two things there, right? So, the fact that they’ve just breached their buy line does­n’t nec­es­sar­i­ly mean that they’re close to their sell line. Their sell line could be a lot below. CGF, like, if I look at that it’s cur­rent­ly trad­ing at about 705. I think it’s sell price is about 589, which it was trad­ing at the end of Jan­u­ary. So, end of the month, it was at 576. So, it’s popped up quite a lot since then, but you know, could just as eas­i­ly turn down and breach that sell line. Yeah, TGA’s just hov­er­ing bare­ly above its sell line at around about 25 cents. So, you know, I’m always a lit­tle bit ner­vous when I buy some­thing just above the sell line. I’m mak­ing sure I put my sell alerts in and it’s a ques­tion whether or not I’m going to rule 1 it or it’s going to hit its three-point sell line. Yeah, actu­al­ly look­ing at TGA I think it’s right on its sell line. Actu­al­ly, it’s like slight­ly above, maybe a cou­ple of cents above. Yeah. And you hope it’ll do well, but you know, as you say, I’ve seen a lot where they’ve just fall­en back below it and I’ve had to sell it a week lat­er. But then you’ve got, you’ve got this sort of selec­tive mem­o­ry. You know, they go up, if they go up you go, “oh, yeah, look at that.”

Tony  56:46

Exact­ly.

Cameron  56:47

Well, you’ve taught me… you know, I laugh about this a lot on the Face­book group, but if I have to sell some­thing, if I have to rule 1 it, or you know, what­ev­er, I blot it from my mem­o­ry. It’s-what do they call it?

Tony  56:58

Gold­fish mem­o­ry.

Cameron  57:01

No, I’m try­ing to remem­ber the ancient Roman term for it, you know, when some­body was a trad­er in ancient Rome: Damna­tio Memo­ri­ae. That’s it, damned mem­o­ry. They were like struck off, then if there was any stat­ues of them, their names would be struck off. If they were a con­sole, their name would be struck off from the reg­is­ter. No one was allowed to men­tion their name. They’re per­sona non gra­ta in Rome, you’re not allowed to sing about them, you’re not allowed to talk about them in the place, not allowed to talk about them in the street. “You’re dead to me.” I want that per­son dead, I want their fam­i­ly dead, I want their dog dead. That’s what, that’s what I do with stocks if I have to sell them. I don’t remem­ber, then six months lat­er, I’m like “ah”; except for Apol­lo.

Tony  57:47

That’s right. Stocks are a bit dif­fer­ent to ancient Rome because if they come back on the buy list, it’s like, “ooh, some­thing to buy. Some­thing new.”

Cameron  57:55

Yeah, you for­get. Gold­fish mem­o­ry, as you said? It’s like Eter­nal Sun­shine of the Spot­less Mind. Like “oh yeah, look at you. Aren’t you pret­ty?” Thank you, Sue. Paul, a ques­tion about B‑oh, this is the BFG. Right. So, Paul’s ques­tion was “Bell Finan­cial has been a good per­former for me since begin­ning QAV two years ago with a 50% gain plus some small div­i­dends. How­ev­er, with their annu­al report last week they announced they’ve had to appoint an audi­tor at the demand of Aus­trac to inves­ti­gate poten­tial breach­es of mon­ey laun­der­ing laws.” Did you see the report that came out yes­ter­day about Cred­it Suisse? The leaks that have come out?

Tony  58:35

Yeah, I briefly saw it. Yeah.

Cameron  58:38

Oof, my God. It’s just nev­er end­ing with these big banks.

Tony  58:42

Pana­ma Papers and all that kind of stuff, yeah.

Cameron  58:45

Yeah. Just the mon­ey laun­der­ing they do, and they get caught and they get a slap on the wrist and they go straight back to it. No one gives a shit.

Tony  58:55

That’s true.

