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Transcription of QAV #361 — Zombie Value Investing

QAV #361 — Zombie Value Investing

Cameron 0:00:04 — 0:00:17Wel­come back to the QAV pod­cast, Tony Kynas­ton, you’re at your coun­try estate this week. While by the way, this is Tues­day, the 15th of Decem­ber 2020. Episode 361, Sea­son 3, Episode 61. Hi.  
Tony 0:00:17 — 0:00:18Hi Cam, how are you?
Cameron 0:00:18 ‑0:00:44Well, I woke up this morn­ing and my NBN was­n’t work­ing, and final­ly, they fixed that a few hours lat­er, then I got banned from Face­book, imme­di­ate­ly after­wards, I jumped on Face­book and they said you’ve been banned, dis­abled, from Face­book. Why? We don’t know. Can you get them to review it? We don’t know. They were like, we don’t know what’s going on, we’re just Face­book. No one tried to con­tact me on Face­book for a while.
Tony 0:00:44 — 0:00:52We’ll have to devise some kind of workaround for the QAV club and every­thing too so we can still pro­mote things, either through me or through Tay­lor or some­one any­way.
Cameron 0:00:52 — 0:01:10Well, yes, and I can send peo­ple mails via Mailchimp. I’ll be com­mu­ni­cat­ing with every­one via emails for the fore­see­able future, don’t look for updates on Face­book, I’m sor­ry. You are on the coun­try estate, Tony.
Tony 0:01:11 — 0:01:14Oh yeah, the coun­try acre. Yep. I’m amongst the birds and the trees.
Cameron 0:01:14 — 0:01:16How does it feel to be back in Vic­to­ria?
Tony 0:01:16 — 0:01:27Feels good, I’ve missed it all year. It’s strange though, we spent the week­end in Mel­bourne, and you’ve got to wear masks to go inside stores and things and that’s uncom­fort­able and unusu­al.
Cameron 0:01:27 ‑0:01:27  Yeah.
Tony 0:01:27 — 0:01:32Haven’t had to do that for quite a while in Syd­ney, Syd­ney is pret­ty much back to nor­mal, I guess Queens­land is too.
Cameron 0:01:33 — 0:01:39Queens­land’s has been back to nor­mal for, well, for­ev­er, real­ly a long time now.,
Tony 0:01:39 — 0:02:11That was quite con­fronting but it’s good to be back here, it’s hot.
Cameron 0:02:11 — 0:02:11  Con­fronting.
Tony 0:02:11 - Putting mask on and see­ing peo­ple walk­ing around in mask just brings COVID back to the front of your think­ing again. Pret­ty much, you’re wor­ry­ing about it when you shouldn’t. We stayed in the hotel rooms, and every­thing is cov­ered in cling wrap, the tv remotes were in plas­tic, the cut­lery is all wrapped up in cling wrap, the cups and saucers were cov­ered in cling wrap. We had to go through a fair bit of effort to keep it COVID safe.
Cameron 0:02:12 — 0:02:18It’s like Christ­mas, you have to unwrap all your presents when you check into the hotel, it’s nice
Tony 0:02:18 — 0:02:19Even the con­doms had con­doms.
Cameron 0:02:20 — 0:02:39That’s a lit­tle bit more infor­ma­tion than I real­ly need­ed, Tony. The Finan­cial Review, Chan­ti­cleer had an arti­cle the oth­er day, why val­ue invest­ing is back in Vogue, I was so con­fused because I’m pret­ty sure that it was only like six months ago that they said it was dead.
Tony 0:02:39 — 0:02:39Exact­ly.
Cameron 0:02:39 — 0:02:58It’s zom­bie val­ue invest­ing, its back , baby. I reck­on in the near­ly two years we’ve been doing this pod­cast this is the sec­ond time I’ve seen the whole val­ue invest­ing is dead / val­ue invest­ing his back cycle hap­pen. It hap­pens every six months.
Tony 0:02:58 — 0:03:26And is com­plete­ly mean­ing­less of course, it nev­er went away. Yeah, I don’t get it, I think it’s just that the IT stocks have their day of the after­taste have their day and now the econ­o­my is com­ing out of COVID and the banks are up 20 or 30% and stocks like them, and trav­el stocks and Qan­tas and all that, they’re say­ing that their val­ue stocks in their back in Vogue. I guess so. But they nev­er real­ly went out of Vogue.
Cameron 0:03:27 — 0:03:42Yeah. One of the guys he’s quot­ing in this arti­cle is Paul Skamvougeras, head of Equi­ty Per­pet­u­al Invest­ments. I think they’re the guys we’ve been try­ing to get on the show for a while or they’ve been try­ing to get on the show. But we haven’t been able to

Tony 0:03:42 — 0:03:44That was, Peren­ni­al, a dif­fer­ent com­pa­ny.
Cameron 0:03:45 — 0:03:57Peren­ni­al and Per­pet­u­al, a dif­fer­ent thing. These guys are a val­ue fund as well. Per­pet­u­al, pure val­ue share fund.
Tony 0:03:59 — 0:04:05Yeah, one of the most famous val­ue funds in Aus­tralia. They’ve been going for a long time.
Cameron 0:04:05 — 0:04:09Oh. Okay. Why haven’t we had them on the show?
Tony 0:04:09 ‑0:04:10Don’t know. We should.
Cameron 0:04:10 — 0:04:30We should. We’ll reach out to them and get them on the show, I’ll make a note. That’s good to see any­way, that the FIN is say­ing val­ue invest­ing his back and might dri­ve a few new peo­ple to, lis­ten to us. Wel­come, wel­come any­body who’s lis­ten­ing to us because you read that val­ue invest­ing back in Vogue,
Tony 0:04:31 — 0:04:36it’s just con­tent to sell news­pa­pers. Real­ly?
Cameron 0:04:38 — 0:04:48Yes. Obvi­ous­ly, they need read­ers, they need some­thing to talk about. It’s in, it’s out, this is hot, that’s hot, what’s hot, what’s not.
Tony 0:04:48 — 0:05:05And of course, I think it was Steve Maab who point­ed out that there’s an index of val­ue stocks and the stocks in the index don’t real­ly bear any rela­tion to the stocks that we called val­ue stock, so some­one’s arbi­trar­i­ly assign­ing them to the index for val­ue stocks and it does­n’t make much sense.
Cameron 0:05:07 — 0:06:12Well, port­fo­lio updates, while I think of it, by the way, Doug Mor­ris from Share­Sight, when he was on the show, said if we uploaded our port­fo­lio into Share­Sight he’d be able to give us a secret link that we could share with every­one. I’ve been talk­ing to their mar­ket­ing man­ag­er, Angela, and she does­n’t seem to know of any secret link so that’s not real­ly work­ing out. But, accord­ing to Share­Sight, our total return for this finan­cial year is cur­rent­ly sit­ting at 20.27%. Accord­ing to the Google sheet, our non- total return just our nor­mal cap­i­tal gain with­out div­i­dends fac­tored in as 18.6% for the finan­cial year, ver­sus the All Ord’s, 11.68%, we were a bit high­er than that when I checked yes­ter­day, but we’ve dropped a point and a half or some­thing today.
Tony 0:06:13 — 0:06:19Okay. You’ve tracked the port­fo­lio since incep­tion, don’t you? What are those fig­ures?
Cameron 0:06:19 — 0:06:40Yes. Since incep­tion, where 11.71%, that was as the end of last month. I do it at the end of every month, so this does­n’t count any­thing that’s hap­pened in the first two weeks of Decem­ber. We were up 11.71 and the All Ord’s was up 5.04.
Tony 0:06:41 — 0:06:42Okay, so we’ve got our Twice Mar­ket.
Cameron 0:06:44 — 0:06:57Yes, Twice Mar­ket on that, we’re run­ning on aver­age of Twice Mar­ket since incep­tion. This finan­cial year we’re almost twice, prob­a­bly 70% or some­thing, up.
Tony 0:06:57 — 0:06:57    Good.
Cameron 0:06:57 — 0:07:00 Holy shit, this works Tony.
Tony 0:07:00 — 0:07:05Let’s go ahead and [inaudi­ble 0:07:03] it’s always nice when a plan comes togeth­er, isn’t it?
Cameron 0:07:08That makes me want to throw a cig­ar in my mouth like George Pep­pard. I love it when a plan comes togeth­er. 80s A- Team ref­er­ence there for peo­ple who are too young to remem­ber or the two thou­sand’s movie Reboot with Liam Nee­son play­ing the role of, shit, was his name? What was George Pep­pard’s name in the A- Team?
Tony 0:07:30 — 0:07:33Hang on, there was Han­ni­bal. There was 

Cameron 0:07:33 — 0:07:48Yeah. He’s Han­ni­bal, not Han­ni­bal Lecter, Han­ni­bal some­thing. Okay, so, stock of the week, Tony, do you have any­thing in mind?
