TONY KYNASTON | Quality at Value
TONY KYNASTON | Quality at Value
The QAV Investing podcast is hosted by Tony Kynaston and Cameron Reilly. The podcast is based on the QAV (Quality at Value) system that uses a checklist and a framework to analyze and score stocks based on their latest financial figures.
The QAV system is based on the belief that it's better to rely on numbers rather than stories when it comes to investing. CEOs and company management are often promoters and have a vested interest in making their company look good. They may spin stories and hype up their company, but the QAV system focuses on easily accessible financial data.
The QAV system uses a checklist and a spreadsheet to score stocks based on several key metrics. One of the most important metrics is operating cash flow, as it is a reliable indicator of a company's financial health. Other metrics include intrinsic value, yield, and whether the company is run by an owner-founder. The system produces a heat map that shows the intrinsic value of a stock based on different metrics, giving investors a clear idea of whether a stock is worth considering.
The QAV podcast is a great resource for anyone interested in investing and the stock market. The hosts break down complex concepts and explain them in an easy-to-understand manner. They also discuss current market trends and news, providing valuable insights and analysis for investors.
I focus on operating cash flow simply because it's the very first thing that's reported in all of those figures. There's three basic statements that are called a set of accounts there's the cash flow statement, the P&L or statement of income as it's now called. And the balance sheet. As you go down through the top to the bottom, the management of the company have more and more latitude to make decisions about how those figures are reported and where they're reported.
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Tony Kynaston (12s):
The mission I'm on to, to spread the word about this way of investing. It's not so much to get people to invest the way I do, but it's to teach them that you can have a framework. You can have a system to look at the numbers and the facts of what's out there and not the stories. Don't get lost in all the noise. And you can put together a portfolio, which, which beats the market. Do it yourself.
Good day. And welcome back to Shares for Beginners. I'm Phil Muscatello. What's a fudge factor and how can pooled pork help your stock picking What's the first rule of investing? I'm always pleased to welcome back to the microphone, Tony Kynaston from the QAV Investing Podcast. Good day, Tony.
Tony Kynaston (49s):
Hi Phil. Thanks for inviting me back.
So Tony's average return on his portfolio over his investing career has been double market average, thanks to the QAV investing checklist system he developed. Now, before we dive into QAV and your zen of choosing shares to buy, I wanna pick up on a couple of recent topics from the podcast and specifically greenwashing, which has been a real interesting topic. And it's really to do with super funds is the first court case, isn't it?
Tony Kynaston (1m 15s):
Yeah. So the regulator is cracking down on greenwashing and the, they claim there's been lots of complaints from people saying, Hey, I've invested my superannuation with this fund or that fund because of their green credentials. But then I find out they've been investing in oil stocks or coal stocks or pubs or you know what, whatever they don't like. Yeah, yeah. And I guess that's a point worth making it the, everyone's got their own moral red line, so it it's gonna be different for, for all people, the regulators taking action against Mercer Mm. Over one of these funds. And I guess we should be careful to say that the allegations haven't been proven in court.
Phil (1m 52s):
They haven't been taken to court yet.
Tony Kynaston (1m 53s):
Yeah, yeah. But they are, but they are being taken to court. So it's a bit of by the wherewithal this, but I, I think the interesting thing is that there's not that much transparency in the industry. So if you are told it's a green fund, it's very rare that you actually see what stocks are under the hood and you know, there are reason Would,
Phil (2m 14s):
Would you say that, would you say that in a super surely you'd be out? Have there'd be some sort of transparency, wouldn't there? You'd think
Tony Kynaston (2m 19s):
I haven't been in a super fund for a long time. Yeah. Because I run my own smsf.
Phil (2m 24s):
But you'd to dig pretty deep, I guess, wouldn't you?
Tony Kynaston (2m 26s):
Yeah, they never disclosed, sometimes they disclose what the top holdings were, but they often just say, here's the return on the growth fund, here's the return on the balance fund, et cetera, et cetera. You know, for the quarter or the half or whatever period they're reporting on. Yeah, yeah. So it, it is by where there are services out there which will do deep dive research into companies and, and recommend them or not based on the SG concerns, but that costs a fair bit of money cuz they're, they're doing a fair bit of work and then there are people out there who put together a, an index fund minus a handful of stocks that are obviously of concern to people who are, you know, into investing sustainably. And, and that can be a cheaper way of doing it.
