Transcription QAV 352 – Groundhog Day

File Name: QAV 352 Club – Groundhog Day

File Length: 01:07:32

Cameron Reilly [00:04]: Welcome back to QAV, Tony Kynaston, Episode 352, Season 3, 52. And depending on who you believe, your prediction that Donald Trump would win the election is wrong, or it was completely right and it was stolen from him. If you want to know more, just turn up to the Four Seasons Landscaping Car Park this afternoon, where Rudy Giuliani will be giving another press conference.

Tony Kynaston [00:35]: Yeah, well, you know, I was wrong in predicting Trump, but I think my math was still pretty good.

Cameron Reilly [00:41]: It was pretty, pretty bloody close, man.

Tony Kynaston [00:43]: It was. Wasn’t it? That’s the biggest turnout in voting history, which means even though Biden was 4 million voters more than Trump, Trump was the second biggest turnout in voting history. And my math was, he had rock-solid 38% support. I did some numbers over the weekend and I think something like 250 million Americans are able to vote. So they are 18 or older. And so 38% of that was something like around, just in the low nineties. And he got 70. So he got a lot of his supporters out there and 70 would have been enough to win. I think almost every other election in American history.

Cameron Reilly [01:26]: I just can’t believe. I think the last time in 2016, he got 63 million votes. So 7 million extra people had a look at the last four years and went, “Yeah, yeah, that’s…”

Tony Kynaston [01:40]: “Yeah, give me more.”

Cameron Reilly [01:40]: “Give me more of that. That’s great. That’s what we want.” No, I’m sure a lot of people, I’m sure a lot of the Democrats who voted for Biden, didn’t like Biden really. They just, it was a vote against Trump. I’m sure the opposite is true. A lot of people who voted for Trump, a lot of Republicans don’t like Trump per se but don’t like the prospect of a Democratic administration because there will be abortions happening on every street corner and they’ll take their guns and there’ll be taxed back at 92% like they were in the good old days. But as…

Tony Kynaston [02:17]: Well, I think it’s more than that Cameron, Biden has to be aware of this. It’s people who are saying, a bit like Queensland did during the Australian election and they said, “You know, don’t feed us policies on climate change. We are coal miners. We need a job. Okay. If you want to talk about climate change, tell us where we get a job to replace our current one.”

Cameron Reilly [02:35]: Yeah.

Tony Kynaston [02:35]: I think there’s a lot of that with the blue-collar workers who voted for him.

Cameron Reilly [02:39]: Well, I have the answer to that. It’s well, you’re not going to have a job, but we’re just going to give you an income. We’re going to pay for it with quantitative easing. You know, we’re going to give you a salary to replace your existing salary in perpetuity, well for the rest of your life or until your retirement age, because we don’t want you to mine coal anymore and we don’t have anything to replace it with for you. So we’ll just give you free cash. Thank you very much. Have a nice day. Easy.

Tony Kynaston [03:07]: And we have [inaudible 00:03:08]. You might have to do a bit of work. You don’t have to go on caddy for Trump every now and then on the golf course.

Cameron Reilly [03:14]: Yeah, go, and caddy for Trump. But we were just laughing before we started the recording that our dummy portfolio today is up and currently 7.46% since the start of September. I think last week when we did the show, it was like 2%. The market, the Australian market has boomed since then. Hamish Douglass from Magellan told investors last week that the US election win for Biden if it is offset by a Republican-controlled Senate, which still remains to be seen, I think it’s sort of tied last I looked and I think there’s a runoff in Georgia in January, but he said that would be a ‘nirvana’ outcome for the share market. And I read something else today in the Fin, somebody said Wall Street has done best under Democrat presidents with an average return of 14.6% per annum since 1927, compared with an average return under Republican presidents of 9.8% per annum. That was from Dr. Oliver. I’m not sure who he is but there you go. Some fundie or something, I think.

Tony Kynaston [04:36]: Possibly Shane Oliver, the Head Economists of AMP.

Cameron Reilly [04:39]: That sounds, right. Yeah. Is AMP still a thing? Oh, okay.

Tony Kynaston [04:44]: Not for much longer.


Cameron Reilly [04:45]: All right.

Tony Kynaston [04:46]: I don’t think. Yeah.

Cameron Reilly [04:47]: So yeah, there you go. However, I think this is Dr. Oliver again, the best average result has actually occurred when there’s been a Democrat president and Republican control of the house, the Senate, or both. This has seen an average return of 16.4% per annum. So, there you go. The market seems to be happy with the outcome anyway, so far.

Tony Kynaston [05:11]: Well, I hope that’s right. And if we can get a double market, we’ll be very happy, won’t we?

Cameron Reilly [05:16]: Yes.

Tony Kynaston [05:17]: All things to Joe Biden, we should have supported J. David Markham since it was in our best interest financially.

Cameron Reilly [05:25]: No one knows who you’re talking about on this show, Tony. So the joke goes in the…

Tony Kynaston [05:29]: [inaudible 00:05:29] Democrat friends.

Cameron Reilly [05:33]: Yeah. Crazy, crazy Democrat. Just as crazy as a Trump Republican. He is but on the other side. But we love him anyway. So that’s the US election news out of the way for this week. Let’s talk about your Melbourne Cup tip, just in the same vein as your prediction that Trump would win the election last week. Your prediction about who was the horse. I can’t even, I’ve blocked it out of my memory. I lost so much money on it.

Tony Kynaston [06:01]: I was listening to the last Show and you cut it off before I gave my tips. So for those people, it was Twilight Payment.

Cameron Reilly [06:08]: Ah! Yeah. That was deliberate to make you look good. Yeah. To save your reputation.

Tony Kynaston [06:13]: We had the recording glitch before I could give it away.

Cameron Reilly [06:16]: And that’s honestly what it was though. Sure, it was.

Tony Kynaston [06:20]: The Twilight Payment one. No, I tip Russian Camelot which ran eighth.

Cameron Reilly [06:26]: Yeah. At least it didn’t end up having to be shot. No, was that Van Dyck or something?

Tony Kynaston [06:30]: Anthony Van Dyck. Yeah. Very sad. I think there’ll be a lot of soul searching done by writing Victoria to try and fix that problem because it always seems to be the overseas horses in the Melbourne Cup that come to a cropper. And it’s never a good look for the industry. It’s not a good thing for the horses. And if you just wanted to be cold-blooded about it, it’s a financial loss for the owners. So, I think, you know, action will be taken to fix that.

Cameron Reilly [07:00]: Your horse too, ran, was it in the Cox? Was it the Cox you had a horse in last week?

Tony Kynaston [07:07]: No, not the Cox Plate.

Cameron Reilly [07:09]: Oaks?

Tony Kynaston [07:09]: No, we had a horse race on Oaks Day, in a sprint race on Oaks Day, ran fourth. 

Cameron Reilly [07:14]: Yeah.

Tony Kynaston [07:15]: I know if the universe isn’t giving me many…Well, it gave us Joe Biden so I can’t complain. Maybe all those things will balance out. Maybe it’s karma.

Cameron Reilly [07:21]: I think I’m down 50 bucks on your horse tips so far Tony. It’s a good thing the markets are [laughter 00:07:21].

Tony Kynaston [07:30]: Yeah. Take with the left hand. Give with the right. But that’s a good thing. I mean, the worst thing for someone who’s just starting out in the betting market is to have a big win at the start because then they just think…

Cameron Reilly [07:43]: You get cocky.

