QAV U.S. 001 Audio

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Cameron: Welcome to QAV U. S. edition, 001, 001, to the Market. is Cameron Reilly, my co host Tony Kynaston, a. k. a. TK. How are you, TK?

TK: Very well, thanks, Cam. Am I supposed to speak in another dialect? Hi y’all!

Cameron: we’ll do some American accents. Uh, we’ll, we’ll, we’ll phase in and out. so for people who are listening to this for the first time, welcome.  For American listeners who haven’t listened to the Australian show, just a quick background.

So Tony and I have been doing, uh, this investing show for five or six years in Australia. Basically, we teach a method of value investing that Tony has developed over the [00:01:00] last 30 odd years we call QAV, which stands for quality at value, basically identifying quality stocks. and buying them when we can get them at the right value or a discount to intrinsic valuation.

Tony over many decades developed this system for himself we’ve been teaching it on a podcast, as I said, for five or six years, focusing on the Australian market because that’s where we both live. But over the last couple of years, we’ve had Listeners in the United States say to us, Hey, we’d really like to have you talk about the American market so we can apply it to that.

so about a year ago, I did develop a version of our checklist for the American market. I built a test portfolio and it’s done reasonably well [00:02:00] compared to the S& P 500 over the last year, year and a half. And so we thought it was probably time to start a US version of the show. Now if you want to know the details about Tony’s background or the QAV system or the checklist, we’re not going to cover that.

Today, because we have a couple of dedicated episodes that goes over that in great detail. If you go into our archives, find episode 301, 303, and 305. You can hear us talk about those things for a few hours and get a good sense of how it all works. we tend to do in our weekly shows is we about the portfolio, any big movements in the portfolio.

We talk about what’s going on in the markets, any big news stories, either involving the market in general, or the, the stocks that we have an interest in in the market. Get a sense for what’s going on out there. And I [00:03:00] think that’s where we’re going to start. And I quite honestly. Because we haven’t really played a great deal in the U.

1. market, even though Tony lived in Toronto for, what, about five years, Tony?

TK: Yep,

Cameron: And that was, what, about ten years ago? How long

TK: I’ve been back six years.

Cameron: Oh, right. Um, but even when you were over there, you didn’t really invest in the North

TK: No,

Cameron: right? You

TK: no,

Cameron: invested in Australia.

TK: yeah, that’s right.

Cameron: But, Tony, you developed this system.

Uh, by classic value investors, many of whom are or were, uh, Americans, guys like Buffett,

TK: Mhm,

Cameron: Peter Lynch, et cetera, et cetera, and, and then of taking bits and pieces of their teachings and building your own system around that. And of course, the theory behind value investing should [00:04:00] be applicable regardless of the market you’re in.

Basically, we’re

TK: mhm.

Cameron: well run businesses that are generating a lot of cash, have got a good track record of being well run, but for whatever reason, they’re undervalued by the market. At the given point in time, we try and identify them at that point in time buy them and then Wait until the market realizes that they’re undervalued and the share price goes up and it’s happy

TK: Yeah, no, that’s, that’s value investing in a nutshell. Um, adapted a little bit, um, from, know, pure Buffett and Munger. Uh, largely, largely I think because I, didn’t have the time or the aptitude to drill into financial statements in the way they do, and, uh, or their, you know, business experience.

I’ve run a couple of companies in my corporate career, for some [00:05:00] big companies, so I have a good knowledge of finances and business, but, uh, you know, my, I guess my circle of competence was in retail, We invest in all sorts of other different companies and that, that led me to developing something based on the numbers that I could quickly scan the market for companies that met, but it scored well on a checklist and then go from there, for my investment portfolio.

Cameron: Yeah, and I you know for me Coming into this not knowing much about investing five or six years ago one of the things that I’ve really appreciated about QAV is I’ve built my own portfolios over the Time that we’ve been doing. This is that don’t need to become an expert on any particular business or sector.

I just had to become good at being able to read the numbers, understanding the numbers, letting the system tell me what to buy, when to buy it, what to sell, when to sell it and making the decisions for [00:06:00] me because the decisions are based wholly on and charting. Really,

TK: Yeah, numbers and rules.

Cameron: Numbers and rules.

Yeah. It removes the emotion from the process. And, um, as we’ve talked about many times over the years on the show, emotions, uh, probably what mess up many investors protect, particularly novice investors, they either get caught up in the hype cycle buy things that they shouldn’t be buying.

Because they get swept up in the fear of missing out or the hype about what’s going on. And conversely, they will then sell when there’s a lot of negativity in the marketplace. Uh, and they might sell at times when they shouldn’t be selling because they’re not selling for the right reasons. So they buy for the wrong reasons.

They sell for the wrong reasons. And one of the great [00:07:00] things about having a system. A checklist that tells you what to do and when to do it is you sort of avoid the emotional mistakes that novice investors tend to make.