Tony Kynaston (3m 7s):
And then there are people who are just claiming that they do it and they're not really doing it. And, and they could probably have their reasons because as I said, they might decide that one stock isn't suitable or they might decide that one stock is suitable, but you may have a different perspective. So it's a fairly complex issue and I personally, I think the only way to solve it is to be transparent with the holdings and the underlying fund.
Phil (3m 28s):
And sometimes those funds, the ones that are basically just doing an, an index fund minus a few Yeah, they're charging a bit more in fees as well. Correct. For basically not a lot of extra work.
Tony Kynaston (3m 39s):
That's right. That's, I remember my stock broker saying it was the, the greatest business model was to take an index fund and take out six or seven stocks and call in ESG fund and, and put the fees up. So Yeah. Yeah, yeah. No, exactly.
Phil (3m 51s):
So in terms of your own investing, you haven't shied away from investing in coal and energy stocks. What are your thoughts on ESG in general in terms of personal investing?
Tony Kynaston (4m 1s):
Yeah, well like I said, I think everyone's got their own red line. For me it would be like investing. I wouldn't invest in a tobacco company, but there aren't you listed anymore in the Australian market,
Phil (4m 12s):
But they've got great dividends, haven't they, in America?
Tony Kynaston (4m 14s):
Well, that's right. I mean it's, that's interesting thing, isn't it, that are you achieving your aims by not investing them? Because the tobacco companies all left the Australian market because of the focus on their, their health issues. But they continue to do what they do and now they don't have anyone looking at them doing it. So it, it potentially, if if you're trying to achieve your outcomes, you've actually made it easier for them to, to succeed because they're not getting any sort of transparency focus if they will get in a listed market. So it's interesting in terms of coal and energy, I mean, I, I used to work for an oil company. I know that, you know, I, I'm a supporter of reducing climate change or eliminating climate change if we can and moving to sustainable and green energy.
Tony Kynaston (5m 1s):
But it's gonna take time. And I know that the oil industry is too, they're, they, they want to do it as well. So for me it's, it comes down to how does me not buying a share in a coal company actually help climate change? And it doesn't because somebody else will buy it and I'm missing out on the returns. And to put some context on it, this may be a temporary situation in the market, but if investors are putting pressure onto the energy sector, not to reinvest and, and develop oil fields or coal mines or whatever, and, and the banks are having pressure on them to not lend to the companies to do that, then there's less coal oil in the market. However, we still use as much coal and oil as we always have.
Tony Kynaston (5m 42s):
So guess what? The price goes up. So it's a, it's a basic law of economics that it ignores emotions. Yeah. Not only am I not doing anything to help climate change by not buying the stock, I'm also hurting my returns. So that's my position on it. It, I believe that climate change is best handled by governments and regulators because the participants have a vested interest in not doing it. So even if they have good intentions,
Phil (6m 6s):
I think I've just heard recently, sorry, this just popped into my head. There's a carbon credit ETF that's come to market.
Tony Kynaston (6m 14s):
Oh, I'm not surprised that, yeah. Carbon credits and I think are about to be legislated at the moment. They are available at the moment the Australian carbon credits. And so there's a market for them and, and companies I think under the new legislation proposed will be obliged to buy them. So it it's, it's gonna be a large liquid market. And that's a good point, Philip, with talking about ESG. As I said before, there are companies who will put together what's called a positive ESG fund. So they're only picking the stocks that will positively impact on climate change or biodiversity or whatever the particular issue is, which is a small universe really, but, and it requires a lot of deep research to make sure that those companies are doing what they say.
Tony Kynaston (6m 57s):
And that's different too, as we said, a negative ESG fund, which is removing the stocks, which is a much easier thing to do. And there's something in between. I mean, there are companies out there which, you know, claim that they're doing the right thing from climate change. And the classic example is a big, a big mining company who might have different classes of mine, so iron ore and copper and gold and, and all those things. And they'll offload their coal mines and say, aren't we great? We've done something for climate change. Well, no, they've sold it to somebody else and the mine's still running. So yeah, you know, I, I think, yeah, I think the regulator's doing a good job to look at all these issues
Phil (7m 35s):
And I believe Macquarie bank is going in boots and alls into renewable energy as well. And a lot of their investments are in renewable energy projects, aren't they?