Cameron  58:57

It’s just so bla­tant. I go, “oh, what?” There’s drink­ing and gam­bling going on in this estab­lish­ment? Well, I’m shocked, I tell you. Absolute­ly shocked. Here’s your pay­ment, Com­mis­sion­er. Thank you very much. Any­way, “after some research, I found that this is the first time that a stock­bro­ker has been tar­get­ed by Aus­trac, and the large banks had to pay large fines and sim­i­lar audit-after sim­i­lar audits. The AFR reports that Aus­trac requires rea­son­able grounds to sus­pect breach­es for an audi­tor to be appoint­ed. I’ve tak­en this to be bad news and sold. Was this pre­ma­ture?” You’ve said ear­li­er in the show no, we’ve sold it out of our port­fo­lio as well.

Tony  59:38

The notice about AML breach or poten­tial AML breach, the notice and their results both dropped on the same day and the share price dropped after that. So, hard to know whether it was because of Aus­trac or because of the results, because the results weren’t as good as peo­ple had fore­cast. But either way, it’s a sell on bad news. The stock is down 10% also. But to go into a bit more detail on AML. So, Paul is exact­ly right, the banks have received heavy fines for breach­ing AML. AML stands for Anti-Mon­ey Laun­der­ing. It’s a thing in the finan­cial sys­tem now where finan­cial insti­tu­tions are sup­posed to have a lot of com­pli­ance and risk assess­ment and audit­ing around peo­ple deposit­ing mon­ey with them and, you know, above a cer­tain amount which is usu­al­ly $10,000. And whether it’s kind of mon­ey-in mon­ey-out, so it’s a wash, so it’s just there to laun­der the mon­ey, or whether it’s going around in cir­cles, or there’s a whole, a whole suite of things that banks in par­tic­u­lar have to look for. But, the reg­u­la­tor did say they are now start­ing to tar­get casi­nos and stock­bro­kers and oth­er areas, pokey clubs, oth­er areas that poten­tial­ly have been even unwit­ting­ly caught up in anti-mon­ey laun­der­ing. So, the fact that it’s hit a stock­bro­ker, I don’t see it as being good news, I see it as being poten­tial­ly bad news. They may well come out and, as some­times hap­pens with the banks, and say, “look, you know, this was some­thing we did­n’t con­sid­er,” or “our sys­tems, you know, did­n’t pick it up.” But, that does­n’t get them off the hook with the fine. So, I would think the reg­u­la­tor would have good rea­son to think that BFG at least did­n’t have the right risk sys­tems in place to catch mon­ey laun­der­ers or to report mon­ey laun­der­ers, and that in this case where there’s smoke there prob­a­bly is fire.

Cameron  1:01:36

Good pick up, Paul, thanks for that. Sim­mo: “does Tony ever use the com­pa­ny mar­ket cap fig­ure rel­a­tive to index funds to deter­mine whether a com­pa­ny’s share price could be at a risk of a near future increase or decrease?” I can already tell that sounds like too much work. “If a com­pa­ny’s mar­ket cap is close…” Oh, Tony could be play­ing golf.

Tony  1:02:01

What’s that? Fore!

Tony  1:02:03

Yeah, anoth­er Negroni please, bar­tender. “If a com­pa­ny’s mar­ket cap is close to the cusp of either almost enter­ing an index or almost leav­ing an index, I would think that when the index is bal­anced quar­ter­ly there could be a lot of buy­ing or sell­ing into or out of these open index funds. For exam­ple, when AGL’s share price went below around $14 in 2020 it dropped out of the ASX 50. I assume that this then caused the ASX 50 index funds to sell out of AGL caus­ing the share price to fall even more.” I think that’s about right. “I know Tony has talked about this phe­nom­e­non before and the risk of index ETF invest­ing becom­ing too pop­u­lar, the quar­ter­ly rebal­anc­ing can cre­ate a kind of rein­forced sell­ing or buy­ing of a stock. Has Tony ever looked into how much a stock­’s price can be influ­enced by the quar­ter­ly rebal­anc­ing of index funds? Has he ever used the mar­ket cap fig­ures to deter­mine whether he holds or sell stocks that are on the cusp of enter­ing or exit­ing the index funds when it is close to rebal­anc­ing dates? Hope this makes sense. Cheers, Simo.” I’m tired after just read­ing that.