TK: Yeah, if I could just add to that too, I think it’s, uh, it also, I mean, people should realize that that checklist doesn’t mean we avoid every mistake. It’s, there’s a statistical element to this that it improves our chances of making good decisions. Certainly. Certainly. I’ve fallen into the camp, as you’ve described, of buying at the wrong time and selling at the wrong time.

I think it happens to every investor. uh, having a framework to do it improves our rods of getting, you know, 6 out of 10 right, as Warren Buffett says he gets.

Cameron: and that was, I mean, I think that’s a great principle is you only need to get six out of 10 right over a long enough period of time a big difference. And the other [00:08:00] thing that people should understand if they’re new to QAV is we’re not trying to shoot the lights out. This isn’t a short. term, get rich quick investing strategy.

It’s the opposite of that. It’s

TK: Mmm.

Cameron: a set of core principles that you follow over the long haul will give you good on average, good returns versus the market. We aim for double market over a long term, uh, not, you know, trying to do a hundred times the market or a thousand times the market, uh, in six weeks or your money back.

It’s a set of principles that we follow day in, day out, week in, week out, year in, year out, doesn’t

TK: Mmm.

Cameron: where the economy’s at, where the cycle’s at, if it’s a boom, if it’s a bust, doesn’t matter what’s going on. In fact, it’s kind of boring because we’re always just follow the rules, get up in the morning, follow the [00:09:00] rules, and it will keep you relatively safe.

TK: Keep you, keep you safe, um, ideally not be too, uh, Too much of a drain on your time. That was one of the things I was always careful to try and engineer into it. I mean, I still, you know, read the financial press every day, but I oftentimes won’t look at my portfolio for weeks on end. Um, I set some alerts and based on rules and wait for those to be triggered.

And then maybe after, you know, well, it’s six monthly reports in Australia, quarterly reports in the U S I might go in and update my rules or, um, have to do something because that’s generally when the portfolio its biggest moves is when new numbers are announced.

Cameron: And as a result of the value investing system, the way that it’s constructed, we tend not to be involved in high risk, high reward [00:10:00] stocks. We’re not buying crypto, we’re not buying the mag seven, we’re not buying anything that could suddenly, usually. There can be results come out and a stock can take a hit, but generally speaking, we’re not high flying companies that are running on massive PEs and massive future promises.

One of your favorite sayings is, if I wanted to hear a story, I’d buy a book. we don’t

TK: Mm hmm. If you like this video, and if you, for any reason, don’t, make sure to subscribe to my channel.

Cameron: basis. So I track it via. Stockopedia service where we [00:11:00] get our numbers from for the U. S. market. I started our U. S. portfolio, oh, almost two years ago now. was in March of 20, hold on, no, goes back even longer than that.

September 2023 it was, not two years, year and a half. And over that period of time, it’s grown about 83 percent versus the S& P 500, which is up about 34 percent over that period of time. So not quite triple the S& P 500, but not far off triple. Now, that’s pretty good from where we sit. Uh, I wouldn’t expect it to do that long haul, long term.

think, uh, double. Is probably a more realistic expectation long term. It obviously doesn’t compare with some of the growth that the mag seven stocks have had in [00:12:00] the last couple of years. But again, we’re not trying to compete with the mag sevens. We’re just trying to get good returns. The way I normally talk about it, it’s relatively low effort.

Relatively low risk, relatively conservative and trying to get pretty good returns for those things. Not trying to the best returns in the marketplace, but just pretty good returns. Double market’s pretty good with relatively low risk in a relatively low time and anxiety level.

TK: Yeah,

Cameron: Mix.

TK: yeah, I mean, just to add to that, from my experience, uh, look, it’s, you know, It can be hard being a value investor when stocks are going up in the growth sector, but it’s great being a value investor when they come down. So we’ve just gone through the Australian reporting season and some of the stocks I hold have dropped 10 15 percent on supposedly bad numbers and they’ve [00:13:00] recovered quickly, but I know from experience if it was a growth company on a PE of 70 or 80 times and delivered a similar bad number, they don’t drop.

10, 15%, they drop 30, 40, 50%. So it’s, um, when the P is lower, there’s less, less compression that can occur with a bad miss or with a miss. Um, so that’s, you know, I think that’s important to remember. We give up, uh, well, I don’t think we give up any of the good, any of the upside. I think over the long term. Value and growth traditionally have, depending on the cycles, um, been reasonably similar in long term returns. It’s just that one’s more volatile than the other, really.

Cameron: Yeah. And gets more headlines than the other.

TK: And gets more headlines, yeah.

Cameron: Yeah. And, you know, we, uh, you know, I often talk when I’m talking to people outside of the podcast, just at parties, um, which I’m never really a big hit at, but I will, I’m either talking [00:14:00] about ancient history or, uh, cold war or investing. I talk about the difference that I’ve learned from you over the years of doing this between.

Being an investor and being a speculator

TK: Hmm. Hmm.

Cameron: like a lot of these high PE stocks have a high PE because people are speculating on what their future returns be on future of artificial intelligence or the future of dot coms or the future of daffodils or whatever it is that the bubble is in, uh, at the time.

