QAV America (free feed)

This week we dig into Slide Insurance Holdings (SLDE), a Florida home insurer that went from zero customers to half a million policies in a few years, and is somehow posting combined ratios that make every other insurer in the state look asleep at the wheel. We also cover Berkshire Hathaway’s latest 13F, which shows Greg Abel going heavy into US housing, bond yields creeping up, oil back above $80, and the not-so-great situation aboard the USS Abraham Lincoln.



This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market.



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Transcription

QAV America 66

[00:00:00]

Cameron: Welcome back to QAV America, Tony. This is episode 66, I think. We’re recording this on the 18th of August, 2026, timestamped. What’s, uh, what’s going on in, uh, the American investing market, Tony, from what you’ve been reading with your, your daily scanning of the, uh, Wall Street Journal?

Tony Kynaston: Yeah, I mean, it,

Cameron: So-

Tony Kynaston: a couple of things. The– still an interesting place, I think, over there from an investing point of view. Oil’s above ninety dollars a barrel again. bond yields are up, which is generally bad for corporate America. Um, and it’s also– Yields are up, which means it costs more to borrow or to issue bonds, but it also means that, um, the risk premium in the share market’s shrinking.

So as the yields improve on bonds, more people will buy them a risk-free investment compared to [00:01:00] buy– putting money in the share market. so a lot of things are going on on that front, but, um, VIX, which is the measure of volatility, is, is reading at its, you know, close to its all-time low. So the US investor is pretty complacent, though bond yields are going up, uh, retail invest– or retail, are soft, so people aren’t putting their hands in their wallets as much as they were in the past.

So it’s just a very interesting situation over there at the moment

Cameron: Yeah. The, the market hit an all-time high in the last week, uh, topping 7,800 for the first time on an intra-day basis. Dropped a little bit before it closed. Uh, and but as you say, retail sales fell 0.6% in July. Analysts had expected a 0.2% rise after a 0.2% rise in June, but it fell and consumer sentiment [00:02:00] also soured.

University of Michigan index dropping to 51.0 in August from 55.2 in July. But the market continues to boom. Oil prices back up $82 a barrel for WTI crude, Brent around $87 per barrel as the whole Iran situation is yet to be resolved. But it’ll be resolved quickly after Donald Trump takes ownership of the Strait of Hormuz.

He’s gonna call it the Strait of Trump, I believe. And, uh, he’s pretty confident that that’s what it’s gonna take. It’s all gonna be. As, as long as the, um, the mutiny on the USS Abraham Lincoln, uh, doesn’t get any worse.

Tony Kynaston: Read about

Cameron: You heard about– haven’t heard? Oh my God

Tony Kynaston: I did hear he was threatening to bomb Oman, one of our, one of his allies, so I thought that was quite strange

Cameron: Gonna bomb the shit out of Oman. Yeah, if they, uh, don’t, I don’t know, give him what he wants. [00:03:00] No, they’ve got this situation. So the USS Abraham Lincoln, which has been the ship they’ve had, uh, blocking any ships apparently getting through the Strait of Hormuz, uh, uh, “I’m gonna block your block,” um, has been there, I think eight or nine months.

Uh, they’ve been, they’ve been, uh, out to sea for eight or nine months. And the problem they had is they, where they were located outside of the strait, um, they were supposed to be getting refueled, resupplied by the US base in Bahrain, which is traditionally where ships in that, US ships in that region get resupplied.

But Iran bombed the, uh, US base in Bahrain, and so they couldn’t get resupplied from there. And I think there was a couple of places that they. close by where they in theory could have got [00:04:00] supplied. I think Oman was one of them, but again, they were within striking range of Iran’s missiles. So they ended up, uh, asking if they could use a UK base in Diego Garcia, an island, which is quite a bit of ways away.

And, uh, Keir Starmer, when he was the prime minister, said no, and then Trump put the thumbscrews on him, and he said yes. But it’s like a long, long way away, uh, from where the ship is. So they are getting supplied, but they’re few and far between. Anyway, apparently the crew of the ship haven’t had any R&R for eight months.

Their mental health has declined. They’re mutinous. The ship is in a terrible state. I’ve seen photos posted, various forums, you know, sailors are sending photos to family, and the place is like, there’s mold in the toilets, and They’ve stopped cleaning. They’re, they’re refusing to work. Um, it’s all going [00:05:00] very, very badly.

So it’s being replaced. They, I think the USS Washington they’re sending to replace the Lincoln. But, um, it’s a bad state of affairs, and, uh, Trump’s going, “No, it’s great. It’s great. They’re doing fine. Everything’s fantastic.” But even his own

Tony Kynaston: gonna ask that.

Cameron: crew are

Tony Kynaston: the ship, why don’t you swap another one in and rotate it?

Cameron: Well, because they don’t have that many ships, and, uh, I think they’ve only got, like,

Tony Kynaston: Navy.

Cameron: 10 carriers,

Tony Kynaston: Yeah.

Cameron: operating, and they’re all kind of busy right now.

Tony Kynaston: Right

Cameron: Um, yeah, so there’s problems. Uh, I’ve got this New York Times in front of me. “Admiral Brad Cooper, head of US Central Command, acknowledged the difficulty of the carrier’s nearly nine-month deployment, but said mental health issues were lower than on other vessels.”

So apparently it’s

Tony Kynaston: has he?

Cameron: apparently it’s not going well.

Tony Kynaston: Yeah, look at.

Cameron: They’ve got 5,000 crew on this ship, 5,000 [00:06:00] sailors on this ship, and they’ve been stuck with each other for nearly nine months.

Tony Kynaston: Andrea

Cameron: And, um, “The admiral’s comments differed from those of his boss, President Trump, who on Friday dismissed concerns about difficult conditions reported aboard the ship.

Asked whether he was concerned about the crew’s mental health and whether he thought the deployment had gone on too long, the president said, ‘No, not nearly long enough.'” So there you go.

Tony Kynaston: well now a little.

Cameron: Yeah, when he served time. Yeah

Tony Kynaston: Oh dear, that’s terrible. Uh,

Cameron: I’ve got one, uh, news item to talk about before I get into my Pulled Pork, but I know you’ve got something to talk about. BBDO, Banco Bradesco, that I talked about a couple of weeks ago. Unfortunately, had to sell it today. Had a significant drop over the last couple of weeks, but couple of days after we talked about it, its report came out.

I think we talked about it on the 3rd of August. On the 5th of August, their, um, [00:07:00] latest numbers came out and, uh, they had growth. Profit was up, but the charge for the loans going bad also went up 22%

Tony Kynaston: Mm-hmm.

Cameron: than the profit went up. The profit went up 16.2%. Charge for the bad loans went up 22.6%. Loans more than 90 days overdue went from 4.2 to 4.3%.

Loans the bank has moved into the higher risk bucket went from 4.9% to 5.5%. The money set aside against the overdue loans fell from 152% to 161% and then a hundred and

s- well, it fell from 161% three months earlier and 178% a year ago. And it wasn’t just them that fell either. The share price for Brazilian financial stocks all fell during the first couple of weeks of August for some reason. Anyway, so whatever it was, they became a three-point sell line. I feel bad selling a stock two weeks [00:08:00] after buying it, but rules is rules, and they’re there for a reason, so I did and replaced them with the company I’ll be talking about, uh, later on

Tony Kynaston: Do we need to put a rule in place like we have in Australia where if, if there’s gonna be an announcement soon, we don’t buy?

Cameron: Well, how soon is soon? Because in Australia it’s every six months. Over there it’s every three months. So if we put a hold every three months, that reduces our buying window by f- months a year.

Tony Kynaston: Yep, true.

Cameron: know.

Tony Kynaston: Yeah.

Cameron: Have to see how it goes

Tony Kynaston: Yep. Okay

Cameron: You wanted to, uh, talk about a couple of notes before I get into my Pulled Pork?

Tony Kynaston: Yeah. Well, the thing that caught my eye was what’s happening at Berkshire Hathaway and what they’re investing in. So, you know, like, like, uh, a, uh, a lot of other companies, they’ve done their quarterly reporting and, uh, their 13F filing, as it’s known as, and it, it’s sort of starting to give a bit of a picture of what Greg Abel [00:09:00] is doing with the, the cash pile at Berkshire Hathaway.

Um, and what I read was, uh, a, a couple of things. So he, he is kind of doing a bit of a, you know, Warren Buffett trade on some of the banks, so particularly Bank of America. Uh, and they– he sold down a lot of Bank of America shares and I think the reason for it is that Buffett originally bought Bank of America back in 2011 when it traded at a 62% discount to book value, uh, but now it’s trading at a 64% premium to book value. And, uh, so he’s cut, uh, the holdings in Bank of America, also in Chubb and Aon, um, cut, uh, their stakes there. has increased his stake in Alphabet, and they now own thirty-seven billion dollars worth of Alphabet, and I guess that’s a signal that they think there’s value there and, uh, it’s a. They see Google as a value play. Um, and I guess [00:10:00] they would compare that against the, the AI peers as well. So that’s, I guess, a tick for, for Alphabet. But I think the biggest thing that caught my eye, ’cause, I mean, these trades go on all the time with Berkshire Hathaway, they’re managing a big portfolio. But the thing that caught my eye was that, um, are really going heavy into US home builders or into US retail housing in general.

So, um, they already own a big real estate, uh, agency. they own modular home constructors. Uh, they’ve now bought into, um, US home builders like Lennar, L-E-N-N-A-R, and, um, I guess you could also count GEICO with its home insurance a part of that sort of end-to-end ownership of the US housing industry or housing market. And I’m– the question I’ve got is, are they actually. It’s quite possible they’re seeing or they’re getting insights into the [00:11:00] real estate market via the GEICO house insurance, and that might be telling them something about the, um, the market, uh, that, uh, is not as obvious to outside investors. But anyway, they’re going all in on US housing, which I thought was interesting.

Cameron: Well, that kind of ties into my deep dive today, which is on a housing insurance business. Interesting. I’m just looking at Google share price though. Um, so it’s come off a little bit. It peaked around about 400 bucks in the middle of May. It’s down to about 342 today. I’m assuming they bought in a lot earlier though.

Uh, would’ve been, what, how, how far back does this reporting go?

Tony Kynaston: a quarter, so it could have been any time in the last three and a half months. Yeah

Cameron: Yeah, okay Right. So they might have picked it up. It was as low as 318 at one point, so they might have picked it up then. It’s up, [00:12:00] you know, a good 10% since then. And, you know, in the last, uh, year it’s gone from 200 to, as I said, 400, but then ended back 351, so. Doesn’t turn up on my value buy list, but, uh, you know, we’re playing in a different pond too

Tony Kynaston: yeah, that’s right. They’ve got to deploy large amounts of cash. And I think, um, I know– I remember d- I remember hearing, uh, Charlie being interviewed before, um, he passed obviously, and he was talking about one of the things they missed was Google the first time around because not so much from a value point of view, um, he wasn’t really commenting on the share price.

He was talking about the fact that it cost them nothing to make ads. Um, so they were, you know, costing him a cent to make an ad and charging a dollar for, uh, someone to buy it. So it was a great business to be in.

Cameron: Yeah

Tony Kynaston: though, you’re right though. I’ve, I’ve noticed a lot more, uh, some of the sites I use regularly, not in the AI world, but just other sites, they now will do a capture or check to make sure you’re not a bot.

So they’re, are starting to push back, I guess, on being scraped, uh, for AI use. Hmm

Cameron: Hmm. So it’s an interesting space and maybe, uh, my point was gonna be maybe Berkshire, um, mm, obviously have a fairly high level of confidence that Google is gonna weather the storm of AI.

Tony Kynaston: Yeah, I,

Cameron: Uh, well

Tony Kynaston: it’s, it’s the, a new iteration in search, isn’t it? I mean, uh, just plain Google search [00:16:00] is down. AI search using Gemini is up, but it’s probably the same revenue for Google. more costly given data center costs and things, but it, it’s maybe even giving them more revenue than they had in the past as it concentrates the Gemini

Cameron: Yeah. It will depend on if and how they can monetize the AI, uh, recommendation model like they did the online ad model. Well, speaking of AI, the company I’m gonna talk about today claims that AI is one of their proprietary value, uh, propositions. Whether or not that is true remains to be seen. Uh, so the company is Slide Insurance Holdings.

Ticker code is SLDE, listed on the Nasdaq. Only been listed on the Nasdaq since June of last year. Um, they are not Brazilian or Ecuadorian or Argentinian, sadly. [00:17:00] Um, so I had to sell BBDO. But they’re based in Florida, which is kind of the Latin America of, uh, the United States really, isn’t it? I think large percentage of their population are

Tony Kynaston: It’s the Queensland of the

Cameron: percentage of the, a large percentage of the Floridian population, uh, from Latin America or of Latin American heritage from the little bit of time I’ve spent in

Tony Kynaston: bit.

Cameron: Miami and Florida

Tony Kynaston: to play golf and, um, it reminded me so much of growing up in Southeast Queensland.

Cameron: Yeah. Certainly the temperature does, the climate does. yeah

Tony Kynaston: courses, uh, the architecture. Yeah,

Cameron: Mm-hmm. Mm. Less flamingos in Queensland, but there. I love, I love going to Florida. I’ve been there a few times. It’s always fun.

Tony Kynaston: Yeah

Cameron: Um, so what do they do? Well, basically a house insurer, and they’ve only been around five and a half years. But very, very [00:18:00] interesting story behind these guys.

V- a lot, a lot of questions that have been asked and are continuing to be asked about their genesis. Um, but they’re, they’re doing well. So, um, one of the questions I had was why they’re showing up very high on our buy list. They weren’t at the top this week, but they were number four, I think, on my buy list this week.

They were the first thing that I could buy. Their first policy was written in March 2022, and as I said, they listed on the NASDAQ last year. They’ve got about a half a million policies. They throw off about a billion dollars of a year of operating cash flow with a market cap of two and a half billion dollars.

Last year, they ran a combined ratio of 52.1%. Do you know what that means, Tony?

Tony Kynaston: Means they’re making money hand over fist. That’s, that’s their margin, basically

Cameron: [00:19:00] So for people like me that don’t know anything about how insurance works, combined ratio is the number that tells you whether or not they’re ma- any good at actually insuring stuff to be insured. Take every dollar of premium they keep after paying the reinsurers, then take off what they paid out in claims, take off what it costs to run the business, and what’s left is the underwriting profit.

Now, if your combined ratio is 100%, you’re basically spending everything that you brought in. Uh, you break even on the insurance. You can still make money by investing the float, as we know from Warren Buffett. But Slide spent 52 cents of every dollar and kept 48. Now, to put that in perspective, the whole US homeowners insurance industry last year ran at about 87% combined ratio.

So, uh, 52% is a lot better than 87%. Florida [00:20:00] home insurers ran at about 83%, which was good for Florida because there’ve been no hurricanes hitting the mainland for the last couple of years there, and that’s obviously the big thing that causes payouts for home insurers, is hurricane, uh, damage, hurricane impacts.

So in a year when everyone else did well, 83%, Slide did about 30 points better than everybody else. So the obvious question is, if they’re doing such a great job, why are they so cheap and why are they on our buy list? Before we get into that, a little bit more information on these guys. They’re based in Tampa, Florida, but incorporated in Joe Biden’s old running ground, Delaware.

Tony Kynaston: Which is not unusual.

Cameron: uh,

Tony Kynaston: I think most

Cameron: the Biden benefit. Ah

Tony Kynaston: in the US use Delaware.

Cameron: Of course they do.

Tony Kynaston: Hmm

Cameron: Because there’s a reason Joe Biden was the senator from Delaware for 40 [00:21:00] years. By their own description, they’re a technology-enabled insurance company using artificial intelligence and big data to optimize and streamline every part of the insurance process, which is pretty much what every insurance company says right now.

Uh, they’ve got all the buzzwords.

Tony Kynaston: Uh, Savrick?

Cameron: you an AI company? No, but we are using AI.

Tony Kynaston: Mm.

Cameron: best thing What they actually do is sell house insurance to Floridians,

Tony Kynaston: Mm-hmm.

Cameron: outside of Florida, but they’re mostly Florida-based, and buy an enormous amount of reinsurance.

Tony Kynaston: Mm-hmm.

Cameron: IPO’d on the 17th of June, uh, 2025 at $17, closed the first day around $20.25, up 19%.

They floated about 24 million shares, so the float raised about $408 million. Obviously, not all of that money goes to the company. When you do an IPO, the shares [00:22:00] come from two places. There’s brand new shares that the company creates, that cash goes into the business. Then there’s also the shares that, uh, people own that they wanna, uh, exit.

Slide sold about 16.7 million, um, shares, uh, newly created shares, raised about 283 million in the IPO, and the rest was people that already, um, owned shares, went into their pocket, about 7.3 million shares, 125 million went into the hands of existing shareholders. So about 70 cents on the dollar went into the business, about 30 cents went to insiders who were cashing out.

The share price rose to $23.30 on day three, the 20th of June, 2025, and then fell, uh, for the next, a few months. Slid from $23 down to $13.36 [00:23:00] in, at the end of August 2025, and has basically been building its way up since then. And it kind of begs the question, if your, if you name your business Slide, what do you expect to happen to your share price when you IPO?

But, uh,

Tony Kynaston: It’s– Look, to

Cameron: if I was

Tony Kynaston: A lot of IPOs do that, including SpaceX, so it’s not unusual, not unusual to see an IPO take a while to reestablish its feet

Cameron: Sure.

Tony Kynaston: Well, I,

Cameron: But they currently

Tony Kynaston: AI why, why was it called Slide? ‘Cause it like, that’s– not a, it’s not a typical Barry and Stan name, is it? Like, you know, I’m gonna let

Cameron: No.

Tony Kynaston: slide this year.

It’s

Cameron: Yeah.

Tony Kynaston: yeah.

Cameron: What answer did you get? I didn’t ask that question

Tony Kynaston: to represent a smooth, frictionless, and modern experience. That’s pretty bland really, isn’t it?

Cameron: Hmm, lubricant. They should have just called it lubricant. Yeah. Uh, well, it’s trading at around about 22 bucks at the moment, so it’s, you know, back up to [00:24:00] almost where it was at the peak. So that’s not bad within a y- year.

Tony Kynaston: of good results too

Cameron: Yeah

Tony Kynaston: As you, as you say, no, no hurricanes in Florida means good combined expense ratios for insurers

Cameron: The next thing to know is that in September 2025, just after it had bottomed out, a short seller named Manatee Research put out a report that basically said the business had a whole bunch of problems. And then they immediately got hit with a number of law firms announcing investigations because America, um, that’s what happens.

And then unfortunately for the short seller, the share price started going back up. But, um, I’ll get into that a little bit later on ’cause there’s a whole interesting story about Manatee Research or lack thereof, which is why it’s interesting. But anyway, a little bit [00:25:00] more about the business before we get into that dirty laundry stuff.

So the origin story is kind of fascinating. So the business was founded in April 2021 by a couple, Bruce and Shannon Lucas, husband and wife. Then they raised a bunch of money after they started the business. Then between February 2022 and February 2023, seven Florida property insurers went broke and Slide managed to swoop in and pick up a lot of their business.

So the Lucases started the business, spent roughly a y- next year or so raising $106 million in capital, and then were able to pick up a lot of these businesses that were going defunct, almost like they knew it was gonna happen. And in fact, the first one sounds like they maybe did have some sort of knowledge about something.[00:26:00]

So in January of twen- so they, as I said, they set up the business in April 2021. January 2022 The Florida regulator signed off on a new insurance carrier for Slide. Sits under- it sits underneath the business. They raised a bunch of capital. You gotta have capital if you wanna be a insurance company. So the regulator said, “Yes, you can launch a new insurance business.”

And so by the start of February 2022, Slide, uh, was 10 months old, has 100 million bucks, regulatory approval, but doesn’t have one single customer. Now, watch what happens over the next fortnight. On the 15th of February 2022, a Florida insurer called St. John’s stops writing new business. Two days later, the ratings agency pulls St.