Tony  1:03:10

It’s actu­al­ly a real­ly good ques­tion. It is some­thing I have looked at in the past, a long time ago. The short answer is no, I don’t take it into account now and it’s swept up, I guess, in sen­ti­ment, you know. If the stock price drops and it breach­es our rule 1 or our sell line I sell it, I don’t try and pre­dict that. When I looked at it — this is going back a decade or so ago — I start­ed to look at it, did some work on it, but lost inter­est. And the rea­son I lost inter­est was the rebal­anc­ing hap­pens four times a year, so it’s not some­thing you can sort of invest in con­tin­u­ous­ly. It involves a bit of pre­dic­tion, so some­times I would get it wrong that stock 1 was going to be pro­mot­ed or demot­ed in the list, and that’s because the peo­ple who decide what stocks go in or out of lists don’t just take mar­ket cap into account, they also take into account the liq­uid­i­ty that’s avail­able in the stock. And there’s a half a dozen oth­er fac­tors they also con­sid­er. And so, if you run a report, say, out of Stock Doc­tor using a stock fil­ter which says “give me the top ten stocks or top twen­ty stocks by mar­ket cap,” some­times you find a stock isn’t there, or is there, that isn’t part of the ASX top twen­ty or fifty or what­ev­er you’re doing, and that’s because of these oth­er cri­te­ria. So, there’s a bit of pre­dic­tion involved as to what gets pro­mot­ed or demot­ed. But the last point is that usu­al­ly the moves are sort of at best 10, and some­times sub that. Now, they might get big­ger as there are more index funds, but to do the work only four times a year and to get maybe sin­gle dig­it returns from doing it and not every stock you invest­ed in was going to give that return because it may not have been even­tu­al­ly pro­mot­ed or demot­ed, it just meant it was­n’t return­ing the sort of num­bers that I got just through doing it with QAV. Not say­ing there could­n’t be a blend here, it’s some­thing to watch every quar­ter, but It’s not some­thing I pay atten­tion to at the moment.

Cameron  1:05:03

Thank you, Simo. Kim: “bought GRR and sold with­in a week because of rule 1. With the volatil­i­ty of a stock sub­ject to com­mod­i­ty swings I feel bit­ten, so I’m now feel­ing twice shy. I don’t know if there’s a way to lim­it expo­sure to mul­ti­ple loss­es due to rule num­ber 1 eat­ing into cap­i­tal. Maybe some expe­ri­enced QAVers or Cam or Tony,” she post­ed this on Face­book, “can help with advice, or do you just have to kiss a few frogs and even­tu­al­ly you’ll get a prince and it will all be worth it. As some­one devel­op­ing their port­fo­lio, am I bet­ter to avoid stocks with high volatil­i­ty until the port­fo­lio is a bit more sta­ble? So, if I’ve got a mate­r­i­al and a con­sumer dis­cre­tionary that is scor­ing sim­i­lar and chart­ing looks okay, pick the con­sumer stock?” What do you think, Tony?

Tony  1:05:48

Not nec­es­sar­i­ly, no. I mean, we love volatil­i­ty. So, I don’t do that. Look, again, I have to do the research to look­ing at whether mate­ri­als are bet­ter than con­sumer dis­cre­tionary, but I would think it’s going to be a line ball or a 50/50. So no, I would­n’t pick one over the oth­er. And I love volatil­i­ty, so don’t for­get if it goes down and get rule 1’d it could eas­i­ly go up and go up in mul­ti­ples. So, that’s going to be in our favour. I can tell there’s a bit of pain in Kim’s ques­tion, and I feel for her, but just bear with it. I mean, don’t for­get, sta­tis­ti­cal­ly, if we’re get­ting 60%, right and 40% wrong, you know, the first, out of a twen­ty-stock port­fo­lio, the first eight stocks you buy could poten­tial­ly have to be rule 1’d. And even more than that, because that’s on aver­age. So, it could be a lot that you’re buy­ing before you strike gold, so to speak. So, you are play­ing a sta­tis­ti­cal game, and Kim’s point is right, we are kiss­ing frogs and we’ll get a prince. But I just, just ask her to stick with it because that’s my expe­ri­ence. It’s a par­tic­u­lar­ly, prob­a­bly a par­tic­u­lar­ly unusu­al time to be start­ing a port­fo­lio with the mar­kets being high­ly volatile in the last cou­ple of months. We have been get­ting a lot more rule 1s than we nor­mal­ly do. But yeah, this will pass and things will set­tle down and you’ll be fine, Kim.