And some of those speculations will pay off, many won’t. Historically, we can go back and read about how these speculative bubbles play out. usually are a couple of companies that do quite well and survive somehow during the consolidation and collapse phase. Being able to [00:15:00] pick Ahead of time, which ones are going to survive and which ones aren’t is inordinately difficult.

Even the people that specialize in these sectors like venture capitalists who do it for a living not to have a great track record of being able to pick the winners and losers, which is why they invest in a thousand of them and hope that one out of those does well and they can

TK: why,

Cameron: 999.

TK: that’s why they use other people’s money to do it too.

Cameron: Yes.

TK: the ticket. Yeah.

Cameron: Yeah. Uh, and the companies that we tend to invest in tend to be companies again, that are relatively boring. been around a long time. generate cash rather steadily. They, they’re pretty well run for whatever reason, their price isn’t really being appreciated at the moment in the marketplace.

try and pick them up when they’re You said on a very early one of our shows, buy stocks the same way you’d buy [00:16:00] anything else when it’s on sale.

TK: correct. Yeah. sometimes those, the companies we invest in are, are cheap because of the fact that people don’t see them as being sexy and, and high growth and all that kind of stuff. But they still chug along and, and you know, we use the coffee shop examples. Um. Everyone can relate to their local coffee shop and, it’s not too hard to know if that business is doing well or not, and not too hard to understand, you know, if you were offered the chance to buy it, whether it’s, it’s a, it’s a or whether it’s a bad price. generally, um, if the owner is selling you the business and they’re telling you about all the wonderful plans they have for the future, the place is empty, it’s, it’s, it’s a bad price. and, and that’s the same sort of conversations I have at parties when I talk to people about investing and they tell me how great their portfolio is going. I just ask them some questions. What, you know, what’s under what circumstance are you a seller? And usually it’s, Oh, yeah. to the moon, I’m not going to sell. I can say [00:17:00] okay, well that’s the first thing you’ve got to work out because no tree grows to the sky and eventually you’re going to have to sell and you’ve got to work out what circumstances because those high flying companies can drop all the way back down to pretty much where they started from which is was my experience in the dot com bubble when it burst in the GFC when I was investing, but those companies dropped very, very heavily up the stairs and down the elevator shaft is the is the sign for companies like that. So the first question is, when do you when do you sell? And the second question is, um, where’s your crystal ball? Because if you’re basing your whole investment thesis on what the company’s going to do, uh, it’s good luck to you because it’s all prediction and, you know, I ask people what the odds are of their prediction coming. Sure, when they’ve got no idea, so then is, well, how do you know how much money to put into it if you don’t know what the odds are of the prediction coming true are? And we saw that with all of the, um, uh, Buy Now, Pay Later companies, which was probably one of the examples of our [00:18:00] latest booms Australia, and it did go into the U.

1. as well, where, uh, people with stars in their eyes were talking about, you know, Used to be called eyeballs in the dot com boom, but now it was called the addressable market. days, how many people out there with credit cards that were going to cut up their credit card and replace it with four equal payments, uh, on a basically an electronic lay by system and how big that market was. and all those numbers were Right. What was wrong was the prediction that the buy now pay later companies were going to take it over. had great penetration, but they haven’t had complete saturation as most of the predictions were, um, were saying. And so, yeah, like if you’re basing something on the story of what’s going to happen, you’ve got to treat it like any other story.

It’s a work of fiction. Um, hopefully it has a happy ending, but that’s, you won’t know until you get to the back page. That can be, that can be costly going on that journey.

Cameron: Well, speaking of, uh, [00:19:00] why and when you’re going to sell, we have a couple of we call cell triggers in

TK: hmm.

Cameron: uh, where we think the sentiment a particular stock Is heading based on drawing some three point trend lines, and I had to sell two stocks out of our U.

6. Portfolio yesterday because they had both breached their three point trend line for a cell trigger. of those was lands end L E, which we had held for a little over a year. I bought it November. 2023 at 6. 92, had to sell it yesterday at 11. 78. we got out of that with a 70 [00:20:00] percent return over, uh, what’s that?

14 months, give or take, which was quite good. Land’s End, uh, interesting company, uh, people

TK: hmm.

Cameron: have been around for a long time, but, uh, The three point trend line sort of tracks where the sort of low points are in their share price over five year, when we look at the end of month prices over five years, and it gave me a sell trigger for it yesterday.

So I decided to let it go. And again, that’s sort of a no brainer for us because I don’t need to drill too deeply into their financials. I don’t need to think about the retail sector or impact of interest rates or the impact of [00:21:00] tariffs, or I don’t have to calculate any of that kind of stuff. I just.

Tells me that, uh, I should sell it, and so I did sell it, for rightly or for wrongly, we’ll, we’ll, never know, but, uh, because we’ll move on and buy something

TK: don’t look back, yeah,

Cameron: Yeah, it’s the ex girlfriend rule, never look up your ex

TK: yeah,

Cameron: see what they’re doing now.