Tony 0:07:48 — 0:08:08I haven’t got the stock of the week, I haven’t done a down­load for a while, I’ve been trav­el­ling, but we’re talk­ing about a stock of the year. It’s the end of the cal­en­dar year, just about, and finan­cial review, and oth­er peo­ple are doing their year in review. I’m going to nom­i­nate Fortes­cue as our stock of the year.
Cameron 0:08:08 — 0:08:08Hells yeah.  
Tony 0:08:08 — 0:09:46Let’s talk about it a bit, because it’s not only stock of the year and prob­a­bly our best invest­ment for cir­cling the port­fo­lio since we start­ed, but it high­lights a cou­ple of things that we’ve spo­ken about and brings home a few points. The first one is about con­cen­tra­tion ver­sus diver­si­fi­ca­tion, there are three big iron min­ers on the ASX going or min­ers on the on the BHP Bil­li­ton, Rio Tin­to, and Fortes­cue Met­als Group. Fortes­cue Met­als, though is a 100% and iron ore min­er and they’ve dat­ed, sky­rock­et­ed up over the last cou­ple of years. In fact, I bought some of them at $3 a share, and they’re now in the 20s so it’s been real­ly good, sev­en times return and they’re fore­cast­ing that they’re going to pay a div­i­dend of over $2 next year. They’re a great yield stock as well, com­pare those to BHP or Rio Tin­to, which they both are about 30%-ish, or maybe 50%. That’s because over the years they’ve diver­si­fied away from just being iron or clothes. They get into oth­er mines and oth­er com­modi­ties as well, oil and gas and things all over the world. I’m not crit­i­cis­ing them that makes them much more sta­ble because when the iron ore price will even­tu­al­ly come off, and it will.  This exam­ple is a bit like a port­fo­lio, if you con­cen­trate on the one thing on your best returns and don’t pay much atten­tion to the diver­si­fi­ca­tion, I think you’d do bet­ter. I’m sure you do bet­ter over time, then try­ing to diver­si­fy.
Tony 0:09:46 — 0:11:33We spoke about that last week as well, that was the first thing I would expect on about Fortes­cue Met­als. On the sec­ond thing is, the whole fal­la­cy of pre­dic­tions. A year ago, just after we Fortes­cue Met­als, maybe even 18 months ago, peo­ple were fore­cast­ing that the iron ore price was going to col­lapse, and that we should­n’t be invest­ing in iron ore. I just took a very agnos­tic approach to the iron ore price and for every argu­ment that some­one gave as to why it was going to col­lapse, there was an equal argu­ment for why it was going to do well. On the week­end iron ore hit $160 a ton and I think back we bought it may have been about $60 a ton. It’s very hard to pre­dict these things, who knows where we’ll go from here? Clear­ly, it’s being bol­stered by the prob­lems in South Amer­i­ca for valet, the oth­er big iron ore pro­duc­er in the world and so Chi­na’s hav­ing to buy all its iron ore from Aus­tralia and who knows what Chi­na will do? One-day Xi Jin­ping might get up tomor­row and say, I hate Aus­tralia so much that bloody Scott Mor­ri­son, I’m not going to buy oil from any­one. I’ll just shut down this thing, just out of spite. So, again, you can’t pre­dict what’s going to hap­pen with this bet­ter mind than us, like Andrew For­rest and Eliz­a­beth Gaines who run Fortes­cue Met­als are fac­tor­ing in all this game, play­ing about where the iron ore price is going to go into their busi­ness plans, and so, they’re open­ing up new mines. I think as we speak, they’re just com­mis­sion­ing a new mine some­where in Aus­tralia, in the North­ern Ter­ri­to­ry, I think, which will bol­ster their out­put. We know, more iron ore out­put going into the mar­ket will depress the price, for sure, but that may not depress the share price of Fortes­cue Met­als Group.
Tony 0:11:33 — 0:12:01If they’ve got a big­ger share of the mar­ket going for­ward. I think they’re also try­ing to branch out into Africa, so that might come to fruition. But yes, there’s just so many mov­ing parts and these things, they’re hard to pre­dict, and I think this was a great exam­ple of that coal fal­la­cy of pre­dic­tion mod­el and not try­ing to pre­dict the future, but just try­ing to invest in qual­i­ty com­pa­nies that you can invest in cheap­ly and let man­age­ment take them where they go.
Cameron 0:12:03 — 0:12:39 For the QAV peo­ple to fol­low, we bought Fortes­cue back in August of 2019 at $7. 55 it’s up 182% as of the time of record­ing. Since then, we bought our sec­ond lot in much ear­ly March this year, the begin­ning of COVID at $9. 63, it’s up 121% since March. Def­i­nite­ly it’s been a real win­ner for us in the QAV port­fo­lio. If I had known it was going to be that way, we could be put all of our mon­ey into Fortes­cue, but.
Tony 0:12:39 — 0:12:40We don’t know that, again that’s part of the fal­la­cy of pre­dic­tions.
Cameron 0:12:43 — 0:12:51Yes. So, we do diver­si­fy a lit­tle bit, but it’s lim­it­ed diver­si­fi­ca­tion.
Tony 0:12:51 — 0:13:08We diver­si­fy in case we make a mis­take with what we buy, we diver­si­fy because we don’t know which shares on the buy­er list are going to out­per­form oth­ers, we don’t way over diver­si­fy, and we don’t try to decor relate. We stick to the process, which is, try­ing to get the best return.
Cameron 0:13:09 — 0:13:15We’ve cur­rent­ly got 15 stocks in the QAV port­fo­lio.
Tony 0:13:15 — 0:13:23That’s a nice num­ber, 15 to 20 is about the num­ber I was try­ing to hold as well.
Cameron 0:13:23 — 0:13:23  Speak­ing of

Tony 0:13:23 -Sor­ry Cam to inter­rupt, every year look­ing back with hind­sight, you could say I wish we had more Fortes­cue met­als or this or that. But every year look­ing back, I nev­er would have been able to pre­dict with con­fi­dence, which was going to be the best per­form­ing share.
Cameron 0:13:37 — 0:13:41Wish we had nev­er bought Apol­lo tourism, that’s what I’d say when I look back.
Tony 0:13:41 — 0:13:47Luck­i­ly, we do have a port­fo­lio that that only hurts 2 or 3% instead of a whole heap.
Cameron 0:13:49 — 0:14:20 If I look back at the stocks that we’ve sold, over the dura­tion of the port­fo­lio, we’ve sold a lot of stocks. We’ve sold about 35 stocks some of them we bought and sold repeat­ed­ly, ver­sus the 15 that we’ve hold. When we talk about get­ting 60% of our buys right, does that work out? If we’ve hold 15 and we’ve sold 35?
Tony 0:14:20 — 0:15:02No, I don’t think it does, but I think this year has been unusu­al for two things, COVID of course, we sold at least half the port­fo­lio dur­ing COVID. That’s not going to hap­pen every year, and the oth­er thing is, I guess this is some­thing I haven’t done for a long time, but it was use­ful doing it with a dum­my port­fo­lio. I think get­ting start­ed from scratch can lead to lots of trad­ing until you set­tle into the port­fo­lio with the stocks to go for­ward. It’s almost a bit of an evo­lu­tion­ary process, you try a few things, they drop back, you sell them and then you set­tle into, here are the 15 stocks I’m going to go for­ward with. We haven’t made many changes to those since we’ve set­tled into that port­fo­lio.
Cameron 0:15:03 — 0:15:16But even all that tak­en into account, as I said before, since incep­tion we’re up 12% ver­sus the All Ord’s, up 5%. so, it’s done what it’s sup­posed to do.
Tony 0:15:17 — 0:16:24Cor­rect, and it sur­vived the COVID lock down. If we talk to our friends, how many peo­ple sold out dur­ing COVID dip and nev­er came back in or made all kinds of trad­ing mis­takes because of that. Our sys­tem got us through it, which, I’m par­tic­u­lar­ly proud of that prob­a­bly I’m proud that we’ve done Twice Mar­ket, that’s what I thought we should do, that’s what I do and I’m glad it worked out that way for our lis­ten­ers, and we could prove it demon­stra­bly. I’m proud of the way we came through COVID because we did­n’t know what was going to hap­pen in March. There was all kinds of doom and gloom prophe­cies of the under­world, but before the sys­tem, we thought we sold lots of our shares and I remem­ber, with­in a month of that we start­ed to buy again, maybe even weeks.  I went, well, this is real­ly dif­fer­ent for GFC because the GFC kind of kept going down for 18 months. I was try­ing to use that as the par­a­digm to base deci­sions on, or base things upon. We just fol­lowed the sys­tem and we’re back in, the next month, we rode those stocks back up again and some of those folks are up 30 or 40% since then.