John’s rating, basically the death certificate for an insurer. Without a [00:27:00] rating, mortgage lenders won’t accept your policies. The same day, Slide Insurance Company gets formally incorporated in Florida. On the 18th of February, the next day, Slide agrees to take over St. John’s book 24th of February, they get its certificate of authority.

It can now legally write insurance. On the 25th of February, a court orders St. John’s into liquidation. 1st of March, 12:01 in the morning, 147,000 policies and about $400 million of premiums transfer over from St. John’s to Slide. So the actual insurance carrier was six days old. They went from zero to 147,000 policies overnight Now, whether or not that was lucky timing or not is something that Manatee Research started asking questions about, and I’ll explain why [00:28:00] in a few minutes.

Uh, but some of the other insurance companies, big insurance companies in Florida immediately started complaining about this whole deal because they said none of them ever even got an opportunity to bid on the St. John’s customer base. Some suggested there was something of a sweetheart deal going on.

More on that in a minute. Then in February 2023, they had a different takeover with a company called United Property and Casualty, UPC. In this case, they bought the renewal rights, the data, and the intellectual property from UPC, about 91,000 homeowner policies, 272 million of annual premiums, and a dataset covering over a trillion dollars of insured value.

UPC canceled 72,000 policies on the 1st of February 2023, and Slide issued replacements on the same date. [00:29:00] UPC keeps every claim with a date of loss on or before the 31st of January, and then UPC is ordered into liquidation on the 27th of February, straight after the deal is signed. So Slide got the customers and the contracts, but none of the histories or the losses associated with them, sort of a clean takeover with none of the messiness of the history.

They did similar sorts of deals over the next couple of years. Now, the Lucases have a backstory, or, or Bruce Lucas is. D- does anyway. So in 2012, he founded another company called Heritage Insurance, Florida Homeowners Insurer. He was the chairman and chief investment officer from August 2012, and CEO from May 2014, the same month that Heritage listed.

And then he [00:30:00] left on the 30th of November 2020, although he stayed on as a paid consultant through 2021 and positioned this as a planned retirement. But then a year later, November 2021, still a paid consultant to Heritage, Heritage takes about a 6% stake in Slide, which he had just started, at a $250 million valuation. Then Heritage handed over a dormant Rhode Island insurer, a Florida agency, and the historical claims and underwriting data to Slide.

So they are– they do have this Rhode Island insurer. They are doing a bit of insurance outside of Florida, but Florida’s still like 99% of it. Actually, it’s dropped from 99% down to about 96% in the last quarter. Still mostly Florida-based. Um, Heritage in return got, uh, some equity, but [00:31:00] also a perpetual free license to use Slide’s software.

So the brand new startup is licensing software to an insurance company that’s been around for 10 years. The Heritage chief executive at the time called it a win-win with our former colleague. Slide today is worth $2.56 billion. Heritage is worth about a billion dollars. So there was some sort of transfer of assets and intellectual property that went on between Lucas’s old company and his new company while he was still a consultant to the old company, et cetera, et cetera.

I’m not ex-

Tony Kynaston: wasn’t there a sale of Heritage? That’s why Lucas exited. I think he pocketed a f- um, a bit of coin from the sale and then hung around to

Cameron: A sale? Aren’t there. Well, I didn’t know this

Tony Kynaston: floated or sold? I [00:32:00] think that was the reason why he le- in my notes where he exited. I’ll have a look

Cameron: I’ve read that it was floated in 2014 And then he left in 2020 but stayed on as a consultant. And I think it’s still listed

Tony Kynaston: Oh no, I

Cameron: But there may have been

Tony Kynaston: the chairman and CEO of Heritage until 2020. Doesn’t say it was sold. You’re right, sorry.

Cameron: Hmm. Okay. Um, so there’s a little bit of that and, and some– when I get, I’ll get into some of the more of the Manatee research stuff where a lot of this stuff comes back. But before I get into that, a little bit of their business model. Um, so, you know, you buy a three-bedroom house in Florida, um, you have a mortgage.

Bank needs you to be insured. Slide will charge you about $3,600 a year. That’s sort of their average residential premium, down from about $3,964 a year [00:33:00] earlier. Florida, by the way, is the most expensive state in the country for house insurance, but it varies a lot depending on what county you’re in. So some counties run as low as 2,100, some are as high as 7,800.

It depends, I guess, on chances of getting hit by a hurricane or floods

Tony Kynaston: you going to explain why that’s important in, uh, Slide’s success?

Cameron: Uh, possibly

Tony Kynaston: I don’t want to step on what you’re gonna say, but, um, traditionally insurers would use that county data, so a higher level of data to write their– their policies, whereas Slide takes it down to household level based on where it is, uh, the construction used, the– what type of roof it has, which way it’s facing, that kind of stuff to be able to price at the house level as opposed to the county level

Cameron: Part of their AI big data software [00:34:00] strategy, yeah

Tony Kynaston: Yeah

Cameron: Which they may or may not own, whereas we’ll find out as the story goes on. So they take that money up front, and then they immediately spend about a quarter of it buying reinsurance because if a Category 4 hurricane hits, um, a claim on a half a million dollar houses would run into billions of dollars and their entire shareholder equity, as I said, is about $1.19 billion.

So

there, there’s three businesses stacked on top of each other. One is the collection machine, brings in the policy premiums. They have about 509,075 policies as of the 30th of June, up 46% year on year, by the way. So good growth, but there are extenuating circumstances. The second part of the business, and this is the actual skill as I understand it, is the reinsurance buying operation.

I know that we’ve, we’ve talked about reinsurance in other [00:35:00] episodes. We’ve got some reinsurance companies in our portfolios. But in case people are listening to this for the first time and don’t know what reinsurance is, reinsurance is insurance for insurance companies. Um, you, you basically off, off sell, on sell some of your insurance liability to other companies and it’s.

They have this thing that I didn’t really understand. They have what they call a, a tower, an insurance tower. So you have layers of reinsurance stacked on top of each other. So if a ca- hurricane does come and hit, it’s a bit like, um, your, um, what do you call it when you have car insurance? You pay the first whack yourself,

Tony Kynaston: excess

Cameron: excess.

Tony Kynaston: Yeah.

Cameron: you. So if a cur- hurricane does hit a house and Slide insures the house, Slide pays the first slice of the damage bill and then above that layer after layer of [00:36:00] reinsurers pick up progressively bigger losses. The slice that Slide eats itself is called the retention layer. That’s capped at 166.8 million on a first storm and 150 million if a second one hits in the same season.

Their own framing on this is that if the first event retention is no more than a quarter of what they expect to earn before tax in a year, they can survive it. So for perspective, they made $444 million of net profit last year so a bad storm would hurt, but it wouldn’t kill them. If there are four storms in a year, statistically improbable, but could happen, it would be bad news.

But they’ve got stacks of reinsurance on top of reinsurance that sort of mitigates the risk, uh, for the damage that, and the exposure that they have on it. I won’t get into the numbers of it all [00:37:00] anymore because it’s all very confusing and not exactly rele- to us. But the point being that

Tony Kynaston: relevant.

Cameron: how

Tony Kynaston: on. It’s, it’s very relevant.

Cameron: Okay

Tony Kynaston: most relevant thing you’ve s- you’ve said.

Cameron: Okay

Tony Kynaston: Yeah. No, it’s, uh, reinsurance is critical in this case, so, and the reason why it’s critical is it’s priced and it’s, at the moment, it’s priced, um, for a low number of But if they have a wipeout year, the reinsurance premiums go up dramatically. and one of the reasons why I think this company is cheap is that people are saying, “Hang on, this is a good year for in Florida.” If there’s a bad year, then the reinsurance costs come, becomes so high that, you know, you’re priced out of the market. All those great expense ratios we spoke about before become at, you know, at best for all the other insurance companies in Florida who’ve been through the bad cycles already, um, or at worse, out of the market.

They, they just can’t afford to offer policies with the reinsurance costs they [00:38:00] have to pay

Cameron: But this is their business. I mean, we’re, we’re assuming that, yeah, they’re, they know what they’re doing, rightly or wrongly

Tony Kynaston: Yeah, but like, uh, uh, it l- as I said, I think, I think that they’re doing it very well, and there’s no reason to think that they’re not. But it could be that, um, if there’s a catastrophe year in Florida, that the reinsurance goes up and their, a lot of their advantage gets traded away and they’re back in the pack with the other insurance companies

Cameron: Right. So when I say it’s not relevant, it’s, you know, it’s not gonna show up in a QAV analysis of this. We’re just looking at how much money they’re making. Yeah. Well, we look, you know, we, we’re retrospective. We’re not looking into the future. Well, we do a couple of things, but, you know. Yeah.

Tony Kynaston: right. Yep

Cameron: And, uh, uh, it’s all very complicated, and they, they claim that they’re very, very good at this.

Whether or not they are, time will tell

Tony Kynaston: Well, they definitely have an, an advantage, I think, at being able to price insurance at the household level. That [00:39:00] is a tech advantage they have, for sure

Cameron: Is it an advantage though? Uh, is, are, are they doing it any better or any differently to anyone else?

Tony Kynaston: Well, yeah, I, I think they are. I think if you, you know, if you’re pricing it, i-if you’re. I-it’s a bit, what’s a, what’s a good example? If you’re a s- chain of supermarkets like a Woolworths in Australia, you can only have one price across the state, you can have different prices per state, um, you’re gonna have good outlets which are selling well because, you know, they’re in a poor area, and you’re gonna have bad outlets which are selling, aren’t selling so well because the price is wrong for that particular area.

Um, it’s the same thing within the state. If you’re pricing at a county level, you’ll have some people who can get a better deal from someone who can price at the household level. You may lose up to half the houses in that state ’cause you’re pass, you’re pricing at the average rather than at the individual level. it’s a big deal, I think.

Cameron: What I’m saying is I’m not sure that they have any, uh, long-term unique [00:40:00] ability to price at the house level rather than the county level

Tony Kynaston: Oh, I think they do. I don’t know if the other insurance

Cameron: Okay

Tony Kynaston: it or, or maybe it’s gonna be a big investment cost for them to allow it

Cameron: Maybe, but we’ll get into that.

Tony Kynaston: Okay

Cameron: So, um, just finishing their business model. On top of the reinsurance, they offer us a thing called a catastrophe bond or a cat bond. So apparently, uh, on top of reinsurance, one of the things that these insurers do is package up bonds to sell to investors to cover some of their exposure.

If they did get hit, you get a good rate on that bond, apparently. But if a hurricane hits, you lose your money. So,

Tony Kynaston: Is that how it

Cameron: yeah. As, as I understand it, yeah. Yeah. We will pay you a fat premium on your bond unless we need to use the money, and then, sorry, we take that money and you don’t get any of it. So it’s, you know, they’re [00:41:00] taking that to the capital markets instead of just reinsurance companies covering some of the losses.

So, uh, in 2024, three hurricanes did hit, Debby, Helene, and Milton. Cost Slide $89.89, $89.9 million pre-tax. But the last, uh, couple of years they haven’t had any hit, so it’s been a good couple of years to be a home insurer in Florida. The other part of the, their business which is interesting is Citizens, the state-run insurer.

Did you read that much about them?

Tony Kynaston: I didn’t, no. I’ve heard of

Cameron: So

Tony Kynaston: I haven’t read about it in this context

Cameron: Right. So, um, with those storms in 2024, as I said, it cost Slide roughly $90 million. Citizens, which is the state-run insurer, uh, took a billion dollars, uh, losses or, or outlays on those same three [00:42:00] storms. That’s Slide’s estimate, by the way, not an audited Citizens number. That’s their estimate of what it costs Citizens.

So they’re saying, “We did a much better job at covering our exposure than the state-run insurer does.” Same weather, same state, but more than 10 times the damage. And, uh, so the tower is the business model. The third thing they do is invest the float. They’re sitting on $1.24 billion of cash that they can touch, and they’ve got a- another, uh, $839 million invested.

And the, the way that they invest is deliberately dull. Um, it’s all triple B minus or better grade bonds. No shares, no property, nothing exotic. And apparently the reason for that is if you cop a hurricane bill, you have 48 hours notice and you need to be out there doing stuff, so the money can’t be tied up in anything you can’t sell in a hurry.

That book earned them $42.3 million [00:43:00] and a half, up from 28.8 million in the last year because they’ve got a lot more to invest, uh, than they did a year ago. But getting back to the Citizens state, state insurer, really interesting aspect of the business in Florida is they w- they’ve been picking up customers from Citizens.

So Citizens is the Florida state-run insurer of last resort. It was created 2002. And to give you some perspective of the numbers, in September 2023, Citizens had roughly 1.4 million policies. Um, they have about. That was, that was September 2023, 1.4. As of July 2026, they have about 278,000 policies. So they’re down 80%.

[00:44:00] Most of it went into private carriers like Slide.

Tony Kynaston: Mm-hmm.

Cameron: And the reason for this is a 2022 law that the Lucases may or may not have suspected was coming when they set up the business. And the law states that if a private insurer offers you comparable cover within 20% of your Citizens premium, you are no longer eligible to stay with Citizens.

You have to take a private carrier.

Tony Kynaston: Mm-hmm.

Cameron: Doesn’t have to be Slide, but you have to go to one of the official admitted carriers in the program if their rates are within 20% of the state’s rate, state-run insurer’s rate. So Citizens’ rates control the size of the opportunity for the private [00:45:00] carriers like Slide to pick up Citizens’ business effectively, right?

So if Citizens rates go down, it can mean a decline in the number of customers that are sliding into Slide. I think that’s where they came up with the name from, actually. You s- you’re gonna slide, slide on over into our business. Um, and they were picking up a lot of business from Citizens, but one of the reasons I think the projections for the next year are low and the price is where it is, is because they’re not gonna be picking up as many customers, is the current, um, assumption, as well as potential hurricane losses and that kind of thing folds in.

But let me get into the Manatee Research. So September, 2025, as I mentioned, this outfit called Manatee Research published a bear report which disclosed a short position. Now, the interesting thing about Manatee Research is when you go to their website, it’s, it’s a bit like the Berkshire Hathaway website.[00:46:00]

It looks like it was made in 1990, and, uh, it’s one page. There’s nothing on it. No about, know nothing about who’s behind this. The first ever thing they ever published was the Slide report, and they’ve done one more since then, which hasn’t gone well either. That’s it. So we don’t know who they are, what their background is, what their knowledge is, um, just the fact that they wrote one on Slide and then another one on a company called Amprius Technologies in May 20 this year, which is kind of interesting.

Um, they’re writing a very damning report which started four, not lawsuits, but investigations by law firms into Slide when this report came out. But they shorted them when the Slide price was around $12.50, and the price is now $22. So [00:47:00] it hasn’t gone well for the, their shorts, at least this stage, at this stage.

Tony Kynaston: How long did they

Cameron: I don’t think the Amp-

Tony Kynaston: Do you know? Did it, did the price dip after the research came out?

Cameron: No, the price went up after the research came out. So yeah. And, uh, I don’t know if they still hold the shorts. I don’t know what the situation is there, but, um, yeah. Well, we don’t know who the people are and they, I don’t think they’ve published anything about their holdings, so very hard to tell.

Tony Kynaston: Yeah. Well,

Cameron: But

Tony Kynaston: know who the people are. You can Google Manatee Research and see who’s behind it.

Cameron: Can you?

Tony Kynaston: Mm-hmm. I’m, I’m doing it

Cameron: So who’s behind it? I don’t know

Tony Kynaston: Uh, someone who used to work at Hindenburg.

Cameron: Who’s another shorting firm, right?

Tony Kynaston: Yeah. name for a shorting company.

Cameron: Yeah, yeah

Tony Kynaston: Yeah. Uh, “Founded by a former senior researcher from the prominent activist short-selling firm, Hindenburg [00:48:00] Research.” Um, goes on to say, uh, Gemini goes on to say that, uh, on Reddit are mixed about their credibility. market watchers view their sourcing on legal and regulatory histo- histories as thorough, whereas others suggest short sellers exaggerate routine business risks or mi- misinterpret foreign corporate relationships for financial gain.”

Cameron: Funny, when I Google Manatee Research, I get, “Manatee Research uses advanced biological tracking, neurobiology, and acoustic monitoring to protect these vulnerable marine mammals from environmental crises and human interactions.”

Tony Kynaston: Maybe Gemini knows I’m a stock investor.

Cameron: Don’t know what it thinks I am. Interested in manatees apparently. Yeah

Tony Kynaston: cow. What kind of porn are you looking at?

Cameron: You don’t wanna know, Tony. You don’t wanna know. Anywho, don’t judge. Love is love, Tony.

Tony Kynaston: No, [00:49:00] you’re

Cameron: Yeah. Yeah, yeah. Takes all types

Tony Kynaston: Yeah.

Cameron: So, um,

Tony Kynaston: I

Cameron: w- anyway, back to the Mani-

Tony Kynaston: porn, which is why Gemini’s giving me that, that

Cameron: This is

Tony Kynaston: Mm.

Cameron: Buffett and Munger naked in a hot tub. Um, you know, you can probably get AI to make that now if you really want it.

Tony Kynaston: This, this is really sliding.

Cameron: So one of the things that Manatee Research claimed in their report was that when St. John’s collapsed, three of its senior people turned up at Slide. Jesse Schalk, who became Slide’s president and chief financial officer, Jonathan Mertz, senior vice president of operations, and Andrew Lambert, the senior vice president of claims. Now, Manatee said that the Florida regulator wrote to Slide in March 2024 [00:50:00] demanding their removal, and that Slide then quietly took their names, um, out of their website, but that they stayed employed at the company.

Now, that is relevant because there’s a law in Florida that says if you’re part of an insurance company that went out of business, you can’t be part of the management of another insurance company.

Tony Kynaston: Mm-hmm

Cameron: Second, Manatee made allegations regarding claims handling for Slide. They said Slide closed only 38.6% of its reported homeowner claims with a payment in 2024 against a peer average of 53.7%, a 15-point gap.

They cited Florida state data, 1,938 civil remedy notices filed between January 23rd and September 25th, about 90% of them alleging delay and 60% alleging outright denial. A [00:51:00] civil remedy notice is a pre-suit bad faith complaint you lodge with the state before you’re allowed to sue. It’s an accusation, not a finding.

So they said, you know, they, their combined ratio wasn’t because they’re really good at

Tony Kynaston: Uh-huh.

Cameron: underwriting, it’s because they just weren’t paying claims. The third allegation was about the technology. The co-founder and chief data officer, Hassan Sawah, ex-Amazon and ex-Meta, quietly disappeared off the website after December ’23.

Didn’t appear anywhere in the IPO prospectus. But then a third party vendor called PinPoint Predictive publicly took credit for seven points of loss ratio improvement at Slide in their own case study. So Manatee’s, one of their claims was that a large percentage of Slide’s avoided losses and entire net income that year came from an outside [00:52:00] technology vendor.

So it wasn’t proprietary AI or software that Slide had as a competitive advantage. It was third party stuff that anyone could get, and their whole business case, uh, that they had this proprietary technology may not be all it seems to be. Just saying this is alleged. Don’t know that anyone has proven anything, but this is what Manatee’s report said.

Fourth, they claimed concentration. About 83% of policies in force came from failed insurers or the state. 69% of the insured values on houses built before 2001, so before Florida tightened the building code after Hurricane Andrew, and 35% of it sits in the four highest risk hurricane counties. So, uh, you know, a lot of this stuff actually turned out to be correct.[00:53:00]

Um, what happened after this report came out is within a week, four American plaintiff law firms anno- announced investigations. As far as I can tell, no class action was ever actually filed. There’s nothing in their 10-K or 10-Q reports about it. But five weeks after the report came out, the Florida regulator fined Slide $250,000 for claims handling.