TK: yeah.

Cameron: Company I had to sell yesterday was GSL Global Ship Lease, which is a United Kingdom based container ship owner.

We’d held that for a shorter period of time. I think I bought that in January of 2024 sold it at 21. 83. So it was only a 6 percent return for us over a year, which is going to anyone’s day, but, uh, we got out of it so I’m not complaining, but I should. Point out for people that are wondering why our portfolio has done so well over [00:22:00] the last

TK: provided by Transcription Outsourcing, LLC.

Cameron: company W L F C is what it sounds like. It’s a finance corporation, a lessor and servicer of commercial aircraft and aircraft engines. Um, It’s up 326 percent since we bought it. Uh, let me see. When did we buy it? Uh, November, 2023 47.

TK: [00:23:00] Hm.

Cameron: of Latin America, it’s up 69 percent since we bought it. ENVA and Nova International is up 67%, RM Regional Management’s up 38%, OPHC, Optimum Bank Holdings is up 28%, and then we’ve got a handful of others.

ESEA up 20, CPSS up 13, KT up 11, UBS up 11. So, like, they’re not all gangbusters, but there’s a handful there that have done very well for us over the last months. So that’s really helped our returns. I mean, you don’t get a stock like Willis lease finance come along very often that does 300 percent over 18 Nice to have when you get them.

TK: Hm. No, exactly.

Cameron: And what we tend to like in [00:24:00] my short period of doing QAV and looking at your results over the last 30 years, the way it tends to work, I think, is we tend to have a really, really good year. we get really outsized returns. And then we’ll have a couple of really bad years or very, very average years where we underperform the market.

And then a bunch of years in the middle where we’ll do sort of market level returns a bit better. Bit worse, you know, they sort of are somewhere neutralized in the middle there. And over a long period, and I’m talking 5, 10, 15, 20 years, this sort of balances out to where you end up doing about double market over the long haul.

TK: Yeah, that’s, that’s a fair assumption and, and you can see that in the Australian in. dummy portfolio that we set up when we started doing the [00:25:00] podcast here five or six years ago. It outperformed incredibly when we first started before COVID hit and then we got out of the market as COVID was breaking and then got back in on the way up.

So we locked in our outperformance, and then probably in the last couple of years, last three or four even maybe, we’ve kind of just gone along market, but not as strongly as it was at the start. And that’s, yeah, that’s pretty much, that’s a good template, I think, for how outperformance normally occurs longer term.

I will.

Cameron: early 2021. Uh, cause we, again, I think largely because our system told us to start investing, we like to stay fully invested when the system allows us to be. And we did that pretty quickly. Um, when the impact of COVID Australian economy wasn’t as dire as early predictions thought it might [00:26:00] be when the government came in with a rescue package pretty quickly.

And, uh, we got all of the growth that came off the bottom after the market plummeted early on in COVID really outperformed and then locked in that outperformance and have kind of just gone back to being basically double market over the last five or six years in Australia. So that’s a quick rough summary.

And by the way, I sold those two and I added one stock, which was integrated shipping services, which I. I think you’re gonna talk a little bit about, we, we like to do a segment every episode, we call it Pulled Pork, some reason, I’m not sure why we started calling it that, but Tony was gonna do a deep dive, pulling it apart,

TK: Ooh,

Cameron: my

TK: a pull apart.

Cameron: who comes from Utah, loves pulled pork and makes pulled pork on a regular basis.

I think I said we’re going to pull it apart like a pulled pork [00:27:00] and it became the pulled pork segment. By the way, when you said a coffee shop analogy before I was like, Chrissy’s family in Utah don’t understand the coffee shop analogy because Mormons don’t drink coffee.

TK: Nah, okay.

Cameron: if you’re in Utah, think of it as a soda shop, uh, analogy, maybe.

Yeah, or a

TK: store nearby. A very simple business to value.

Cameron: ice shop, uh, nearby, uh, shout out to all the nice folks in Utah. So, um, before we get into Zim, Tony, I just, I was looking through news stories for what we could talk about in the U. S. market. People may be wondering what do two Australians know about the U. S. market? The answer is nothing really.

Um, you know, we’re coming into it. I mean, we read the news, we pay attention, but, uh, we’re definitely not experts on it. But I think one of the things QAV has demonstrated to me over the last five or six years, [00:28:00] you don’t need to be an expert on anything, really, you understand how to read the numbers and follow a system, which is good.

TK: I think it’s important to say that a lot of our Australian listeners use us as a starting basis to develop their own. investment style or system following, I guess, the framework of QAV and using some of our tools our buy list and our sentiment checker and things like that, but, but doing their own thing, which is entirely what we’re trying to do. It’s to educate people. Um, we don’t, we don’t get anything out of whether you buy or sell a share. So, um, it’s, it’s not about that. It’s about here’s what I’ve done. And, um, Camden and I talked about it, and I started to teach him, and then we put a podcast together, and then people got interested. And, uh, yeah, it’s, it’s kind of a giving back for me, um, on what I’ve learnt over the years.