Cameron  1:07:05

There you go. Yeah, like I remem­ber, like in the ear­ly stages of build­ing my port­fo­lio it felt like it was one step for­ward and two steps back­wards some­times, because this was around like the COVID cough and all these sorts of things were going on not long after I start­ed. But, you know, even­tu­al­ly it sort of set­tles down and you’ve got most­ly win­ners in there. And then as I was say­ing to Tay­lor I think the oth­er day, I bare­ly pay atten­tion to my port­fo­lio now. If I don’t get an alert I check‑I reset my alerts every month. I might look at it, you know, in the course of doing the show, you know, and hav­ing to do our dis­clo­sure and that kind of stuff, I’ll look at it once or twice a week, but just if I have to report on some­thing. But gen­er­al­ly, every­thing in my port­fo­lio is look­ing so good now that I don’t even think about it. I can only imag­ine how you feel after this many years.

Tony  1:08:03

Yeah same. I mean, its com­pa­ny report­ing sea­son now so I do read the Fin Review every day, make sure I’m on top of what’s report­ing that’s in my port­fo­lio. It’s a volatile time. I know I do have a cou­ple of stocks in there which are get­ting close to their sells, so I’ll check those. But again, no more than once or twice a week for those. So yeah, it’s the same for me. It’s more often than not that I’m not check­ing my port­fo­lio, if that makes sense? Even though there’s a lot going on in the mar­ket.

Cameron  1:08:29

Yeah. Look, I’ve got my port­fo­lio open in front of me, and, you know, I’m look­ing at Stock Doc­tor’s returns for what they’re worth. I don’t know if it’s accu­rate or not, but run­ning down the list, like, up 9%, up 26%, up 15%, down 2.82%, up 3.3, up 15, up 10, up 6, up eight. What’s this one? Up six. Sor­ry, I’ve got a few dif­fer­ent pages of port­fo­lios here. This is, I mean, I’m only say­ing this just as an exam­ple of peo­ple that are get­ting start­ed. You know I don’t know shit about what we’re doing here. Like, I’ve just been fol­low­ing Tony’s, fol­low­ing Tony’s rules over the last cou­ple of years. But this is, like, legit, I’m just read­ing out where these, you know, lit­er­al­ly the fig­ures are; okay, up 64%, up 6.5, up 33, up 13, up 7, up 55, up 14, and up 30. So, that’s, you know, where my port­fo­lio’s at after a cou­ple of years of doing it. So, when some­thing’s up 50% or 30% or 65%, like, I’m not even, it’s not even on my radar unless it’s get­ting my sell alert. So, that does­n’t mean that nec­es­sar­i­ly they could­n’t also be close to a sell line. Like, Lind­say is up 13% since I bought it and had a big run this week, but then it’s dropped back 5% today by the looks of it. I think it was up like 20% yes­ter­day, Lind­say, did you see that? Lind­say Aus­tralia?

Tony  1:10:02

No, I did­n’t.

Cameron  1:10:03

I don’t know what hap­pened. I assume their results came out or some­thing, but went up like 20% in a day and then it’s dropped back a lit­tle bit. But I don’t know where the sell line is on that from mem­o­ry, but you know, I’ve got my sell alerts set and if I need to know some­thing Stock Doc­tor will send me an email and hope­ful­ly I won’t miss it. But you just stop think­ing about it, real­ly.