But to be fair, they also charged another company called Kin Insurance exactly the same amount of money for similar conduct. So, um, maybe it just wasn’t Slide specific. And it was also a $250,000 fine against $444 million of profits. So good f- good, good business if you can get it

Tony Kynaston: Yeah. I mean, look, it’s, um, I think it’s good to go through the contra. Um, but given the share price is up, given there’s been no class action, given there’s, um, no, well, there’s a fine, but not a big [00:54:00] fine, um, kind of questioning whether it actually was substantive

Cameron: Well, f- two days after the fine, Jesse Schalk had, Schalk, one of the St. John’s guys, announced he was leaving five weeks after the report came out. Maybe related, maybe not related, but, uh, there you go. That’s what the Manatee Research thing won.

Tony Kynaston: short, short sellers say that they’ve uncovered problems in companies, but we don’t know what the.

Cameron: That’s their job.

Tony Kynaston: That’s their job, yeah. What’s the

Cameron: It’s their business model.

Tony Kynaston: Yeah

Cameron: Yeah. Mm. Um, the Tampa Bay Times has actually been chasing the story about the collapse of St. John’s and the transfer of its business to Slide since about 2024, and as well as a lot of other failed Florida insurers that then landed senior jobs at other Florida carriers.

There was a bunch of them. It was a bit messy. It’s apparently, it’s an ongoing story, [00:55:00] but, um, anyway, that’s just a bit of background to the Florida home insurer market. Little bit messy, little bit interesting

Tony Kynaston: I think, uh, a couple of other things I wanna just toss in there at this stage. One is that a lot of the big companies have exited the Florida market, like, uh, State Insurance, Farmers Insurance have both, um, left the market, and that, that plays into Slide’s hands because they pick up the mark- instant market share when the– a big insurer leaves. You have to say why the big insurer’s leaving, um, and that’s for a variety of reasons, not the least of which is risk. Um, but it’s also, you know, it’s also I think the, the market. I mean, if you’re a small insurance company in a market like that, you may have– you may not last. I mean, it’s. They were, they were closing down, um, following those three big hurricanes. So, um, if, if you’re a, if you’re an up-and-coming insurer, you’ve just listed, you can pick up market share, you can buy assets out of– distressed assets out of a liquidated company, and [00:56:00] potentially pick up some good staff from that– pick the, pick the best staff,

Cameron: Yeah

Tony Kynaston: probably a good thing for shareholders.

Now, can’t comment on whether that was against the law that they became office holders, whether they should’ve been or not. I don’t know the detail. you said, you said someone left, so maybe they, they shouldn’t have gone there. But, but I can see how it happens in a, in a normal commercial environment without, um, having to go to a short-selling thesis or a class action thesis about what’s gone on

Cameron: Indeed. Well, a little bit about the ownership. You’ll like this. As far as I can tell, Bruce Lucas owns about 45% of the company. His wife sh- uh, owns another 2.5%. Directors and officers as a group own about 50.8%. This is as of the 20th of April. They may have sold a little bit since then, but they still probably own a massive chunk, so we do like a lot of inside ownership.

So why is it, uh, cheap? Well, you know, I [00:57:00] think we’ve talked about a number of the reasons, but their own guidance says the trailing number is probably the peak. They’ve guided 455 to 470 million of profit for the year against $555 million trailing. So management is saying next year’s not gonna be as good as last year was.

First half, they’ve already done 274 million, so the second half is guided to be somewhere between 181 and 196 million. This is against 281 million last year, so it’s down about a third. And there hasn’t been a hurricane. So two reasons for the fall. Their new reinsurance tower only started on the 1st of June, so the June quarter wore one month of it, and the next two wear three months each.

And guidance has to assume a normal storm season,

Tony Kynaston: Right.

Cameron: which they didn’t have last [00:58:00] year

Tony Kynaston: Right

Cameron: So I think their insurance, reinsurance tower costs went up. They have to say, “We’re probably gonna get hit by a storm. It’s probably gonna cost us money.” And the top line is slowing, too. Premium guidance was up 3 to 9% after 35% last year.

So we’re gonna have less money coming in, uh, more expenses, less profit. The growth engine is also closing. The Citizens pipeline has gone from, as I said, their meta policy Citizens has, has gone from 1.4 million to 278. 80% of that pool has already been drained. Slide’s approvals from the regulator halved this year from 266,000 down to 131.

And the reasons are legal, not really commercial. A Citizens customer only has to leave if the private insurer’s [00:59:00] within 20% of the Citizens price, and Citizen just cut its rates. So it’s gonna leave less opportunity for Slide to slide in. Less sliding, more organic growth or, you know, have to go out and do it the hard way.

Um, and so that leaves the float and their ability to make money out of the float and, um, you know, that’s a, that’s a separate line item. But cash flow, you know, the amount of money coming in determines the amount of float that you have to invest, so they have less money potentially coming in to, uh, invest in other things.

Three, the reinsur- they had reinsurance relief. Uh, it’s the biggest cost after claims and, um, prices, uh, actually fell for reinsurance recently, but you only [01:00:00] get that once, so they’re expecting next year to be flat reinsurance pricing. So they’re not gonna be able to make more profit from that. And then the last one is the catastrophe risk.

Uh, so 2024 they had three hurricanes. 2025, none of them made landfall. But, uh, you know, the, the expectation is there has to, statistically there probably has to be a, a very bad year coming up, and that could be very costly. So they’re having to factor that in. So I think that’s kind of the summary of Indigo Guide, exactly

Tony Kynaston: I think, I think there was one last thing I wanted to cover, Cam, and, and another tailwind for the company. So December 2022, were some litigation reforms in Florida. the bill was called Senate Bill 2A or SB2A for short, it had four, I guess, um, [01:01:00] four things or four tranches to the bill which is going to aid, uh, insurance companies.

And, before, before this law came in, prior to the reforms, Florida accounted for roughly 79% of all homeowner insurance lawsuits in the US despite the fact that 8% of the country’s total homeowners, um, had claims across the US based in Florida. uh, it was disproportionately litigious in Florida up until 2022. That bill, SB2A, uh, stopped, um, a lot of the insurance or the, the legal business that was going on against insurance companies. So the first way it did that was to eliminate what’s called one-way attorney fees. And, uh, what that meant was that, um, prior to the law, if, uh, a policy- policyholder sued their insurance carrier over a claims dispute and won by even a single dollar, the insurer had to pay 100% of the [01:02:00] policyholder’s, legal fees.

But if the insurer won, they still had to cover their own legal bills. So it was a, a one-way insurance, um, uh. Sorry, one-way, uh, fee coverage that’s now changed. So, um, the plaintiff loses, uh. Well, first of all, the plaintiffs must pay for their own attorneys, um, and, uh, normal sort of litigation rules apply. Uh, there was a thing called assignment of benefits that used to operate. So, there was a, a. Well, what, what happened with unscrupulous, uh, suppliers of, uh, repairs to insurance claimed houses, so people like, uh, roofing contractors, plumbers, um, whatever. They’d arrive at a, a home post-storm and require the homeowner to sign over their insurance rights before any emergency repairs began, and then they would bill the, uh, claims to the insurance company themselves by inflating the, the damage estimates.

So, uh, [01:03:00] law now says you cannot assign, uh, your post-loss insurance benefits to the contractor. You have to keep them yourself and make the claim yourself if you’re the policyholder. the, um. And before the legislation, the, a homeowner had up to two years to file, to file the initial claim following a severe weather event, and, uh, that’s been, uh, uh, changed to one year from the date of loss.

So, that helps. And then there was also the fourth, uh, part of this law which, uh, stops what’s called bad faith lawsuits before a, a claim is settled. So, um, the– under the SB 2A, the claimant must first secure a final adverse judicial judgment against the insurer before they can then go on to follow up with, uh, bad faith action. So, um, in the past, they had to– they were being run concurrently and causing insurance companies extra costs. So those, um, those [01:04:00] changes to law have helped insurers in Florida. The fact that Farmers in the state have left the, uh, state has, um, or State Farm insurance has left the state is, uh, is a good thing as well. Um, and the fact that, you know, probably because they were ins-insiders, they, they knew that there were companies, companies going bankrupt in Florida and that they could pick up the assets and policies cheaply, kinda gave them a running start. Um,

Cameron: Yeah

Tony Kynaston: notwithstanding all the risks you’ve spoken about before and the guidance being flat to negative, all that kind of stuff’s in there to put it on our value buy list.

But, um, yeah, it’s, it’s– think there’s a fair bit to like about the company really, notwithstanding the risks that come with a major catastrophe that could, could still strike Florida and, uh, and mean lots of claims and lots of reinsurance price rises too, which is probably, important to the profit of this company going forward

Cameron: And the good thing about QAV as a methodology is I [01:05:00] don’t have to worry about,

Tony Kynaston: We don’t

Cameron: predicting hurricanes in Florida. Um, not my, not my job

Tony Kynaston: No, that’s right

Cameron: So, um, running out of time here. I’ve gotta go to kung fu. I’m just gonna wrap up the numbers. So, um, let me run through the scoring for these guys. Uh, their price was not less than our IV1. IV1 was, uh, $21.06, and the price at the time was $21.93, so slightly above it. Couldn’t score it, but price was less than IV2.

IV2 comes in at $39.51, so it’s quite a bit below that. The price was not less than book value. Uh, the price, however. No, also was not less than book value plus 30. I got book value at $10.23, so couldn’t get scored for either of those. Price to operating cash flow was 2.47. [01:06:00] Very, very low. Um, so could score it for that.

It’s less than our cutoff of seven. Uh, price was not less. Uh, sorry, PE was not less than yield. PE ratio is 5.34, and, uh, the yield is 0.32. Yield was not higher than the benchmark rate either. Did have positive book growth. Um, des- does not have a new three-point upturn, although, uh, phew. You know, the new three-point upturn timing for American companies, I’m still not quite sure about.

Tony Kynaston: Yeah, we use six monthly in Australia, don’t we? Yeah

Cameron: Yeah. When I look at this one, it sort of seems to have breached the three-point, uh, buy line roundabout May, June, just as the numbers would’ve been signed off. Um, you [01:07:00] know, I probably would score it for that, you know, but I don’t need to fudge it because it’s already scoring very, very high.

Tony Kynaston: Right

Cameron: Um, does score for Piotroski F-score.

It had a- an F score of seven, above our threshold of three, of four and a half, sorry. Um, quality rank was, uh, Stockopedia quality rank was 75, above our threshold of 60. Did score it for that. Stock rank on Stockopedia is 97, above our threshold of 90, so I scored it for that. Growth over PE was not greater than 1.5.

I couldn’t score it for that. All in all, it had a QAV quality score of 67% and a QAV score of 0.27, and as I said, was about number four, I think, on my buy list this week. So, um, I added it to replace BBDO, [01:08:00] um, and, uh, we’ll see how it goes

Tony Kynaston: Yeah. Good.

Cameron: Hopefully it does not sli- hope it slides up,

Tony Kynaston: Right.

Cameron: not down.

Tony Kynaston: Yeah, I mean,

Cameron: Can you

Tony Kynaston: they’re guiding based on something happening, if it doesn’t happen, then the share price should go up, but we’ll see. Again, we don’t

Cameron: Yeah.

Tony Kynaston: Mm-hmm.

Cameron: Yeah. Well, that’s a wrap, TK.

Tony Kynaston: Thank you

Cameron: Thank you. Happy hunting everybody

Tony Kynaston: All right, bye







Previous Pulled Porks

Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past.

This week we dig into Republic Airways Holdings (RJET), a regional airline contractor that flies for United, American, and Delta under their livery while keeping a remarkably low profile. Cameron runs through the full QAV numbers, which come out strong despite a company history packed with bankruptcies, pilot shortages, disk-wiping CFOs, and a former CEO who is now running the FAA. The portfolios took a knock this week too, so we recap what’s going on and run through some of the better performers from past Pulled Pork episodes.



This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market.



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Transcription

QAV America 65

Cameron: [00:00:00] welcome to QAV America, Tony. Episode 65. It’s the 11th of August, 2026. Our portfolios in America dipping. Had a bad week, our American portfolios. Uh, the model portfolio was up 40% a week ago. It’s now only up 25%. It’s a big dip. I mean, the S&P, uh, is up 13– Uh, no. Yeah, 13% over

Tony Kynaston: period’s that? time. period?

Cameron: Uh, couple of years

Tony Kynaston: okay. Since inception. All right.

Cameron: since inception,

yeah. So we’re still doing, um, double market or more or less, but we were doing way better than that. our light portfolio, which we started in December last year, fell from 12% to 10% versus the S&P 13%, uh, for that period of time as well. So, um, I don’t know. Don’t know why.

I had a look into it. Nothing really. You know, couple of, couple of reports that weren’t great, but I think it’s just [00:01:00] markets being markets. know, um, good old, uh, WLFC, Willis Lease Finance, dropped like 25% over the last week, but it’s still up 289% since we bought it, so, you know, what’s 25% between friends? it’s, uh, just, I think, you know, oil prices and th-

Tony Kynaston: But thank you

Cameron: the US economy and profit taking. Yeah, Yeah.

is. Anyway, so I d- I, I started to drill into it and try and figure out what was going on. Mostly financials, uh, that are down. Um, Carter Bank, CVGI, F&G, some of the biggest drops, but at the end of the day, um, there’s nothing really to be seen there.

It’ll probably be up by 25% next week. You know, it’s, it’s crazy over there still at the moment. You got any American stories you wanna talk about before I get into my pulled pork for this week, Tony?

Tony Kynaston: don’t, no. No, no, no big news [00:02:00] over in America that I can think of.

Cameron: Nothing

Tony Kynaston: Nothing going on.

Cameron: going on, no.

Tony Kynaston: Little bit of news in Israel, but not much going on

Cameron: Try we were laughing off air. Trump now wants, uh, reparations from Iran for inva- uh, for having, having to invade having to fail at an invasion of Iran, he wants reparations for making him look bad, I think is what it is. He’s like, “Listen, you didn’t let me have a quick win. reparations. Made me look bad.”

He thinks countersuing works in geopolitics like it’s always worked for him, domestically. If somebody sues him for not paying a bill, he just countersues. He thinks that’s gonna work with Iran. “Ah, no, I, I sue you. I, I, I, I sue you too.” “What are you suing us for?” “Well, for, for making me sue you. Uh, for suing me.

I’m suing you for suing me. How do you like them apples?” [00:03:00] Uh, it’s ridiculous. Anyway, pulled pork this week is a company called Republic Airway Holdings. You ever heard of them before, Tony?

Tony Kynaston: No, not before I looked, looked at your notes and had a look at them. A bit like Alliance Aviation in Australia that we did the pulled pork on two weeks ago.

Cameron: like that. Yeah.

Uh, their ticker code, they’re on the NASDAQ, their ticker code is RJET. Uh, that’s what excited me ’cause I thought it was, um, Roger Ramjet at first. Roger Ramjet, he’s our man, hero of the nation. For his adventures, just be sure and

Tony Kynaston: Down you to the station. So gather around and all you kids.

Cameron: all you kids, for lots of fun

Tony Kynaston: laughter is Roger Ramjet and his gang.

Cameron: get

Tony Kynaston: All the crooks they’re after.

Cameron: thereafter. Yeah. Was it him who took the proton

Tony Kynaston: It was

Cameron: of 20 men for a period of 20 seconds?

Tony Kynaston: that’s the guy with the biggest square jaw I’ve seen since Chesty Bond.

Cameron: He had a Jay Leno [00:04:00] jaw. Kids, uh, people listening to this have no idea what we’re talking about. American TV that we were it was

Tony Kynaston: Ooh.

Cameron: down our throats to turn us into good American patriots little Australian kids in the ’70s, ’60s

Tony Kynaston: TV in the ’70s though, wasn’t it?

Cameron: Well, yeah.

Tony Kynaston: Mm-hmm

Cameron: the hell? Why? Why? Some of the other characters, Lance Crossfire, uh, General G.I. Brassbottom, Lotta Love. Uh, 1965,

Tony Kynaston: Wow

Cameron: NBC, according to Wikipedia, ran from ’65 to ’69. for its simple animation, frenetic pace, frequent references to pop culture which appeal to adults as well as children. Roger Ramjet is a patriotic and highly moral hero who is typically out to save the world with help from his proton energy pills, gave him the [00:05:00] strength of 20 atom bombs for a period of 20

seconds.

Tony Kynaston: So

Cameron: bombs

Tony Kynaston: was, basically an update of Popeye then, wasn’t it? Instead of spinach, he had a proton pill, yeah.

Cameron: yeah.

yeah.

Tony Kynaston: Yeah

Cameron: But it gave him the strength of 20 atom bombs. That’s, uh,

Tony Kynaston: lot.

Cameron: Yeah, I, I don’t think he needed to take a full, a full proton energy pill, to be honest. He could’ve

Tony Kynaston: Nein.

Cameron: away with, like, one-20th of

Tony Kynaston: Mhm.

Cameron: energy pill would’ve been. What did that do to his testicles, do you think, over a period of time?

It’s not good.

Tony Kynaston: Irradiation

Cameron: you think he, uh, they shrunk up? Yeah. That’s, testicles shrank and his jaw. Anyway, RJET. Um, they’re based out of Carmel, Indiana,

Tony Kynaston: Oh,

Cameron: California.

Tony Kynaston: Wow.

Cameron: I’ve been to Carmel. I told you my

Tony Kynaston: I’ve been to Carmel as well. Carmel No

Cameron: I was in Carmel, um, uh, for God, I don’t know, 25 years ago maybe, um, [00:06:00] working from a cafe there during the day, waiting for a friend of mine to, who lived there, to come and pick me up.

And, uh, standing in the car park at the shopping center, just wa- hanging around, and see Clint Eastwood drive past,

Tony Kynaston: Right

Cameron: parking his car. I was like, “Oh, look at that. There you go.” Anywho, different, different place. Carmel, Indiana. Um, here’s a thing from the company website. “We believe that every associate, regardless of personal beliefs or worldview, has been created in the image and likeness of God.” It’s a interesting statement for a public, public company on their website, I thought.

Tony Kynaston: Yeah

Cameron: You don’t see, see that

Tony Kynaston: No. I’d rather know about their policy for on time, you know, flights or charging for overhead lockers or whatever, but

Cameron: Yeah. Well, Yeah

Image and likeness of God. Yeah, when they went bankrupt in [00:07:00] 2016, um, you know, that’s, uh, there’s a classic God move. Um, and all their shareholders lost everything, you know. So it’s, it was their way of like biblical, going biblical on the shareholders. Anyway, look, this company’s only been publicly traded for nine months.

Why? Well, Airways have been around for a long time in one form or another, but they went bankrupt in 2016, emerged as a private company in 2017, stayed that way for eight years, then came back onto the market 2025 by merging, kind of a backdoor grandfather listing thing with a company called Mesa Air Group. They took over Mesa’s stock exchange listing. Republic shareholders got 88% of the combined company, Mesa shareholders got 6%, and the legal survivor is Mesa, but called Republic. So, and the ticker changed, converted from a Nevada to a Delaware [00:08:00] corporation, did a one-for-15 reverse split or a 15-for-one reverse split, um, on you believe Claude or ChatGPT, ’cause they couldn’t agree on which way it went.

But, uh, there was a, there was a reverse split somewhere along the way there. Uh, Republic’s management runs it. Republic’s board dominates it. So for all intents and purposes, Republic bought Mesa, not the other way around. Which is why if you look at the financials in Stockopedia, it looks kind of crazy. In 2020, they did 545 million. In the following few years, 504, 531, 498, 476. Then all of a sudden in 2025, 1.677 billion, and the trailing 12 months at the moment is 2.587 billion. It’s because it was Mesa for the first few years there, and then, um, the Republic [00:09:00] kicked in when they did this, uh, merger. You gonna say something?

You look like you were about to say something

Tony Kynaston: Oh, I’ve got lots of things to say. I was just waiting for you to get through, get through yours. Um, do you know why they went bankrupt?

Cameron: Yes.