Cameron 0:16:25 — 0:16:37We actu­al­ly start­ed sell­ing off in Feb­ru­ary en masse, 10th of Feb­ru­ary 17th of Feb­ru­ary 20th, 24th we were sell­ing stuff. Feb­ru­ary March, we sold off a ton of stuff.
Tony 0:16:37 — 0:16:38Look­ing at it here, you’re right.
Cameron 0:16:38 -We did by AQG on the 17th of Feb­ru­ary, then we did­n’t buy and again until we bought San­tos on the 3rd of April. We sat out for a month or a bit, a month, or six weeks.
Tony 0:16:56 — 0:17:14 Yeah, we sat cash for a while. Any­way, the year in review I think it was a great learn­ing expe­ri­ence and I hope peo­ple have start­ed to build some trust in the mod­el in the sys­tem, I think it works.
Cameron 0:17:14 — 0:17:24Speak­ing of coal, Chi­na announced yes­ter­day that they’re ban­ning all Aus­tralian coal.
Tony 0:17:29 — 0:17:39Oh dear. Our politi­cians aren’t doing the busi­ness world any ser­vice at the moment, are they? You know you don’t piss your best cus­tomer off.
Cameron 0:17:40 — 0:17:45Hold on, but there are a pro-busi­ness gov­ern­ment Tony, it’s a lib­er­al par­ty, they’re good for busi­ness.
Tony 0:17:46 — 0:17:55You go to imag­ine there’s a few things going on behind the scenes like you’re nev­er going to donate to the lib­er­al par­ty again unless you fix this mess.
Cameron 0:17:55 — 0:18:27Fun­ni­ly enough, I don’t see the Mur­doch press com­ing out and lam­bast­ing the gov­ern­ment for destroy­ing the econ­o­my. Can you imag­ine if it was a labour gov­ern­ment that end­ed up with Chi­na ban­ning coal, what the head­line of The Her­ald Sun and the Aus­tralian would be? Sky News? They’d be being tear­ing their clothes off and run­ning around and chop­ping heads off, light­ing torch­es and stuff. It would be crazy.
Tony 0:18:27 — 0:18:30I think most of the edi­to­ri­als are Scott Mor­ri­son stands firm.
Cameron 0:18:34 — 0:19:05Here’s anoth­er thing Chan­ti­cleer post­ed today. Geoff Wilson’s Amaysim bid chan­nels War­ren Buf­fett. Geoff Wilson’s oppor­tunis­tic bid for mobile busi­ness Amaysim, sets a high­er bar for any counter offers, it also marks a new phase in his man­age­ment of per­ma­nent share­hold­er cap­i­tal. He’s dou­bled down on his com­mit­ment to War­ren Buf­fet­t’s idea of using per­ma­nent cap­i­tal to build wealth with a takeover bid for mobile vir­tu­al net­work oper­a­tor Amaysim. I use Amaysim, they’re my mobile providers.
Tony 0:19:05 — 0:19:30Okay You’ll have a new own­er. I’m not sure, I sort of briefly read that arti­cle this morn­ing, I’m not quite sure what per­ma­nent cap­i­tal means they’re. Geoff Wil­son runs lots of invest­ment bonds, lots of invest­ment com­pa­nies so that he’s got per­ma­nent cap­i­tal, I guess, and his job is to invest it. I guess maybe the dif­fer­ence here is that he’ll take over this com­pa­ny and it’ll be a pri­vate­ly owned invest­ment for that fund, is at the dif­fer­ence?
Cameron 0:19:30 — 0:19:35I don’t know, man. You’re the expert. I’m just read­ing what it says in the FIN.
Tony 0:19:35 — 0:19:39I think it is, I just read it briefly myself this morn­ing.
Cameron 0:19:39 — 0:19:43Has he done any oth­er com­plete acqui­si­tions? [inaudi­ble 0:19:43]
Tony 0:19:43 — 0:20:05No, I don’t think he has, he tends to just take big, big posi­tion­ing com­pa­nies like Myer, for exam­ple, I think he owns 10 15% of Myer and that’s big for him, so this might be the first time he takes some­thing pri­vate. That’s prob­a­bly what they’re talk­ing about but I’m not sure if that’s chan­nelling War­ren Buf­fett, nec­es­sar­i­ly.
Cameron 0:20:07 — 0:21:08There’s a great anec­dote in this arti­cle, Jeff Wil­son tells Chan­ti­cleer that the con­cept of per­ma­nent cap­i­tal was well explained by hedge fund man­ag­er Bill Ack­man at this year’s Sohn Hearts & Minds Invest­ment Con­fer­ence last month. Dur­ing an inter­view, Ack­man retold the sto­ry of how Buf­fett cre­at­ed Berk­shire Hath­away more than 50 years ago. If you fol­lowed Berk­shire from 1956 to 1969, he was an activist, hedge fund man­ag­er, Ack­man said. Then a 1969 he wrote a let­ter to his investors, say­ing, I made a whole bunch of mon­ey, I’m a lit­tle less moti­vat­ed, I’m not going to work is hard going for­ward and I’m going to go run this crap­py tex­tile com­pa­ny. Ack­man said his investors good choice of Cash or stock in Berk­shire. Many took cash, some famous names took cash, Buf­fet took stock, and that gave him con­trol of his own vehi­cle and what’s inter­est­ing is he walked away from man­ag­ing a one hun­dred bil­lion dol­lars hedge fund, which in 1969 was a very large hedge fund, sounds like a very large hedge fund to me today.
Tony 0:21:09 — 0:21:13[crosstalk 00:21:08] in 69, hun­dred bil­lion dol­lars?
Cameron 0:21:13 — 0:21:35Yeah, I just thought so too, twen­ty-five mil­lion of it was his and he got 25% of the prof­it, there you go, that puts paid to the num­bers there. He’d exchanged that, if you will, for what amount­ed to a com­pa­ny in textile’s and dying busi­ness, and of course, we know that he then used Berk­shire to go and buy oth­er com­pa­nies, he can run them from that so, that’s what Wilson’s doing.
Tony 0:21:35 — 0:23:26 He’s a com­plete com­pa­ny, and they’re going to use it to fund oth­er things from the prof­its. That’s inter­est­ing for him to do that. I’m not sure what vehi­cle he’s using to do it, whether it’s where cap­i­tal or one of the oth­er funds. There’s pros and cons of that, the pros are, he is prob­a­bly get­ting so big he has to do that for these invest­ments, tak­ing a per­cent­age share in them does­n’t make much sense. But, when you d‑list a com­pa­ny or when you take it pri­vate like that, then it gets a dif­fer­ent account­ing treat­ment, I’ll call it that. It prob­a­bly won’t be a prob­lem but if you have a list of invest­ment com­pa­nies like he does every month, he marks them to mar­ket because he can tell his investors what the clos­ing share prices were for the shares in his port­fo­lio, then straight away, you can see whether the list of invest­ment com­pa­nies is trad­ing above or below net tan­gi­ble assets because you know the sum of all the share prices for the stocks and how much he owns in those stocks You can com­pare that to what one share of that list of invest­ment com­pa­nies is at the moment. You could decide to buy or sell based on a dis­count or pre­mi­um, but have pri­vate­ly owned com­pa­nies in there, you can’t mar­ket to mar­ket every month. He has to put some kind of val­ue on that com­pa­ny and that that can become tricky. I’ll say that there are list­ed invest­ment com­pa­nies out there, which I won’t touch, let me say that because they don’t have list­ed invest­ments in them and work­ing out what their net tan­gi­ble assets are becomes more akin to an ivy cal­cu­la­tion for busi­ness. And there’s a lot of as we know from our own by the check­list as well as lot of opin­ions in the eval­u­a­tion process.
Tony 0:23:27 — 0:24:28If you run that list invest­ment com­pa­ny and you val­ue the under­ly­ing com­pa­nies, they’re in that list of invest­ment com­pa­ny, your kind of mark in your own score­card and I think that leads to issues. We saw, par­tic­u­lar­ly in the GFC, where con­glom­er­ates and a list of invest­ment com­pa­nies that did that had to sud­den­ly write down their assets dra­mat­i­cal­ly because they had bean per­haps over­stat­ing the val­ues in the past. Then when the rub­ber hit the road in a depres­sion, it became quite obvi­ous that those lis­ten this invest­ment com­pa­nies had been over­valu­ing their assets to get their net tan­gi­ble asset val­ue up and there­fore this share price. I’m not say­ing that Jeff Wil­son will do that or have prob­lems with that, but it’s some­thing to watch out for it if he’s going down that route, it does­n’t become as straight­for­ward as look­ing at the NPA for the list of invest­ment com­pa­ny every month and com­par­ing it to the mar­ket-to-mar­ket share prices.