But, uh, but yeah, I mean, don’t We’re not trying to push [00:29:00] a system for slavishly following, it’s, it’s, it’s a framework. Um, we like it when people modify it and come back and tell us what they’ve done and how it’s worked or it hasn’t or whatever, so, it’s more of a hive mind, I think, with what we’ve been doing in Australia over the last five or six years, which has been great.

Cameron: And it’s evolved over that period of well. You know, you’ve modified things, changed things as we get feedback and we’re continual regression testing and using AI to test things more and more and sort of at ways that we can optimize it, tighten it up, improve it. So, uh, the only news story that I really had to talk about today, Tony, I got in the New York Times, uh, yesterday.

Stocks dropped in

TK: [00:30:00] So, uh,

Cameron: market. The pullback was driven in part by renewed concerns about the inflationary effects of sweeping tariffs, which Mr. Trump already imposed on China has said he will broaden to Canada and Mexico next week, recently as late 2024.

Investors had expected the Federal Reserve to cut interest rates several times this year. Moves that would be positive for stocks and the economy, but that view has shifted quickly amid concerns that inflation will linger longer than expected. With rates set to remain elevated, worries have extended to the broader impact on the economy.

Recent economic surveys showed a sharp decline in consumer sentiment, in part because of pessimism about employment [00:31:00] prospects, as well as expectations that prices could start to climb have fuelled caution among investors too. Now, some investors, when they read stories like this and read indications about the future of the economy may be worried about whether or not they should be investing or how they should invest, but I know from experience when you read stories like this, you just go, and so what?

and

TK: I don’t read them. Yeah, well, stories like this can drive the market, um, but it is reporting what happened in the market. And that there’s some legitimacy to that. if I was there. Somebody who knew an awful lot about the automobile industry, I might be concerned about the effect of tariffs on Canada or Mexico, which is what the market got the wobbles for last night as we were recording on the 4th of March in Australia. [00:32:00] Uh, but I don’t know enough about the automotive industry to predict what’s going to happen because of tariffs, so I’ll wait and see Automobile manufacturers come, come onto our by list now because they’ve been beaten up by perception of tariffs, even though they’re probably still very good underlying businesses, but we’ll make an assessment on that.

So yeah, it’s more about dealing in the facts and dealing in the speculation that I worry about. I do read the financial press. I think it’s still important to know what’s going on. But really what I get. interested in the financial press is if there’s a story about one of the companies I own and, and, you know, maybe about their results that they just released or something like that, that’s what I’ll pay attention to. Not necessarily the big macro picture of what’s going on.

Cameron: Macroeconomic forecasts. It doesn’t really matter because at the end of the day we’re buying based on the numbers and the numbers of the numbers in good times and bad times. There’s [00:33:00]always something to buy and there’s always businesses, at least in my experience so far. There’s very, there’s been very rare periods where there hasn’t been anything to buy.

There may be a week or two where I struggle to find stuff to buy. But generally speaking, there’s always something to buy. you know, there are businesses that do well in certain parts of the economic cycle. There are other businesses that do well in other parts of the economic cycle. We’re just trying to find those and, uh, buy the ones that we think are undervalued today based on their numbers, right?

TK: Yeah, and it’s often the case, in terms of macro cycles, we don’t, I don’t really see what the macro cycle is, industry by industry, until I turn around after six months and say, huh, huh, I’ve got, I’ve got a few banks in my portfolio, or I’ve, I’ve got a few airlines in my portfolio, or whatever. And you realize that that’s because that industry was. bombed out and we bought the companies that were in it because they’d been around for a long time and they’re still good [00:34:00] quality and then of course they started to regress to the mean again and whatever headwinds they were facing eventually blew out and then they came good again.

Cameron: Alright, well that’s all that I wanted to cover off on today, just as an example of how we think about macroeconomic forecasts. Uh, do you want to do a bit of a pull pork on

TK: will. Yeah. So this is a new one in the, in your dummy portfolio. Um, it’s, I, I guess I want to say before we get into it, that we very rarely focus on the story or, any sort of. filtering over the particular company, and we’ve covered and analyzed and bought and sold coal companies and oil companies and got their own filter or their own red line, as I like to say, on companies that they don’t want to buy.

And that’s completely up to the individual listener and investor. And so I’ll say that at the start, we’ll still cover [00:35:00] these companies and you can make it up. You can make it your decision as to whether your list or off your list, but the numbers for this company are on the list. And the reason why I’ve given that preamble to this company is because it’s based in Israel and that I’m not going to have a perspective at all on.

Um, on that, on the Middle East, what I’m going to do is talk about the numbers for this particular company. if it is of interest to the listeners, they can go and do their own research and then, um, decide whether or not, uh, they want to get involved or, or look on. Um, this company Zim is a global shipping company.