Tony Kynaston [07:46]: It’s a lot. Yeah.

Cameron Reilly [07:47]: You’re deliberately losing me money. I see. It’s all part of the plan. I appreciate that. The other thing big news I wanted to talk about this week is the Reserve Bank has decided that Australia is now well and truly in the quantitative easing/MMT camp.

Tony Kynaston [08:06] Yeah. I mean, [inaudible 00:08:07], I guess they have to do it just to be competitive with the rest of the world. If they don’t do it, then, you know, a dollar rises, which hurts imports, et cetera. But when I saw it, I thought let’s invert this, what would Australia and the economy be like if interest rates here were still 4 or 5%. And I think we wouldn’t be seeing property bubbles. We wouldn’t be seeing stock market bubbles, especially in the tech-stock sector. We would have a retirement cohort that can put their money in the bank and live off the dividends. And the flip side would be, you have a lot of foreign investment flying into Australia to buy our bonds or to put money into our banks. And that’s got to be a good thing as well. So I’m not necessarily convinced about cutting interest rates and it is good for the economy personally. I think we’ve cut so far that any more cuts don’t have much of an impact on us.

Cameron Reilly [09:10]: So, I had to read through this a couple of times to get my head around it, but my understanding, tell me if you agree, is that the Reserve Bank even announced that they are going to buy pretty much any and all government bonds as a hundred, I think is a hundred billion dollars over the next something like six months. And they’re going to keep buying them for I think four years. So the government creates a bond, it sells the bonds to institutional investors, and then the RBA turns around and buys them off the institutional investors, giving money to the institutional investors, which then is supposed to make its way as cheap money into the marketplace to fund business loans, et cetera, et cetera. Is that how it works?

Tony Kynaston [10:09]: Yeah, pretty much. Except for the last part often falls down and the money doesn’t flow anywhere past the balance sheet of the investment banks. But yeah, that’s pretty much how it works. And the other thing you left out was the Reserve Bank pays for it with a balance sheet transaction. There’s never any borrowings by the Reserve Bank or extra funding from the government to buy the bonds. They just buy them.

Cameron Reilly [10:32]: Where does the Reserve Bank get the money from to buy them?

Tony Kynaston [10:35]: It doesn’t that’s the whole point. That’s the whole point of MMT. It’s probably the only case of double-entry bookkeeping in the world where you don’t have a credit with a debit.

Cameron Reilly [10:45]: It just creates the money.

Tony Kynaston [10:48]: Correct. It’s called balance sheet expansion. So they’ve popped these bonds on their balance sheet, which has made their balance sheet bigger, but they haven’t used any money to really buy them. Well, they have had to pay the people for the bonds, but they can do that somehow. I don’t really understand the accounting treatment of it. And then they warehouse those bonds and they’ve got a plan to sell them at some stage in the future, which if you look at Japan could be 30 or 40 years down the track and get their money back and then it just disappears again. But it’s a very strange accounting treatment.

Cameron Reilly [11:23]: I think it’s time we play this clip again.

[Snippet] [11:27]: Thank you very much for your time tonight. It’s my great pleasure to be with you. You’re an economist working in the banking sector, yeah? I am. Should I get a lawyer? I think I’m entitled to legal representation. No, no, no, no. These are just a few simple questions. Simple questions, how simple? Well, they’re theoretical. Theoretical. I can deal. Yeah. Okay. We can deal with that. I mean, don’t hold me to the answers, but. Why not? Well, because I’m an economist and I can think of a different set of circumstances under which my responses might vary somewhat. And everything’s connected to everything else is it? In economics, I’m afraid, that is the global fear right at the moment. Yeah. Right. There’s a lot of uncertainty in world economics. There is a great deal of uncertainty and a lack of confidence. Yeah. And there’s a lot of talk of quantitative easing. Quantitative easing, yes. It’s a term we hear all the time. That’s a term you hear a lot at the moment.

What exactly is quantitative easing? Well, I can answer this because actually, we’re advising a couple of governments about this right at the moment. And what are you saying to them? Well, in fact, I should just take you through what we’re telling them to do. Yeah. Show me…I won’t go into a lot of detail. I’m being discrete, but this will give you an idea of how quantitative easing works. Yeah. Take the printer out of the box and place it on the table with the out tray facing the window. The out tray facing the window. That’s right. Load paper into the paper receptacle and place currency on glass tray F. Right. Check the alignment by printing out a test page. Right. Go into copy settings and select double-sided and the number of copies you require. How many would you suggest? In the case of one of our clients, it’s 80 billion, 120 billion in the case of another client, and one client wants a trillion of these things. Can you get printers to do that? No, you can’t. You’re going to need a bank of them. I mean, it’s a multi-printer job. You need some big ones. Big industrial strings. Yeah. Yeah. Big, like a, [inaudible 00:13:00], all facing the window. Yeah. Yeah.

Once you’ve ascertained that you have the alignment, correct? Yeah. You alert the banking sector, open the window, and press copy. And stand well back. Yes, you got to stand well back because they can create a bit of a vacuum while reaching cruising height, whereabouts in the Superfund Industry very often. And you’d have to consider the wind direction too. Oh, you don’t want to be doing this upwind. No, because you’d be covered in pretend money. You could get covered in what? Pretend money. No, this is not pretend money. This is real currency we’re creating. Don’t you just print it off? I mean, these are photocopies aren’t they? Excuse me, Dave, this is not going to work because I’ve just explained it to a bloke and he saw through it straight away. Are you in banking? No. He’s not even in the banking record. Okay. I’ll try that. Try what? Have you ever heard of Rumpelstiltskin? No. Good. Now we’re getting somewhere to pull up a chair. I’ll tell you a tale.

Cameron Reilly [13:51]: That was nine years ago. The Clark and Dawes Show. There you go is still relevant today. Just open up the window and print money.

Tony Kynaston [14:02]: Because of [inaudible 00:14:02]. I love that one.

Cameron Reilly [14:06]: So, there you go, Australia, just our economy is doing so great, Tony. So great. We’ve dropped interest rates to 0.1% and we’re just printing a hundred billion dollars of money. Good times.

Tony Kynaston [14:24]: Yeah. And the share markets have gone up 5 or 6% today, so it’s all good. And that reminds me too that people will need to change their copy of our QAV spreadsheet because interest rates have been cut. So the hurdle rate we use for our IV2 calculation is now 6.1% down from 6.5. And our hurdle rate for a company’s yield being above bank debt has come down as well. And I’ll put that number in the Stock Journal. I think it was now 2.68, which was about the cheapest Big Four bank mortgage I could find when I did a search today.

Cameron Reilly [15:06]: Wow. Good time to borrow lots and lots and lots of money.

Tony Kynaston [15:09]: It is. Isn’t it? Exactly. And I will feel really pissed off if we get to the end of this economic cycle if we ever do and we haven’t got, you know, top-notch hospitals and schools on every corner and four-lane highways through our cities because the government should be borrowing every cent it can too with interest rates this low.

Cameron Reilly [15:29]:  And gotten rid of the coal industry and just given all those people, what do they call it? There’s a name for that.

Tony Kynaston [15:36]: Trump caddy.

Cameron Reilly [15:36]: Universal basic income, UBI.