Tony Kynaston: Oh, okay.

Cameron: it’s all, all to come.

Tony Kynaston: Hold the camera. All right.

Cameron: Don’t jump ahead. so what do they do? They’re, they’re not really an airline, um, I don’t think. They’re a company that runs airplanes for other airlines really. sell flying by the hour under contract. think of a mid-sized American city, um, Chattanooga, which is where my mother-in-law, one of my mother-in-laws is from. Chrissy says it’s fantastic. Uh, we should visit there sometime. I’ve, I’ve only spoken to. This is Chrissy’s stepmother. I’ve only spoken to her a few times ’cause Chrissy doesn’t really talk to her dad if she can avoid it, but her stepmother’s got a great [00:10:00] accent. They live in Georgia, but she’s, uh, she’s got this great southern Chattanooga, Tennessee, “Well, now, y’all come on back on, y’all around you here.”

It’s great. She’s. Really sweet accent. Anyway, so if you wanna, uh. So the big airlines, American, Delta, United, they all wanna fly in and out of these smaller towns, but they don’t wanna send their own 737s flying in and out, so they basically have agreement with Republic that operates the aircraft, the crews, everything that’s required to fly in and out of these smaller destinations, they do it on contract. Uh, so it’s sort of like it’s a contract, but it’s, um, it’s, uh- What the hell is that? Can you

Tony Kynaston: You’re fine

Cameron: Why is

Tony Kynaston: It’s the fern. The fern.

Cameron: is.

Tony Kynaston: Uh,

Cameron: What?

Tony Kynaston: and we spoke, we spoke about this with Alliance Aviation in Australia [00:11:00] recently, which is a similar sort of company which leases, uh, planes. And funnily enough, Embraers, um, in both cases. Although, uh, one of the things that tripped up Alliance Aviation was their fleet of Fokkers, which, uh, this company, RJET, doesn’t have.

So they’re one step ahead of, uh, Alliance Aviation. They’ve got Embraers, which Alliance was moving towards, so that was good. Um, but yeah, not only were the, were the big, uh, US carriers using this company to do their small runs with smaller planes, which didn’t have, um, good economics for the large carriers, but they’re also shareholders in the rebirthed company as well.

Um, so the three large carriers all have a reasonable stake in this company. Um, and then they use the company to service their regional networks

Cameron: Yeah. Because of the bankruptcy, right?

Tony Kynaston: Ooh.

Cameron: was all part of the deal. So, uh, [00:12:00] yeah, these guys, you know, the big airlines, you know, they, they set the schedule, sell the seats, keep every dollar of the fare, paint their own brand on the plane, and you never hear the word Republic probably if you’re a passenger.

But, uh, Republic supply, it all, the aircraft, the pilots, the cabin crew, the engineers, the dispatchers, and get paid a fixed rate for what’s called a block hour. As best I understand it, a block hour is everything from gate to gate, including taxi time, and turns up in the financials. That’s sort of something they report on, is how many block hours they delivered on. The big airlines carry the demand risk, so if they can’t sell the seats, that’s on them. Doesn’t really matter to Republic, and fuel risk as well. It’s a pass-through. So Republic just gets paid a straight contract fee to run the operation. I guess their [00:13:00] risk is really what they’re gonna get paid from these three big airlines and their ability to actually deliver on their end of the bargain, which you pointed out, is one of the reasons both of them actually, Mesa and Republic, uh, went into liquidation over, um, sort of between 2016 and 2022, I think, was Mesa’s, uh, issue. So, um, the, the other thing that they get sort of benchmarked on is what they call completion factors. It’s the percentage of scheduled flights, scheduled flights that you actually operate. The, it’s the number at the end of the day that helps you maintain the contract and not get sued or fired if your completion factor falls below a certain rate.

You say you’re gonna fly 10 flights a day, and you, you, you fly seven long enough, you get yourself into trouble. So [00:14:00] Delta sued Republic in 2015 for not flying the full schedule, they ended up going into liquidation as a result of Chapter 11. Then American fired Mesa in 2022, and if you look at the numbers in Stockopedia, you’ll see that Mesa went from making a $64 million operating profit in 2021 to $185 million loss in 2022. But apparently this was because of a pilot shortage, and the reason they couldn’t deliver their things was a pilot shortage. I didn’t drill down into why they had a pilot shortage. I mean, I assume it was somewhat COVID-related, but what was the pilot shortage about,

Tony Kynaston: Well, I think this was pre-COVID, wasn’t it? They went into, into administration. But anyway.

Cameron: 2022.

Tony Kynaston: Oh, sorry. Okay

Cameron: was 2022. The Republic was 2015, 2016

Tony Kynaston: So interestingly enough, they, one of the, one of the interesting situations was if you’re flying for one of the big carriers in 737 jets as a pilot, [00:15:00] you’re part of a union, you’re getting paid a much higher rate than

Cameron: Mm-hmm

Tony Kynaston: regional pilots are being paid. And one of the things that the pilots’ union had in place was it did allow for lower rates for these regional pilots, but it capped it.

So you could only fly a certain number of, um, you know, destinations, a certain number of flights, a certain number of pilots could be outside the award wage. Um, and, uh, the forerunner for RJET now, uh, got around this by setting up lots of different companies. They had two or three different companies, and so they could get round the cap by putting a third in each one.

And, um, they would then, as, as they started to reach the cap, they would transfer pilots back and forth between these sub-companies that they got around the union, uh, prohibition on, um, and kept their cap, kept their regional pilot salaries right down to the point where they couldn’t attract pilots because [00:16:00] they were going either to the big carriers overseas or they were saying, “Hey, you’re paying us so little, we can’t afford to go through pilot school and get trained for your plane and then become a pilot there.”

So they kind of became their own death knell in a way by priding themselves on being anti-union, anti-pilots union, and keeping the. doing everything they could to structure things to keep the, the pilots’ wages low. Which made sense because they’re competing for the business from the big carriers, so they had to keep their costs under control.

But eventually it got to a stage where they couldn’t find pilots to fly that cheaply on their planes.

Cameron: Hmm. Right. And this probably ties in with, uh, uh, the flight school that they run and what they were trying to push through the FAA.

Tony Kynaston: Yeah. so like one of the ways to get around the problem of pilots not being able to afford to learn how to fly on their planes and then get paid little money in return was they now have their own in-house flight school, and they provide the, the service

Cameron: And they, and they tried to get [00:17:00] the FAA to let them, instead of having to have 1,500 hours, to have 750 hours to get some sort of a flight certificate. That was one of the other big. Sorry.

Yeah, That was another big driver. So I think the FAA at the time went from 150 hours to 1,500 hours certification, which then dried up the pilot pr- the pilot pool as well. So they’ve been trying to argue to get it back to a more reasonable number for their, for their needs.

Yes. And who’s the chairman of the FAA now?

Tony Kynaston: Ooh, no, I don’t know.

Cameron: The Roger Ramjet? No,

close, Brian Bedford, the guy who

Tony Kynaston: no.

Cameron: Republic for 25 years.

Tony Kynaston: Right.

Cameron: Anyway, more on that later. That’s good. So the history of the company is actually interesting. It traces its roots to Chautauqua Airlines,

Tony Kynaston: Chautauqua

Cameron: found- [00:18:00] You say Chautauqua,

Tony Kynaston: I’m, pulling you up on the pronounce, you can say Chautauqua. The reason I’m saying Chautauqua and I’m excited by it is it was a racehorse in Australia called Chautauqua, spelt the same way. Famous racehorse.

Oh

Cameron: here says, “Not named after the Australian racehorse, The Grey Flash,” ’cause I knew you would go there

Tony Kynaston: Do you know what was special about Chautauqua or the racehorse, though?

Cameron: The fact that you pronounced its name incorrectly?

Tony Kynaston: Well, so does everybody else who went to the track in Australia and watched it.

Cameron: right. it was a suc- a successful racehorse, would’ve won at least one Group 1. Famously, towards the end of its career, it wouldn’t leave the gates in a race. It– We used to call it the smartest racehorse in Australia because it had worked out you could be looked after, pampered, trained, taken to the beach for a swim.

Tony Kynaston: But on race day, you didn’t have to race. You could just stand in the gates. And they had to retire it because it did it two or three times and

Cameron: yeah

Tony Kynaston: the other trainers started to get worried that it would teach the [00:19:00] other horses what to do on race day.

Cameron: Sounds like the, uh, greyhound that we’ve been babysitting, Pepsi. A friend of ours who lives around the corner, when she travels for work, she leaves her greyhound with us and we look after it for four or five days. um, know, I’ll take it for a walk, uh, and it, it doesn’t wanna. It won’t go where I want it to go.

It’ll just stand there and just like, “No.” I had to– Literally, I had, I had food in the oven a couple of weeks ago, and I thought I’d take it for a half-hour walk. I had the food in the oven for an hour, and then it w- we’d been out for an hour, and she just refused to move. And I had to pick her up, full bloody sized greyhound, and carry her r- All

Tony Kynaston: All right. So why would she walk if she knows you’re gonna pick her up and carry her?

Cameron: Exactly, right?

Yeah.

Tony Kynaston: Yeah

Cameron: Anyway, this is named after Lake Chautauqua in New York, and th- uh, there’s an interesting story about a social movement. I assume the airline was actually named after, this social [00:20:00] movement, the Chautauqua Movement. It was started in the 19th century, originally as a way to train, Sunday school teachers in, like, a summer school kind of thing around this lake. then it kind of evolved into an American adult education and social movement. It spread across the, the US, mostly in rural areas. It was like a traveling tent show. Bit like, it was the opposite of vaudeville, so instead of having sort of, you know, uh, tits and ass shows and raunchy comedians, it was motivational speakers and religious speakers and politicians and educators that would just go from town to town in, like, a circus, but would give lectures.

Before TV, before radio, before film, it was a traveling education show.

Tony Kynaston: the, PBS of its time. But,

Cameron: yeah. [00:21:00]

Tony Kynaston: Is that why the policy for this company is that we’re all created in God’s image

or whatever it is?

Cameron: I, I, I’m guessing there’s probably some connection somewhere to that. I couldn’t really track it down, but yeah. um, this was a big thing and, uh, uh, uh, there was a famous guy, one of the most prolific speakers was a guy called Russell Conwell, an American Baptist minister who delivered a famous speech called Acres of Diamonds.

Tony Kynaston: perfect name for a minister, isn’t it? A Baptist minister, Conwell.

Cameron: Conwell.

Tony Kynaston: Yeah. Yeah.

Cameron: yeah, yeah. A famous speech which I’ve actually, I’ve read this back when I was in my early 20s called Acres of Diamonds. You ever read it?

in your reading career?

Tony Kynaston: No.

Cameron: He delivered it, they reckon 5,000 or 6,000 times on the circuit. Um, as I recall, it was, uh, a retelling of a story that Conwell heard when he [00:22:00] was in the Middle East. F- uh, you know, one of his guides told him this story. It sounds like it was something from the, you know, Arabian Nights. But it was about a guy who wanted to get rich, and he so- he, he left, home to travel the world to try and get rich, and he sold his house and his property to someone else who discovered, uh, a m- diamond mine underneath the house. So, um, the basic i- uh, speech that Conwell was giving was to get rich where you are, figure out how to get rich. But it was also about how money and power should be in the hands of good people, you’re good, so if anyone’s gonna be rich, it should be you. You have no right to be poor. It is your responsibility as a good American to get rich, because if you’re not rich, who’s gonna be rich?

You’re just gonna leave it to the bad guys, uh, and girls? [00:23:00] Huh? So that’s.

Tony Kynaston: Right

Cameron: Teddy Roosevelt is often quoted, not about the Russell Conwell thing, but about Chautauqua as saying, “It was the most American thing in America.” Um, uh, I think it’s misquoted. He, he really said, um, a source of positive strength and refreshment of mind and body to come and meet a typical Ameri- at a meet- a typical American gathering like this, a gathering that is typically American, that it is typical of America at its best.” Apparently, Teddy Roosevelt liked saying the word typical and America a lot. You know, if you just repeat that over and over again, it’s, uh, gonna go well.

Tony Kynaston: It was appealing to a typical American.

Cameron: Exactly. So, so anyway, uh, going back to the airline as it is today, um, it has a bit of a moat. know, getting back to this union contract that you were talking about before, as I understand it, it, it, it was [00:24:00] set. whole idea of, um, the, these, this limit on how, on, on how the big airlines can run the regional stuff is that there was deregulation of the airlines in 1978, and the major airlines started up these hubs with contractors, and by the 1990s this had become a way to move flying off the mainline seniority list permanently.

You have your mainline pilots and your, your regional pilots, mainline captains and regional captains. They’re flying the same passengers between the same cities, but they were paying the regional captains and pilots a lot less than they had to pay the mainline guys. They were ho- uh, hiring the cheaper pilots, so the pilots’ union kicked up a stink, and since 2012, all three big US airlines have had a restriction on the size of the planes that they can use for these rural contracts, seats and [00:25:00] 86,000 pounds maximum takeoff weight. And there’s only one regional airplane still in production anywhere on the planet that fits that limitation, and that’s the Embraer E175. Guess who owns all of the Embraer

Tony Kynaston: Ajit

Cameron: and guess who owns 8.8% of RJET

Tony Kynaston: The big carriers

Cameron: No, they own about 75%.

Tony Kynaston: Oh. They’ll do that.

Cameron: 8.8% of Republic because when Republic went into liquidation, owed Embraer

a lot Yeah, right.

Embraer ended up

with ownership of the company. So it’s it’s kind of a moat that they have that there’s only this one particular plane that can be bought that’s still in production, and they are owned in l- you know, nearly 10% of the company is owned by Embraer, and [00:26:00] they own a big chunk of it. Not that no one else can get into the business, but it’s sort of a limitation. There’s only one other large independent regional left in America, that’s SkyWest. A couple of other smaller independent operators, but, um, the rest are owned outright by the majors and I think, um, even some of the smaller ones have got significant chunks owned by the majors. So anyway, so it’s a bit of a moat that these guys have. They’re, they’re owned by the majors. United owns 22%, American owns 21%, Delta owns 14.4, and Embraer owns 8.8. Uh, they’re a Brazilian, uh, corporation by the way, Embraer. They’re the third largest producer of civil aircraft in the world after Boeing and Airbus

Tony Kynaston: I’m glad we have a Brazilian connection this week, Cam, I was.

Cameron: right? yeah.

Tony Kynaston: Well done.

Cameron: to Yeah. I was getting withdrawal. South American withdrawal.

Yeah, yeah, yeah. Um, so that’s basically what the business does. Um, now as a [00:27:00] result of all of this ownership between the majors and Embraer and a couple of other f- um, distressed equity funds that bought in, the free float is actually pretty tiny. Uh, it’s about 155,000 shares is the average trading volume. Uh, so the biggest shareholders have this strategic holding. They’ve come out of lockup. I think Ameri- I don’t know about the others, but Americans’ lockup actually expired in late May. they may be able to start selling off shares. I don’t have any evidence that they are, but more of that shareholding that they hold might end up on the market. But, um, at the moment it’s r- relatively limited amount that’s available, um, outstanding for punters to get their hands on. So the Brian Bedford story is a little, is interesting. As I said, he was the CEO for, it was actually 26 years from 1999 to 2025, right through the liquidation, [00:28:00] um, and back out the other end.

He managed to survive all through that as CEO, which is kind of unusual. Y- would think that the guy that put them into liquidation would get his ass handed to him, but that wasn’t the case. In fact, he got promoted in a way. In March 2025, Trump nominated him to run the FAA, he got confirmed by the Senate, retired from Republic, but, um, or David Grizzle, who was the chairman, stepped in as CEO.

He ran it through the merger and then handed over to the current CEO, a guy called Matt Koscal, a couple of months ago, just on the 15th of June this year. So they’ve had three chief executives in 12 months. But to Brian Bedford, Roger Ramjet. Um, he signed an ethics agreement in June 2025 when he was nominated to run the FAA, which required him to sell all of his Republic shares within 90 days of [00:29:00] confirmation, which would’ve been the 7th of October. But, uh, he asked for a 60-day extension. The Office of Government Ethics, surprised that

still exists,

uh,

Tony Kynaston: Where’s that been?

Cameron: back I think Trump got an exemption from that. Uh,

Tony Kynaston: yep

Cameron: yeah. Lifetime exemption, like he’s got a lifetime exemption from being investigated by the tax department. Um, uh, they knocked his request back, being busy wasn’t a good enough reason to ask for an extension. The merger closed on the 25th of November. Remember, he was supposed to sell by the 7th of October.

Tony Kynaston: Uh

Cameron: Merger closed on the 25th of November, and then he testified the 17th of December that he still held his shares, and the value of them had gone up $12.8 [00:30:00] million in the period of time from when he was supposed to have divested them and that period of time.

Tony Kynaston: Did he sell them though? Were they, were they in Chapter 11 though when he was required to sell them? If, if it was pre-merger, didn’t the company re-list after the merger?

Cameron: Yeah. Yeah. Uh, I, I don’t know how you go about selling, I mean, you sell your shares if it’s not publicly listed, but I guess,

Tony Kynaston: Or you find a buyer, but yeah. Yeah But, you know, why don’t you just go to a Goldman Sachs and say, “Hey, buy my shares for a year and I’ll get them back off you at the end,” or something. It’s not– Like it’s not, it’s not a big barrier. Re- I understand why you have to divest if you’re regulating the industry, but surprising he couldn’t find a way to, uh, to satisfy all stakeholders, including himself.

Cameron: Too busy, Tony. Too

Tony Kynaston: Right.

Cameron: Too busy.

Tony Kynaston: He must have lost his protein, lost his protein pills.

Cameron: Yeah. [00:31:00] So there are some pe- he did sell apparently in February 2026, four months past his deadline. People are calling for an investigation. Anyway, not really relevant to Ramjet, but just a fun story.

Tony Kynaston: Yeah

Cameron: Um, so I mentioned already the Lift Academy, their flight school.

Um, they. He, when he was running Republic in 2022, positioned the FAA to let them grant a restricted airline transport pilot certificate at 750 hours of training instead of 1,500. FAA denied it, said it wasn’t in the public interest. Now he’s running the FAA. Uh, when he was going through the hearings, the, the confirmation hearings, they asked him if he would recuse himself from granting exemptions to his former company, and he said, “No. No, I will not recuse myself from doing that.” They said, “Would you commit to leaving the 1,500-hour rule alone?” And he said, “No. No, I won’t commit to that. Um, not committing to anything.” So, and he got confirmed anyway, so welcome to America. [00:32:00] Anyway

Tony Kynaston: Oh, he couldn’t– He’s stamping his little foot because he couldn’t sell– he, you know, had– couldn’t keep a hold of his shares. He had to sell those, so that was enough. That was the, that was the line he wouldn’t cross anymore.

Cameron: Yeah.

Tony Kynaston: Yeah.

Cameron: Right. No, didn’t cross any.

Tony Kynaston: Hmm.

Cameron: So, um, uh, there’s a couple of other stories before their bankruptcy. They did buy a couple of airlines. Uh, 2009 they bought Midwest Airline for $31 million. Private equity had paid $450 million for it two years earlier, they bought it in the middle of the GFC. Um, the private equity firm made a 93% loss, which is why Warren Buffett says never, never buy airlines, I guess. Mm-hmm. They should’ve listened. Midwest apparently, this company that they bought, was famous for baking choc cl- chocolate chip cookies on board the plane. Their slogan was “The best care in the air.” [00:33:00] I don’t know. I don’t know. I don’t know if that’s a good thing or a bad thing. Like, uh, I don’t wanna be sitting on a plane smelling freshly baked chocolate chip cookies.

Tony Kynaston: That would be lovely.

Cameron: to keep my weight down as it is. No,

Tony Kynaston: Hmm

Cameron: to wanna eat them. Uh, that’s not, that’s not nice. You’re trapped, trapped in a plane with freshly cooked cookies, freshly baked cookies. Anyway,

Tony Kynaston: that, they did have that weight cap for takeoff too. So lu-lucky, lucky it wasn’t in place for landing.