It is based on the New York Stock Exchange, even though it’s, um, it’s from Israel. been around 75 plus years. Um, Uh, from when, from when Israel was founded after World War ii, and in fact, the first boat that was bought by the company was to bring people from post-war Europe to the Middle East. So it’s, it’s followed, it’s tracked the history of Israel all the way through its history. Uh, [00:36:00] 1953, they started to expand, uh, more internationally. And they acquired 36 cargo, boat, carrier, and container ships. They launched a range of passenger and cargo services. They can continued to do that, but discontinued the passenger service in the last, in the late 1960s as air travel became more popular and more widely accessible. So they moved at that stage completely into international cargo shipping, and they’ve been doing that ever since. By the time their 25th anniversary came around in 1970, the company owned 77 ships, chartered 70 ships, and operated 19 major cargo lines carrying 4. 3 million tons of cargo annually. After that, they were a pioneer in the area of containerized shipping, which is now one of the first carriers in the world to adopt the technology was new at the time. I’ve got to say, I think containerized shipping [00:37:00] is one of the unsung heroes of the 20th century. Uh, in terms of the impact it’s had on our lives and our, our economics that probably people overlook every day, but just the, the mere fact that used to be shipped piece by piece, um, pellet by pellet, by bag, and then unloaded and repackaged and put on a truck or a train and then unloaded and repackaged and reassembled in warehouses and then uh, Taken by small trucks to local shops and then taken home by you and your car. Um, to move to the fact that everything is now moved in a standardised container that can be picked off a ship by a crane, dropped onto a flatbed rail truck, shipped around internally in the country, taken off the train at a siding, put on the back of a semi trailer, um, without ever having to have the container opened and repackaged is just amazing.

And it’s just, you know, Um, allowed for productivity increases worldwide and, and probably driven [00:38:00] the whole backbone of international commerce for the last sort of 50 years. So Zimmer being in the middle of that and were a pioneer for that. In 2004, they became a private company. So they had, uh, been, uh, partly owned by the Israeli government up until then. then in 2021, they IPO’d on the New York Stock Exchange. So a long history. Um, now fully publicly owned, uh, if I look at their latest results, which is the quarter three results. So from, uh, end of September, 2024, uh, total revenues for the nine months of the year, uh, were, well, 6. 2 billion compared to 6.

3, 3. 9 billion the year before. So significant increase in, in revenue. Uh, the company called out that that was driven both by increases in freight rates as well as by carried volume. Uh, they carried, uh, 2, 768, 000 TEUs, they’re called, [00:39:00] which is their terminology for 20 foot equivalent units. Again, these containers that we’re talking about. They carried 2, 768, 000 TEUs in the first nine months of 2024, compared to 2, 496 in the first nine months of 2023. Uh, the. freight rate for that per TEU was 1, 889 for the first nine months and 24 compared to 1, 235 for the first nine months of 23. So numbers are up across the board for this company. They declared a special dividend top of their regular dividend. So a special dividend because they did have a very good quarter. So all in all, good results. If I run through what we call the QAV numbers. Now, um, this is to go to, I’m going to go through our checklist and look at their scoring this company based on the things that we, um, we find useful. All these numbers are in US dollars, by the way, if anyone from [00:40:00] Australia is listening in or anywhere else in the world. Uh, it, Zim has just become a buy on the sentiment checker, but it’s currently what we call a Josephine. So, um, a couple of. Concepts to explain there, uh, and I haven’t used the terminal, uh, the term, um, the, um, term yet, Brettalator, but it’s what we call our sentiment checker because it was coded by, one of our listeners called Brett, so we call it the Brettalator. basically, it’s, uh, I’m not a fan of charting, um, I’ve, tried to use it in the past and never found it to be a useful tool in and of itself. But what I did find was that as like a lot of value investors, I was a buy and hold investor the GFC came along. And I watched, um, my, uh, my portfolio dwindle by a lot, um, in the GFC.

And I thought there has to be a better way of doing than to see that happen and have that kind of hit to your portfolio [00:41:00] and I guess came up with a, um, did some reading, a lot of, there’s a lot of research out there about moving trend lines and people might be familiar with that if they’re listening in about 30 day averages over 90 day averages and things like that.

And this is what we use as kind of a refinement of that. Very simple concept. I use a five month. five year monthly graph. So there’s a, it’s really a high level trend line. It doesn’t move around as much as a weekly or a daily or a yearly graph does. So we take a bit of volatility out of the graphing. And if you look at any stock on that kind of period, you’ll probably find that it moves in a channel. and down. So they still wiggle around and zigzag, but if it goes, if it’s doing well, it goes from the bottom left to the top right. And if it’s doing poorly, it goes from the top left to the bottom right. it may go up and down in that process, but generally it follows a channel. And you can draw a line across the bottom of those troughs [00:42:00] and across the peaks of those highs they become the breakout indicators.