Tony Kynaston [15:39]: Trump caddy.

Cameron Reilly [15:40]: UBI/Trump Caddy. Yeah. Let’s talk about…

Tony Kynaston [15:45]: Yeah, well that’s right. I mean, they should be if it was a different political persuasion and our government stands alone in the world now. Even the US with Biden is saying, they’re going to be, you know, eliminating their carbons by 2040. I think that was the number, the date, you know, we should be borrowing and building solar power farms across all the deserts in the middle of Australia. It’s just staggering that we’re not future-proofing our economy and future-proofing our future.

Cameron Reilly [16:14]: Maybe China might help us down that path soon. Saying, “You know what? We’re not buying anymore of your coal.” Congratulations on aligning yourselves with Trump, Australia. Good luck with that. You’re now all alone. Let’s talk about …

Tony Kynaston [16:31]: It isn’t.


Cameron Reilly [16:33]: Sorry.

Tony Kynaston [16:34]: I was just going to make a point there. It is interesting because the Chinese government is talking about banning all of our imports at the moment. It reminds me of that Hartsfield Landing episode that Aaron Sorkin re-wrote recently and aired on one of the streaming services, which was really good. And President Bartlet was playing chess with Sam Seaborne and the Chinese were sending battlecruisers into this, I think it was the China Sea because Taiwan was about to have its first free election. And they didn’t like that. Bartlet kept very cruel and kept saying see the whole board. The same. He was worried that there’s going to be a military conflict because Bartlet was sending the US carriers in to block the Chinese. And of course, the Chinese were after something completely else. They wanted some other concession that they were negotiating as well. And I can’t help but think the timing of this move by China against their imports coincides with the White House changing power. And they just basically, you know, firing a shot across [inaudible 00:17:37] and say, you know, be very careful what you do with the new president when he comes knocking and asking you for your support.

Cameron Reilly [17:44]: Yeah. Well, I think it all got tied up in the trade war and Trump trying to blame COVID on China and [inaudible 00:17:53] jumping on board the beat-up China thing and I’m sure [inaudible 00:17:56] had his own economic incentives for doing that. Maybe thought he would get something more out of the Trump administration but, anyway, not good. Not good for Australian exporters.

Tony Kynaston [18:08]: Not good at all. No.

Cameron Reilly [18:10]: Let’s talk about the CAA Consolidation, Tony. We purchased this stock only a couple of weeks ago, and it’s just gone through one for 30 consolidations. Can you explain to me why they did that and what it means for us as investors in CAA?

Tony Kynaston [18:32]: Well, effectively it means nothing to us as investors. They just multiplied the share price by 30 and divided the number of shares on issue by 30. So if people out there listening who have bought CAA shares, they should expect a notification from the registry saying that the number of shares that they hold has gone down by 30. But if they check the price, it’s gone up by 30. I don’t subscribe to these kinds of things. I think it’s bad psychology. But it’s basically psychology that is used to justify this. And CAA came out and said that they thought having a 15 cent share price was keeping people from investing in them because people are quite a low share price with a small company, even though that’s not the case with CAA. And they also came out and said that their share price, because it was so small was being, they traded too much. And I’m not sure if that’s a good thing or a bad thing or, or really means anything really. But that was their reasoning for doing the consolidation. So now their share price is around $5 where it was around 15 cents before.

Cameron Reilly [19:43]: We need to tell them that it’s not how big it is, it’s what you do with it that counts.

Tony Kynaston [19:49]: That’s right. And that’s always been the, like people criticize Buffett for years for having a share price that was so big people couldn’t invest in it. And he always said, it doesn’t matter. That’s what it is. I’m not going to split it just to make it more liquid. If you want to buy it, buy one. And then of course, what happened was Wall Street being Wall Street, people set up funds and bought Berkshire Hathaway shares at a couple hundred thousand dollars each and then sold shares in the fund for a hundred dollars a share. So basically people could buy fractional ownership of a Berkshire Hathaway share for a hundred dollars and Buffett didn’t like the fact that people in Wall Street weren’t benefiting from that. So he actually did issue what’s called baby books. So you can’t buy Berkshire B shares. I think there were 1/300th of the price of the Berkshire share and you get all the same benefits of that. Your votes worth 1/300th of a vote at the Berkshire Hathaway AGM. They don’t pay a dividend, so there’s no impact on the dividends, but yeah, similar sort of psychology.


Cameron Reilly [20:52]: They get to turn up to get an invite to the AGM?

Tony Kynaston [20:55]: Yeah, you do get to turn up.

Cameron Reilly [20:57]:  Wow. All right, now this week we promised we would make time to talk about the Kelly’s Heroes Criterion, a.k.a the Negative Waves. Did you want to do that before or after we do our Q and A for the week?

Tony Kynaston [21:13]: Let’s do it before. But before we do that, I’ve got two more things to talk about and we’ve touched on them already. So just let me circle back on CAA and Sandfire. So Capral Aluminum, I felt uneasy about the answer I gave to the question, which I think may have come from Brett last week. I’m not sure about whether CAA was a good investment because it was an aluminium manufacturer and therefore arising aluminium price would be its input cost. I said it, I didn’t think it really mattered because they would be able to raise prices as well. And just to elaborate on that if they’re able to raise prices and you expect that they probably will, if they are getting a 10% profit based on whatever their sales are now and the sales go up wholly and solely because of their input prices go up.

So say, they’re making a hundred million dollars in sales now, the aluminium price doubles, and they have to put their prices up and so sales go to $200 million. Then their profit percentage goes up even though they’re still paying more for their aluminium. So it can have a benefit to a company just, I guess, because of the math. But whoever asked that question last week was completely right. What probably not going to happen with CAA is we’re not going to see that flow through from sales to bottom-line profit increase that we would see if CAA was a smelter of aluminium and the input was bauxite in the output was aluminium. 


And I spoke about that last week too, where a resource company can be wonderfully leveraged if it’s operating costs are low enough so that when the price of the commodity goes up, any additional sale flows through almost as completely as a hundred percent profit to its bottom line. So I did actually, when I was talking about CAA, thought that they operated the aluminium smelter in Gove but I think I got that wrong. So, apologies to people if I misled them. I think CAA will still go up with the rising aluminium price, but I don’t think it’ll be a gangbuster sort of increase because it doesn’t have a smelter, which I was mistakenly thinking that they did. I don’t think we should sell CAA by the way, it was still always on our buyers’ list. So it was always a quality company with good value. So I’m not saying we should sell it but I just wanted to give a better answer to that question last week.

Cameron Reilly [23:40]: He did give it a bit of a nudge though. You gave it a fudge nudge last week.

Tony Kynaston [23:45]: A fudge nudge in what way?

Cameron Reilly [23:49]: Well, it wasn’t at the top of our list, I think. We remember we had GRI. You said let’s sell GRI and buy CAA because the aluminium price is going up.

Tony Kynaston [23:59]: Correct. And that was on the basis that I thought it had a smelter as part of its business, but it doesn’t.

Cameron Reilly [24:03]: Right. 

Tony Kynaston [24:04]: So, yeah, so that was my mistake.

Cameron Reilly [24:06]: But we’re going to hold onto it anyway.

Tony Kynaston [24:07]: Then I’m prepared to wear it.

Cameron Reilly [24:08]: Yep. Okay. Yeah.