Cameron: yeah. Uh, they also bought a company called Frontier, an airline called Frontier out of bankruptcy for 108.75 million. They later sold it in a transaction advertised at being worth, as being worth 145 million. But that included $109 million of debt that remained with Frontier. There’s only $36 um, of [00:34:00] cash for the equity, they actually recorded a $210.5 million pre-tax accounting loss. I think there was a big tax that they got by buying it and selling it and doing something with the tax. Anyway, they, when they went into Chapter 11, they had $3.6 billion of assets and $3 billion in liabilities. There’d been this eight-year pilot pay standoff that they finally settled at about $50 million a year extra. There was the pilot shortage that you mentioned. sued them for not flying the schedule, and the shareholders were wiped out completely. Chapter 11 plan said all existing interests were canceled and the shareholders received nothing. stock traded at about three cents. Two hedge funds, Axar Capital and Man Group, bought about a quarter of the equity for $45 million, that the company was solvent. They ended up getting [00:35:00] zero. So it was an expensive exercise. I can understand why people might be a little bit shy of wading into somebody l- with this background. Anyway, when they finally emerged pr- as private in April 2017, the fleet had been cut from 242 aircraft to 170. kept his job, as I mentioned. Then the Mesa side of this is interesting. In 2006, Mesa launched an inter-island airline in Hawaii called Go!, exclamation mark. They had apparently been talking to Hawaiian Airlines about being a potential investor, looked at Hawaiian’s books and then decided to set up a competition airline instead of investing. Hawaiian sued and Mesa’s chief financial officer used disk wiping software to permanently erase laptops and network [00:36:00] drives

Tony Kynaston: you, you gotta take them into the lab and i- into the workshop and put a drill through them

Cameron: Uh, these weren’t the people that, uh, obviously were made in God’s image, uh, Tony. Um, that was, that was just the Republic side of things. found that the conduct was intentional, deliberate, willful, and in bad faith, ordered Mesa to pay $80 million in October 2007. They fired the CFO and, uh, settled, uh, in the following April.

Hawaiian got $52.5 million. Don’t know why they didn’t get the full 80. Aloha Airlines also sued them over below-cost fares, and Aloha went bankrupt then in March 2008, predatory pricing. This was before the GFC really, wasn’t it? GFC didn’t kick in until later that year. So anyway, there you go. That’s the [00:37:00] messy story of r- of these sort of, uh, rural airlines, uh, over the last 20 years or so.

Very messy. Lots of bankruptcies, lots of liquidations, but, you know, who knows what the, what that means for the future

Tony Kynaston: I find it– I always find it interesting how Chapter 11 works in the States compared to how administration works in Australia and the differences. Most times when a company in Australia goes into administration, which is similar, uh, they don’t continue, they don’t come out of administration. The assets are divided up, sold off, creditors get a little bit, um, staff get a little bit, et cetera, et cetera.

So it’s, it’s very rare to see a restructuring, whereas in the, in the US with the airline industry as a case in point, it’s almost like a business plan, isn’t it? It’s like we’re gonna go hell for leather, and if we fail, we’ll just restructure and come out the other side somehow.

Cameron: Yeah. It’s the most American thing ever, as Teddy Roosevelt would have said.

Tony Kynaston: Typical, yeah. Most [00:38:00] typical American thing.

Cameron: Yeah. Yeah, just go bankrupt and then pick up again tomorrow and keep going. Don’t

Tony Kynaston: Ooh

Cameron: to pay our debtors, uh, creditors, and off we go

Tony Kynaston: Well, like, you might. You’ve got to do a deal with them, but they might just take equity in the company going forward as the airlines did

Cameron: Yeah.

Tony Kynaston: or Embraer did, yeah.

Cameron: Too big to fail.

Tony Kynaston: Hmm

Cameron: Um, oh, so I’ll run through the numbers. Um, price when I did my analysis was, uh, less than our EV number one. Our EV number one $131, share price was $21.39, so well and truly below our IV number one. Our IV number two, we didn’t have one because there’s no forecast EPS available for the stock, so I couldn’t produce an IV number two. The price, uh, again, $21.39. The book value per share was $29.61, so book value is l- um, sorry, price [00:39:00] is less than book value. Also means its price was less than book value plus 30, so I scored it for that. The price to operating cash flow was 2.16, below our threshold of seven, so that’s good. Um, they don’t have a dividend, so couldn’t score it for PE less than yield or yield higher than the benchmark rate. Positive book value growth. Yes, but, you know, it’s kind of a bit of a

Tony Kynaston: Yeah, right.

Cameron: value growth,

Tony Kynaston: Okay

Cameron: you know, it is what it is. No new three-point upturn. Um, the Piotroski score is seven, which is extremely high. score anything over four and a half, so that was good. The qu- the Stockopedia quality rank is a 64, which is above our threshold of 60. The stock rank was only 88, slightly below our [00:40:00] threshold of 90, so I couldn’t score them for that. Um, but they ended up getting a QAV score of 83% and a QAV score of 0.385

Tony Kynaston: Sorry, quality was 83% and QAV was. You said QAV for both? Yeah

Cameron: QAV quality score, I

Tony Kynaston: Yeah, okay.

Cameron: sorry.

Tony Kynaston: that’s all right

Cameron: And a final QAV score of 0.385.

Tony Kynaston: So hard

Cameron: Very, very high and, um, you know, despite all of the horror stories of their predecessors or versions of this that I mentioned. In terms of a business, business model, where it’s at, um, I, I, I don’t know what the future holds for air travel in the United States, and I don’t care to know, but, um, it is, it’s pretty good. it is, um, [00:41:00] or was, uh, a Josephine the other day. It wasn’t when I did it, but it, it is today. So when I did my analysis, the share price was a little bit higher. It is a Josephine today, if people are thinking about adding it to their portfolios having heard this, maybe wait until the share price starts to tick up again and gets above their, previous month end, which was $20.65.

It was 20.20 when I checked it this morning, but it was, you know, $21 something when I did my analysis over the weekend. Um, but that’s it. You know, that’s, uh, the American economy’s, uh, beyond my pay grade to figure out what’s gonna happen to it in the next year. Um, whether or not the, President Trump is able to successfully sue Iran for forcing him to go to war with them and for all of the American soldiers that have been killed by, because they’ve been in Iran or attacking Iran or in [00:42:00] Lebanon or, I don’t know.

He sa- he claims that they’ve killed a lot of Amer- He’s actually, he, he wants reparations paid for them killing their own people, the regime. He wants them to pay reparations for killing their own people.

Tony Kynaston: To him though, not to the people

or the families, right?

Cameron: To him personally. To the Trump, yeah, yeah, Trump’s personal bank account. I don’t know, man. Who knows what the hell’s going on?

But, uh, yeah, where, that’s, that’s my analysis of RJET. Roger Ramjet

Tony Kynaston: Oh, it’s the. Yeah, Roger Ramjet. Interesting company, interesting history. Um, lot to like about it as the numbers are compelling. Uh, you know, the risks, I guess, are that it’s, it’s got these contracts in place with the major airlines and, you know, if they can’t keep their costs below, um, what they’re getting paid, they’ll have trouble.

But given the major airlines are also major shareholders, at least for now, that kind of guarantees that they’ll do okay, I would’ve thought. Um, or, or they could [00:43:00] renegotiate if they were in trouble. And given that the ex-CEO is now the regulator, um, it’s kind of like there’s a few cards stacked up in their favor at the moment, isn’t there?

Cameron: Few.

Tony Kynaston: A few, yeah. Capitalism at its finest

Cameron: I’m just gonna, before we go, I’m gonna have a quick look at the, uh, Pulled Porks that we have done and see what jumps out at me. Um, well, Regional Management that I already mentioned, um, I think last week, it’s down 25% since, uh, I added them to the live portfolio a couple of weeks ago. We still hold them in the model portfolio. They’re still up, but they’ve come down a lot. Banco Bradesco’s down 7% since we talked about it last week, Tony. it’s not a good start. What else is jumping out at me, though? Um, do, do, do, do, do. Oportun Financial Corp, don’t even remember what they did. Do you remember what [00:44:00] they

Tony Kynaston: No

Cameron: OPRT? I think they’re one of the Latin American operations.

They’re up 31% since we talked about them in April. Eastman Kodak’s up 27%. They don’t even make cameras anymore.

Pit- Pitney Bowes, they, they do the, um, franking machines.

Tony Kynaston: yep

Cameron: They’re up 56% since we talked about them in March. Bread Financial, I vaguely recall that had nothing to do with bread. It

Tony Kynaston: Mm-hmm.

Cameron: a euphemism for money.

They’re up 53% since we talked about them at the end of February. Um, wow. Mammoth Energy Services up 37%. Ziff Davis up 48%. Topgolf up 60% since we talked about them

Tony Kynaston: fantastic. Given the prices they charge when Roddy and I went and played it, it’s, it’s not cheap

Cameron: Now that’s, that’s why you went there and their share price went up. [00:45:00] Seneca Foods Corporation. Do you remember Seneca?

Tony Kynaston: got an alert for them recently.

Cameron: What did it

Tony Kynaston: Oh, that they– Oh, what did it say? That they’d done something, they bought something or something they bought had done well.

Cameron: Right.

Tony Kynaston: quickly look it up

Cameron: They’re up 76% since we talked about them a year ago,

Tony Kynaston: they just– 2025 And all they do is, uh, freeze, yeah, freeze frozen food. Uh, Green Giant, they bought a company called Green Giant and that in- that boosted their sales.

Cameron: Heard of Green Giant. Think they’ve been around a long Yeah

company. Sasol. Uh, all I remember about Sasol was it was a dirty oil company.

Tony Kynaston: Mm-hmm.

Cameron: Um, uh, South Africa’s coal to chemicals giant, the apartheid era synthetic fuels monopoly. We, we, we covered them in July last year. They’re up 130%

Tony Kynaston: Wow.

Cameron: about them. [00:46:00] So, uh, yeah, lots of good stories, uh, in the Pulled Pork list since we’ve been doing them in the last year and a half.

Tony Kynaston: And flying under the radar, I mean, you know, I’d never heard of most of these companies before we talked about them

looked at them. Yeah

Cameron: Yeah. Precision Drilling Corporation 70% since we talked about them a year ago. Anyway, there you go, Tony. That’s, uh, that’s QAV America. Oh, no, we’re gonna do, uh, after hours. After hours, Tony.

Tony Kynaston: that’s right.

Cameron: Yeah

Tony Kynaston: Uh, we should. Um, my after-hours relates to an Australian book, so I’m not sure if it’s gonna be of, uh, interest to American listeners. So,

Cameron: Yeah, they should broaden their horizons

Tony Kynaston: So I’ve been reading a biography of Margaret Olley at the moment, which is lovely.

Cameron: wow.

Tony Kynaston: Yeah.

Cameron: very famous Australian

Tony Kynaston: Australian female artist, yeah. So, and, uh, and, uh, I think maybe born in New South Wales, but spent a lot of time in Queensland, so it’s, it’s good fun to read [00:47:00] about, uh, Tully and Tweed Heads and Brisbane back in the day, back in World War II when the Battle of Brisbane was going on.

So US listeners should look up that. It was an interesting time to be in Brisbane. Um,

Cameron: Che

Tony Kynaston: when I was going to school ha- has Douglas MacArthur’s desk at home. Des Mc- Des McCawley, who you know.

Cameron: Uh, yeah, I do. Yeah,

Tony Kynaston: yeah. Uh, so Douglas MacArthur based himself in Brisbane during World War II when the Battle of the Pacific was going on, and his desk still resides at Coorparoo, in Coorparoo in Brisbane

Cameron: There’s actually a little Douglas MacArthur Museum at the American Embassy in Brisbane.

Tony Kynaston: Oh, right

Cameron: Every time Chrissy and I have to go in for her passport stuff or Fox’s passport renewed or whatever, there’s like photos and his pipes and I, I thought that– I think they have a desk of his there too. Obviously not the one Des has, but maybe, Des has got a fake

Oh, he [00:48:00] probably had a couple of

Tony Kynaston: fake news, fake desk, yeah.

Cameron: Yeah

Tony Kynaston: well, next time you go in there, ask them about the Battle of Brisbane. Very interesting story. When the, uh, local people, local males in Brisbane got jack of the US troops coming in and

Cameron: Oh, yeah

Tony Kynaston: being flush with funds, and then they had to, the US troops had to barricade themselves into one of the hotels on Queen Street because they were being overrun by the locals.

Cameron: Yeah.

Tony Kynaston: story.

Cameron: Yeah

Tony Kynaston: Yeah. Anyway, Margaret Olley, great painter. Look up her works if you’re not familiar with her. No reason for you to be, but, um, wonderful, wonderful painter.

Cameron: Hmm.

Tony Kynaston: Australian artist

Cameron: Got anything else for me?

Tony Kynaston: Uh, racehorses, not just Chautauqua, but, uh, uh, Stars of Dom runs on the weekend, um, in Flemington on Saturday. It is.

Cameron: out for listeners, yep

Tony Kynaston: And Lake Forest, another one of mine, runs on Sunday. [00:49:00] So he’s, he’s won his last two starts, so we’re fingers crossed. We’re hopeful for that. Uh, and a couple of mine are selling at the moment online in the English digital sale.

Color Dorado’s been listed. Hmm

Cameron: Had any wins lately?

Tony Kynaston: No, well, Quello ran, Quello Dorado ran last week and didn’t do so well. So we think she’s at the, or he’s at the end of, uh, his useful racing life for us, but someone will find a home for him in the country and keep racing, no doubt,

Cameron: Dog food

Tony Kynaston: Townsville or Kalgoorlie or somewhere like that.

Yeah

Cameron: Hmm. Well, I watched a good film this week, Riff Raff. Um, think it’s on Amazon Prime. You come across that?

Tony Kynaston: No. Is that– Wasn’t that the character in, uh, what’s it called? Rocky Horror Picture Show? Wasn’t it Riff Raff, the main character? Is it based on that

Cameron: No, it’s not based on that and it could’ve, you know, could’ve been something like that. This is a film, [00:50:00] uh, 2024 film, stars Ed Harris, Jennifer Coolidge, Bill Murray, and Pete Davidson. Sort of a family/gangster film. Um, comedy, drama, gangster

Tony Kynaston: Oh, good.

Cameron: good.

Yeah, quite I’ll check it out.

yeah.

Tony Kynaston: Thanks

Cameron: Jennifer Coolidge not playing her usual character.

A little bit, uh, similar, but a little bit off type. Bill Murray is a, an old gangster, uh, which is, Bill Murray’s always great, of

Tony Kynaston: Yeah

Cameron: Um, oh, and I, I discovered that in 2007, Lucasfilm, I think he made, George Lucas made this thing, um, The Young Indiana Jones Chronicles, a TV series, and it had. I never saw it, but it apparently

Tony Kynaston: Ooh. R-River Phoenix, wasn’t it?

Cameron: No, that was a film,

I [00:51:00] think.

But this is, um, a young indie teenager only getting involved in major events in the early 20th century. And Lucasfilm made a series of documentaries to go along with that, telling the real stories about all of these major events, and they’re now on YouTube. And I watched the one on the Russian Revolution.

They’re like half an hour long, each one. One on the Russian Revolution, and then one on Vladimir Lenin, and they’re pretty good.

Tony Kynaston: Pretty good.

Cameron: documentaries with some good scholars, and they’re relatively balanced so far. always surprising when you have an American documentary about, say, the Russian Revolution that is somewhat balanced.

The one on Lenin I thought was a little bit, bit harsh, but not too bad. worth a, worth a watch. I’ve been enjoying those. And speaking of Russia, uh, yesterday, the 10th of August, was the anniversary of Shostakovich’s passing in 1975. So [00:52:00] I listened to Shostakovich all day, listened to three different recordings of his Fifth Symphony, uh, on repeat, and his last piece, his cello concerto that he did.

So, um, I, I’ll say it again, I know you had a crack at it, didn’t get into it, but anyone

Tony Kynaston: Try again.

Cameron: haven’t listened to Shostakovich, absolute, absolute masterpiece. The Fifth Symphony, ugh, absolutely thrilling. it out. I cannot plug Shostakovich enough ’cause I’m

obsessed. All right.

Oh, you don’t have to.

You know,

Tony Kynaston: No, I, I will. I’m. I like your recommendations, and I’ll try again

Cameron: it’s for people that haven’t got into it, you know, they might listen to it and it might have the effect on them that it had on me. I’ve also been listening to Michael Palin’s, um, diaries from the Python years.

Tony Kynaston: They’re great, aren’t they? I, I haven’t heard them. I’ve, I’ve read

Cameron: right, I’m them

to the audiobook when I’m doing stuff,

Tony Kynaston: Right.

Cameron: the dog and whatever. Talking

a carrying the dog?

[00:53:00] carrying the dog, yeah. Him talking about, uh, I don’t know, dental work and Yeah, right

that kind of stuff. But, uh, the stuff about Python, like just fascinating f- him reading from his diaries, about coming up with the name and coming up with the theme music and how no one really took it very seriously.

And even the Python crew didn’t really think it was gonna last more than, you know, a season, and no one really knew that it was gonna become what it became. So to get a firsthand account of how busy they all were doing other things like doing advertising gigs and working on other TV shows, and was just, uh, gig out of many gigs

Tony Kynaston: Yeah

Cameron: all had going on at the time

Tony Kynaston: Yeah. they were writing for other shows. Um,

Cameron: Hmm.

Tony Kynaston: amongst others. Yeah. And I think Cleese only lasted, was it one series or two series in the Pythons and then he left? So if you watch, so I think it’s season three onwards, it’s, he’s, he’s not [00:54:00] there.

Cameron: Right. Yeah. And, uh, uh, we didn’t do an RIP for Bill Oddie last week,

Tony Kynaston: No

Cameron: um, the passing of a man who meant a lot to us in our childhoods

Tony Kynaston: Around the time of Roger Ramjet, I think probably. I was also watching The Goodies from the UK. Yeah. Hilarious

Cameron: know how many Am- I mean, how many Americans would be familiar with The Goodies, but, um, British comedy show in the ’70s, and, uh, ran for 10 or 11 years, I think, and it was on repeat constantly in Australia

Tony Kynaston: I remember there was one, tying it back to Monty Python, there was one of the Goodies episodes where, um, Graeme Garden says something like, “I’ve got to turn on the TV. It’s almost time for the nine o’clock news.” And he turns it on and the, the Monty Python, uh, theme music fires up, and the whole audience cheers.

And then he goes, he turns it off and goes, “Rats, I missed the nine o’clock news.”

Cameron: [00:55:00] Yeah. Yeah, Bill Oddie. And I know Bill Oddie went on and had a terrific career as an environmentalist and,

Tony Kynaston: Bird watcher

Cameron: programs and gardening and all that kind of stuff.

Tony Kynaston: Yeah

Cameron: saw any of that. I, I wasn’t, uh, across all of that, but, um, certainly his role in The Goodies, huge impact on my childhood. So I, I, RIP, I thank him for the, his contributions

Tony Kynaston: Mm-hmm. No, very much so

Cameron: All right.

That’s it for this week. Thanks, TK. Have a great week everyone. Happy hunting.

Tony Kynaston: See you, Cam.







Previous Pulled Porks

Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past.

This week we dig into the colourful history of Banco Bradesco, the second-biggest private bank in Brazil and the top pick on our US buy list. Tony and Cameron run through the QAV numbers on BBDO, cover portfolio updates including a painful 23% drop in RM and a GASS scare that turned out to be nothing, and check in on UBS’s $125 million anti-money laundering fine and CVGI’s latest earnings miss. The model portfolio is up 130% since inception versus 71% for the S&P, so the system is doing its job.



This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market.