Tony Kynaston (7m 43s):
Yeah, well there's certainly, there are funds out there and companies out there who do it and they focus on wind farms for examples. I guess it's a nascent industry and development of solar farms and, and I guess also the lithium industry for electric batteries and things like that. So yeah, it is possible to find companies who are doing it, you probably need a bit of help to know are they only doing that? What else are they doing? And also too, what I've found is if you're investing in a new industry, it may take a long time to achieve the kind of returns that you want. So it may actually cost you as well, if you're investing free ESG concerns, that's one thing. But if you're investing to beat the market, that's another thing.
Phil (8m 21s):
Okay. Well let's turn to Qav and the Qav system. Now. You've been on the podcast a few times in the past and explaining it, so we won't go through everything from the basics, including the checklist manifesto, which is a, a great story. And also I think I, one of the episodes that we did, I'm called Why, and it's about why should you own this particular company? And it's great to have a reason to own this. You know, a lot of people just go in and they like the idea of something or they've heard the story of something. And this is really the basics of the Qav methodology that gives you a reason, doesn't it? A reason to believe as they say,
Tony Kynaston (8m 59s):
A reason to believe. Yeah. Well it's, it's based on the numbers rather than the stories. Cuz it's my experience that there's a lot of good stories out there and that the CEOs has a job to try and put their company in the best light.
Phil (9m 12s):
They're song and dance guys, aren't they? They're women.
Tony Kynaston (9m 15s):
They're promoters. Yeah. Yeah, definitely. And, and you'll see a lot of those in nascent industries like Wind farms or Lithium or whatever. They're all, they're all
Phil (9m 23s):
Biotech. Yeah, they're all, they're all
Tony Kynaston (9m 26s):
Phil (9m 26s):
Mining. They're gonna be
Tony Kynaston (9m 28s):
The next big thing and all that kind of stuff. So Yeah. How do you, how do you test that where you look at their numbers? Well, I guess we, you lucky. We live in an age where data is easily available so we can get access to the, the P&Ls and the balance sheets and the sales of every company on the stock market. We can drop 'em into Excel and slice and dice. So it's that filtering process and having a checklist and a framework which allows us to score every company, regardless of what their story is or what their prospects are, and come up with a, a list of stocks to investigate further and to buy.
Phil (10m 1s):
And the numbers that are input into the spreadsheet are based on company reports, aren't they? But there's only certain numbers in those company reports that you're interested in. Correct. It's all about cre free cash flow, I believe
Tony Kynaston (10m 14s):
Not free operating cash flow.
Phil (10m 16s):
Operating cash flow, sorry.
Tony Kynaston (10m 17s):
Free, free cash flow I think would probably give a similar sort of result. But I focus on operating cash flow simply because it's the very first thing that's reported in, in all of those figures. In, in all of the, well there's three basic statements that are called a set of accounts there's the, the cash flow statement, the P&L or statement of income as it's now called. And the balance sheet. As you go down through the top to the bottom, the management of the company have more and more latitude to make decisions about how those figures are reported and where they're reported. So I mean obviously a sales are sale and costs are cost, but there is a lot of leeway before you get to the profit line, which allows a, a management team to put away provisions, for example, to provide for certain circumstances that may or may not, haven't to bring them back from the balance sheet if they think that the situation's improved and that boosts profit, nothing else has changed.
Tony Kynaston (11m 10s):
Depreciation, amite, that list goes on of all the things that can be decided upon as to where they go this half or next half or whatever. But cash is king, cash is cash and it's very hard to, there's, there's no almost no leeway in reporting that. So I look to cash flow as being one of the main metrics to the report them.
Phil (11m 29s):
And what are some of the other columns?
Tony Kynaston (11m 31s):
Yeah, so we come up with a couple of things called intrinsic values. So that's our valuations for the company. And we tend to use four of different ways to value a company because it's, it's pretty hard to land on the exact number and say this company is worth this down to the last cent. So we kind of produce a heat map based on earnings per share, based on the net assets of the, the company, the balance, so the balance sheet. So you're either paying for assets or you're paying for earnings and or you're paying for both. So that, so there's valuation metrics. We look at the yield of the company cuz if a company's, a lot of companies don't pay yield and that's not a bad thing. So we don't score them negatively for that. But if a company's paying a yield and it's a reasonable yield, they're gonna be loathed to reduce it and it's a sign by management in the company by the board that they think that they can sustain this kind of level of profitability.