Tony Kynaston [24:09]: Yeah, it’s still on our buyer list. 

Cameron Reilly [24:10]: Right.

Tony Kynaston [24:11]: And the second thing I wanted to talk about was Sandfire because as we alluded to the Chinese. I don’t think the Chinese government has come out and said, they’re not going to buy copper from Australia. But there’s certainly been lots of reports around that people are saying that, either in the industry or in those parts of China that deal with imports. So we could have a problem with it. Sandfire came out last or towards the end of last week, Friday or Saturday, and said that they would be able to find other customers and they have other customers that China isn’t their only customer and they could transfer sales to other people. So it may not be a problem. And certainly, Sandfire has gone up today in line with the market. So that’s a good thing, but I just wanted to highlight the fact that just like my Melbourne Cup Tips, the universe has gone against me in the same week that I nominated a stock to people to have a look at.

Cameron Reilly [25:10]: All right. Well, let’s talk about Kelly’s Heroes Criterion.

Tony Kynaston [25:17]: Kelly. Yeah. So, Kelly Criterion. So I’ve been wanting to talk about this for a while. And the reason is that it’s probably the closest thing I’ve come to any sort of science in terms of how much to put into one particular purchase in our portfolio and therefore to give us a number of stocks to buy in the portfolio. So before I get to what that math is, let me give you some background. The story goes way back to, I think either pre-World War II, or maybe just after World War II with a guy called Claude Shannon. Claude Shannon did a lot of research for Bell Labs in terms of improving signal reception. So back in the days when battleships were communicating with the fleet command or prime ministers were trying to call presidents and they were doing it over old landlines and perhaps radio transmitters and things like that, oftentimes the signals would be corrupted and it was Claude Shannon’s research which helped to improve the transfer of those communications by putting some maths around at what level is the noise in the signal so much that you have to go back and ask for a resend of the transmission and therefore the level that the signal can go through and you can do a bit of work on the signal to give it a boost and it will come through clearly.

And that math has applications, not just in signaling. It was a guy called John Kelly who worked that out and also a guy called Edward O. Thorpe. There’s a great book called Fortune’s Formula, which goes through all this history. And the opening chapter outlines an old con that used to happen in Chicago, back in the twenties and thirties called The Wire. And what it was is that people would set up a fake betting shop, or maybe even use a real betting shop. And they would run a telephone line from the racetrack to the betting shop. And then they would somehow do a recording of the radio and then replay it a minute late so that people in their betting shop were placing bets on the rates which were already run. And the people who own the betting shop calling you the winner, because they had a telephone line to the racetrack and they could clean up because of that.

And that was also the basis of the movie The Sting. That was the con in the movie The Sting. And then the question that they had to ask from time to time was if the signal coming down the line from the racetrack in Chicago didn’t come through clearly, could they bet on that race? Or should they bet a fraction of the money on that race? How much conviction should they have on their bet if the signal was a bit garbled and I thought they heard the winner but didn’t quite clearly get it. That’s where Claude Shannon comes in and says, “Well, you can do some math around that.” And that’s where Kelly and Thorp came in.

Kelly took Shannon’s math and said, “What I can do is I can work out the probability of something coming through clearly.” And if you like getting a result from an investment or placing a bet on the horse race or something like that by working out the probability of it actually occurring and that becomes known as the Kelly Criterion. So basically the math is if you take the probability that you’ll get a collection or a win with what you’re doing, and you’ll multiply it by the returns. Say what the odds are on offer and you subtract what the probability of losing is and how much you lose that gives you, I guess, your edge. So it’s the chance of getting a return, what that return will be less the chance of losing all your money. If that’s a positive number, that’s your edge. And then you divide that by the return and that’s called the Kelly Criterion. And that number is the percentage of all of your investible money that you should put onto that bet. 

Now that might sound complicated because we’re talking about it over a podcast, but if I just worked through an example. Let’s say a coin toss, a normal coin toss, if it’s a normal coin that’s not been manipulated, then you have a 50% chance of winning a 100%. So that’s the net result of that calculation is you win 50%. But you also have a 50% chance of losing everything, which is minus 50%. And so a 50% win minus a 50% loss is zero. And if you put that over the return, if you want, which was 100%, you get zero. So Kelly would say you shouldn’t bet any of your [inaudible 00:30:18] dollars on a coin toss. 

However, if we had a coin which was weighted, say to the head side, and the weighting meant that six out of 10 coin tosses came up heads and four out of 10 coin tosses came up tails in which case, and you always bet heads, how much should you allocate to the bet? And if you do the math on that, you have a 60% chance of winning 100% less a 40% chance of losing a 100%. So you have a 20% edge, 60 minus 40, and you put that over the 100% return available and Kelly would say, you should be betting one-fifth of your portfolio every time. And what that is attempting to do and does do is not only maximize your profit but also minimize your risk. There’s a whole branch of mathematics now devoted to this kind of thing. One of the developers of this theory was a guy called Markov. And oftentimes, if you plot these kinds of potential returns and odds of getting those returns on the graph the point where you maximize your return and minimize your risk of losing is called the Markov point or the Markov curve or the efficient money frontier sometimes. But it’s the best chance of maximizing your returns without losing everything.

And Thorpe, I’ll just quickly touch on, took that concept of betting more when the odds were in your favor to the Blackjack and worked out the odds of every potential hand that was dealt in the Blackjack game. He realized that if you put more money out when you had a high chance of winning Blackjack, you made more money than if you put a smaller bet out. When you have a lower chance of winning Blackjack, you would lose less money and therefore do better over time. And the way he did that was if you played Blackjack in the old days at a casino, they play it with one deck of cards. And if you would count the cards as they were being dealt either to you or to other players or the dealer, you could work out by a very simple formula of just saying, if the card still has a value of 10, so it’s a 10 of diamonds or hearts or whatever, or it’s a picture card, Jack, Queen, King or a 10, give that card being dealt and a number of plus one or a score of plus one. And if it’s something else, give it a score of minus one. And then as you being dealt, you just go plus one, minus one, plus one, plus one, plus one. Okay. It’s plus three, minus one. You count it as it’s coming out. When the score goes very negative, it means the chances of getting a 10 in the future because the pack is always dwindling gets higher and higher. And that’s what you want when you’re playing Blackjack either because you’ve drawn an Ace, you want to get a picture card to make it 21, or even just two tens is 20, which is the next best score.

So Thorp took that idea of investing more when the odds were in your favor to Vegas and made a lot of money playing Blackjack and was even bankrolled by some Texas millionaires to play on their behalf with lots of money. And then eventually he was barred from the casinos for counting cards and changed the whole industry. So now, if you walk into a casino like Crown Casino, you will find that they don’t play with one deck of cards. They play with usually eight or sometimes 16 decks of cards and they use a machine to shuffle them all the time. So it’s very hard to work out at what stage in the draw you are, and whether there are more tens left in the deck to be dealt with or less and therefore to change a bit. Thorp then took that idea and he wrote a book about it called…Well, first of all, he wrote a book called Beat the Dealer about Blackjack, which became known as the basic strategy of card play. And then he wrote a book called Beat the Market, and he took Kelly’s theory and his adaption of it to the share market and died a wealthy man.