Free Podcast Archives






Transcription

QAV AMERICA 64 BBDO

[00:00:00]

Cameron: Welcome back to QAV America, Tony, episode 64. It’s the 4th of August, 2026. Nothing going on in the news in America, Tony. Uh, all smooth sailing. Um, Trump has negotiated his, uh, 15th straight peace deal with Iran in the last couple of months,

Tony Kynaston: Probably get a Nobel Prize pretty soon

Cameron: Oh, well, I saw some- I think it was John Mearsheimer said he should get a Nobel Prize ’cause he’s signed more peace deals with Iran in the last couple of months than anyone has in history.

That’s, that’s a real achievement. Uh, portfolios. Our US portfolio is, uh, doing well, Tony. The model portfolio since inception is up 130% today versus 71% for the S&P 500. Not quite double market, but quite a good level of outperformance there. Our QAV America Light portfolio is [00:01:00] come back a bit vis-a-vis perfo- Well, no, that’s actually up.

What am I talking about? It’s up 11%. This is since inception, which is December last year. It’s up 11% versus the S&P 500 up 10 and a half percent over the same period of time. So we’re slightly beating the S&P in that one over the last eight months. Nothing to write home about, but at least we’re matching the market. But I did have to sell, uh, one of our holdings of RM this week, not the one that’s actually in the portfolio, but one I added, uh, s- to the light portfolio last week. I had to sell it within a week. It fell 23% in a week. I do hold a po– uh, parcel in it that we bought in the model portfolio quite a while ago, um, which is still up 30, 40%. Not exactly sure why it fell. They did [00:02:00] report their Q2 earnings on the 29th of July. On paper it looked fine. EPS came in at 85 cents, which beat the 79 cent estimate, but they had a weaker quarter than last year, EPS was actually down 17 and a half percent year on year. So there are, you know, they’re a subprime consumer lender that’s doing it tough. So, um, that probably has something to do with it. Um, might be some fluctuations in, uh, Fed rate expectations in the US that are playing a role in that as well. Anyway, 23% down in a week. I’d no- If I buy a stock and it struggles a week later, I’d normally give it a bit of grace, but not that much grace.

Tony Kynaston: No.

Cameron: Grace.

Tony Kynaston: That’s rule one, isn’t it?

Cameron: Bad timing on that.

Tony Kynaston: Mm.

Cameron: Yeah, if it was 5% I’d be like, “Ah, we’ll see how it goes.” But yeah. Um, another stock that I thought about selling this week [00:03:00] was Gas, Stealth Gas, G-A-S-S, which we hold in our portfolio because LPG is a sell. Turns out they’re, um. No, LNG is a sell. They’re LPG, not LNG. S- so I looked at the LPG, uh, commodity chart, and there was no real correlation between the LPG chart and Gas’ chart over the last five years. Did some digging in. I think this is one of these situations where they have long-term charters. They’re locked in. They’re, they’re a shipping company, ships LPG, so

Tony Kynaston: Okay.

Cameron: and, um, they’re able to trade through ups and downs of the LPG market, so that was interesting. But we don’t normally track LPG in our commodity tracking each week.

I might need to do that just in case it comes up again. Couple of quick news stories. Um, [00:04:00] couple of other stocks that we hold or have talked about. We hold, in this case, UBS. UBS, uh, AG, Switzerland based holding company for a big bank. They’ve just been fined $125 million for anti-money laundering violations in the United States. Three US regulators announced separate financial penalties Monday against UBS financial services for anti-money laundering violations involving foreign currency wire monitoring and customer due diligence failures that persisted from January 19 through June 2023. I think it’s, uh, one of the biggest penalties that have ever been thrown at somebody for this kind of, uh, anti-money laundering charge. And reading through the headline or reading through the story, apparently they’ve been doing business with Russia, I [00:05:00] think is what it is. Uh,

Tony Kynaston: Okay.

Cameron: and, uh, the US government doesn’t like that, so they, uh, they’ve been hit. If I look at their chart, see what’s happened to their chart, still, still looking good. They’ve come back a little bit, but it hasn’t had much of an impact on their share price at all. So, you know, there you go. Also, Commercial Vehicle Group, CVGI. Uh, we’ve done a pulled pork on them. I think we hold them in a portfolio maybe too.

Do we hold them, CV? Yes, we do. They’re up 28, 29% in our light portfolio. Come back a little bit in the last couple of months. Released their Q2 earnings snapshot, said it had a loss of 29 cents per share. Losses adjusted for non-recurring costs into account for discontinued [00:06:00] operations came to 13 cents per share.

The results did not meet Wall Street’s expectations, and, uh, three analysts sort of downgraded them a little bit. But, uh, these are guys that supply products for heavy duty trucks. I think they, I said they were the sausage in the sausage bun,

Tony Kynaston: Yeah.

Cameron: the ha- hot dog bun from memory. So we’ll see if that plays through to their, uh, performance, but so far doesn’t seem to have had a huge impact. One of our portfolio companies that I wanted to talk about is Danaos, DAC. We hold them in the light portfolio as well. They’re up about 20% since we added them. They reported their second quarter and half year results. Uh, let me see. Um, good. Results are, um, oh, gee, this is a really bad table. Um- [00:07:00] I can’t even make sense of this. Uh, finviz.com needs to do more work on their presentation. That’s a real mess of a table. All right, let’s forget that. I can’t even read that. It’s hurting my head. All right, moving right along. Pulled pork this week, Tony. Um, BBDO. So I’m gonna talk about this week, not the advertising agency, which was what I

Tony Kynaston: BBD Needham

Cameron: Yeah. Uh, this is Banco Bradesco. They’re a very, very large bank listed on the New York Stock Exchange, the second biggest private bank in Brazil.

Tony Kynaston: We’re going to actually own the whole of Brazil fairly soon?

Cameron: And half

Tony Kynaston: Yeah.

Cameron: the

Tony Kynaston: Okay.

Cameron: Hey, is what the– this was at the top of my American buy list this week. [00:08:00] Uh, market cap of about 36 billion US dollars. And for the same reason this is on as Petrobras was a couple of weeks ago,

Tony Kynaston: Mm-hmm.

Yep

Cameron: also a bit of a softening of inflation there. But an interesting story, a bit of a Brazilian soap opera, this story, Tony. Um, I had fun researching this. Founded by Amador Aguiar, born in 1904, the 12th child of a poor family.

Left school at 13 to work in the fields. Left home at 16 basically nothing. Apparently, he got tired of his father’s alcoholism and abuse. Um, was homeless

Tony Kynaston: Founded the bank. You founded the podcast that he got tired of his father’s alcohol and abuse and founded the bank.

Cameron: Yeah, I founded a podcast [00:09:00] network. Yeah, yeah. He ended up homeless and hungry in a town called Bebedouro, got work as a typographer, setting type by hand, had an accident that chopped off his fingers, or part of his fingers, so that career was over pretty quickly. Um, then got a job as an office boy at a place called Banco Noroeste.

Tony Kynaston: If you’re gonna say get a job as a, um, a thief, no fingerprints.

Cameron: In 1943, maybe that’s the real story about how he got his fingers chopped off in the first place. Maybe he was, uh, you know, bad thief. Um, 1943 they sent him to a little country town in the interior of São Paulo to try and rescue a bank that was going under. Been in his late 30s. While he was there, the president of the bank died unexpectedly, and he ended up taking it over and running it.

Tony Kynaston: Coincidence or not, you be the judge. [00:10:00]

Cameron: Wow.

Tony Kynaston: The man with no fingerprints.

Cameron: Yeah. This is a darker version of the story than I’d anticipated. He takes it over and renames it Banco Brasileiro de Descontos, which is the Brazilian Discount Bank, and if you squash that down it becomes BBDO. So that’s where the name comes from, the Discount Brazilian Bank. Um, ends up with, uh, six branches, um, over 1,000 by 1978.

At one point it was the third largest banking organization in Latin America, and the largest bank employer on Earth. And what he did differently, he did a number of things, but whilst the other banks in Brazil were chasing rich clients in the cities, he was doing the small town farm worker. I think we did a bank in Alaska not long [00:11:00] ago which, uh, with a similar story.

Um, can’t remember. Was that Northrim Bancorp, N-R-I-M, I think?

Tony Kynaston: Yep. Supporting local businesses. Yep.

Cameron: Similar sort of deal. So, um, he’s going after the farm workers, people who’d never had a bank account. I, I love this one story where he had the managers in his branches put their desks right next to the front door. So you would walk in, manager would greet you in person, welcome you to the bank branch. Um, you know, give real. A sort of old school, very, very high customer service, treating people well, teaching people how to save money. Um, you know, there was a story how people were doing check endorsement wrong. Other banks would bounce their checks. He would ring up the client and teach them how to do it properly over the phone. Uh, and, you know, really old school kind of guy. [00:12:00] He also ran the place like a church. There were Bible verses printed on the corporate letterhead. “We trust in God” was on the stationery. New employees had to sign a declaration of principles about punctuality, simplicity, availability. Promoted from within based on what he called superior moral behavior, um, which will come into play later on when, you know, we’ll talk about all the stories of fraud that they’ve been accused with over the last 10 or 12 years. Uh, maybe they’ve. He died, so they’ve loosened it. Um, but, uh, got themselves. Well, actually, I’ll get, I’ll get into the, some of the soap opera stories in a second. In 1953, he moves the head office out to the edge of São Paulo. Doesn’t build an office, he builds a compound. So built a village, basically.

Housing, sports facilities, hospitals, schools to house [00:13:00] 9,000 employees, like a whole company town. Called it the Cidade de Deus, the City of God. After St. Augustine’s book, I assume, written around 420 AD after the Goths sacked Rome. Uh, one, one of my favorite books where he says that, um, the, the virgins who were getting raped by the Goths because they were too holy and God wanted, thought that they needed to be pulled down a few notches. Um, the, uh, he ends up moving the company, uh, headquarters to this compound as well. There’s housing for all of the board members in this place. So it’s like this full on deal.

Tony Kynaston: Old campus.

Cameron: Yeah,

Tony Kynaston: Yeah.

Cameron: Before Microsoft and Silicon Valley had campuses, he was doing it in Brazil. So there you go. Um, in, but here’s, uh, my favorite part of this.

In [00:14:00] 1956, he set up a foundation to run free schools. First one opened in 1962 in the City of God, 289 kids, seven teachers. The foundation now, uh, it’s called the Bradesco Foundation, still around, runs 40 schools across every state in Brazil, has around 105,000 students. It’s free, means tested to poor families.

About a billion reais. Is how we decided it was pronounced, reais?

Tony Kynaston: Reais.

Cameron: Reais. Reais. I said a couple of episodes ago is, uh, a real is, uh, real,

Tony Kynaston: Real, yeah.

Cameron: real, and the plural is i- ia.

Tony Kynaston: Okay. Yep.

Cameron: Let’s

Tony Kynaston: Reais, yeah, reais.

Cameron: Going into, it’s about 200 million US dollars. But here’s the big thing, is the foundation is actually one of the controlling shareholders of the bank.

Tony Kynaston: Mm-hmm.

Cameron: Uh, [00:15:00] I, I couldn’t actually. This, this is complicated shareholding structure, so I, I don’t wanna quote it ’cause I’ll probably get it wrong. But, uh, by one count they own about 48% of the shares of the bank. I don’t think they’re all, um, pref- preferential. Some are voting, some are not. But it, the foundation owns a big chunk of the bank, um, which is interesting.

He died in 1991, there’s a great story. This is part of the rest of the soap opera story. So, uh, when his first wife died, he had three adopted daughters. Well, they had three adopted daughters, twin daughters, and then a third one. And for some reason, when his first wife died, he got his daughters to sign over their share of the inheritance to him in order for them to get it all when he died. But four months before he died, in his 80s, he married his secretary, who [00:16:00] was 40 years younger than him, and then wrote his daughters out of the will.

Tony Kynaston: One of those didn’t, one of those didn’t follow the morals clause, did they? Either the secretary or him or both.

Cameron: Yeah. He dies, the daughters and the grandkids, uh, sue. And this was very, very public, as you can imagine, in Brazil, it went on for decades. In the end, the daughters or the, the twin daughters won, became billionaires. Still are. I think they’re 88 now, still in the ownership structure. I think the third daughter, adopted daughter, got less, but still did okay. The widow appealed, and it went on and on and on. She ended up winning the rights to his personal estate. I think she got, like, 75 million US dollars or something like that. So she did, did all right, but didn’t become a [00:17:00] billionaire out of it. But, uh, yeah, apparently they fought this for decades. So all very, very, very tawdry and messy.

But, um,

Tony Kynaston: What did you expect? What, what did you expect from a city called the City of God? I mean,

Cameron: City of God. Yeah, yeah.

Tony Kynaston: That, that’s always worked out well.

Cameron: Yeah, yeah. But, uh, the whole thing about the foundation I really admired, so

Tony Kynaston: Yeah, it’s a great story, isn’t it? I thought that was brilliant. But can you imagine if it happened in Australia? Like, if the Commonwealth Bank set up a foundation, gave it shares in the company, and then the dividends founded a whole network of schools. The keyboard warriors would just be going off their, off their brains, wouldn’t they?

The corporatization of our school system.

Cameron: Yeah,

Tony Kynaston: Have banks sponsoring schools. Now, well, you know,

Cameron: Well, it depends on how

Tony Kynaston: What do you think the Catholic Church does?

Cameron: Well, he set up a f- he set up a foundation. It’s, it’s not [00:18:00] the banks running the schools, it’s the foundation. Foundation runs the bank, if anything,

Tony Kynaston: Yeah.

Cameron: They have. I thought you were gonna say it’d be like Gina Rinehart setting up schools all over the country. Um,

Tony Kynaston: Maybe.

Cameron: Who knows? Maybe she will. Anyway, let’s talk about the business. Um, so more, more of a supermarket than a bank. They’re kind of what banks in Australia were, you know, before they got slapped on the wrist and cut up after the investigations a few years ago, but even bigger. So not just a savings account.

You get your home loan, your car loan, your life insurance, your pension, your dental cover. Own one of the biggest dental care businesses. I think they’ve, they’ve spun it off and they’re continually moving shares, more and more of their ownership into this, uh, dental business. But they basically own a whole bunch of different financial services and products in Brazil.

They’re absolutely massive. [00:19:00] Loan book is about 1.09 trillion reais, a over 200 billion US dollars, up 8.4% on last year. The loan book is about five and a half times the whole market cap of the company, which I guess is kind of normal for a bank. That’s basically the business. Their, their

Tony Kynaston: Do.

Cameron: loans, mm-

Tony Kynaston: Sorry to interrupt, but they also have a big insurance business, which is important, I think. Because, um, when you get to the currency situation, it’s driven by 14% interest rates in Brazil at the moment, and that’s a huge benefit to an insurance business which invests the float in, um, government bonds primarily

Cameron: Yeah. Indeed. Yes, I think I’ve got something on that a bit later on. Um, but still in the banking business, their ba- bad loans situation isn’t great. Um, the loans more than 90 days overdue are running about 4.2%, [00:20:00] basically flat on last year. But I compared that to some of the other banks. Um, there’s a bank in Brazil called Itaú, which its bad loans are 1.9%.

Santander’s Brazilian arm is running at 3.3%. It’s getting worse, up a half a percent since last year. And, uh, Banco do Brazil is also doing quite badly, but Bradesco’s is 4.2%, so

Tony Kynaston: Yeah, but there’s a reason for that, Doc

Cameron: Oh yeah, what’s that?

Tony Kynaston: Well, I looked into it as well. So yeah, so c– uh, banks like the Australian banks, which are basically building societies full of retail mortgages running at about 1%. But this bank in Brazil has a lot of unsecured loans, so it’s not just lending for mortgages, it’s also lending to businesses, a lot of personal loans, a lot of car loans, that kind of thing.

So that’s why it’s running at 4%. And if you look at unsecured credit, it typically runs around 4%, 2% to [00:21:00] 4%.

Cameron: Right. Okay,

Tony Kynaston: Might be a little bit higher, but it’s not like four times higher than you’d expect.

Cameron: Hmm.

Tony Kynaston: Hmm

Cameron: Obviously, the economy in Brazil is struggling as well, so that’s gonna be driving a lot of difficulties for borrowers, I imagine. The Selic’s running at whatever it is, 15%, 14, 15%

Tony Kynaston: Yeah. But the other thing too is, like I compared the net interest margin for this, uh, bank to the Australian banks and yeah, okay, it’s got more bad debt, but the, the net interest margin’s huge. Um, I’ll just try and find the, find the numbers. Um

Can’t find it now, but it was much bigger

Cameron: Well, I’ve– I found out that they’ve got 161% coverage. So they’ve put aside more than one and a half times the value of the bad loans to absorb them, [00:22:00] and they’re prov- they’re provisioning a lot of stuff for this as well. So it’s. Like it’s bad, but they’ve, they’ve got it well and truly covered from what I can tell.

Tony Kynaston: Yeah

I found the NIM. So, uh, in Australia, the net interest margin for the banks is I think about an average of one point seven eight percent. Uh, this particular bank has five percent, so it’s nearly triple of, uh. Even though it’s got more bad debts, it’s, it’s doing a lot more in terms of the margin on the income side.

Mm-hmm.

Cameron: Yeah, so it’s got it covered. The insurance arm that you mentioned, Bradesco Seguros, one of the biggest insurers in Brazil, um, it’s returning 21.6% return on equity. So doing quite well. And they also own, as I said before, OdontoPrev, the biggest dental insurance business in Brazil, is separately listed.

Um, and I think they’re sort of, [00:23:00] selling out of that, moving more of it into the public market as they go. Some of the history of the business, it’s interesting for a guy who started with no education and half his fingers missing. First bank in Brazil to run computers in 1962. IBM was very early on for computers in banks in Brazil. The first national credit card in Brazil in 1968. They were very early into phone banking and home banking. So they’ve been pretty bullish with technology for a very long time. And, uh, what else? In 2015, they bought HSBC’s Brazilian business for 5.2 billion US dollars. Anyway, it’s a big bank, big growth story, still very big. Back to the superior moral behavior bit. So quite a few scandals that they’ve been [00:24:00] involved in, um, including Operation Car Wash that we mentioned back in the Petrobras story. But they had this other one that was called Operation Zelotes. So Brazil’s tax appeals council is called CARF, C-A-R-F. It’s the body that decides whether a company actually owes a disputed tax bill. Prosecutors allege that companies were bribing the judges who sat on it. In 2014, CARF ruled against Bradesco on a federal tax bill. Prosecutors alleged Bradesco then paid to get that decision overturned. The man that they charged in 2016 was the chief executive of the bank at the time, Luis Carlos Trabuco. No longer the CEO of the bank. He’s now the chairman of the bank. So, uh, he was cleared in the trial, I should point out. Federal appeals court threw the case out [00:25:00] in 2017, for lack of just cause, which means they decided there wasn’t enough there to run a trial on. In 2020, nine more defendants in the case were acquitted, then the government shelved the case entirely. Now, I think Mr. Bolsonaro was running Brazil at the time, um, casting any aspersions there about, uh, federal court cases and Bolsonaro and the bank and the judges. But we did mention last time that, uh, I think I mentioned the who was the judge that sent Lula to jail ended up becoming the chief of justice for Bolsonaro, and then when Lula got out of jail, I think he ended up g- the judge went to jail for corruption. So yes. Lots of stories of corrupt judges and corrupt legal systems, uh, come out of Brazil. Anyway, the [00:26:00] chairman is legally in the clear. I want to be upfront about that. But the bank whose founder printed Bible verses on the letterhead and promoted men for moral behavior had its chief executive charged with bribing tax judges, so there

Tony Kynaston: And marry the secretary.

And cut his kids out of the will.