Tony Kynaston (12m 21s):
So that's a good thing. We look at whether there's an owner founder in the company. So I find that if the company is still run by someone who founded it, they're a) they're incentivized to not lose their life's work and assets. But also too, they're really well established in the industry and know the players and know the turf and, and they're probably a better operator than someone who's come in from outside. Cuz as we said, there's a lot of CEOs who are professional CEOs, I guess I'll call them. And there's nothing wrong with that, but, but they, they don't maybe have the 20 or 30 years of experience that the founder has in that particular field. So we're looking at those, we're looking at things like, is is the equity in the company consistently increasing for the last three years?
Tony Kynaston (13m 5s):
Is this the lowest PE ratio in the last three years? So there's something like about around 20 columns in the spreadsheet that we used to score and we're scoring for both quality and value. So QAV.
Phil (13m 18s):
Yeah. And I've noticed that what comes up often are companies at the very, very small end of the, the market. Okay. And there's some, so many interesting stories down there and there is sometimes think that's the end of the market where they're all small startups. But some of these companies, I mean, I was just looking cuz I've, I've interviewed a, one of the major shareholders in Big River Industries, for example, which is one that you cover quite extensively and that's been around for a hundred years.
Tony Kynaston (13m 51s):
No, definitely. And I think that's a bit of an advantage for the retail investor is if you can find a company that doesn't have a lot of broker coverage because it's on the small side, then you, you can be the first one in, so to speak and and, and ride along as it grows and gets discovered. So I've had a couple of those over the years and it's actually a thrilling ride to, to watch it happen as it plays out. People need to be aware of liquidity though, so I I tend not to invest in those because my own funds now require me to invest in bigger stocks. But the beauty again of the checklist is you can filter it for the size of the company that you want to invest in. You can filter it for all sorts of things. You can do your own ESG filter if you want.
Phil (14m 33s):
That's right. If you wanted to have an ESG fund of your own, you just sort of cut out the companies that you don't wanna invest in.
Tony Kynaston (14m 39s):
Correct. And I guess that's the, I mean that's the mission I'm on to spread the word about this way of investing. It's not so much to get people to invest the way I do, but it's to teach them that you can have a framework, you can have a system to look at the numbers and the facts of what, of what's out there and not the stories don't get lost in all the noise. And you can put together a portfolio which, which beats the market, do it yourself.
Chloe (15m 3s):
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Phil (15m 16s):
So you used to be a serious investor. I still am. Not quite so serious now that Cameron's on the zoom and this is, I'm referring of course to the QAV Investing podcast. Yes. And there's some terminology which has come along Josephine, that's pretty self-explanatory. I guess it's, you know,
Tony Kynaston (15m 37s):
I still am.Don't, don't buy the stock. Not tonight Josephine.
Phil (15m 39s):
Yeah, not tonight Josephine.
Tony Kynaston (15m 40s):
So it's on a, it scores well on our list, but the sentiments against it at the moment. Yeah, yeah. And, and look, you know, a classic value investor will wait, will buy it and then wait for the sentiment to change and they don't care if the stock price goes down by half and then comes back up, they'll wait. I'd rather put the money to work in something which is going up. So sentiment is a big, a big part of our checklist procedure.
Phil (15m 60s):
Yeah. Is that part of the three point trend line?
Tony Kynaston (16m 2s):
That's what a three point trend line is. Oh, okay. It's our version of, of using a moving average or a fairly simple technical analysis to tell us when sentiment's going in favor of the stock or going against the stock.
Phil (16m 13s):
Yep. I love the three point trend line cause I'm a bit, a bit of a fan of technical analysis. Okay. Yeah. But to use that, and we won't go into the details here cuz we have talked about it and it's a visual thing as well. It's a bit hard. Yeah, that's right. Yeah. But isn't it, it's just five years monthly chart. Oh sorry, monthly timeframe, line chart only, no candles.
Tony Kynaston (16m 30s):
Yeah, that's right. Take the highest point. The second highest point. Draw a line if the current price is above that line, it's positive sentiment. Take the lowest point and second lowest point and draw a line if the current share price is below that.