But what Thorp did and what he did in his book Beat the Market was to arbitrage options. So he was able to find that there was an edge at some times in the market between what the company share price was versus what an option on the future share price of that company was. And so he played an arbitrage game when the edge got big enough, he bet big. And if it was too small, he left it alone. And again that doesn’t really exist today. That sort of arbitrage has been traded out of the market largely because the market is much more digital and information flows much quicker these days. But the concepts of those two things still hold. So that’s basically the Kelly Criterion.

What it means in terms of our investments? I’ve always struggled with that math in applying it to the share market because well, one way to do it would be to say that what’s our probability of getting a win with our next investment. We could work that out historically by counting up how many times we’ve bought a stock and it’s gone up versus how many times we bought the stock and it’s gone down. We could do that with our dummy portfolio and I can do it with mine and listeners can do it with theirs. 

If we take the sort of number that I usually quote, which is six out of 10, right? Then we have a 60% chance of the next stock we buy being profitable for us. And then the next question is what’s that profit? I’m not quite sure what to put in here. But if we said it was 20% because that’s roughly what we get over time, then we have a 60% chance of winning a 20% return from our next share investment. And then we have a 40% chance of losing money and because of the way we invest, we don’t lose everything. So let’s say it was 20%. Then we have 60% of 20% is 12 and 40% of 20% is eight. So we have a 4% edge. Our return we said was 20%. So that’s again one fifth. 

So that basically says if we followed, if my math was correctly applied and I’ve always had the question mark over if that’s the right way to do it or not because the returns in the stock market are a lot more fluid and we could be going through a patch where sixty out of 10 doesn’t apply, even though over the long-term historically it has. But that would say we should have a portfolio of five shares. So one-fifth of our money should be put into the share market with each share purchase.

And that may be the right sort of thing to do. I’m not absolutely confident with my application of the Kelly formula. And what history has shown with using Kelly to do this kind of thing, or to go to the racetrack or to go to the casino or whatever is that you can still suffer a run of losses, which can wipe you out or take you down to a very low number. So to use that example before about the weighted coin toss, where you’re putting 20% out, you can still have more than four times in the row, even though it’s weighted to go heads. But if you put out 20% of your portfolio, say you started with a thousand bucks. You put out 200 on the first hand, or the first toss of the coin you’ll lose. You’ve got $800 left. So you put out 160 on the next one you’ll lose. Say you’ve got 640 left or 620 left. So you put out 134 on the next one and you’ll lose. And if that goes on for five or six times, you’re getting right down to a very small number. You’re not losing everything because your pool’s diminishing and you’re taking 20% of the new pool each time. But it gets down to a small number that takes a long time to grow back up from that small number. So that’s one problem with Kelly.

And the other problem is that once you, if it works for you and you get up to some very large numbers, if you started with a thousand and suddenly you’ve played for weeks and weeks and weeks, and you’re at a hundred thousand dollars, then putting a $20,000 on a toss of a coin can be a very hard thing to do. So you might want to modify Kelly at that stage and they sometimes talk about using fractional Kelly, half Kelly or quarter Kelly when you get to that stage. So you’re not losing substantial parts of your portfolio which you’re putting at risk because your pool has gotten very large. So I hope that makes sense.

Cameron Reilly [38:51]: You end up just fudging Kelly. It’s a Kelly fudge.

Tony Kynaston [38:54]: That’s a Kelly fudge. That’s right. So I find that very interesting and it’s great it’s mathematical, but I do have difficulties applying it to the share market.

Cameron Reilly [39:04]: Yeah, well, my first comment is the example you gave of losing all your money on the bets just makes me think of horseracing taking your tips. But secondly, I’m going to start calling you Kelly.

Tony Kynaston [39:22]: Hey, there’s a negative way to that. It’s a beautiful bridge. That’s going to be there.

Cameron Reilly [39:28]:  Yeah. Well, also there are horses out there, man. I keep waiting for the horse. Yeah. When I first read through Kelly, when you mentioned it six months ago or whatever it was to me the first time, and I read through a couple of Investopedia articles and Wikipedia articles and that kind of stuff, that was my first reaction as well. How do I calculate what the upside of a stock is and what the risk is? We don’t really know. But you should be able to regression test that fairly easily. Right? If you go back, if you went back over your buys over the last 20 years, you’d be able to say, okay, what if I just bought five instead of 20 and see how it plays out?

Tony Kynaston [40:09]: Yeah, well, I’ve done that. In fact, at one stage Kelly for me was working out to be two stocks. I went back and regression tested that and it actually came out to be the same sort of number, like 15 to 20% over the long-term.

Cameron Reilly [40:24]: Right.

Tony Kynaston [40:25]: But it had a lot more volatility. So there were a lot of times when you were sitting on losses, waiting for them to turn around whereas with a bigger portfolio, you don’t notice it as much. The volatility is a lot smaller, which is what happens. The more stocks you own, the less volatile it gets. 

Cameron Reilly [40:39]: Yeah.

Tony Kynaston [40:41]: Potentially it means you track the index model or closer. But yeah, what I found was that a smaller portfolio performed pretty much the same, but the volatility could be stomach-churning.

Cameron Reilly [40:52]: Right. Okay. So the bottom line is doesn’t really have any application. So that last 15 minutes of going into depth are meaningless, but you know, at least people know why you don’t use it now.

Tony Kynaston [41:10]: Well, I think it’s not meaningless. I think these things are great because there could be someone out there listening who’s going, “Oh, okay. That makes sense to me. I can apply it this way.” And they’ll come back and say, “You know, do this.” Just because I haven’t found a way to apply, it doesn’t mean there’s another way to apply it.

Cameron Reilly [41:24]: Okay. So if there’s someone out there…

Tony Kynaston [41:26]: Or modify it and do this.

Cameron Reilly [41:27]: We could get Moriarty back on.

Tony Kynaston [41:32]: And that’s essentially what Steve Moriarty was saying, he was saying, and what Kelly says when the odds are in your favor if you have an edge increase your bets.

Cameron Reilly [41:41]: Yes. You know, Moriarty’s using the…What’s it called? I’m thinking Gap now because we just did our interview with Richard Ivis was talking Gap. Cape, not gap. Cape and Gap. Yes, and basing it on historical performance of Cape ratios, right?

Tony Kynaston [42:06]: Yeah. Yeah.

Cameron Reilly [42:08]: Okay.

Tony Kynaston [42:08]: And look, it might just be me, but I find all this kind of stuff really fascinating. The history of finance fascinating and the history of risking. And all these kinds of people who’ve tried to and have successfully used math to invest in the stock market. I think it’s great.

Cameron Reilly [42:22]: Yeah. It’s just you. Yeah. Well, I feel, you know, when you talk about that stuff, I feel like I’m sure Chrissy feels when I start talking about why Julius Caesar crossing the Rubicon in 49 BCE. She’s like, “Oh my God, shut up you nerd. You know, tell me why this matters?” I go, “Well, Donald Trump doesn’t want to go to jail. That’s why it matters for the same reason.” I’ve got a whole analogy about Caesar crossing the Rubicon. But anyway, I’m glad that you know this stuff because I come to you for this stuff. I’m glad that you’re a nerd, a history finance nerd. That’s good.

Tony Kynaston [43:04]: Yeah. Good.

Cameron Reilly [43:05]: Good. All right. Well, if anyone has any ideas about how to apply Kelly’s Heroes’ negative waves to investing, please that isn’t Steven Moriarty, please reach out and get in contact and let us know what your thoughts are.