Cameron 0:24:29 — 0:24:51Yeah, it is. Ah, I am WAM cap­i­tal that he’s using, appar­ent­ly, Wilson’s WAM Cap­i­tal is offer­ing 69.5 cents in cash for each Amaysim share. The big prize for Wil­son is 80 mil­lion in frank­ing cred­its sit­ting on Amaysim sheet.
Tony 0:24:53 — 0:25:19That’s because WAM Cap­i­tal has built its fol­low­ers on the basis of pay­ing added with div­i­dend frank div­i­dend yield. These days they have lots retirees invest­ing and WAM cap­i­tal in par­tic­u­lar and get­ting a sort of 6 or7% yield plus frank­ing cred­its that’s very attrac­tive to peo­ple com­pared to what they could get in the mar­ket in a bank account or a bond-like invest­ment.
Cameron 0:25:20 — 0:25:47Okay, well, let’s quick­ly run through some Jour­nal entries and get into their ques­tions. We’ve got a ton of them today. to fin­ish up the year with well, so I think we’ll do one next week, but near­ly fin­ish­ing up the year. Autosport’s Group you removed from the buy and sell because its prices dropped below the sell line and you said it now looks like a falling knife.
Tony 0:25:47 — 0:25:59That one came into the buy­er I list a cou­ple of months ago, I think it had tipped up there for a bit but it’s tip­ping down again now, and I think it prob­a­bly is a falling knife.
Cameron 0:26:00 — 0:26:42For new lis­ten­ers, a falling knife is a fair­ly com­mon term in invest­ing, it’s for stock that’s con­tin­u­ing to go low­er. It may spike up a lit­tle bit from time to time, but then it keeps drop­ping, and it’s try­ing to catch that stop, try­ing to buy it when it bot­toms out, it’s a bit like try­ing to catch a falling knife. Tony often says You got to wait for the knife to hit the floor before you pick it up or you’ll cut your­self. when you see a stuff like that that’s con­tin­u­al­ly slid­ing back­wards over a long peri­od of time despite attempts for it to poke its head up, we call that a falling knife and we tend to avoid them.
Tony 0:26:42 — 0:26:58Always dif­fi­cult with those kinds of share grass where they sort of start to do the Nikeish swoosh the hock­ey stick going up there after going down for a long time. But it has print­ed down again. And gone below its sell price.
Cameron 0:27:01 — 0:27:09Real­ly? I’m pulling it up, just hav­ing a bit of prob­lems with stock doc­tor doing what it’s told.
Tony 0:27:09 — 0:27:10You’ve be banned from them too, have you?
Cameron 0:27:11 — 0:27:31God. Oh. They were nice to us, they sent me a nice e mail last week say­ing, every­thing’s fine, keep doing what you’re doing.  A cou­ple of peo­ple have asked me if we’ve got an update on the Stock Doc­tor Sit­u­a­tion there. They’ve got no prob­lem with us shar­ing a lit­tle bit of their data with you as we teach and train appar­ent­ly, so that’s nice. This graph that I’ve got only goes back to late 2016. Is that when auto sports list­ed
Tony 0:27:31 — 0:27:31    Yeah, that’s good on them.
Cameron 0:27:31  This graph that I’ve got only goes back to late 2016. Is that when auto sports list­ed
Tony 0:27:43 — 0:27:46Yes, Novem­ber 2016. Cor­rect.
Cameron 0:27:46 — 0:28:03Okay. I’m just look­ing at the sell line here, I’m start­ing at what looks like a no April 2020 COVID cough and what are you draw­ing is a sec­ond line, like the next low­est point the month after.
Tony 0:28:04 — 0:28:38I did orig­i­nal­ly draw at that point, and that’s why I became a buy, if you sort of fall the peaks down, then became a buy around Octo­ber 2020 but now I’m draw­ing the sell line using April 2020 and Sep­tem­ber 2020. There’s been a cou­ple of buy and sell alter­ations in the last few months with this one and use those two points it’s just dropped below that sell line. It’s kind of hug­ging the buy line, it has­n’t gone above it again yet.
Cameron 0:28:39 — 0:29:01Yeah. So, the buy line. Sit­ting on the buy line, it’s below the cell line.  Not good for SG Autosports, let’s see, what else did you talk about? Yan­coal. You said it got a QAV score of .31.
Tony 0:29:01 — 0:29:02Did we men­tion this one last week?
Cameron 0:29:03 — 0:29:04I don’t know, maybe we did.
Tony 0:29:04 — 0:29:31I was going through the notes this morn­ing try­ing to look if we did, I’m not sure if we did. We’ll just touch it quick­ly any­way. I think I spoke about it last week because there’s only aver­age val­ue trad­ed amount of 57,000 but the mar­ket cap is near­ly three bil­lion. That’s because a large share­hold­er in there is the Chi­nese coal com­pa­ny. That will be inter­est­ing now that Chi­na’s ban the Aus­tralian Coal Com­pa­nies, this one’s major­i­ty owned by a Chi­nese com­pa­ny I don’t know what that means for them.
Cameron 0:29:34 — 0:29:59I think we did, because we record­ed late in the week last week that’s how we man­aged to squeeze that one in, I nor­mal­ly go back sev­en days, but it was before that. Get­ting back to the Chi­na coal thing, I’m guess­ing a lot of investors are pan­ick­ing over that, but from s QAV per­spec­tive, noth­ing changes? We just read the num­bers?
Tony 0:29:59 — 0:30:28Cor­rect. Just look­ing at Yan­coal is down 10.4% today. That mar­ket has­n’t received that news well, if I look at some of the oth­er ones like White­haven Coal, how’s that going? That’s down 7.4% and then New Hope could be anoth­er one that some­times comes onto the buy­er list. New Hope is down 11% today as well and the mar­kets haven’t been open two hours today.
Cameron 0:30:29 — 0:30:44Any coal min­ers in our port­fo­lio? Ramelius Resources, Perseus, SSR, there we go Grange caught on com­modi­ties
Tony 0:30:44 — 0:31:03Hawthorne’s Coal, Min­er­al com­modi­ties, Min­er­al Sands. No, we don’t have any there. I’m just try­ing to think what the buy list has, if the buy list has, let me look up the lat­est buy list. The buy list may have New Hope on it, I’m just going from mem­o­ry here, let me just have a quick look.
Cameron 0:31:04 — 0:31:16Yeah, row 68, it’s fair­ly low. QAV score of 0.11.
Tony 0:31:17 — 0:31:43Let’s just have a look at the New Hope stock jour­nal on the run here, let’s have a look at the New Hope graph, so their share price is now $1.30.7 it’s down near­ly 11% as we speak, going to the chart on Stock Doc­tor. It’s a tricky one, isn’t it? Sze? Actu­al­ly, it’s actu­al­ly prob­a­bly above would­n’t be a Schrödinger. It’s actu­al­ly above the buy­er price and below the sale price.
Cameron 0:31:43 — 0:32:20Anoth­er a bit of a ter­mi­nol­o­gy alert there, I thought I should jump in from time to time when we do this on the show Schrödinger there, is one of our terms. That’s for, stock that is simul­ta­ne­ous­ly a buy and a cell. It’s above the buy line, and it’s below the sell line. We don’t real­ly want to get involved with a stock like that either, because way prob­a­bly have bet­ter options that have a clean­er graph, more obvi­ous which direc­tion they’re going in. We tend to avoid the Schro­ding­er’s.
Tony 0:32:20 — 0:33:10We only have the price on you has two points in the line, so I’ve got the low point is Octo­ber 2020 and then the next low­est point to the right is Novem­ber 2020 units   it’s above that point. Where are we? go to? 31 5 the next low­est points just below a dol­lar 30.7. tech­ni­cal­ly it’s below the sell but we only have two points in that sell line. Ide­al­ly, unless it turns down dra­mat­i­cal­ly, I’d be wait­ing to see what that trend does, it is above the buy line if you take the high point. Feb­ru­ary 2019 and I think this is prob­a­bly a case where you have the right-most peak
Cameron 0:33:10 — 0:33:13Which is the sec­ond low point, is also the sec­ond-high point?
Tony 0:33:13 — 0:33:15Yeah, that’s right.
Cameron 0:33:16 — 0:33:16So, it’s Schrödinger.
Tony 0:33:16 — 0:33:16Yeah, it’s Schrödinger.
Tony 0:33:16 -And a falling knife too, it been falling since Feb­ru­ary 2019.
Tony 0:33:29 — 0:33:42All things being equal, I would­n’t dump this from the buy list yet, but you’d expect things to get worse for these com­pa­nies because of what hap­pened in Chi­na yes­ter­day. I would expect that that share price will keep declin­ing, and we’ll take it out very soon.