Cameron: it was true love, Tony. Love is love

Tony Kynaston: well, it could happen for sure

Cameron: Then Operation Car Wash, y- y- Lava Jato, um, which we talked about in the Petrobras episode. Um, they, they got involved in this, but, um, it was somewhat different. The allegation involving Bradesco came out of a plea deal from, um, the former finance minister of Brazil, Antonio Palocci. Said that money stolen from Petrobras had been laundered through accounts at the five biggest Brazilian banks, one of those [00:27:00] was Bradesco, as you would imagine. So allegations against them weren’t that they were part of the actual corruption, just they weren’t doing enough to stop the money laundering from happening, a bit like UBS that I mentioned earlier on. Anyway, uh, they denied it, and as far as I can tell, no charges or fines were ever landed on them. But they got accused of the biggest corruption scandal in the Southern Hemisphere at the time, but nobody could ever prove that they knew that it was going on. So, um, they had to th- th- they didn’t get, uh, found guilty of the disputed tax bill, but they paid it anyway, or bribing the judges for the tax bill, but they paid it anyway. They were found to not have paid a tax bill, then it was overturned, then they were accused of bribing the judges. They got off of that, but then they paid the tax bill anyway earlier this year.

Tony Kynaston: No harm, no foul[00:28:00]

Cameron: ah, well, listen, yeah, let’s just, let’s

Tony Kynaston: Yeah

Cameron: anyway, just ’cause superior moral behavior is, is what it is.

Just a coincidence,

Tony Kynaston: Yep

Cameron: um, that we’re paying it anyway. Then something happened three days ago. On the 30th of July, Bradesco announced they’re raising up to 10 billion reals of new equity, about 1.9 billion US dollars, new shares at a 6% discount, existing shareholders are getting diluted. Uh, the foundation and the family holding companies have committed to taking up about 80% of this themselves, s- but it is gonna dilute existing shareholders.

Um, the reporting says that they’re doing it because they think the bank is cheap, not because there’s a hole in the balance sheet. I couldn’t quite get my head around that. If you think the bank is [00:29:00] cheap, you’d go and buy shares

Tony Kynaston: Myers shares back. Yeah

Cameron: Why would you raise new equity and buy shares in that?

I go– But, uh, it was beyond my pay grade to try and

Tony Kynaston: Yeah.

Cameron: that out

Tony Kynaston: Did they have a, did they report on what they were going to use the funds for?

Cameron: No, they said

Tony Kynaston: Huh.

Cameron: nothing, didn’t need it. But, uh, analyst reaction was kind of mixed, not exactly hostile. Um, Brazil’s biggest investment bank, BTG Pactual, called it a necessary step. JPMorgan said that it strengthens the balance sheet. So yeah, I don’t know. Anyway, they did it. They announced it. Whether or not it’s a good thing or a bad thing is beyond my pay grade. Um, what else have I got for you? Nothing really, just the, the cash rate story that we’ve already hinted at. So the Selic’s around about 15%. A couple of weeks ago, inflation came in softer than had [00:30:00] been predicted. Apparently the odds of a rate cut went from about 68% to 90%.

They’re expecting that to come through this month and bank, bank stocks took off. Now, my intuition would be the opposite of that, that you would think interest rates coming down would be bad for banks. But, um, apparently that’s not right when you’ve got, uh, bad debts. So interest rates coming down, um, means that the bad debts are hopefully gonna lessen, I think is one of the rationales.

Cut rates and fewer people default maybe

Tony Kynaston: Yeah, that’s, that’s part of it. I mean, rising interest rates, high interest rates are good for banks, definitely good for insurance companies, as I said before. Um, but it’s– I guess the, the, the saying or the rule is it’s good to a point. If interest rates rise [00:31:00] so high that people can’t afford loans, then the business gets turned down.

So I think that’s the case in Brazil with fourteen plus percent interest rates. Um, that’s the central bank’s interest rates. The bank would charge more than that for, um, for loaning– for loans to people. So yeah, I think dropping interest rates is gonna promote revenue to the bank, I would’ve thought.

Obviously, the big opportunity with these guys, one of the reasons a lot of money is flowing into Brazil is the carry rate that we’ve talked about in other episodes. If you can borrow money at 3 or 4% in the United States and then invest it in Brazil and get 15%, why, why wouldn’t you do that? So it comes with certain risks, exchange rate risks, the, and the, the interest rates can go up and down, but that’s a, that’s a pretty good spread.

So a lot of people are doing that. A lot of money is sinking into the Brazilian economy as a result of that, some of that ending up with Bradesco. But you’ve also got the election coming up in October, where I think [00:32:00] Bolsonaro’s son is running against Lula, and what happens as a result of that, how that affects the economy is anyone’s guess.

But we don’t predict the future, we look at the numbers, and that is w- you know, where I land on this kind of stuff. The tariff stuff, uh, which I think I briefly mentioned before, but Trump put a 50% tariff on Brazil last year openly tied to the prosecution of Bolsonaro. Supreme Court struck that down.

Administration came back with a different mechanism and applied a 25% tariff instead. Sounds enormous, but a lot of things are exempt, and it doesn’t really have any direct impact on Bradesco, but it does impact some of the businesses that they do business with, and it does affect the economy in general.

But it’s, uh, as we know, you know, the, the tariffs affect the company that’s buying– the country that’s buying the stuff, not the country that’s selling it [00:33:00] directly, although it can make it more difficult for them to sell stuff to the United States. Brazil, by the way, says it’s taking this to the World Trade Organization, so we’ll see how that goes.

Let’s just cut straight into the numbers for Bradesco, though. So when I did my analysis, it was trading at $3.44. Market cap was about thirty-six billion dollars. It scored below both of our intrinsic value scores, IV1 and IV2, so I could score it for both of those. The price to book was one point zero six, so I couldn’t score it for that, but I could score it for price to book plus thirty.

It was comfortably underneath that. The big one for us is price to operating cash flow. That came in at one point seven, so that’s, uh, very low. Basically, if we were buying a coffee shop and we had a price to operating cash flow of one point seven, we would expect to get paid back in under two years, which is a pretty respectable timeframe to get your initial investment back.

Earnings per [00:34:00] share was two point two seven reals. Uh, yield was six point nine percent. Piotroski score of five, so we could score it for that. Stock rank on Stockopedia was a sixty-four. We only score it if it’s ninety or better, so no score for that. Quality rank was thirty-seven, needs to be a sixty. No score for that.

Growth over PE didn’t score, but it did have positive book value growth, up three point seven percent a year on average, so I could score it for that. The forecast intrinsic value was twice the price, above twice the price, so I could score it for that. Of course, it has a three-point uptrend and a new three-point upturn, so I could score it for those as well.

All in all, pretty strong card from us. Uh, quality score, QAV quality score of ninety-two percent and a QAV score of zero point five four. Obviously, lot of unknowns, a lot of risks with the Brazilian economy, with the Brazilian [00:35:00] elections, with tariffs and versus the Trump administration. Uh, but leaving all of that aside and just looking at the numbers, it’s a bank that’s been around a very long time.

It’s very large, generates a lot of money, and for a whole bunch of reasons, we seem to be, be able to buy it pretty cheaply at the moment, so worth taking a look at.

Tony Kynaston: All right. Well, thanks Cam

Cameron: thanks.

Tony Kynaston: ya.

Cameron: talk to you next week.

Tony Kynaston: All right. Fun as usual. Bye

Cameron: Bye







Previous Pulled Porks

Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past.

This week we sit down with Haren Bhakta, founder of insideownership.com and creator of the Inside Ownership 100 index, to talk about why skin in the game matters more than almost any other factor in picking winning stocks. Haren walks us through the OWN ETF, his back-tested outperformance figures, and why companies like IBM, Intel, and Nike fell apart once their founders left. Tony and Cam push back on survivor bias, Greg Abel’s chances at Berkshire, and whether Zuckerberg’s metaverse bets prove the point or break it.



This week’s full episode is available to QAV non-members. 



Free Podcast Archives






Transcription

QAV AU 930, U.S. 63 – Haren Bhakta

[00:00:00]

Cameron: Well, welcome back to QAV. This is, an interview that I’ve been looking forward to for a couple of weeks, welcome to the show, Haren Bhakta from insideownership.com, coming to us from Orange County in California.

Welcome to QAV, Haren.

Haren Bhakta: Thanks for having me on

Cameron: Ah, it’s a, it’s a, a privilege and an honor, sir. So why don’t you tell everyone quickly what insideownership.com is about, and then we get into it

Haren Bhakta: Sure. Well, I created a stock market index similar to the S&P 500 in that, uh, it tracks the performance of the 100 largest companies from the S&P 500 based on, uh, the philosophy of s- skin in the game. So the, the leaders of the organization own a large dollar value, and we take the 100 largest from that [00:01:00] sub-sector of, of the S&P 500

Cameron: And what prompted you to do this exercise, Haren?

Haren Bhakta: Yeah. Well, it all started because I attend the Berkshire annual meetings every year since 2017. I’m a huge Warren Buffett fan. I bought a lot of Berkshire Hathaway because I believe in Warren Buffett and his skills and investment philosophy, and I’ve gotten so much from him. So I was sitting in the meeting in 2024 when I thought of the idea, and, um, I was sitting there in the back of my mind, uh, with a genuine fear.

What am I gonna do with Berkshire Hathaway when Warren Buffett dies? I don’t believe in the company the same way without him. I mean, it, you know, he’s created this, this beautiful company with, you know, beautiful principles and culture, and, uh, I just don’t [00:02:00] believe in the company the same way without him.

And 2024 was the first meeting without Charlie Munger. He had passed away, like, five, six months earlier. So I was sitting there afraid, and at some point during the meeting, it hit me that the S&P 500 will actually be buying more Berkshire Hathaway when Warren Buffett dies. And the reason for that is the S&P is what’s called free-float adjusted market cap, meaning they exclude his shares when they count the size of Berkshire.

But when he dies, those shares will be labeled free-floating or, you know, they’ll be distributed to foundations and sold and become free-floating shares. Therefore, the S&P will be buying or expanding the market cap of Berkshire. And I just thought, who in their right mind would want more Berkshire Hathaway after Warren Buffett?

We should want more with him. In the same respect, um, [00:03:00] we should want more Tesla with Elon Musk and, and not so much without him, right? Who would want more Tesla without Elon? Who would want more Meta without Mark Zuckerberg? Or more Amazon without Jeff Bezos, right? We want to ride these guys’ coattails, and when they’re not part of the organization anymore, we probably don’t want as much exposure to them.

So I came home and decided to launch an index that reflects that, that we’re, we’re on the same side of the table as these, uh, super value-creating CEOs.

Cameron: And you, you don’t have a lot of faith in Greg Abel’s, uh, administration of Berkshire Hathaway then? Did you sell when Warren retired at the end of last year?

Haren Bhakta: No, Warren Buffett is still, he may not be the CEO, but he, he, he’s still in the office every day. He still made a huge, uh, capital allocation decision recently. He put, I believe, $30 billion into [00:04:00] Google or Alphabet, and that was his decision. So he’s still very much involved. So, you know, it’s not this fast-moving thing where I see where a CEO like Warren Buffett could retire and all of a sudden, uh, the company goes to shit, or, you know, um, I don’t know if I can say that word or not.

But basically, it’s a slow-moving thing where cultures slowly fade and erode. And without Warren Buffett, right now, he’s still part of the, the company, but once he leaves, we will slowly see the culture erode of Berkshire. And not just that, so they’ve always made good acquisitions, and they have some nice, you know, good high-returning, uh, on capital type of companies.

But these type of acquisitions are not gonna come in the way to Greg Abel. N- there’s a lot of founders that sold their businesses to Berkshire [00:05:00] because they wanted Warren Buffett to be the owner. Specifically, Berkshire was the only, uh, play in town for them. They didn’t wanna sell to private equity. They didn’t want to auction off their business.

They wanted a permanent home in Berkshire, and that, Warren Buffett built that reputation. Now, I don’t believe Greg Abel’s gonna get those opportunities unless, you know, he has to build that himself, but that’s, that remains to be seen. So they’re not gonna get that future, uh, capital deployment that Warren Buffett was able to deliver by getting these acquisitions at very reasonable prices, where private equity would’ve had to pay much higher prices, but these owners didn’t wanna sell to private equity

Cameron: Fair points you make there, Haren.

Haren Bhakta: Yeah

Tony Kynaston: Yeah, there’s a lot of good things to talk about here. Um, I guess my first question is, you, you mentioned a number of large companies there which are big [00:06:00] players in the S&P 500 anyway. What kind of overlap is there between your index and the S&P 500?

Haren Bhakta: There’s a lot of overlap. So I w- I would, I would consider the S&P 500, or I should say the Inside Ownership 100, which is my index. I consider that basically the S&P 500 with the skin in the game factor. So for example, Nvidia, Google or Alphabet is the largest position, and second is, is Nvidia in my index, and then you got Amazon, Meta, and Tesla.

So it does look a lot like the S&P, only that we significantly overweight some of these companies where the, the ownership is high and significantly underweight or exclude completely some of the companies where there is no ownership left. So for example, Microsoft. Microsoft is not in the index because, uh, there is no owners left at Microsoft.

Bill Gates is, [00:07:00] is completely removed and, um, the, the board and CEO, um, yeah, they’ve, they’ve done well, but, um, they also don’t own any shares. So what we see is, um, as the world changes, uh, they may not participate in that change because it really takes ownership to create disruption and innovation. That’s what I find.

And, uh, when the world changes, these low ownership companies get left behind. And I have a lot of examples which we can get into

Tony Kynaston: Sure. So what, what kind of, um, performance difference then is there between your top 100 and a comparable S&P index?

Haren Bhakta: Yeah. Well, the Inside Ownership 100, now it’s only been live two years, right? I only thought of the idea in, in, uh, 2024. So prior to 2024, this is, this is, uh, back-tested. Now, this is not, uh, some complicated algorithm, uh, that we, you know, reverse engineered. This is simply taking the ownership [00:08:00] of the, the leaders of the organization and allocating the portfolio according to that ownership.

So, um, we went back to 2004 till today, and what we discovered is that, uh, $10,000 invested in the S&P would have been around $75,000 by the end of 2025. $10,000 in the Inside Ownership 100 would have been $110,000. So I had more than 300% in cumulative outperformance over that time period

Tony Kynaston: Right. And so you’re rebalancing your index at the same time as the S&P rebalances, or is there some other method?

Haren Bhakta: Exactly. We use the same rebalance schedule, so we’re, we’re balancing on the third, the third Friday of, uh, every quarter. So

Tony Kynaston: Right

Haren Bhakta: yeah, March, June, September, and December

Tony Kynaston: And I understand you’re launching an ETF to allow people to invest in your index going forward

Haren Bhakta: The ETF is launched. The ETF launched,

Tony Kynaston: [00:09:00] Okay

Haren Bhakta: yeah, the ETF launched about a month and a half ago.

Tony Kynaston: Okay, good.

Haren Bhakta: Yeah. The ETF is live. The ticker symbol is O-W-N, OWN. Yeah. Ownership, so it, it was a perfect. I was actually quite surprised the ticker symbol was available

Cameron: Yeah, nice grab

Tony Kynaston: What, what do you attribute to this outperformance by owner founders? Why do they perform better? Why, why was Microsoft better under Bill Gates than it is under whoever runs it now?

Haren Bhakta: Well, I think this guy named Sam Hinkie said it best. He said people are power law, and the best ones change everything. So people are power law. So even the indexes, the, the individual stocks within the index in themselves are power law driven. So there’s this University of, uh, sorry, Arizona State University professor who did a study.

He studied all US stocks over the course of 100 years, over a century. [00:10:00] What he discovered was that 4% of all stocks delivered all the wealth creation over that 100-year period, and the other 96% delivered or matched US Treasuries. So it’s amazing. So, you know, we see that playing out today. We see the, the Mag Seven really carrying the results of the entire index.

So it’s not surprising to us or, you know, to me to see that, uh, you know, stocks are driven by the few minority, right? It’s, it, it. And, um, this is why it’s very hard to beat the stock market for stock pickers, right? Because, you know, we, we. I, I think I probably used to think that, uh, you know, half the stocks underperform and half the stocks outperform and, you know, it’s 50/50.

But no, that’s not the case. It’s really 4% delivering all the extreme gains while every- everybody else is kinda just earning treasury rates, right? Um, but where academia got it half right [00:11:00] or half wrong is that humans exhibit even bigger power laws. So the few extraordinary leaders really change the world.

And what we see is, you know, you got the Jeff Bezoses, like I mentioned, um, Bill Gates, um, you know, Steve Jobs. They’re able to rally people around them and create something new and disruptive, and it changes the world. And, um, Apple is really the only one that I could see where post-Steve Jobs, the, the company had continued to do well.

They’re the exception to the rule. But what I found is that there has been cases where a, a super CEO, as I call them, could pick a successor. However, I have not found a case yet where the successor could pick their successor and have it turn out well. I have not been able to find one yet. And I’m sure there, there, there must be something [00:12:00] out there, but there hasn’t been something that’s, that, that’s been, um, enormous anyway.

And, uh, there’s a lot of cases where, uh, the. once the, the, the guy responsible for the success of the organization leaves, the companies completely erode. And the best example I have is IBM. So IBM in 1984 was the largest company in the world by a factor of two and a half. It was more than two and a half times larger than the next largest company in the entire world.

This is how dominant it was. So this would be like Nvidia being a $12 trillion company today, right? It was dominant. And, um, a lot of people don’t know this about IBM, but, you know, Thomas Watson Sr. founded IBM, but it was his son, Thomas Watson Jr., that took IBM public in the ’50s. And he ran the company as CEO until [00:13:00] 1971, but he remained on the board until 1984.

So 1984, like I mentioned, uh, peak IBM, two and a half times larger than the next largest company. He retires in 1984, so ownership leaves. Fast-forward eight years, IBM is not even in the top 10 anymore. Just eight years, we’re talking about the most dominant company to ever exist, is not in the top 10 eight years after Thomas Watson Jr.

retires, right? Now, today, IBM is not even top 25. And, um, another example I have is Intel. Intel was run by, uh, Andy Grove as CEO in the 1970s. Now, had you invested $10,000 when he became CEO, 10,000 turned into several million by the time he retired in 1998. In 1998, Intel had 90% market share for the PC microprocessor business, right?

They were dominant. They were a monopoly. He even wrote the [00:14:00] book, um, Only the Paranoid Survive. It’s, it’s a great book. I r- I recommend that one.

Tony Kynaston: Mm-hmm.

Haren Bhakta: It’s about, uh, strategic inflection points. And anyway, he retires 1998. Fast-forward 27 years today, Intel has done nothing, right? It’s, it’s a flat stock. Uh, zero returns for 27 years.

So this is what I mean when those responsible for the success of an organization leave, the company is, is not the same. Now, we see Nike today. Nike stock, uh, Phil Knight retired about four years back, uh, completely gone from the board and everything. Nike stock is down 70% from its high. We’re talking about the biggest bull market in, in stock market history, and the, the, one of the biggest and brightest world-class brands Nike is, is down 70% post-founder.

So this is what I mean when, when those responsible for the success of an [00:15:00] organization leave, it’s not the same company

Cameron: Is there a certain amount of survivor bias in this though, Haren? Like, there are, um, plenty of examples of founder-led companies that exploded or imploded. Um,

Haren Bhakta: Yeah. Yeah

Cameron: you know, one of the more recent ones. Adam Neumann sort of destroyed that. I, I, you know, I’m, I’m an ex-Microsoft guy, so I, I, I can go back to ’90s and 2000s era companies, but BlackBerry was one that was

Haren Bhakta: BlackBerry, the founders had retired when they blew up, by the way.

Cameron: Mike

Haren Bhakta: founder.

Cameron: Lazaridis,

Haren Bhakta: yeah, they found, they, they left in 2012, I believe, and in 2013, um, or 2012, Thorsten Heins, I believe that was his name, took over BlackBerry and, levered up the company. What’s that?

Cameron: revolution though, right? 2007,

Haren Bhakta: [00:16:00] they, did, but they didn’t.