Tony Kynaston [43:20]: Steven’s more than welcome to come back and talk about that.

Cameron Reilly [43:23]: Okay. Maybe.

Tony Kynaston [43:24]: He is probably going to send us an email now and go, “You got it all wrong. That’s not right?”

Cameron Reilly [43:30]: Yes, probably. All right. On the questions, Brett, time on his hands, Brett. Another deep question this week. He says, “Thanks for the great show. This week loved the, like a Virgin rendition [inaudible 00:43:49]. Disappointed I didn’t think of it.” See, that’s all I’m good for. Brett is thinking of pop tunes that go with stock names. That’s my only value. He says, “I hope I didn’t come across as criticizing Tony for questioning the sentiment. That was not my intention. It would be very time-consuming to keep on top of these. And I figured it as all of our QAV members jobs to raise it when we think we see a change.” And I say to Brett, no, Hey, it’s great please to challenge Tony, every chance you get. Because (a) Tony sometimes gets it wrong, particularly when it comes to betting on horses. (b) Tony loves being challenged and it makes him rethink his stuff and maybe he is wrong and he can get it better. I know that that’s how you feel. So keep it up, Brett.

Tony Kynaston [44:40]: Yeah. So no criticism at all, Brett. And (c) I don’t get a chance to go across all the stocks on the watch list because there’s a couple of hundred there now. So you’re uncovering things which I just don’t have the time to follow.

Cameron Reilly [44:52]: Yes. Sorry. Then we get to the second part of Brett’s questions. He says from last week, “Sorry. I did not ask the question clearly for CCV and RXP. RXP is already on the buyer list. I looked at the chart and it did not appear to cross the buy line. So I went through the journal to find out when this occurred. It appeared in the journal on the 26th of August, but it went back down before the end of the month. So it does not appear to cross looking back on the five-year monthly chart. This made sense to me since a question I had last week about MYE was answered that once something crosses the buy line, it stays a buy, until it crosses the sale line. A buy follows a sale and vice versa. Recently, CCV also broke mid-month on the 26th of October and went back down, which is why I was so descriptive on the time and day. So my question was, is CCV now a buy? Tony’s answer is no, and neither is RXP. But I think he was assuming I was looking back and trying to justify or fudge both CCV and RSP. Whereas I was just drawing a comparison of something on the watch list to something that is on the buy list. Does that make sense? I guess my new question is, why is RXP on the buy list, but CCV is not? I really don’t care specifically about our RXP and CCV, just trying to understand the nuances of the concepts.” Good questions, Brett.

Tony Kynaston [46:25]: Yeah. So I’ve just called up CCV. And it’s close. Isn’t it? I’m just looking at it now. I think it’s probably right on its buy number at the moment and it’s above its sale line. So, it’s potentially a buy. So can you see you got CCV in front of you, Cam?

Cameron Reilly [46:47]: Just waiting for Stock Doctor to give me the big chart.


Tony Kynaston [46:52]: Yeah. Okay.

Cameron Reilly [46:54]: Yes.

Tony Kynaston [46:57]: It is trending up since it’s lows. So [inaudible 00:46:59] so the high point I’m using is March 2016 at 53 cents, 5302. And then the next highest I’m going to use is almost the, is it the last one? The last peak? No, it’s not quite the last peak. It’s going to be there’s one in the middle.

Cameron Reilly [47:19]: March 18th.

Tony Kynaston [47:21]: At March 18. Yeah. At 3865. And if I draw a line between those two peaks, it’s just about the current share price, which is today 19 cents. So I think it’s getting pretty close to being a buyer, but I don’t think it is at the moment.

Cameron Reilly [47:39]: Right.

Tony Kynaston [47:41]: Yeah. And so I’m just looking at… Yeah. It looks like, okay, I’m sorry, I didn’t have time to go through this question beforehand and pre-check everything. Brett’s going on to give us some three-point trend line calculated numbers for CCV. But if I just let me call up that spreadsheet and have a look at it because that’s where I would go to, if I was trying to finesse what the buy price was.

Cameron Reilly [48:11]: I’m just looking at its daily prices for the last month. And it got as high as 20 cents, late October as Brett says, 28th of October, and it’s dropped back. So, if I understand his question correctly this time, because it’s breached may be just, and then dropped back, do we consider it a buy or not? And you know, I think we talked about this last week and we’ve done it before. There have been instances where shares mid-month will breach, but then by the end of the month, we’ll have fallen back below the sell line or the buy line. And we don’t consider that a buy, if it closes the end of the month below the buy line, it’s not a buy regardless of whether or not it breached mid-month.

Tony Kynaston [49:06]: Yes. And just to add to that, we may well have bought it when it breached mid-month. So, you know, no sweat there either. I’d stopped buying it. Like I tend not to buy everything in one day. So chances are, I would have started to buy it and stopped buying it in that case. Because it would’ve gone down below the buy signal again.

Cameron Reilly [49:24]: And in a couple of instances in the QAV portfolio, we’ve actually sold something a week after we’ve bought it because it fell back. And you said, we need a name for that. I don’t know what we call that.

Tony Kynaston [49:36]: Rule number one. Don’t lose money.

Cameron Reilly [49:39]: Well, yeah, but when it breaches and then it falls back down it’s, I don’t know, we need a name for that. But it was a… Yeah, we jumped too soon.

Tony Kynaston [49:49]: A Brett.

Cameron Reilly [49:52]: Well, yeah. We’ll call it a Brett. That’s a Brett. Brett deserves to have something named after him.

Tony Kynaston [49:58]: Yeah. So if I look at the three-point trend line calculator for today, I know Brett’s given some examples from, past times probably when you sent the question in. But today the buy price on CCV Cash Converters is 19.7 cents and the share price is 19 cents. So it’s pretty close.

Cameron Reilly [50:17]:  Right.

Tony Kynaston [50:20]: And I think the same thing will apply to RXP. But I can call it up now as well and have a look at it. RXP Services, if anyone…

Cameron Reilly [50:20]: By the way…

Tony Kynaston [50:31]: Interested in what that is. Yeah.

Cameron Reilly [50:33]: I should just clarify that with CCV, so the end of the month, the end of October was closed at 20 cents on the 28th and the 29th of October. It looks like by the 30th of October though it closed at 19.50 cents. So it actually did close the month below the 20 cents, just barely below the 20 cent mark.

Tony Kynaston [51:04]: Okay. And what was the question about RXP? Sorry, I got lost in all the noise there. I need Claude Shannon to work out the signal from the noise for me.

Cameron Reilly [51:16]: I think it’s the same thing. You had said RXP isn’t to buy either because…

Tony Kynaston [51:23]: Then it’s not.

Cameron Reilly [51:23]: I think it dropped back below. So he’s got the target buy as 42 cents, 42.3 cents.

Tony Kynaston [51:33]:  Right. Now if I just changed dates in my three-point trend calculator for today.

Cameron Reilly [51:43]: Well it’s 34 and a half cents, so it’s.

Tony Kynaston [51:46]: Yes. And I get a buy price of 38.90 cents. So 39. So yeah. You can see with both of those graphs, they sort of hit their lows during the COVID cough, and then they’ve started to come back up. But in both cases, they sort of also then touched the buy line, but they’re starting to go back down again. So they a bit of a falling knife I think.