Phil (16m 42s):
I love the zoom out of it. You just get such a view of, of the stock over a period of time.
Tony Kynaston (16m 48s):
Yeah. Because in the short term, things move around a lot, but if you look at the five year monthly, you get a fair idea of the trend. Yep.
Phil (16m 54s):
Anyway, back to some of the other factors. Yeah. Fudge factor.
Tony Kynaston (16m 57s):
Fudge factor. Well this is one that Cameron uses. He, he likes to tease me about it cuz sometimes I'll look at a graph and say, okay, it looks like a cell, but I'm gonna fudge this one and just hold on for a bit longer and see what happens. Because it might be just below the sell line and it may go back up again or it's not the end of the month and it might might do better in the, in in the future. So I haven't done a fudge for a long time. It's, it's, we've kind of nailed down the rules now to such a degree that we don't have much latitude to fudge. But yeah, that's what that is. It's, it's saying, okay, we gotta check this, we've got all these rules, but you know, this is a bit of a fifty fifty one. Let's, let's fudge it and have a look.
Phil (17m 31s):
Okay. Yeah. And Paul pulled pork.
Tony Kynaston (17m 32s):
Pulled pork is just simply, we're pulling apart the company and analyzing it. So every week on our, on our QAV show, at least for our, our subscribers and our club members, we, we go into detail in one stock and talk about all numbers, talk about what it does, what the risks are, what the sentiment is, how it scores, et cetera, et Cetera.
Phil (17m 50s):
Yeah. Which is a good way for people to understand how to value a company.
Tony Kynaston (17m 54s):
Phil (17m 54s):
So rule number one, why is rule number one, rule number one and what is rule number one?
Tony Kynaston (18m 0s):
Well, rule number one is a famous Warren Buffet quote. Rule number one is don't lose money. Rule number two is see rule number one. So it's an important thing. So it's basically a, a a 10% stop loss. So if a stock, if I buy a stock and it, it drops 10% below the buy price or even if it goes up for a long time and then comes back to 10% below the buy price and we haven't sold it for some other reason, then I'll sell it. So it's, it's, it's pulling the weeds I guess I'd rather again take 90% of my capital and go and redeploy it and something which is going up rather than watching something drop.
Phil (18m 35s):
Because no matter how much an analysis you can do, you can just be wrong.
Tony Kynaston (18m 38s):
Well yeah, that's, I mean that's one of the interesting things is that I, you know, I went back through my numbers and I get about six out of 10. Right. And I've heard Buffett say he gets about six out of 10 right. So not everything we invest in is going to go up. That's just how it works.
Phil (18m 52s):
Yeah. Fantasy land, you can't
Tony Kynaston (18m 54s):
Talk fantasy land. Yeah. Cuz the situation changes, even if the numbers look good. I mean that's the first thing to know is that we're using history to decide whether a company's good and they're traveling into the future where things might change. So yeah, it's, it's a six out of 10 thing. The whole, I think that's a, that's a concept you have to get your mind around is that most investing is statistically based. You're putting together a portfolio of stocks and on average you, you want that portfolio to improve not every single case.
Phil (19m 21s):
And of course we, we've both spoken to Simon Shepherd recently and his great quote, the first cut is the cheapest.
Tony Kynaston (19m 28s):
Exactly. Yeah, it is,
Phil (19m 30s):
Isn't it? It's great. You know, just to have that kind of discipline
Tony Kynaston (19m 32s):
Yeah. Pull the weeds and let the flowers bloom.
Phil (19m 34s):
Yeah. And that can happen pretty quickly as well.
Tony Kynaston (19m 36s):
It can, yeah. So I
Phil (19m 38s):
Find it's hard psychologically
Tony Kynaston (19m 40s):
I find it useful to set alerts. So I'm just told when to do it and then I do it and it is hard to do psychologically. I, I mean I've been doing it for years so I get used to it. But yeah, a number of, one of the common questions we get cuz we take questions on the QAV podcast from our subscribers is, oh, I didn't sell when it dropped 10% below my buy price and now it's 30% down, what should I do? So okay. Back in time and sell it when it drops 10%.