Tony  1:10:25

Yeah. And back to Kim’s point, you know, even if the first ten stock she buys — or if any per­son is start­ing out in this time at the moment when things are chop­py — even if the first ten stocks you buy have to be rule 1’d, your port­fo­lio’s down by 10%. The eleventh stock you buy could eas­i­ly get that back for you. So, the whole idea of the rule 1 is to stop you from drop­ping more than 10, 20, 30, 40, 50% unwit­ting­ly because the stock was a val­ue trap. So, it can be hard if you just keep doing the same thing and los­ing mon­ey, but it will come good.

Cameron  1:10:57

Yeah, and I guess that’s the hard thing to know in the ear­ly days. Like, after you’ve been doing this for a while, in my case a few years, you just trust the sys­tem. You just trust that, “yeah, okay, this one I had a rule 1, but the next one or the one after that will make up for it” and you stop even wor­ry­ing about it. I know after you’ve been doing it for as long as you have it’s prob­a­bly not even, does­n’t even enter into your con­scious­ness if you have to rule 1 some­thing. It’s like swat­ting a mos­qui­to.

Tony  1:11:23

Yeah, my mind­set is often­times, “geez, I real­ly want to buy this stock. This has come on to the buy list. I can’t sell any­thing. Come on, come on, some­thing! Get to a rule 1!”

Cameron  1:11:38

Okay, nice. Yeah. Good. So yeah, it’s a mind­set thing. And yeah, it’s tough in the ear­ly days, but look, what I would say to any­one who’s new lis­ten­ing, you know, don’t trust Tony and don’t trust me but talk to the peo­ple in the Face­book group about what they’ve found that have been doing it for a cou­ple of years, because they will give you their unbi­ased view on it. We’ve got quite a few peo­ple now that have been doing this for two or three years and on the Face­book group they’ll give you their expe­ri­ence. They have noth­ing to gain by bull­shit­ting you. Nei­ther do we, by the way, but still.

Tony  1:12:14

No.

Cameron  1:12:14

More obvi­ous that they don’t. Last ques­tion. Mark: “CGF has long been a pos­si­ble takeover tar­get by Apol­lo,” the pri­vate equi­ty firm, not the RV rental crowd whose name we shall not speak of. “Does Tony ever think of hold­ing on just for the takeover pre­mi­um?” Okay, then there’s anoth­er ques­tion. Do you ever think of hold­ing on just for the takeover pre­mi­um, Tony?

Tony  1:12:39

Well not just because of that, I just hold on until it’s a sell or the takeover comes to pass. I mean, at the moment, I spoke about Chal­lenger before, Apol­lo’s tak­en a stake in it, that does­n’t nec­es­sar­i­ly mean there’s going to be a quick takeover of it or there’s going to be a sec­ond bid. There’s been no bid announced yet, they’ve just tak­en a stake. So, we could be a long way from any sort of takeover activ­i­ty with this com­pa­ny. And often­times, the fact that a com­pa­ny like Apol­lo has tak­en a stake in the com­pa­ny will mean it’s more, it’s hard­er for some­one else to come in new and take it over. So, it can have the reverse effect. So, I’ve spo­ken about takeovers in the past; when they are afoot, good gains can be had. I tend to try and wait until the last bid is out. The one thing I don’t do, though, is once a takeover has been declared, has been accept­able by the direc­tors and no fur­ther bids look like they’re going to come, I’ll sell on mar­ket rather than wait for the acqui­si­tion or for the takeover fund to actu­al­ly send me a check. Because that can take a while, and gen­er­al­ly the mar­ket trades stock at about the val­ue of the takeover offer. So, I’ll take that and move on to some­thing else.

Cameron  1:13:48

His oth­er ques­tion is “con­sid­er­ing FEX’s very low sell line does Tony ever con­sid­er using a more aggres­sive sell line, say, to fol­low a more recent trend?” We’ve talked about this many, many times.