Cameron 0:33:43 — 0:33:50All right, but it’s busi­ness as usu­al for us from QAV per­spec­tive. We just keep watch­ing the charts and lis­ten­ing to the num­bers. Right? Good.
Tony 0:33:50 ‑0:33:50Cor­rect.
Cameron 0:33:50 ‑0:34:56  All right, well, maybe we should get on the ques­tions. See­ing where 40 min­utes in and we haven’t start­ed ques­tion yet. Here’s one from Gary, IV num­ber one cal­cu­lates from EPS where IV num­ber two cal­cu­lates from FEPS future EPS. Why is this? Is there some­thing I need to lis­ten to first to under­stand this a bit? He’s a new sub­scriber, I think, Gary. I sent him an email back say­ing they’re just two dif­fer­ent ways of cal­cu­lat­ing IV. Cal­cu­lat­ing IV isn’t an exact sci­ence, lots of dif­fer­ent ways you can approach it and think about it, so we used two dif­fer­ent ways of cal­cu­lat­ing it. One look­ing at the cur­rent earn­ings per share one look­ing and high­er hur­dle right, one look­ing at the future and expose share in a low­er hur­dle rate then they all go into the mix with all of the oth­er data points that we look at to come up with the QAV score. Would you add any­thing to that?
Tony 0:34:54 — 0:36:38Yeah, I just say that the sec­ond one that we use is prob­a­bly the way most ana­lysts would val­ue your stock. They’d use con­sen­sus future earn­ings per share num­ber, and they use the mar­ket hur­dle rate of 6% for the risk the pre­mi­um, plus for what­ev­er the long-term inter­est rate is or 10year bond inter­est radius or the cash radius in Aus­tralia, which at the moment is .1%. so, it’s a hur­dle rate of 6.1%. That’s the way that ana­lysts tend to do it, and they focus on next year’s earn­ings, which makes sense because you know this year could be an unusu­al year, so it’s look­ing next year. The only prob­lem with that, I found, is that, as we said before fore­cast­ing has got flaws in it, and often times earn­ings per share could be wild­ly inac­cu­rate. But, if you’ve used that and that alone to base your cal­cu­la­tion on you, can be led up the gar­den path some­times. Some­times it’s very accu­rate, some­times it’s mis­lead­ing. So yes, I do a cou­ple, I use the cur­rent earn­ings per share just to give a bal­ance to the future. I would say, prob­a­bly a 90% of cas­es. Most com­pa­nies air on a fair­ly even tra­jec­to­ry so the earn­ings per share might be slight­ly high­er next year com­pared to this year. But some­times there’s no anom­aly, so it’s always good to use both. I use 19.5% as a hur­dle, because I guess it’s a phi­los­o­phy of try­ing to add com­pa­nies to the port­fo­lio that have a bet­ter return on the ones that were in there at the moment. But that does mean that although the com­pa­nies fail that first five-year cal­cu­la­tion, so that’s anoth­er rea­son they have a cou­ple of dif­fer­ent ways of doing it
Cameron 0:36:40 — 0:37:19Okay. Thank you. Thanks Gary. Mur­ray Inter­est­ed on thoughts about W BC s a QAV buy­er. I’m get­ting a very good score of 0.49 and recent uptrend on the five-year chart. Is it time to for­give them for the roy­al com­mis­sion and mon­ey laun­der­ing Etcetera? Or am I miss­ing some­thing? He had anoth­er com­ment, this was on Face­book back when I still had Face­book access, realise now that I prob­a­bly should have drawn the by line from the five year high, which would mean it’s still a fair way off of a by rough­ly $26. Inter­est­ed if Tony would still con­sid­er buy­ing, though.
Tony 0:37:20 — 0:39:05Yes, I remem­ber when the banks report­ed, three of the banks have a March and Sep­tem­ber dead­line. We got the fig­ures for West­pac and the oth­er two in Novem­ber and I remem­ber say­ing the pod­cast at the time on the pod­cast. They look real­ly good, they ‘ve got QAV good scores and they just start­ed to turn up. But they were well below their five year by line so left him alone. One of the rea­sons why I haven’t fudged this one, I think there are some cas­es where you can pledge some­thing rather than wait­ing for it to get up to that five year buy line and, we’ve done that with, South 32 with Eclipse, and you could do it with these banks as well. The rea­son why I haven’t done it with the banks is because I bought Mac­quar­ie Bank around that same time a lit­tle Cory Group is It’s now called, which is the often seen as being the fifth bank. It’s not a retail bank the oth­er Big Four, It’s more like a Wall Street bank. You own infra­struc­ture signs off its own book into, and it also is an invest­ment bank, but it does have a retail bank com­po­nent to it and so has some of the same sort of con­texts and pres­sures that the retail banks are hav­ing it the moment in terms of loans, et cetera, whether they’ll be repaid I did­n’t need to fudge the big fall bags to buy one of those when I could buy Mac­quar­ie groups. That’s the rea­son why I haven’t fudge the Big Four. I think if Mur­ray real­ly likes them, he can fudge it and buy them. The oth­er thing to note about the big the Big Four banks is one of the key met­rics to look for with these banks is what they call their pro­vi­sions for bad debts.
Tony 0:39:06 — 0:40:22One of the rea­sons why they were smashed dur­ing COVID was because peo­ple were get­ting six months’ hol­i­days on did­n’t have to pay there their mort­gage pay­ments for six months in return for adding six months to the back of their line. So, the banks had to raise some pro­vi­sions against that in case those peo­ple nev­er did come back after six months, and they had to for­feit their loans or bank had to sell the prop­er­ty or what­ev­er to try and get out of that sit­u­a­tion. There’s been some rum­blings in the last month or so that it isn’t as bad as it was first thought, that peo­ple are com­ing back onto pay­ing their, they’re mort­gages, and they are pay­ing them in num­bers which were high­er than fore­cast. I think it was the CEO of Mab, said he thought they’d reached the low point in their bad debt pro­vi­sion­ing for mort­gages, that’s usu­al­ly a good time to buy bank­ing stocks on the rea­son is banks get most of their income, obvi­ous­ly from tak­ing deposits and loan­ing mon­ey and tak­ing the risk for you. That’s a very sim­pli­fied ver­sion of how it works because they also go off and bor­row mon­ey, par­tic­u­lar­ly over­seas, and come back into Aus­tralia and lend it at a high­er mar­gin to retail share­hold­ers.
Cameron 0:40:22 — 0:40:24You’re get­ting you for get­ting mon­ey laun­der­ing there Tony.
Tony 0:40:24 — 0:41:47Yes, there are oth­er things that they do as well if when the spread is low, say 1% or 2% on that kind of busi­ness, they have to take a pro­vi­sion which says that maybe 5% of those loans are going to go bad. That that pro­vi­sion can mate­ri­al­ly eat into the prof­it that year for the bank.  It’s worth while watch­ing that pro­vi­sion worth watch­ing, how com­pa­nies’ pro­vi­sions any­way for all sorts of dif­fer­ent things, cap­i­tal depre­ci­a­tion, amor­ti­sa­tion pro­vi­sions for bad debts, all sorts of things get pro­vi­sioned. It’s one of the skills of a CEO to be able to take mon­ey off the top in a good year and put it in front of the bal­ance sheet and bring it back in a bad year and add it to the Prof­it to smooth out the prof­it and loss and make the com­pa­ny look more investable and give these CEO bonus­es and down uses.  That’s a scep­ti­cal way of look­ing at it. But, for banks, it’s par­tic­u­lar­ly worth watch­ing those pro­vi­sions for bad and doubt­ful debts. And if I think the water­shed might be the next time they report, which will be in Feb­ru­ary for CBA and then prob­a­bly around May for the oth­er banks, just to see if they have stocks, if they have writ­ten back some of those posi­tions, that would be a big boost.
Cameron 0:41:49 — 0:41:54So, the answer to Mur­ray’s ques­tion is, you would not fudge on the banks.
Tony 0:41:55 — 0:42:11I per­son­al­ly would­n’t because Mac­quar­ie Bank was avail­able to be invest­ed in and I did­n’t have to fudge for that, and that’s that sat­is­fied my need to buy a bank stock. but if Mur­ray wants to fudge and by West­pac, I think that’s legit­i­mate even where it’s hop­ing the cycle.
Cameron 0:42:14 — 0:42:37Thank you, Mur­ray. Chris is a stock con­sol­i­da­tion and trad­ing sta­tus RE, some­thing to be wary of. R E stands for a recon­struc­tion, appar­ent­ly, and he’s sent us a chart from Capri CAA one of the stocks in our port­fo­lio? Do you know what this is all about?