Phil (20m 5s):
That's right. And this can be adjusted as well, the sell price as well because Yeah. Do you take into account a dividend? Like if you've got it Yes. And the share prices dropped by the amount of the dividend is then your sell price adjust adjusted by that amount,
Tony Kynaston (20m 21s):
By the dividend and by the franking credit, depending on what structure you've boughted in, that will have a different value. But we're in dividend season now. The companies have all this reported through February and then they go X dividend and pay their dividends. And so generally when a company goes X dividend, the share price will drop by the dividend amount cause it's, it's now doesn't have that dividend anymore, so it's worth a bit less. Mm. You don't wanna fall into the trap of having it drop and cross one of, of our sell lines and then about a month later get a check from them and you go, oh, it was a dividend so I shouldn't have sold. So yeah. So around this time, I'm, I'm careful. So if it drops if, and it's a sell, I will check to see if it's X dividend, add that back to the share price and chances are it's above the sell line after doing that.
Phil (21m 5s):
And we love it when stocks move into an index.
Tony Kynaston (21m 8s):
Phil (21m 8s):
This is one of the great things, isn't it?
Tony Kynaston (21m 12s):
Well it's, it means they're going up like Yeah.
Phil (21m 13s):
The market and suddenly everyone else has to start buying it as well. The funds have to, the larger funds have to start buying
Tony Kynaston (21m 19s):
It. Correct. Yeah. So in the ASX there, there are many indexes and most of them are, are based on the size of the company. So the market cap, so there's the all ordinaries, which is most stocks, but not all stocks. ASX 300, 200, 150 20, et cetera. And they're rebalance once a quarter, again largely on market cap size. They do have some other issues around liquidity that they, they will apply to the stock. So like if an owner founder still owns a large portion of the shock, even stock, even though the market caps up, the liquidity is the important thing for the indexes. And yeah. So the, they generally give two weeks notice of when they're going to add or subtract something from an index, which gives, if you reg light, it gives us a chance another investors a chance to buy them because once they do hit the index, then a particular fund manager who has a mandate to only buy the ASX all ordinaries or the ASX top 20 or whatever will have to buy them.
Tony Kynaston (22m 13s):
And so there's buying in the market and so the price goes up. And the reverse is true that when, you know, if something's added to the top 20, that means one's gotta come out and, and that the price can go down because of that too. It's an interesting phenomenon and it's been researched and what I've found as well is that that bump lasts for a while, but it doesn't last forever. So once the Instos have bought or sold, the price can settle down again to reflect its intrinsic value underneath.
Phil (22m 39s):
And and that bumps not just happening on one day, is it? It can happen over a period of time Yes. At different stages, can't
Tony Kynaston (22m 45s):
It? No. And sometimes you don't see the bump when it goes into the index because as I said, people have worked it out beforehand and some people even focus on working it out before the index providers make the announcement two weeks out so they know this company's growing and it's marketing and
Phil (23m 2s):
And they can see where the numbers are heading and Yeah. Yeah. There is a good chance that it is gonna get into the index.
Tony Kynaston (23m 7s):
Yeah. Or the reverse. They can see it's dropping and they'll sell it before it has to be sold by the institutions. Yeah.
Phil (23m 12s):
So the full Qav club version has been around for a while. Yeah. So what, what inspired the light version?
Tony Kynaston (23m 19s):
We had feedback from members saying love the doing it myself, love learning the process, but I'm busy. I'm, I'm, I'm a doctor or lawyer or run my own business. And I,
Phil (23m 30s):
Because it takes a lot of effort and commitment, doesn't it? The full QAV club version?
Tony Kynaston (23m 34s):
Yeah. I think it takes a fair bit of effort to learn it and then the commitment's not as much time. Like I, I would spend sometimes only five minutes, you know, looking at it gets a bit busy during company reporting season when there's,
Phil (23m 48s):
Because that's when all the numbers are being adjusted.