Tony  1:14:03

We have, yes. Very, very occa­sion­al­ly I’ll fudge things as we spoke about before with the iron ore price, where I had a pret­ty good thought that iron ore was in a two-year cycle and that we had to get out when we did. Look­ing at FEX, I know we sold it from our dum­my port­fo­lio which I think was a rule 1 sell, it is trad­ing a long way above its sell line. It’s cur­rent­ly prob­a­bly a Josephine, so I would­n’t be buy­ing it, and it’s prob­a­bly going to be a rule 1 for some­one who bought it recent­ly. But yeah, it’s a long way above its sell line. We did take iron ore stocks off the buy list towards the end of last year, so FEX would have come off around that time. In terms of hug lines, look, peo­ple are free to do that if they want if they get ner­vous and they want to sleep at night, for sure, use a more aggres­sive sell line. But gen­er­al­ly, I don’t — in fact, in the vast major­i­ty of cas­es, prob­a­bly only 1% of cas­es, I’ll fudge. I’ll let the sell line ride oth­er­wise.

Cameron  1:15:00

All right, well, that’s a full lid. We’ve been going for near­ly an hour and a half, I think we can skip after hours.  I know you’ve got guests com­ing over.

Tony  1:15:08

Oh, come on. That’s the high­light of the week for me, after hours.

Cameron  1:15:12

I know, but it’s not for Alex when she’s doing the tran­script. She goes, I have to, I have to sit here and lis­ten to you and dad talk for twen­ty min­utes about TV and music. I’m like, it’s the only time we get to talk each week, now, and catch up on stuff. All right. What do you got?

Tony  1:15:26

I just quick­ly want­ed to say that if peo­ple hear this before Sat­ur­day, we have a horse run­ning — Princess Raf­fles — which is one of our hors­es in Ade­laide. So, it runs in Mor­phettville, so might be worth a look for peo­ple. And then the only oth­er thing I can talk about is a movie called Those Who Wish to be Dead, which was real­ly good. It’s a, what’s his name now? Tay­lor Sheri­dan, I think?

Cameron  1:15:49

He’s the guy behind the Yel­low­stone TV series, isn’t he?

Tony  1:15:52

Yeah, so he direct­ed this one. It’s, look, it’s a movie full of clichés, but he just seems to have the knack for, for mak­ing that classy. And Angeli­na Jolie stars in it and gives a good per­for­mance, so I quite liked it. And Tay­lor Sheri­dan, the rea­son for I guess also men­tion­ing it made one of my favourite movies Hell or High Water, which is worth check­ing out too if peo­ple want to watch a good, a good movie star­ring The Dude. Jeff Bridges.

Cameron  1:16:19

I gave‑I tried watch­ing the first episode of Yel­low­stone just in the last week after hav­ing some friends rec­om­mend it, and I just can’t do Kevin Cost­ner man.

Tony  1:16:28

Yeah, I’m the same. I watched the first episode because it was Tay­lor Sheri­dan and then went “meh”. Remind­ed me of Dal­las.

Cameron  1:16:35

Kind of a mod­ern Dal­las, yeah. It’s a bit Suc­ces­sion, but nowhere near as good. Well for me this week, I’m read­ing a real­ly good sci fi book called Push­ing Ice by Alas­tair Reynolds that some­body rec­om­mend­ed to me, near­ly fin­ished it. He’s like an astro­physi­cist to became a sci fi writer, so it’s real­ly good, hard sci­en­cy. Real­ly inter­est­ing premise, basi­cal­ly one of the moons of Sat­urn, Janus, just starts fly­ing away from out of the solar sys­tem. This is like set in 2060 or some­thing, and humans realise that it was actu­al­ly, like, a space sta­tion, alien space sta­tion, dis­guised as an ice moon all along. And so they send a ship off to try and catch up to it to find out what’s going on. And la di da di da, you know, the ship sort of ends up going with it to an alien plan­et, and yeah. Yeah, it’s kind of inter­est­ing, real­ly dif­fer­ent take on first con­tact. Chris­sy and I watched the French Dis­patch on the week­end. Loved it. Did­n’t think it was as good, maybe-or, not as good but yeah, did­n’t grab me as much as many of his oth­er films. Tenen­baums or… so I loved it too, I mean, like, beau­ti­ful­ly done but I think it was just like there were so many sto­ries and so much over­lap and there was a, it was a lot more going on than his nor­mal cast of char­ac­ters that we get a lit­tle bit more invest­ed in them maybe. But just in terms of set design and pro­duc­tion val­ue and per­for­mances and dia­logue and all that kind of stuff, just, yeah, fan­tas­tic.