Tony 0:42:37 — 0:43:58Yes. So, he’s try­ing to make sense of some share graphs where the share price has been either con­sol­i­dat­ed or dilut­ed.  In Cap­i­tals case, I think it was a 5 to 1 con­sol­i­da­tion, in the par­tic­u­lar shade graph he’s used, there’s a step jump between the old share price on the old way of cal­cu­lat­ing cap­i­tal share price in the new way. All share providers do this dif­fer­ent­ly, but I know on in Stock Doc­tor they go back and back cal­cu­late so the graph looks a lot smoother than what Chris has shown us here. They apply the con­sol­i­da­tion his­tor­i­cal­ly and you can still see that the graph trends that we use. I did­n’t recog­nise what provider Chris was using when he sent us the Graph here, but you might want just to do a bit of a Google search and have a look at some of the oth­er ones because a good provider will take these things into account and apply them ret­ro­spec­tive­ly so you can still see, for like when you’re look­ing at a share graph. The oth­er one he spoke about and gave us an exam­ple of was New Zealand oil and gas. I think that’s a bit of a dif­fer­ent case because that was delist­ed for a long time so you’re see­ing a straight-line graph in that. I think that’s just rep­re­sents when it was delist­ed, it was delist­ed at one price and then came back on the mar­ket of the high­er price when it re list­ed.
Cameron 0:43:59 — 0:44:09I also noticed on New Zealand oil and gas NZO that the aver­age dai­ly trade was like $700 tight­ly held and in pret­ty small.
Tony 0:44:09 — 0:44:48I’m going to have a look at that one because I think last time, I looked at it, because I was con­sid­er­ing putting it in the buy list, they did­n’t have up to date num­bers in Stock Doc­tor, I’ll have to email them and ask to do that Their lat­est num­bers are still Decem­ber 15, so Chris be care­ful with New Zealand oil and gas. I think what’s hap­pened is, it got delist­ed in 2015, and there has­n’t been a new set of accounts since it’s been re list­ed, so I did­n’t put this one in the buy list for that rea­son. I want to see some fig­ures and do some analy­sis on some­thing more recent than 2015 before I could decide to put it in the buy list
Cameron 0:44:49 — 0:45:10 Get­ting back to his orig­i­nal ques­tion, the stock con­sol­i­da­tion that Capral went through, I know we’ve talked about it before. I think you said last time that some­times they just feel like reduc­ing the share price is a good thing or is it increas­ing it?
Tony 0:45:11 — 0:45:30I think the share price went from 15 cents to $5 or some­thing like that when they did, and they felt that that would attract more investors to there to their stock because at 15 cents, it was seen as being a bit of a pen­ny dread­ful by some peo­ple. I don’t sub­scribe to that think­ing, but they thought it was doing,
Cameron 0:45:31 — 0:45:36So, there’s noth­ing to be con­cerned about when they do that it’s just a psy­chol­o­gy exper­i­ment?
Tony 0:45:36 — 0:45:36Yeah, it’s Mar­ket­ing.
Cameron 0:45:36 -  Okay. Thank you, Chris. Here’s one from Brett MYE hit my stock loss this week, 10th of Decem­ber so it got sold. Do you agree? If so, should this final­ly be tak­en from the buy list
Tony 0:45:58 — 0:46:53I took a look; this morn­ing and I don’t agree. I think it’s kind of hug­ging the line and it was called up again now. MYE. So, they have this low point way back in June 2016 and then again here have been alter­ations, the next low point would be August 2016 butt that sell line was crossed, go to the right, it will be April 2017. But using that, that sell line was crossed. Today, I think we’re is using March 2020 so the COVID cough as the sec­ond point and the first point was June 16, just run­ning a ruler over that it may have crossed it tem­porar­i­ly, but it’s gone back above and is hug­ging that line now.
Cameron 0:46:53 — 0:47:12It did cross a tem­porar­i­ly, I checked when he sent through the mes­sage. It dropped down to 68 cents or some­thing dur­ing the week and seems to have come back up, but it would have breached 67. 5 it down to.
Tony 0:47:13 — 0:47:18If you’re look­ing at it now, it’s not a sell, but it went below the sell line and def­i­nite­ly it would have been a sell.
Cameron 0:47:19 — 0:47:32Because you’ll sell on the day if it drops below, you’re not wait­ing for month end.  Bret­t’s fol­low up ques­tions are, does Tony user stock a loss to auto­mat­i­cal­ly sell when the sell line is hit?
Tony 0:47:33 — 0:47:52No, I don’t. I do put alerts into Stock Doc­tor for some of the shares I own if they look like they might be get­ting close to a sell like and I puts alert­ed to Stock Doc­tor if some­thing’s on the watch list that looks like it might be get­ting close to its buy line as well. I ‘ll wait for the alert to come through and then I’ll do to sell man­u­al­ly myself.
Cameron 0:47:56 — 0:48:01Is that most­ly because of the vol­umes that you’re work­ing in?
Tony 0:48:01 — 0:48:41Yeah, there’s that, also, often times with a sell, I’m look­ing at what stock to replace it with though. The order for the bro­ker might be sell my share­hold­ing at Mas­ter­mind and used the pro­ceeds to buy Mac­quar­ie Group isn’t like that I don’t want to sell some­thing, if it’s a stock loss, I could be sold out not know­ing it yes­ter­day and find out today and then maybe not be able to get to look at the Analy­sis for what stock to buy. I don’t want the mon­ey com­ing back into my account, I want to keep it rein­vest­ed which is just a sim­ple a way for me to oper­ate.
Cameron 0:48:43 — 0:48:50Brett’s next ques­tion is whether or not you set the stop loss at the sell line or a bit low­er to con­firm it’s been crossed.
Tony 0:48:50 — 0:49:02No, I don’t use a stop loss, but I set the alert at the sell line. I use the three-point trend cal­cu­lat­ing spread­sheet to work out what the sell prices is and I’ll you put that into Stock Doc­tors, and it work.
Cameron 0:49:04 — 0:49:13Does, he said, a stop loss for all stocks he owns, or just the ones that are close to the sell line, and if so, what is close?
Tony 0:49:13 — 0:49:54Just the ones that are close and there’s no rule for that. I’ll prob­a­bly go through and review my port­fo­lio maybe once a month, in terms of the look­ing at things, is some­thing get­ting close to a sell line, that’s just a just to refresh myself with where things are at. Like today, if there’s an arti­cle on the FIN about coal stocks, I might go and to have a look at the coal stocks in my port­fo­lio, I don’t have any at the moment, but if I did, I do that, and that’s when I would say. okay, that’s get­ting close to a sel. whether that’s 10% 20% above, it’s more around the trend, then I’ll put the alert­ing to Stock Doc­tor for that.
Cameron 0:49:57 — 0:50:05Then he asks, if you start sell­ing and the stock ris­es, do you stop sell­ing and hold on to the rest?
Tony 0:50:05 — 0:50:57I would, but often times, when I’m sell­ing, it hap­pens all at once, so I usu­al­ly don’t get the oppor­tu­ni­ty to do that. It’s a bit dif­fer­ent, just to explain why it’s dif­fer­ent. If I’m sell­ing some­thing, I’m back to back­ing it with a buy, the stock­bro­ker can exe­cute a large trade in that, and it does­n’t go through my count. If I sell some­thing and the mon­ey comes into my account and I want to buy some­thing, I tend to dol­lar cost aver­age back into that buy, one just because I don’t want to buy every­thing on the one day, but two, because I just I have to trans­fer the mon­ey in incre­ments across back to the stock­broking busi­ness so I’m not doing it all that once. I tend to, on sell just back-to-back it with the buy­er and the mon­ey will stay in the mar­ket basi­cal­ly.
Cameron 0:50:58 — 0:51:46Alright, Thanks, Brett. John has a ques­tion regard­ing the effect of direct own­er­ship on the per­for­mance of shares. He says, it’s a rough exer­cise. I looked at this on shares cur­rent­ly held around in your dum­my port­fo­lio. There were much big­ger increas­es in the own­er man­aged ones, 132% ver­sus 45% for the total port­fo­lio, also looked in my port­fo­lio over the last six months and found that shares with sig­nif­i­cant direc­tor own­er­ship did much bet­ter than those with­out this includ­ed AU and UK shares and invest­ment trusts. This needs more research, which I’ll try to do in the new year, I can see that this is why we allo­cate to qual­i­ty points in the QAV check­list for shares with sig­nif­i­cant direc­tor inter­est, but should we also just select these shares for the buy list? Good ques­tion John.