Tony Kynaston (23m 50s):
New numbers come out and the stocks tend to move on the new numbers, which makes sense. Yeah. You know, companies come out with a good profit and the stock price is gonna go up. So bit of work around that time. But it is commitment and that's one of the things I tell our listeners when they start the process is you understand you're doing this for the rest of your life, you need that. You can't just do it for six months and then go, I'll just leave it for a while and then come back and go, oh look what's happened to my portfolio. It's, it's like going to the gym, it's a, a health process, a hygiene process you have to go through. So we decided to start QAV light, which is a cheaper option for, for people. And we run some dummy portfolios because as we said before about transparency, we like to be fully transparent because it's one thing for me to say for the last 25 years I've been getting double market, but you know, that hasn't been audited or Yeah,
Phil (24m 41s):
Yeah, that's right. Or
Tony Kynaston (24m 42s):
Or out in the public eye. So we started up a dummy portfolio to trade or to invest QAV style about September, 2019, so three and a half years ago. And that's been getting double market or double two and a half times market since then. It's all transparent on that website. And then we also about a year ago, set up some other dummy portfolio so that if you're a QAV Light subscriber, you can trade along with us. And so you get an email when we buy something and you get an email when we sell something and then you can mimic that kind of trade and you know, if you miss this one because you are busy, then there's not gonna be another one coming along. And the benefit of that is a lot of services tell you what to buy, but they don't tell you when to sell it.
Tony Kynaston (25m 25s):
And so the fact that you are following along with our, our process means that we'll tell you when we, we sell it and you can sell it as well if you, if you choose to.
Phil (25m 33s):
I'm a new user of Light myself and I do realize it is actually not hands off, it's not completely hands free. Right. Is it? You actually do have to follow and set up alerts for yourself. You gotta make sure that you're across the sell, you know, so that you don't breach rule number one, the most important rule of all. Yeah. There's a lot of work involved in it. Well actually it's not a huge amount of work, but you do really have to keep an eye on it, don't you?
Tony Kynaston (25m 58s):
Yeah, well we do, we do have, like, as part of our training procedure, we say if we've recommended something and you didn't get to it for a couple of days on, the price is materially different. You've gotta, you've gotta be able to track your own rule one price. So again, you might decide just not to buy that stock because you missed it for whatever reason you went on holidays or whatever. So we, we encourage people to try and buy as close to our buyer price as they can and then they can use l sell to sell it. But, but you don't have to and you can set up your own alerts and you can track your own rule ones if you like it. It's just as good.
Phil (26m 29s):
Yeah. Yeah. And how about brokerage? How do you have to factor in the brokerage? Because what size, what kind of size portfolio would you be looking at to make sure that it's meaningful as opposed to the brokerage that you're paying and the costs involved?
Tony Kynaston (26m 42s):
Oh yeah, it's a good question. I don't really know what the minimum size would be. I mean, online brokerage is fairly cheap these days. You can get $10 trades out there, which is what we use in our dummy portfolio factors at the other end of the spectrum. And I use a full service broker and they charge a small percentage on every trade. So it's, it's along the way. So no, we've got people out there who have probably, there's a few less than a hundred thousand dollars portfolios out there that we know about, but most of them are a hundred thousand and up.
Phil (27m 13s):
Wow. It's not my portfolio. And some stocks, especially mining companies and so forth, they're dependent on commodity prices. And Well I noticed in the Facebook group that there's been a lot of discussion about the price of wheat affecting certain stocks in the
Tony Kynaston (27m 34s):
Phil (27m 34s):
Yeah. GrainCorp in the portfolio and what what particular metric of the commodity prices to be used. Correct. Yeah. Let's just have a bit of discussion about how commodity prices do affect the QAV valuation system.
Tony Kynaston (27m 45s):
Yeah. So if we can find an underlying commodity for a stock and we, and generally we find that the stock price of the company tracks the stock price of the commodity, which makes sense. If you're a a tin miner, you're gonna follow the price of tin. Other things can change the stock price of the company cuz they, they could be, you know, very good at running the tin mine or they could be merging with another miner or they could be, you know,
Phil (28m 9s):
Well they've got a great deposit of tin.
Tony Kynaston (28m 10s):
Yeah. Or they could just be about to announce their exploration has hit something. So yeah. So it doesn't always follow one-to-one, but generally if it's, it's gonna be hard for the tin miner to make improving returns if the price of tin is going down. So we use our three point trend line system to track the underlying commodity. So in case 10. Yeah.
Phil (28m 29s):
Yeah. And what about GrainCorp in that particular instance? Because like I said, you you, there's a wheat price but then there's, what are those, those different wheat prices?