And so we’ve coded that process. recently went through its buy, so it, um, it reversed the downward trend. according to that sort of five year monthly graph. but it’s currently what we call a Josephine, as in not tonight Josephine. So even though it’s a, it’s, it’s broken out of its long term downtrend, it’s got a short term downtrend, largely I think due to the market sell off in the last day or so. Um, but it’s one to watch and, uh, it rises again in the short term, it might be of interest to people. So we’re looking at both the long term trend for sentiment and the short term trend for sentiment. when we started talking about this, it was a buy on both of those. It’s currently a buy on long term and a and a wait on the short term, but anyway, um, that, that may change before people listen to this. Uh, one of the other terms I wanna explain, one of the key performance indicators in our [00:43:00] checklist is a thing we call prop calf or price to operate in cash flow. And that’s the heavy mover. uh, on our checklist, the price to operating cash flow for this company is, is 88 times. In other words, if you think about PE ratios, this is similar in concept, but we’re talking about the operating cash flow, uh, that’s been thrown off by this company. So we can buy this company at a share price, which is less than the cash it makes in a year. which is a very cheap metric, um, for value, uh, a, a good indicator of value in the company. we generally like companies that we can buy for less than seven times operating cash flow. So this is way under that threshold and puts it very high up on our buy list, uh, of stocks to have a look at. Uh, now a couple of concepts to explain there, um, why operating cash flow, uh, A lot of analysts will focus on free cash flow and I’ve [00:44:00] got no problem if you’re Um, skilled enough and detailed enough to wade through the financial statements to get there. started off as an investor 25 30 years ago looking at PEU ratios. one of the things I’ve learned from my experience was that the earnings of a company can be manipulated by the, uh, by the executors of the company. Not necessarily for nefarious reasons, but they are always having to make calls on how much to provide for things. Capital in the future, how much to amortize equipment, how much to depreciate office furniture, uh, How much to provide for future bad debts that they may have trouble collecting, et cetera, et cetera.

There’s all sorts of guesses and assignments that managers need to make in the accounts to, I guess, protect the business for future risk. But it does give them a fair bit of [00:45:00] leeway to affect the earnings of the company based on those kinds of things. The operating cash flow is very high up in the, in the accounting statements.

There’s, not much in the way of provisioning that can be done to affect it. So it’s basically the revenue that comes in less the cost of collecting it. And, uh, that’s a very simple metric, um, and the way to value the business. So grant people that, uh, it’s a, it’s a quick and dirty. Um, and if you want to your own analysis on how much APEX a company like this might need for the future and make your own assessments on that, then go ahead, but found, uh, cash flow to be a really good metric as one of the determinants of value that we use.

So this company scores very, very well on that basis. Uh, the, uh, It also, interestingly enough, scores well on the price to free cash flow, and I’m using Stockopedia to give [00:46:00] me that number. We don’t put it through our spreadsheet, but the Stockopedia ratio for free cash flow is 0. 9, so it’s the same as, pretty much the same as PropCaf, so it’s very low as well in this particular case anyway. use Stockopedia to give us the health ratings. for these companies because the Q and QAV is we’re trying to find quality stocks to buy at value because basically value stocks fall into two camps. Um, one, one is they’re cheap because they’re going through their, their day in the shadow rather than a day in the sun and they’ll come good again. the other one is because they’re bombed out and they’re going backwards and eventually they’ll probably go broke. So. Quality is a focus for us in investing, and we use Stockopedia to give us a ranking for that. And Stockopedia ranks Zim as 82 out of 100 for quality, which is not, not their highest, but it’s in the top two deciles, so it’s pretty good. They use system called the F Score for financial health and [00:47:00] People can go and look that up on their website, but the F score is fairly well known in, in, um, accounting circles or analytical circles. And it’s basically a checklist, which checks off to see the company’s making money, that the company can pay its debts, all that kind of thing. Um, and it gives her the score and the F score for this company for financial health is eight out of nine. So the F score for XIM is very high. So I’ve got some comfort that it’s not going to go broke. in the, in the near term at least. Um, and so therefore, uh, I can focus on the value knowing that it’s a quality company and it’s, it’s doing well from, from that kind of perspective. Uh, we don’t use return on equity as a metric. I don’t use it, but ZIM is high at 44%. So I’ll point that out for any listeners who are interested in ROE. And again, one of the reasons why I don’t use ROE, even though it’s a key metric for analysts of stocks is because My experience is that when something becomes focused on by the, by the broken community or the [00:48:00] fund management community, it gets gained by the unscrupulous operators who run companies who try and make their ROE look higher than what it probably was intended to look like.

And there are some ways to do that. For example, by tacking on debt, which reduces the equity in the company. And so a fairly ordinary company will start to look good from an ROE perspective because they’ve used up all their equity and extra borrowings. And they put themselves on shaky financial footing just to maximize their ROE. As an example, uh, Stockopedia, um, have a couple of, um, ways of ranking companies and they do provide an overall ranking as well. So for anyone who’s not familiar with Stockopedia, go and have a look. They’re what’s called a factor service. So. done a lot of research over the years on various factors of as ways to invest, and one of them is value investing.

One of them is momentum investing, of them is quality investing. So they kind of put all those three together. If [00:49:00] you give a company a ranking out of 100. for all the companies that they’ve looked at, and then combine that ranking for an overall ranking. And that’s, it’s, it’s a, it’s a pretty good service.