Cameron Reilly [52:08]: Yeah. Well, Brett continues with Duketon.

Tony Kynaston [52:13]: As Brett does.

Cameron Reilly [52:14]: As Brett does. Same question though, same email. So it’s not like email number five from Brett this week. With Duketon, “Tony said it was a buy, but is now hold because it has gone back below the buy line. I thought I had a light bulb moment when Tony explained his interpretation of MYE in Episode 349, that something is a buy until it is a sale. But now I’m a bit confused because his comments on CCV, RXP, and DKM this week seem to contradict this in my rookie head. I don’t want to wear out Tony’s hospitality and I’m not trying to find him out. So please only raise this if you think it will be taken in good faith as a talking point.” Of course Brett. It’s all good. Yeah. But I think…

Tony Kynaston [52:55]:  That’s it. I’m leaving. You need to respect me.

Cameron Reilly [53:04]: That is actually how Tony talks when he’s off-air, by the way. I want people to know that. This whole nice guy thing is a complete fast, you know. But any who…

Tony Kynaston [53:17]: No Brett, I understand where you’re coming from, mate. I think we probably have given two answers to that question over the years.

 [Snippet] [53:25]: Don’t hit me with the only negative waves. [inaudible 00:53:27] Think that bridge will be there and it will be there. It’s another beautiful bridge and it’s going to be there.

Cameron Reilly [53:36]: So, but I think when we’ve said it’s a buy until it’s a sale. I mean, I think that’s a confirmed buy. That’s well, truly solidly breached it’s a buy line. Then it’s a buy until it’s a sale. If it peaks its head out, Oh, if it’s like a, you know, it’s like a baby that peeks its head out, looks around and goes, “Eh, I don’t think so” and pulls his head back in.

Tony Kynaston [54:01]:  It’s Groundhog Day.

Cameron Reilly [54:04]: It’s a groundhog. See, that’s better than calling it a Brett. We’ll call it a Groundhog.

Tony Kynaston [54:08]: Yeah.

Cameron Reilly [54:09]: Yes. Nice one.


Tony Kynaston [54:13]: Packs of 22.

Cameron Reilly [54:14]: Well, let’s just go with Groundhog because I’ll never remember that. Yeah, it’s a Groundhog. It sticks its head out, pulls it back in. That’s not actually a buy. It might be a fake buy for a moment, but it’s not a real buy.

Tony Kynaston [54:27]: Man, the first time I saw a real groundhog, I was on a golf course in Canada. They are like the hugest slug you’ve ever seen. Really, really ugly animals.

Cameron Reilly [54:37]: Did you hit it on the head with a mallet?

Tony Kynaston [54:40]:  No. I said to my friends, what the fuck is that? It looks like a wombat without any legs or any eyes or any discernible features.

Cameron Reilly [54:48]: In Caddy Shack, was a groundhog of Bill Murray was running around hitting with [inaudible 00:54:54].

Tony Kynaston [54:56]: No, gophers.

Cameron Reilly [54:56]: Gophers. What’s the difference between a groundhog and a gopher?

Tony Kynaston [54:57]:  Come here, come here little gopher. Come here.

Cameron Reilly [54:57]: Hey, have you seen his new movie yet? The new Sofia Coppola movie?

Tony Kynaston [55:05]: I did.

Cameron Reilly [55:06]: What did you think?

Tony Kynaston [55:07]: Yeah, not bad. Not bad.


Cameron Reilly [55:09]: Only, not bad? That’s a…

Tony Kynaston [55:10]: Yeah. I mean his character was just amazing. You just wanted to go out and be like [crosstalk 00:55:17]. That’s always the case I think.

Cameron Reilly [55:18]: Yeah.  I thought you enjoyed it. I really enjoyed it. He’s so great. He’s so great. So yeah, so much love for Bill.

Tony Kynaston [55:29]:  Yeah, I agree. So stylish. Isn’t he?

Cameron Reilly [55:32]: Yeah.

Tony Kynaston [55:33]: Just talks his way out of parking tickets. Drives the old car that backfires. The old Alfa that backfires around.

Cameron Reilly [55:39]: And I absolutely believe that’s lifted from his real life. I know Sofia said that she based a lot of it on her dad. You know, particularly, we were sitting in the cinema whenever he starts, you know, pulling our stories from history to explain something, Chrissy’s like, “Oh my God that’s so you. He’s just you. You’re just Bill Murray.” And when he’s like, it was sort of a little bit flirtatious with the young waitress and she’s going, “Oh my God. That’s so you. I’m basically married to Bill Murray, except I’m not that rich.” But when he gets pulled over by the cops and he just talks his way, he’s like, “Okay, is your dad so and so. So yeah, tell him, I said hi. We go way back.” And he talks his way out of it. I was like, “That’s a total Bill Murray movie. Isn’t it just.

Tony Kynaston [56:25]: And not just that, but his car won’t start. It won’t go into gear. So the cops gave him a push.

Cameron Reilly [56:29]: Yes. Good stuff. Anyway, Groundhog, where were we? Yes, it’s a Groundhog.

Tony Kynaston [56:28]: So Duketon, if I have a look at that one, just to get back to shares, which are a lot less interesting than say a few Coppola movies. It’s a clear buy. It’s gone way up above it’s a buy line now.

Cameron Reilly [56:49]: Are you talking about Duketon?

Tony Kynaston [56:52]: Duketon [inaudible 00:56:53].

Cameron Reilly [56:52]:  DKM. Yeah. Let me just look at that and make sure you’re not fudging it.

Tony Kynaston [57:02]:  Can I just do a little quiet fudge?

Cameron Reilly [56:06]: I’m glad the camera’s not on. I don’t want to see it if you do. Yes. You know, it’s buy was about, I don’t know, about 20, 27 cents and it’s now at 28.50.

Tony Kynaston [57:18]: Yeah. Something like that.

Cameron Reilly [57:20]: Okay. So good one, Brett. Tim asked a question during the week that I knew you’ve answered many times, but I could not remember. And I couldn’t find it in my notes. What percentage of the average daily trade is your benchmark?

Tony Kynaston [57:37]: Is it in the Bible? I think I said 20%, maybe 25.

Cameron Reilly [57:40]: I couldn’t remember if it was 20 or 50.

Tony Kynaston [57:43]: I think we’re okay. So I would say 20 but I have bought up to 50 if I really like it. But yeah, 20 is a good number, I think.

Cameron Reilly [57:55]: Right. I don’t think it is in the Bible, but I am going to put it in the Bible.

Tony Kynaston [58:01]: Yeah.

Cameron Reilly [58:02]: Because that’s a good thing to remember.

Tony Kynaston [58:04]: Yeah. We don’t want to be the only buyer in the stock. It’ll drive the price up and when it comes time to sell, we don’t want to be a part of a large crowd trying to get out the fire door as well.

Cameron Reilly [58:13]: Yeah. Well, thank you, Tim. And the last question is from Chris and this is about Sandfire resources, which you talked about earlier. He was wanting to know if you thought it was a Schrodinger.

Tony Kynaston [58:24]: I think it could be. I think I said that in the Stock Journal I sent through today.

Cameron Reilly [58:29]: Maybe you did.

Tony Kynaston [58:30]: You may have not have read it yet anyway.

Cameron Reilly [58:32]:  I’ve read it. Posted it. I can’t remember it.

Tony Kynaston [58:34]: Anyway I’ll call it up.