Tony 0:51:46 — 0:52:59Real­ly good ques­tion John? I’m strug­gling to think, I’m guess­ing that in terms of the out­per­for­mance this year, Fortes­cue Met­als Group obvi­ous­ly springs to mind. Is being a com­pa­ny with a large direc­tor own­er­ship in it and that might be skew­ing the results. I’ve cer­tain­ly seen bet­ter results from this in the past. I don’t think they’ve been as dra­mat­ic as what you’re say­ing, but I think it’s a great thing to research. I’d be real­ly keen to see your research next year when you do it, and I might add it to the whis­per­er in turn, so do it. It would be great if it actu­al­ly did cement into place the kind of fig­ures you’re talk­ing about there and maybe we do either sort them to the top of the buy­er list or maybe on the buy­er list flag. These com­pa­nies have own­er founders and should get bought first and maybe in the order of their QAV scores after that. That’s the Holy Grail for me, try­ing to whit­tle the buy­er list down to some­thing which is gets a bet­ter return than what I get now and is small­er than what we have now so it’s eas­i­er to man­age.
Cameron 0:53:01 — 0:53:22I won­der how much It would lim­it you though. What per­cent­age of the com­pa­nies that get through the buy have sig­nif­i­cant direc­tor founder or own­er ship?
Tony 0:53:24 — 0:53:29I don’t think it’s some­thing that you’ve got in the buy list columns here, but I’d be inter­est­ing to see. I might start doing that, putting it into the buy list, extra columns so we can see that.
Cameron 0:53:30 — 0:53:41Yeah, but as you say, good thing to get the intern to look at. We can regres­sion test­ed over 10 20 years and see what dif­fer­ence that would make.
Tony 0:53:42 — 0:53:45Def­i­nite­ly, real­ly good pick up their John, thanks for that.
Cameron 0:53:46 — 0:53:48Good one, John. Good to have smart peo­ple lis­ten­ing to the show.
Tony 0:53:48 — 0:53:48It is.
Cameron 0:53:48 -  Emma says, my lit­tle broth­er’s, near­ly 20 twins, have saved up a chunk of cash each and are ready to make their first invest­ments. First of all, well done to your lit­tle broth­ers, that’s a tremen­dous effort. What would you guys sug­gest they start with? I was think­ing some ETFs and AFIC maybe go through share site for the loan or no fees. I think you might be think­ing of super­hero there for the low fees. She is not a bro­ker; I don’t think so.
Tony 0:54:22 — 0:54:23You are not your ex-wife, is it?
Cameron 0:54:24 — 0:54:54No, I did won­der that myself haven’t been mar­ried to an Emma and I start­ed going off the names and I for­got some of them, it’s hard to keep track, had to call my lawyer and say, have I ever been divorced from an Emma. But no, actu­al­ly, it’s not her sons and their broth­ers, so, I don’t have a daugh­ter called Emma to the best of my knowl­edge. Well, if I am your father, Emma, I’m sor­ry and wel­come to the fam­i­ly.
Tony 0:54:57 — 0:55:00And do you have an active Face­book account Cameron can use?
Cameron 0:55:00 — 0:55:09My twins are over the age of 22 so it’s prob­a­bly not them, I think, I hope.
Tony 0:55:10 — 0:57:04thanks for the ques­tion Emma, the first thing is way can’t give finan­cial advice, so this is not a finan­cial advice and the sec­ond thing is, we don’t know much about the sit­u­a­tion that you’ve described here. I don’t know how much they’ve got to invest; I don’t know what your invest­ment abil­i­ties are, or their invest­ment abil­i­ties are. You’re want­i­ng to use QAV to help them invest or teach them or what, but cer­tain­ly we’ve said, all along on the pod­cast, there is an invest­ing lad­der approach and the first step on that leather is to is to buy an index fund. And, in this sit­u­a­tion with fam­i­ly mem­bers, includ­ing my daugh­ter, always rec­om­mend Aus­tralian Foun­da­tion Invest­ment Cor­po­ra­tion AFO, that’s because I do have a pref­er­ence for list­ed invest­ment com­pa­nies ver­sus ETFs with­out going into too much detail because we cov­ered it before list­ed invest­ment com­pa­nies have closed end­ed, so you’re buy­ing a share off some­body else, where­as an ETF is open end­ed. If you want­ed to buy a share, they go out and buy shares in the under­ly­ing index to sell you that share in their ETF. And I think that can’t have some prob­lems when it when the mar­ket drops, and peo­ple rush for the exits. And they’re try­ing to sell their shares in the ETF and the man­ag­er of the ETF has to go and sell the under­ly­ing assets. That of course, is exact­ly the wrong time to sell assets if you’re a long-term investor, so I pre­fer a list­ed invest­ment com­pa­ny Aus­tralian Foun­da­tion Invest­ments. If you know the where of it it’s wher­ev­er been around for a very long time, I think over 100 years it has a very low, what’s called man­age­ment expense ratio. So, it’s I guess what were quite to the fees of an ETF which is It’s the cost of run­ning the fund.
Tony 0:57:05 — 0:57:53And even though it’s not strict­ly an index fund, they don’t always hold the index. It does have index fund like qual­i­ties they tend to do hold things in in ratios that approx­i­mate the index, and it pays a good div­i­dend yield. So, I see lots of things to like about Aus­tralian foun­da­tion invest­ment, espe­cial­ly if it’s the first for­ay into the share mar­ket. And hope­ful­ly, as they start to twins start to receive state­ments and div­i­dends and com­mu­ni­ca­tions. They’ll start to ask ques­tions and that can lead down the path of doing some­thing more them­selves rather than just being pas­sive investors so not Share site. You said super­hero. What was the oth­er one that you use for a while there to trade on the low cost
Cameron 0:57:54 — 0:57:55So not Share site you said Super­hero. What was the oth­er one that you use for a while there to trade on the low-cost self-wealth?
Tony 0:57:55 — 0:58:35Self-wealth, thank you. That that’s the oth­er one that you should con­sid­er using a super­hero I think is good and safe. I’d be stand­ing that. Did you see how the mobile pans out? Because it’s dif­fer­ent to a tra­di­tion­al bro­ken water. Will you place in order­ing and become the recip­i­ent of the off the stock off your name is list­ed on the chest reg­is­ter, Super­hero dif­fer­ent to that. And if you want to hear how that works, is an inter­view with the CEO but itself. Wealth has got very low fees for train­ing. About sev­en bucks a trail, I think. Remem­ber, Isn’t it 10 10?
Cameron 0:58:36 — 0:58:49self-Wealth is. 10 super­heroes five. But I think super­hero are doing free trans­ac­tions for ETFS the moment. I think you have 8 years. Yeah, they got a pro­mo­tion.
Tony 0:58:49 — 0:58:56Okay, be a good ques­tion. It’s great to see 20-year olds get­ting involved in the mar­ket get­ting involved ear­ly. It’s real­ly good.
Cameron 0:58:56 — 0:59:35 Par­tic­u­lar­ly if they’re fol­low­ing a sen­si­ble strat­e­gy and not just going out there and, you know, doing a fomo strat­e­gy. Okay, where were we up to, Mark? Does Has Tony ever done any analy­sis or made any com­ments com­par­ing returns from shares board imme­di­ate­ly after they’ve crossed their buy line com­pared to shares bought well after they have crossed their buy line?
Tony 0:59:36 — 1:00:59No, that’s some­thing I should research, but they haven’t, and both of those sit­u­a­tions come with their own issues.  Kind of in reverse to the ques­tion before about sell­ing Mas­ter­mind, but then Mas­ter­mind turns up again. You can have that in reverse if you buy some­thing which has just gone across the buy line. Some­times we have to sell it quick­ly because it’s dips down again. You would think buy­ing that ear­ly in the process gives your bet­ter return, but I think it’s prob­a­bly a wash and If you look at com­pa­nies like McQuar­rie Group, Fortes­cue Met­als, they’re well above their buy lines but they con­tin­ue to give good returns if you buy them after they crossed well after they cross their buy line so I’m not real­ly sure that there’s a non-argu­ment one way or the oth­er. I think there’s issues with both.  Obvi­ous­ly, if you buy Fortes­cue Met­als at $18, you’re not giv­ing all the upside, we did buy it at nine, but you’re still get­ting upside. And whether that upside is bet­ter than buy­ing some­thing which has just crossed, it’s by alive. And then you know how to do it two or three times because it goes back down below it. You might buy some­thing else to replace it with, and it might take you a cou­ple of attempts to find the one that keeps going. I haven’t done the research and don’t know sor­ry. I don’t have a pref­er­ence so we could do some research and see, I think that’s a good can­di­date ques­tion for the intern.