And we need a service like that to be able to download data from the market to run through our checklist. And we use some of the, the, their tools as well. Um, for this company, Stockopedia ranks them as, uh, 99 out of 100 overall, so it’s very high on their list, but that’s largely, um, driven by their value ranking, um, for this company.

So they’re also seeing value in it, like we are. Uh, I’m using a stock price of 20. 22 at the time of recording for, for my analysis. a couple of things that we look at is, can I buy this company for book value? And the book value is 42. 39, which means I can, I can buy it for a lot less than book value.

So not only can I buy it in an attractive cashflow basis, I can buy it for less than the equity in [00:50:00]the company and also the net tangible assets. Uh, one thing that we track as whether the companies that we look at have qualified audits, because we rely on the auditors to tell us if the quality of these companies can be suspect for any way. We don’t get too many qualified audits, possibly not enough, but, um, don’t, we don’t have one in this case. earnings per share growth is 25%, which is very high. We put that over the P. E. ratio, and so we find that, um, over P. E., as you said before, from P to Lynch is a good way to look at, uh, the company’s growing and whether we want to pay for that growth.

And the hurdle we look at is growth over P. E. of more than 1. 5. company is growing at 25%. P. E. ratio is at 1. 5. just over five, so it’s well above the 1. 5. One thing we look at is yield and this company has a low yield of 1. 1 percent, which is fine, but too low for us to score. One of the reasons I focus on yield and look for a high yield [00:51:00] is because it’s a sign that management have some confidence in the future earnings of the company because management very low. Boards are very low to cut dividend payments. It’s often seen as being a last resort in tough times. uh, and a cut in the dividend is a, is a red flag for, uh, whether we invest in the company or not. Uh, so if a company has a high dividend yield, it means management, um, are quite confident of being able to maintain that, which is a, a vote of confidence in the company. Additionally, uh, from time to time, I have borrowed against my House to invest in my stock portfolio having companies with a high yield, um, allows me to service the mortgage on that debt. And so that was another reason for ranking companies based on yield. so this company doesn’t score on our checklist for yield.

It’s, it’s too low, but just that’s by, um, way of, uh, as [00:52:00] explaining why we do. score things for yield. anyway, for this company, we give us this company a total QAB score of 0. 98, which is very, very high on our buy list. Puts it number two on the buy list at the moment. So, um, that’s ZIM. Have a look at it.

And it’s recently come onto our buy list. I don’t own it. Cam doesn’t own it, I’m pretty sure. we’ll always declare if we own stocks when we talk about them. Um, I don’t own any US stocks at the moment, so it’s probably going to be a, an easy thing for me to maintain.

Cameron: Yeah,

TK: my word for it.

Go and have a look at it yourself.

Cameron: we hold it in the QAV US portfolio, but I should specify that’s just a portfolio. It’s a

TK: Yeah.

Cameron: It’s not real cash It’s just we created these dummy portfolios in Australia in the US as a transparent Experiment to show how the system works in [00:53:00] real time over a period of time People can see the full list of trades what we’ve bought when we bought it What we sold when we sold it and can see how the numbers work over time.

So it’s not a magic, it’s not theory. We’re actually applying the system in a transparent way and people can see how it’s panned out over time. And as we move forward with the U. S. show, I’ll provide full, uh, trading history updates that’ll be available to our listeners. They’ll be able to look at it on the website and see everything that we’ve bought and sold in the U.

1. portfolio to see if the numbers that we say it’s returned actually make sense. And you’ll be able to go back and see the full history of that so it’s not, uh, it’s not, uh, opaque.

TK: Hmm, it’s fully transparent.

Cameron: Yeah. Well, thank you for that, Tony. And I noticed that when you did that pulled pork on Zim, you really didn’t get [00:54:00] into the ins and outs of the future of the, uh, shipping industry or the future of, you know, Israeli shipping, or you didn’t really talk about the prognostications of shipping at all.

TK: I didn’t know because I don’t know about shipping at all. As Paul Keating used to say, an Australian federal treasurer, it’s a beautiful set of numbers. That’s, that’s what I’m, our checklist is aimed at finding whether it’s in that industry or any other industry. They all have to apply the same accounting standards and produce the same accounting reports for us to look at.

Cameron: Yeah. Well, thank you, Tony. And, uh, I guess that’s where we’ll wrap it up. That was a longer episode than I anticipated for our first episode in the U. S., but that’s QAV U. S. Episode 1. As we always say at the end of our episodes, QAV a good week, and happy share market.[00:55:00]

TK: Yeah, we also say happy ASX usually, so we’ll say happy MYSE

Cameron: And NASDAQ. Uh,

TK: yeah.

Cameron: Yeah.

TK: if we’ll ever keep buying on the NASDAQ, but we’ll see. I could be wrong. I’m terrible at predicting, so we’ll see.

Cameron: Yeah. we don’t predict.

TK: No.[00:56:00]