Cameron Reilly [58:36]: So yes, I’ve got it up. The buy is certainly above it’s a buy and I’d say it’s on the sell line pretty much.

Tony Kynaston [58:48]: Yeah. That’s right. In fact, I think I called this one my bunny baller. It looks like it’s an upward buy rather than the falling knife. Although it could be a falling knife.

Cameron Reilly [58:57]:  Right.

Tony Kynaston [58:58]: Yeah. No, I think it’s it. It certainly has the potential to be a falling knife. So I’d be watching this one. I don’t own Sandfire and I’m not recommending Sandfire. But if you were to buy it, I’d be watching it to make sure it doesn’t become a sell again.

Cameron Reilly [59:10]: It’s a bunny boiler Schrodinger. Oh, wow.

Tony Kynaston [59:16]: See, it’s funny. Because like the market, last week was all full of bad news about Sandfire on Friday because there were these rumors that China wasn’t going to buy any copper from Australia and Sandfire is a copper-gold producer. And the share price has gone up 2% today. So go figure.

Cameron Reilly [59:36]:  Yeah. Maybe somebody knows something.

Tony Kynaston [59:41]: Correct.

Cameron Reilly [59:43]: All right. Well, that’s all the questions. That’s all the show, I think for this week, Tony.

Tony Kynaston [59:49]: Yeah, I think just one last thing, we haven’t done a top three shares.

Cameron Reilly [59:54]: Oh yeah.

Tony Kynaston [59:56]: And I wasn’t going to but I’ve got one again because of the Stock Journal I did today. I did a complete download and went through it. I did that partly because there were companies that have reported it in the last week. So the banks have reported. Macquarie Group reported but their numbers haven’t appeared in Stock Doctor as of this morning when I ran my download, but they’ll appear soon. Eclipse is going to be reporting soon. So we need to do a download and get some new numbers on that. I went through and checked all the companies that have reported in the last couple of months. And one of those was Kathmandu KMD. So I’ve added Kathmandu to the buyer list. So that might be the one that I would recommend people have a look at. It’s QAV score from memory was at the bottom end of the range. I think it was either 0.13 or 0.15, something around that.

Certainly, I don’t own shares in the company. It’s certainly a company I’ve owned shares in the past. It’s under new management. So it’s a bit of a turnaround story. I mean, Kathmandu, people will be aware is a fleecy, pullover, ski, parker type retailer based in New Zealand sewing warm clothes and beanies and gloves and other things like that, and has done quite well over the years. But it did get stuck in a rut where it was having most of its sales during its discounted period. So basically every six months it would refresh its stock and clear its old stock. And it was at that time, that clearance time that they did the most sales and kind of, sometimes retailers can get stuck on a cycle of their customers knowing when the clearance sale is coming and therefore they hold off purchasing until I can buy the item they like cheaply, which is understandable.

But new management has kind of weaned customers off that cycle a bit and it’s on the improved stock of the week. Kathmandu have a look at that. And just to round out that discussion, I also got new numbers for CIA, which has Champion Iron, which is a share I own. And the numbers went up slightly. I think the QAV score went from about 0.18 to 0.2, but no big increase there even though new numbers came in. So that was another one to check out, I guess if you’re interested and we do have fresh numbers for it. And I expect to get some fresh numbers out for Eclipse and Macquarie Group in the next week as well.

Cameron Reilly [01:02:21]: I thought Kathmandu closed down or something. Or it was just a pandemic closure earlier this year.

Tony Kynaston [01:02:29]: Oh yeah. It may have actually closed its retail stores in New Zealand. But it does do a fair bit of work, a fair bit of sales online, so it wasn’t completely [inaudible 01:02:39].

Cameron Reilly [01:02:40]: Right. Okay. Good stuff, Tony. What do you get else? What do you get on for the rest of the week? Any big plans?

Tony Kynaston [01:02:50]: No, I’ve got a game of golf. I was away for a while, so I’ve got to catch up on some just admin paying bills and things like that, which are always pretty boring, but needs to get done. Pay the taxman. Pay the horse breeders. Buy some hay. All that kind of stuff. My sister goes into the hospital tomorrow, so that’s not very nice. I’ll be spending some time with her. And that’s about it, I think. How about you?

Cameron Reilly [01:03:21]: We’ve got a school excursion to Wet’n’Wild on Friday. So that should be, can you imagine Fox at Wet’n’Wild? Oh my God.

Tony Kynaston [01:03:33]:  Oh, I can imagine the waterpark. So yeah.

Cameron Reilly [01:03:36]: With all of his friends from school and it’s going to be crazy. Chrissy and I are going along as part of the parental contingent.

Tony Kynaston [01:03:43]: You drive down there in the Alpha Romeo.

Cameron Reilly [01:03:47]: Yes.

Tony Kynaston [01:03:48]: What Bill Murray did?

Cameron Reilly [01:03:49]: Yes, yes. It took me a minute to tweak there. Yeah. Is that what he was driving? I didn’t pay any attention. It was a nice little old convertible. But I did want to mention that we’ve got some more good interviews coming up. We just did an interview this afternoon with Richard Ivers from Prime Value Asset Management. He’s a Portfolio Manager of the Small Cap Portfolio. We had a great chat with him and I think we’ve got Damien coming on the show next week. Damien Parker, a QAV subscriber with great business experience based in the Gold Coast, he’s going to be coming on. I think Phil has set us up with an interview with Andrew Page from Strawman. It’s happening soon. We’ve got a ton of interviews coming down the pipeline from a wide variety of people, which is, they’re always fun.

Tony Kynaston [01:04:40]: Yeah. We have the CEO from Sharesight too booked haven’t we as well?

Cameron Reilly [01:04:43]: Yes. Sharesight CEO coming on. Oh, we’ve got, Stephen Bruce who is one of the Portfolio Managers at Perennial Fund as well, coming on in the next couple of weeks. Just yeah, a ton of interesting people.

Tony Kynaston [01:04:57]: Hey, and when the borders open up that we can do some more dinners as well.

Cameron Reilly [01:05:03]: Do some dinners. We should do another Zoom call, I guess, coming up soon too. But yeah, I’m looking forward to doing some more dinners. They’re always a lot of fun and we can go down and have that catch up with Alan Kohler that we were going to do before the Melbourne shutdown last time. I want to talk to him about his book selections that he keeps showing on TV. Always, always interesting. The books that he throws up there as an indication of what he’s really thinking about. And they’re always like unlikely, they’ve been about societal collapse. And you’re like, “Oh geez.” Okay. Alan’s pessimistic, I think.

Tony Kynaston [01:05:44]: Yeah. Well, he is oftentimes. Yeah. Yeah. That’d be great, Cam. I’m looking forward to that. And if he’s listening, looking forward to sharing him a lunch. He was good to us in the early days.

Cameron Reilly [01:05:55]: Yes.

Tony Kynaston [01:05:56]: Yeah. And if anyone’s got any questions for any of our interview topics or any interview people that are coming up, please send them through. Any more feedback or questions are always greatly appreciated. Anything that we should be talking about that we’re not talking about, please let us know.

Cameron Reilly [01:06:13]: Well, there you go. That’s it. Tony’s done the wrap-up. Have a good week everyone. Ciao. 

Tony Kynaston [01:06:19]:  Yeah. Thanks, Cam.

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