Tony  1:18:14

Artis­ti­cal­ly, visu­al­ly very beau­ti­ful, isn’t it? Yeah.

Cameron  1:18:16

Beau­ti­ful. Yeah. Yeah. To die for his stuff, real­ly fan­tas­tic. The oth­er thing that I’ve sort of been plug­ging on our Face­book group too this week, I watched this hour-long inter­view with a guy called Shep Gor­don which I high­ly rec­om­mend to any­one that’s inter­est­ed in any­thing, real­ly. Life. Shep, I’ve been a fan of Shep­’s for many years. I got­ta tell you quick­ly his ori­gin sto­ry; he’s a Jew from New York, is liv­ing in LA, late 60s, sell­ing weed, decid­ed to get out of the weed busi­ness for some rea­son, it was get­ting a bit dicey. But he’s liv­ing at this this hotel called the Land­mark Hotel some­where in LA. It’s like a flop­house where a lot of itin­er­ant artists are liv­ing. And he hears this woman scream­ing out­side of his win­dow one night. He looks down and around the pool there’s this cou­ple fight­ing, it was a white woman and a black guy, and he runs down and sep­a­rates them. And the woman punch­es him in the mouth and tells him to eff off because they were mak­ing out, this cou­ple. He goes back to his room and he’s like, I’m such a los­er. Why did I do that? Next day, he’s down­stairs, he sees this woman sit­ting around the pool with a bunch of peo­ple and she calls out to him. She says “are you the guy I had to punch in the mouth last night?” And they have a laugh. So, the woman was Janis Joplin, the guy she was mak­ing out with was Jimi Hen­drix. Sit­ting around the pool is also Jim Mor­ri­son, and bunch of oth­er rock stars, because this was like a Rock­star flop­house where they would sort of stay long term if they had a res­i­den­cy some­where in LA. So any­way, he gets to know them all, and, sort of, a few weeks go by and Jimi Hen­drix says to him, “so what do you do for a liv­ing?” He goes “I don’t do any­thing, real­ly, at the moment.” And Hen­drix said, “got a car?” He says “yeah,” he said “you’re a Jew, you should be a man­ag­er.” And he says to anoth­er guy “Hey, Bob­by, you still got that bunch of weirdos liv­ing in your base­ment?” He goes, “yeah.” He goes, “you guys need a man­ag­er?” He goes, “yeah,” he guess, “intro­duce them to Shep.” So, this bunch of weirdos turns out to be Alice Coop­er and his band, they were called the NAS at the time they were going nowhere. So, he goes and he signs Alice Coop­er, and he knows noth­ing about music, does­n’t care about music, and he’s still Alice Coop­er’s man­ag­er today fifty odd years lat­er. And he just tells this sto­ry about how he built Alice and made him famous, and then he did it to Anne Mur­ray. And then he tells just these con­stant sto­ries about how he’s just, he’s just a genius at mak­ing peo­ple famous, this guy. Two things I real­ly loved most about it; one was he said he and Alice had worked togeth­er well for fifty odd years because of three rules that they agreed on very ear­ly on. One is we always do the right thing by every­body, no ques­tions asked. And he had some anec­dotes going right back, but they always look after every­body. He said “every­thing’s always a wi-win. It’s nev­er win-lose. We just, we’ve always made sure every deal is a win-win. Sec­ond­ly, we’ve got an incred­i­bly hard work eth­ic, we both do what we say we’re going to do, you know, we nev­er slack off.” And the third thing was they nev­er com­pro­mise the char­ac­ter, Alice, that they realised that they’d struck gold by build­ing this char­ac­ter and they would nev­er com­pro­mise it. So, they’re the three rules they’ve lived by for fifty odd years. And then the oth­er great sto­ry was, he said he had been doing this in like the ear­ly 80s or some­thing, very suc­cess­ful. He’s rich, but he kind of just did­n’t feel like he was doing real­ly what he want­ed with his life. Any­way, he pro­duced a film, it was at the Cannes Film Fes­ti­val, he went out to din­ner and he met the chef of this restau­rant in France called Roger Verge. And he said, “this guy just had this sense of inner peace about him. And I decid­ed, I want what this guy has. So, I just made myself his go to guy. Any­thing you want, Roger, I will do it for you.” And he kept his day job man­ag­ing Alice, but just decid­ed to look after-he just want­ed to shad­ow this chef guy to see why this sense of inner peace was that he had. Any­way, ends up real­is­ing that this guy works real­ly hard, does­n’t make a lot of mon­ey run­ning a restau­rant, and he realised that all chefs back then were the same. No chefs owned their own restau­rant, usu­al­ly, they worked for oth­er peo­ple and they were work­ing mas­sive hours not mak­ing a lot of mon­ey. So, he invent­ed the celebri­ty chef idea, basi­cal­ly, Roger Verge spoke to Wolf­gang Puck, Wolf­gang Puck put sev­en­ty-five chefs in a ban­quet room at a hotel and Shep got up and explained to them how he was going to turn make them all famous, turn them into brands with books. And he said, “I had a friend of mine, who was, he had left CNN, and he was start­ing a new cable net­work and he did­n’t know what to do with it. And I said to him, ‘well, I can get all these chefs to appear on your net­work for free.’ ” And so, they cre­at­ed the Food Net­work, this guy cre­at­ed the Food Net­work off the basis of that. So, he got all of his chefs to appear for free but they were pro­mot­ing their books and their sauces and their spices and all of that kind of stuff on the net­work. So, it’s just a great sto­ry, like he’s just this, just a leg­endary man­ag­er and pro­mot­er and seems like a nice guy. So yeah, real­ly good. Real­ly good lit­tle doc­u­men­tary on YouTube.