Cameron 1:01:02 — 1:01:04To the myth­i­cal intern
Tony 1:01:05 — 1:01:43work, we’re just real­ly try­ing to try the source of that I said at the moment that we could do our regres­sion test­ing tomor­row, That’s excit­ing s Oh, it’s a Dylan. Dylan is my nephew who’s a maths whiz and he’s study­ing data sci­ence at uni­ver­si­ty. He’s start­ed work try­ing to track down a data set that we can use to do these ques­tions and analy­sis on which is great good stuff. Dylan Be anchor­ing that rela­tion­ship because I’ve been trav­el­ling for the last week and he keeps try­ing to get the data to get start­ed and I’m like, we’ll email you tomor­row
Cameron 1:01:43 — 1:02:54We should refer to him as Dylan in future and not the intern, Dylan? Wel­come, Dylan Last ques­tion lawyer Paul, First­ly, thanks, guys for all your hard work this year, and I hope you all have a great Christ­mas now for the ques­tion. Pri­or to QAV I was read­ing every­thing I could about the Aus­tralian share mar­ket, Com­pa­ny analy­sis, eco­nom­ic fore­cast, doc­u­ments, live wire arti­cles, etcetera, etcetera. Most of that con­tent seems to be fore­cast­ing or peo­ple try­ing to pump their own stocks or funds. Since com­ing across QAV and now fol­low­ing the process exclu­sive­ly, I can’t see the need to read as broad­ly as most of it is bull­shit. When does Tony find him­self being guid­ed by eco­nom­ic fore­casts or buy any­thing that he reads in the finan­cial press? For exam­ple, I know recent­ly he was guid­ed by cop­per prices into a cop­per stock that was per­haps fur­ther down the QAV list, is this nor­mal for Tony to be guid­ed by the finan­cial press or not so much? Cheers, guys. Look­ing for­ward. Tow a 19.5 return in 2021. Thank you, Paul.
Tony 1:02:54 — 1:03:03Thank you for Paul, nice words and I hope you got a 19.5% in 2020 return. I real­ly do.
Cameron 1:03:03 — 1:03:03Oh, it’s a good
Tony 1:03:03 — 1:04:50I think you’ve answered it your­self. Most of the stuff that’s writ­ten is bull­shit or peo­ple pump­ing their own stocks. The thing about the com­modi­ties turn­ing up on with nick­el and cop­per, cer­tain­ly I got wind of those trend changes in the Finan­cial Review and then went to Index Mun­di and had a look at the three-point trend­lines on those com­modi­ties. But those kinds of train­ings change once every five or six years, so that does­n’t hap­pen much and also, I kind of treat this is one off when I do things like that, and it’s not a big posi­tion in my port­fo­lio, it might be no more than 5 to 10%. It’s real­ly just a bit of oppor­tunism, May­or and I guess also, too often times those kinds of things do lead to improve­ments in the port­fo­lio and invest­ing. If it does turn out to be a real­ly good way to invest a lit­tle, it’ll get added to the check list going for­ward so you’re right. That’s the kind of thing I would get from the finan­cial press. Oth­er things, I read the FIN review of you every day, and that’s that thought start­ed for things like that. It obvi­ous­ly it gives me use about things like Chi­na’s stop­ping Aus­tralian coal exports. And that says to me go and see if we’ve got any coal com­pa­nies in the port­fo­lio on the watch list or the buy list or what­ev­er and take action. So, it’s good from that point of view, and there are from time-to-time Cos spe­cif­ic infor­ma­tion in the Finan­cial Review, and that’s how I’ll get it. I prob­a­bly could set up use alerts for the com­pa­nies I have in my port­fo­lio that will be equal­ly as good so that’s where I find out things about in the cap­i­tal a medi­um doing a share con­sol­i­da­tion, takeovers of dif­fer­ent com­pa­nies at var­i­ous times, I think Infratil.
Tony 1:04:51 — 1:06:36There was some detail from report­ing on that in the Finan­cial Review, but when we had that by lis­ten­ing dum­my Port­fo­lio last year, so I think it’s good to read the finan­cial review. Just get news quick­ly about things that impact your port­fo­lio. I also, as I said before, use the dai­ly gain­ing tables. So, the stocks that have gained the most that day or lost the most that David, par­tic­u­lar­ly those of the game, the top per­for­mance. There’s a way of start­ing off research­ing those com­pa­nies on see­ing if, for exam­ple, if some­thing goes up a lot in the day, they may have gone from being on the watch list of the buy list s we’re going to have a look at that to see if there’s been a change in the trend. Oth­er than the Finan­cial review, though. I sub­scribe to Live Wire, but most of the times I just glance at the head­lines and don’t read the arti­cles from time to time. There’s an inter­est­ing inter­view, which I’ll read in depth. The Eure­ka Report I like get­ting Ellen Cola’s week­ly sum­ma­ry of what’s going on in eco­nom­ics. But it does­n’t that’s more just for gen­er­al inter­est. It does­n’t real­ly lead. I can’t think of an exam­ple where it’s led. Teo deci­sion to buy or sell a stock. I get Geoff Wilson’s com­mu­ni­ca­tions from the WAM cap­i­tal sta­ble invest­ment com­pa­nies. Over the years, he’s been a great thought, starter, for exam­ple, his tak­ing over Amaysim I don’t think that would meet our QAV check­list but if there was some­thing that he was active in and it was on the watch list or the vio­lence that would send me off dur­ing some more research into that on, that’s prob­a­bly, so like you pull. I start­ed off read­ing every­thing and sub­scribed to Pumpleads which became Morn­ingstar.
Tony 1:06:36 — 1:07:05I sub­scribed to share analy­sis, to Stock, Doc­tor to Eure­ka report to few oth­ers, which I can’t even recall now, includ­ing some cours­es which were inter­est­ing and just had it val­ue com­pa­nies and how to under­stand finan­cial account­ing and think. But that real­ly all dropped away. As the QAV the check was solid­i­fied, it’s prob­a­bly in the last 10 years in par­tic­u­lar, I’ve done much less That’s read­ing than what I did before that.
Cameron 1:07:08 — 1:07:34Glad you read the thing about the cop­per because at least one of the cop­per stocks that we added Cop­per Moun­tain’s done well. For us, it’s up 31% since we bought it on the 28th of Octo­ber, hap­py Christ­mas. It’s one of the best per­form­ing stocks in our port­fo­lio, and we’ve only owned it for six weeks, Yeah, One Carpal not so much it’s up 7%, that’s not as strong.
Tony 1:07:35 — 1:07:57I may have got­ten that one wrong com­pared to the cop­per, the cop­per the­sis, but and it’s start­ing to form in my mind that we might have to add extra check­point point or a cou­ple to say, is this stock, it’s com­mod­i­ty that has just recent­ly turned up, boost­ing up the vilest of it.
Cameron 1:07:58 — 1:08:05Or is this stock a com­mod­i­ty that’s recent­ly been banned by Chi­na.
Tony 1:08:05 — 1:08:07recent­ly turned out.
Cameron 1:08:07 — 1:08:52Coun­ter­point to there with this ladies and gen­tle­men, is the full lid for today for this week. No inter­views this week, I think we might do anoth­er show next week, ear­ly in the week, depend­ing on how your golfs going and then take a break between Christ­mas and New Year. But I do have that inter­view with Damien that I can put out that week so there will be some­thing in the feed. Good chat with him. And then we’ll be back after New Year’s with reg­u­lar show. But again, don’t send me any ques­tions on Face­book because, well, Tony might see them, but I won’t see them.
Tony 1:08:53 — 1:09:01Yeah, we’ll work out some­thing to han­dle that, whether it becomes a forum on the web­site or some­thing, we’ll see, we’ll make it work.
Cameron 1:09:01 — 1:09:46Face­book might mag­i­cal­ly re enable my account, but I don’t hold much luck on that with my expe­ri­ence with him in the past. Well, thank you, Tony, thank you, lis­ten­ers, thank you ball boys. Every­one have a great week. You enjoy your golf­ing and heat down there. Cape Shank, Tony and putting on your mask when you go out. Oh, we are talk­ing about doing an event in Mel­bourne in Jan­u­ary, we haven’t locked any­thing in yet, but we might do that, after all, I have to get onto that. I was talk­ing to Tay­lor about it, about try­ing to find a place for a bar­be­cue So why don’t you just go to a bar? Just go to a bar, have a drink. Make it less for­mal. Have a drink. What do you think about
Tony 1:09:46 — 1:09:51What? The issues are with num­bers in bars, but yeah, that’s for sure.
Cameron 1:09:51 — 1:09:59 I’ll do some research on that, Patron capac­i­ty allowance in Mel­bourne
Tony 1:09:59 — 1:10:03We should be able to find some­one who’s got a back­yard who can do an in for­mal bar­be­cue for us.
Cameron 1:10:03 — 1:10:16Well, if any­one’s down in Mel­bourne wants to vol­un­teer their back­yard for a catered event of 10 or 20 QAV Club mem­bers, let me know, but don’t let me know on Face­book, email me
Tony 1:10:18 — 1:10:20And I guess ear­ly Jan­u­ary too.
Cameron 1:10:21 — 1:10:33First week, ear­ly sec­ond week of Jan­u­ary. Email me if you’re want­ed to offer it, we’ll work some­thing out Oth­er­wise. Thanks, Tony. I’ll talk to you next week. Thanks Cam.
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