Tony Kynaston (28m 37s):
Yeah, so we do have to do a bit of research and we, we do it and, and,
Phil (28m 41s):
And this is greater is people who use are in the, the club ecosystem that they're actually looking at these sort of things and discussing it and trying to improve and sharpen methodology. Correct?
Tony Kynaston (28m 53s):
Yeah. Cuz I mean, commodities is a, is a big universe and there's wheat prices in America and wheat prices in Asia and wheat prices here. So we try and take the relevant wheat price that matches the market, that GrainCorp are serving into, which is mainly Asia and, and Europe, bit of Europe. So we use sites like Trading economics to, to find that particular graph and then we, we just watch it every month and, and, and track whether the sentiment's going in favor or against that particular commodity. And there's a whole universe of stocks out there. You mentioned big river industries before. And so they, their underlying commodity we think anyway is timber because that's, that's what they do. They, you know, produce timber products.
Tony Kynaston (29m 34s):
So Yeah, again, if it's, if if lumber isn't selling so well, it's hard for them to put their prices up. So Yeah, there's again, there's, there's commodities and a lot of things out there.
Phil (29m 45s):
Well, Fortescue is one of the great examples of it as well.
Tony Kynaston (29m 48s):
Correct. Yeah. Iron ore. Yeah. Which has had a great run. Yeah, it's a classic one for us because we had, I owned Fortescue Metals, but I sold it when the iron ore price breached it sell loan and the iron ore commodity price was as high as above $130 a ton, it's now back below a hundred, I think it's around 80, 85 a ton. And that does drive the, the margins of the, of Fortescue and the other iron ore miners. And you can see that in the stock prices, they tend to track the iron ore price.
Phil (30m 15s):
Yeah, yeah. So is it that close, does it relate that close the price of the, it's
Tony Kynaston (30m 19s):
Never one to one because it's one of things going on. And and Fortescue Metals Group now has the, the Fortescue future industries component to it. So there's another leg to it. Yeah. And if you look at some of the other bigger, bigger minors that have more than one type of commodity, you've gotta look at what the predominant one is and, and that's generally the major impact on their share price. Yeah. And,
Phil (30m 39s):
And Fortescue has got a different grade of iron or to say the BHPs or the Rios does it
Tony Kynaston (30m 43s):
It does, yeah. Has a lower grade of iron ore, which can get blended with the higher grades by the electricity provider or even the smelter in some cases, yeah. Overseas.
Phil (30m 53s):
Okay. So at this point we'll put in the plug for the promo code. Okay. If you use the promo code SFB as SFB for shares for beginners, there's discounts available now with the Light. If you sign up for the Light plan, you'll get a month free. And if you go for the full club version using that coupon code, you get a 20% discount as well.
Tony Kynaston (31m 13s):
Yeah, thanks Phil. It's, it's, we certainly had a lot of people referred to us from shares for beginners, so that's great.
Phil (31m 19s):
Yeah. Well this is what, we've had a couple of dinners where we've chatted to people who were actually listeners of this podcast and who have been thanking me for being introduced to QAV.
Tony Kynaston (31m 29s):
Oh, that's nice.
Phil (31m 30s):
Yeah, no, it is nice. And that's, I mean, we don't wanna push it to anyone, you know, consult a financial advisor before making any decisions, but yeah,
Tony Kynaston (31m 37s):
No, we're not pushing it. We, we do have the two levels of subscription. We do have discounts, via Shares for Beginners, which is great. Come along and have a listen, you can listen to the first half hour for free every week anyway. And there's a trial period as well if you'd like to try it out and decide whether it's for you or it's for, it's not for you. And I mean, that's an important thing because everyone invests differently. Some people just don't get the numbers. They'd rather listen to the stories and make their investments thematically. So yeah, check it out and see if it's for you.
Phil (32m 7s):
Tony, thanks very much. It's been great to see you again.
Tony Kynaston (32m 10s):
Thanks Phil. Likewise. Yeah, it's always good to come around.
Phil (32m 12s):
Happy birthday. Yeah,
Tony Kynaston (32m 13s):
Chloe (32m 14s):
Thanks for listening to Shares for Beginners. You can find firstname.lastname@example.org. If you enjoy listening, please take a moment to rate a review in your podcast player or tell a friend who might want to learn more about investing for their future.
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