Tony  1:23:33

Okay, cool. Thank you.

Cameron  1:23:34

Made by Gib­son, the gui­tar com­pa­ny.

Tony  1:23:37

Okay. Right.

Cameron  1:23:39

That’s it.

Tony  1:23:40

Well we can prob­a­bly tell Alex not to wor­ry about typ­ing up the after-hours.

Cameron  1:23:44

I did. I told her. I said, you don’t have to tran­scribe the after-hours stuff. She said, “Oh, well.”

Tony  1:23:51

Yeah, one of the good things about being down here is I catch up with her once a week, which is fan­tas­tic.

Cameron  1:23:56

Yeah, that’s good.

Tony  1:23:57

We had din­ner last Fri­day night and she said, we were talk­ing about after hours, and she said, “I’m typ­ing this tran­script along and Cameron said ‘what about this thing about John C. Reil­ly?’ And you said ‘who’s that?’ And I’m like, ‘Dad, come on! You know who John C. Reil­ly is.’ ”

Cameron  1:24:13

I don’t remem­ber that?

Tony  1:24:14

I don’t remem­ber that either, but any­way, she did.

Cameron  1:24:17

Alright mate, well enjoy your last week down there and I’ll talk to you next week.

Tony  1:24:21

Thanks Cam, that’s great.

Cameron  1:24:23

Take care every­one. QAV Pod­cast is a pro­duc­tion of Space Craft Pub­lish­ing Pro­pri­etary Lim­it­ed, autho­rised rep­re­sen­ta­tive of AFS sale 520442 AFS rep­re­sen­ta­tive num­ber 001292718. Please don’t make any invest­ment deci­sions based sole­ly on lis­ten­ing to this pod­cast. This is pre­sent­ed as gen­er­al advice only not per­son­al finan­cial advice. We don’t know your per­son­al finan­cial cir­cum­stances. Please see a finan­cial plan­ner before mak­ing any invest­ment deci­sions.