They, they missed it, but they didn’t implode. Now they implode after the founders left, right? Um, in fact, the founder, we’re talking about a $5 billion company at, at, at its like, um, around 2013, I believe. It, it could have been maybe a $10 billion company. But the founder wanted to s- get out of the phone business and create what he said a text message 2.0, and what he meant was what WhatsApp became.

What, what, what became WhatsApp.

Cameron: Yeah

Haren Bhakta: uh, you know, WhatsApp eventually sold for, for $19 billion to, to, to Meta. So he had the right idea. He wanted to get out of the phone business because he knew he couldn’t compete with, with Apple. And, uh, when you get non-owners who, uh, think completely inside the box, um, they, you know, that’s all they know, so then that, that’s what they wanna do.

They wanna run with, [00:17:00] with, uh, the phone business when, um, the founders knew that, that they couldn’t compete, and the founders resigned and sold their stock in 2012

Cameron: You’ve also got A- Apple 1.0 too, when Steve was unceremoniously shown the door, uh, in 1986 or whenever it was, when the Macintosh lost a lot of money and didn’t work. You got Peloton, you’ve got Under Armour, you’ve got. So I guess my question is,

Haren Bhakta: Yeah, so ownership, yeah, so to, to answer your question, ownership is not a panacea, but, but what I. It’s not a silver bullet, no. But neither is market cap, right? The S&P is focused on market cap, we’re focused on the insider. So it’s not a panacea, it’s not a silver bullet. But I looked at every single hundred bagger, and a hundred bagger means that a stock went up 100 times your money.

So you invest $10,000, it turns into a million. And I looked at, um, every one I could [00:18:00] find between the year 2000 and 2025. I, I found 21 of them. So we had Tractor Supply, um, obviously NVIDIA, Netflix, uh, Monster Beverage, Apple, uh, Amazon, Google, um, uh, O’Reilly’s, the car, uh, parts company, uh, Universal Insurance, some small company, uh, WisdomTree, which was like ETF company at the time.

Uh, every single one except for two, uh, two, uh, out of the 21, 19 of them had ownership above 5%. So while ownership is not the panacea, um, it’s not the silver bullet, but it’s required, almost required to have extreme outlier returns. So y- you’re not guaranteed to get high returns from ownership, but you’re virtually guaranteed not to get it without it

Tony Kynaston: It’s a good way of looking at it.

Haren Bhakta: [00:19:00] Yeah

Tony Kynaston: D- so, so what’s the, what’s the secret sauce in, in insider ownership that’s different to a board of directors who, you know, didn’t come up with the company? is it

Haren Bhakta: Yeah. Yeah. Well, yeah, I, I

Tony Kynaston: can disrupt their own company? Do they, do they feel like they can take longer term bets?

What, what do you think is the reason?

Haren Bhakta: I think the, the later part what you said, so i-i-it’s that when you’re a board with no ownership, you are judged every quarter, you are rewarded for every quarter or every, or every year, and you tie your bonuses to, you know, annual metrics, you begin to think annually.

Cameron: Short-termism.

Haren Bhakta: significant outlier returns, you cannot think annually.

You have to think in decades. So Jeff Bezos, for example, is very comfortable failing on projects in the near term because he knew. He was perfectly fine tinkering, what’s called tinkering, to, to [00:20:00] innovate, you have to tinker. You have to have small errors, and small errors reduce your, your, your, uh, quarterly performance, right?

Your numbers. And he was perfectly fine not showing a profit for, for two decades, but he knew he’s creating enormous value. In the same way Mark Zuckerberg has poured hundreds of billions of dollars, um, into, uh, well, I, I should say t-tens of billions of dollars into failed projects like, uh, the Metaverse, right?

Um, but, uh, he’s able to think long term, and he’s able to make these capital allocation dec-decisions and pivot when they’re wrong. Um, Amazon failed with the Fire Phone, but they tinker and tinker, and then you end up with AWS. So Jeff Bezos built two world-class companies. A lot of people don’t talk about that.

He built, yes, the, the Amazon retail store, which is genius in, in and of itself, but he also created AWS, right? [00:21:00] Um, and that comes from tinkering. It comes from trial and error and, um, short feedback loops. So that’s how you create innovation, is having these short feedback loops. And in order to have short feedback s- loops, uh, people working directly on the problem need to be decision-makers.

And this is why you can’t innovate through committee. You can’t, uh, innovate through a boardroom vote. It, it, it comes down to a single person working on the problem, and very often these people, these founders are the ones who created the initial product in the first place, understand and are able to communicate with, with those around them w-working directly on the problem, and there’s not like 18 layers between them and, and the people directly working on it

Tony Kynaston: Do you think there’s also some kind of, uh, institutional forgiveness for owner founders? What I mean by that is, why couldn’t a company, say, for example, Berkshire Hathaway [00:22:00] after Warren goes, why couldn’t Greg Abel say, “I’m not gonna give quarterly forecasts. judge me on my quarters. I’m gonna take decades long views of this company.”

Why, why couldn’t he then be as good as Warren Buffett? Is it because Warren gets the chance to try, fail, try, fail, and the shareholders still flock to every year?

Haren Bhakta: Well, with Warren Buffett, he created Berkshire by capital allocation. He didn’t really invent anything, although he kind of invented a way of capital allocation with, with the insurance business and using float, and no one really had done that before. So, um, I think Greg Abel is more of a, uh. What do they call that?

They call that a, uh, a caregi- caregiver or caretaker, I should say. Sorry. Caretaker. He’s, he’s a caretaker, right? Now, he couldn’t have created a Berkshire himself, right? [00:23:00] Uh, obviously ’cause he didn’t. But, uh, he is a hardworking guy, completely different from Warren Buffett. Warren Buffett is a capital allocator.

He completely stayed out of the businesses that he purchased. To the fact of abdication, so, um, someone asked Warren Buffett back in, I think it was like 2005, he asked him at the annual meeting, “You know, you guys own 11% of American Express, yet your furniture store, which you guys own 100% of, doesn’t accept American Express.

How does that make any sense? Like, why?” And Warren Buffett had a simple answer. He says, “I don’t tell my subsidiaries what to do.” And that’s how far r- removed he was, and he said that, “When I find a, a batter that can bat 400, I’m not gonna tell him how to hold, how to hold the bat.” And, uh, Greg Abel is telling his batters how to hold the bat.

So it’s not gonna be the same company post-Warren [00:24:00] Buffett. It’s not, ’cause he g- uh, Warren, uh, he’s getting involved. In fact, if you read the last annual letter, he talks about how he hired a, um, in-house counsel. Now, Warren Buffett never had a in-house lawyer, and, um, so we see the culture already shifting.

Warren Buffett preferred one-page or maybe two pages at the most type contracts. H- he’d never had these long, lengthy contracts with, with, um, you know, when he bought a company or when he, uh, c- came up with a compensation plan for a purchased, uh, subsidiary. He would have these one-pagers, and that’s it. Uh, and it’d be more of a handshake type of deal.

But, you know, um, that’s Warren Buffett. He, he was able to do that. Uh, you know, uh, we can’t expect Greg Abel to do that ’cause he doesn’t have the skills for that. But, um, I’m sure he’ll, he’ll take care of the company just fine, but can we really [00:25:00] expect, uh, the type of, of, uh, future performance, um, that maybe, uh, Warren Buffett could have.

You know, a young Warren Buffett with today’s Berkshire at its size, I believe would’ve still created enormous value. Um, but, uh, you know, maybe, I think a young Warren Buffett today at, at Berkshire’s size today would turn Berkshire into the largest company in the world. Um, there’s virtually impossible for Greg Abel to do that.

He’s gonna

Tony Kynaston: do you think there’s also an element of risk-taking that’s, that’s there with Warren that’s not there with Greg? And, um, I’m picking these as kind of hypothetical examples really,

Haren Bhakta: So while Warren Buffett’s alive, um, I believe that if the market, uh, had a huge correction, uh, a big market c- cr- uh, crash, I believe that, um, they could make a $200 billion acquisition, like one [00:26:00] shot, one big company, $200 billion, here’s a check, um, now it’s our company. There’s no way Greg Abel would ever make anywhere near that size of acquisition, um, ever.

Uh, so yes, while Warren Buffett’s alive, they may still get some big elephant and, um, you know, obviously he’s not gonna do it now where, where equity prices are, but they will make a huge acquisition if we were to get a 2- uh, 2008 or, um, a 2000 type correction, you know. Uh, they will make a big acquisition, but a Greg Abel will make a bunch of tiny ones, um, if, if, if Warren Buffett’s not around

Tony Kynaston: You, uh, do you have any red flags that you put on the behavior of owner founders? We’ve had a couple of examples in Australia where company run by its founder has, uh, basically imploded because the founder’s become [00:27:00] distracted because they’ve let personal issues, um, you know, uh, and, and bad corporate governance overwhelm the business and the, and the shares have gone down dramatically. Do you screen for any kind of bad behavior or strategic changes, uh, in your index?

Haren Bhakta: Yeah. Well, for one, I created a passive index. So I’m taking the S&P 500 and t- just simply taking the top 100 from there based on, on the dollar value of ownership and proportionally weighting the portfolio according to that dollar value. So it’s very systematic, it’s rules-based. We’re taking the emotion out of it.

So I don’t make any additional screens. But one thing I could tell you is that a lot of entrenchment and, uh, bad corporate governance takes place with a lot of high ownership companies in, in the small cap and mid cap arena. By the time a company reaches the S&P 500, it doesn’t. I, I, you don’t see that entrenchment [00:28:00] where with founders and, uh, uh, uh, big owners, um, uh, very often in, within the S&P 500 cohort.

You get that entrenchment more so in small cap land, and the reason for that is to get large cap, to become a large cap, you really have to have it figured out, right? Um, you, you, you don’t get to be a $100 billion company and, um, you know, uh, have the wrong kind of behavior as a founder-led company. Now, um, you do see entrenchment form, uh, once those founders leave, um, and you get, uh, entrenched boards and whatnot who own very little stock with their own money, but control these massive companies.

And, um, that actually, that points me to a huge systemic problem that’s taking place right now, is that corporate America and the US is being controlled by three shareholders who don’t vote anymore. So [00:29:00] Vanguard, BlackRock, and State Street are taking extreme market share from stock, um, investors or active management and individual stock pickers as well.

So what we’re getting is that 25% of corporate America, they’re now the largest shareholder who, who doesn’t vote. So Warren Buffett talked a lot about, um, how mediocre CEOs are the biggest value destroyers, and the reason for that is mediocre CEOs stay in for a very long time. You know, if you have a bad CEO, uh, they typically get replaced.

However, that was– He said that back in 1997. Today, you could have a terrible board who own no shares on their own, uh, be permanently locked in because there’s no longer a mechanism to remove them. No one votes anymore, so, um, they automatically vote for incumbents. So it’s very hard for activism to [00:30:00] replace a terrible board, and this is a huge skin in the game problem that I, I, I don’t think enough people are talking about

Tony Kynaston: Yeah, right. I c- I can see that. Um, do you take the type of share that the owner has into account? Like if they have a, a, a class A share versus a class B share. So are you, are you taking control into account in putting together your ranking?

Haren Bhakta: Yeah, we, uh, don’t like control. Um, what we want is, is skin in the game, when we want dollar value of ownership. So what we look at is dollar value. We don’t give any additional benefit for controlling shares. Uh, we wanna make sure that, um, you know, if a CEO owns, uh, a very small percentage of the company but controls all the voting power, we look at that as a negative.

We want them to have skin in the game. We want them to have a dollar value in the company, economic value

Tony Kynaston: Okay, very good. I, I agree with [00:31:00] you there too. Um, do, do you look at how active the shareholder is in running the company? So is there an extra screen? So someone might, like one of the Walmart kids might have a large stake in the company, but they’re not really exerting effective control. Do you have a, a kind of screen for control as well as share ownership?

Haren Bhakta: Well, uh, Walmart, for example, is still technically a family-run, uh, company. So, uh, Rob Walton, son of Sam Walton, um, was on the, was the chairman of the board for a very long time, and the family owned 40, or owns 40% of Walmart. So Walmart, for a very long time, was a very big position in our index, um, because it’s still family-owned and they’re on the board, so they are overseeing the company and they’re ma- they’re able to maintain the, the culture.

So going back to the culture, it’s, it’s the ownership that allows a company [00:32:00] to maintain the, the, um, great culture that, that helped create the business in the first place, right? Um, eventually all retailers, uh, go out of business, right? Sears. How did a single store, um, by Sam Walton in Arkansas rise up to overtake Sears?

All the, all the, uh, advantages a huge retailer had, yet it still gets overtaken by a new founder, right? Because, uh, eventually cultures erode and, uh, soon, or not soon, but eventually Walmart’s culture will erode as well because once it becomes bureaucratic, um, CEOs, uh, will take the payday in raising prices and raising margins and taking the big bonuses that come with it, right?

How can they resist? Um, and that’s what destroys retailers [00:33:00] or future value, is by taking, um, you know, higher prices now and higher margins, but that’s not what creates significant value for retailers. Retailers, um, have an e- economic moat called, uh, coined by Nick Sleep. I don’t know if you heard of him, but, uh, he called it economies of scale shared.

So- That means you, you get scale by selling more, and as you get more customers, you reduce prices. You’re sharing the economics of scale, economies of scale with your customers. So the customers are being rewarded with lower prices. In return, you get more customers and you get more scale, and then you share those cost benefits again with your customers, and it creates this self, um, uh, you know, self-fulfilling prophecy where, um, you just become enormous like Amazon, right?

Um, so basically by sharing the [00:34:00] scale with your customers, you end up creating this enormous shareholder value in the long run. But it does make your company look less successful in the short term, right? And if you’re judged every quarter, you’re gonna take margins when they come, and you’re gonna forego that, that long-term value creation because you’re almost forced into it

Tony Kynaston: Yeah, I’ve heard it called the double loop effect in, in Australia. Similar sort of concept where you give back, margin gains back to your customers.

Haren Bhakta: Yeah, yeah. Warren Buffett talked a lot about that with Geico as well. He, he talked about how, um, you know, if they earn too much on, um, on, uh, the premiums, their, their expense ratio was, was, uh, a lot better, they would reduce their prices and give some of those savings back to their customers [00:35:00] in order to take market share.

So insurance is, you know, at least car insurance is all about market share, right? So, um, they kept reducing prices when they could to continually take market share away

Tony Kynaston: You, you’ve mentioned a lot of owner founders from tech companies. Is, is your index skewed toward the tech sector? And if it is, what happens when the, when eventually the AI boom

Haren Bhakta: You know, a lot of people ask me, you know, did you outperform simply because high ownership favors technology companies, because technology companies have, have more owners? Um, for one, that premise is wrong. Um, I launched the Inside Ownership Technology Only index as well. So I have two indices on my website which you could che- you could check out.

We can compare the Inside Ownership Technology index directly to the S&P 500 Technology only, and the Inside Ownership Technology one outperformed S&P 500 Technology only, [00:36:00] and that’s because high ownership captures more of the innovators, more of the high return outliers. So it’s not that high ownership.

Uh, it’s not that technology companies have high ownership, it’s that successful technology companies have high ownership, and that’s because, um, it’s generally newer companies with either founders or still early in its life cycle where it’s creating these enormous returns and innovation, right? Um, if we look at the top 10 companies in the US by size, um, with now the inclusion of SpaceX, Anthropic and OpenAI, they’re not, you know, two of them aren’t public yet, but they will be.

But if we look at when they were founded, they were founded after the year 2000, or on average around, around that timeframe, right? If we look to Europe, where there’s been no innovation, no returns, [00:37:00] um, the average top 10 company in Europe was founded in 1920s. So the point is, when you’re creating significant value and disrupting what’s, what’s happening in the world, um, it takes a newer company or a, a founder or owner/operator to really create that type of value

Tony Kynaston: You still see, though, a, a skewing towards tech companies in your ownership index?

Haren Bhakta: It does because again, uh, tech companies are, are typically newer, at least the successful tech companies are newer. So we’re getting more exposure to companies earlier in their life cycle and then, um, less of them when they’re in their, uh, later stages of the life cycle. For example, Microsoft, um, now Apple, we’re underweighted Apple because, uh, Tim Cook is now, uh, retired as CEO.

[00:38:00] So, um, these companies are on the later side of their, of their life cycle

Tony Kynaston: So because of the tech weighting, would you consider not doing your, your index for, say, a, uh, a European stock market? Is it, is it just gonna work better in the US because of the preponderance of founders in tech there?

Haren Bhakta: No, I’ll be launching one in Europe as well. Uh, I’ll be launching one, uh, inside ownership. I think investors will want an inside ownership weighted index across all different markets around the world. So we’ll be creating a European one, an Australian one, um, China, Japan, uh, South America. Every market should have an, an ownership weighted one.

Now, some of these other countries like China and India, um, there is a lot of, uh, cross-holdings between different companies, and it’s a little bit hard to intertwine. So that’ll be some work in progress. But Europe, Europe and, you know, some of these [00:39:00] developed worlds will be easier to, to launch indices using ownership

Tony Kynaston: Very good. I think I’ve asked all my questions. Do you wanna chip in now?

Cameron: Well, uh, just the last point I wanted to make, ’cause I did do some research on this. You know, again, as a dotcom guy, um, tech guy, I, I just remember all of the founder-led failures like Webvan and Cisco and Sun Microsystems and all these companies that were gonna take over the world and had massive valuations for a decade and then exploded. And, uh, you know, one of the things that we do at QAV is whilst we score companies, we give them an extra score if they’ve got high insider ownership. We’re also big on looking at value. We want. As value investors, we wanna buy them when we think we can get them at a discount to their intrinsic valuation, but we’ll give them an [00:40:00] extra score if they have high insider ownership. But I was doing some research on, uh, you know, uh, um, the, the universe of insider ownership companies and how it’s performed. I came across a Bain & Company report, the Founder’s Mentality research, which I’m sure you’re aware of.

Haren Bhakta: Mm-hmm. Mm-hmm.

Cameron: Bain did a sample of publ- a global sample of public companies over a 25-year period, and they did, um, looked at an index of S&P 500 companies where the founder was still actively involved, and it performed more than three times better than other S&P 500 companies over a 15-year window, roughly 2.1 times better in total shareholder returns over the decade leading into the mid-2020s.

So, uh, it, there seems to be good evidence that there are successes, there are failures, but overall, high insider ownership, [00:41:00] um, at least with S&P 500 companies, there is significant outperformance over a, a decent period. So, yeah.

Haren Bhakta: Absolutely. I mean, Warren Buffett said it best. He said, um, “The best way to think like a shareholder is to be one,” right? And you want your managers to, to think like shareholders, right? Uh, and the best way to think like one is to be one. So, you know, obviously that, that when you own a big part of your company, you’re gonna treat your company better.

Cameron: Mm-hmm

Haren Bhakta: the best analogy I like is, is a, a hired CEO could be compared to a zoo animal. Now, a zoo animal gets fed every day, whether it successfully hunts or not, right? Uh, in the same way, a hired CEO gets their base salary, gets a quarterly bonus, and, uh, sometimes a golden parachute, right? But a owner/operator CEO, they’re a wild lion.

They’re trained to survive. They’ve already proven that they can survive in the world. They’ve created value already. So when they [00:42:00] don’t successfully hunt, they feel the pain. They starve. And that’s what you want in a CEO. You want them to feel the pain and, uh, again, they’re closer to the problem, so they do feel the pain a lot faster than, than, uh, a hired CEO

Tony Kynaston: Maybe you should. Sorry

Cameron: is starving, uh, or Elon, uh, um, I mean

Haren Bhakta: He’s not starv- he’s not, yeah.

Cameron: don’t think they’re starving.

Haren Bhakta: They’re not starv- well, they’re, they’re, but they’re successfully hunting

Cameron: I’ve seen Elon’s waistline. He’s, he’s, uh, he’s not

Haren Bhakta: Yeah,

Cameron: you know?

Tony Kynaston: Maybe

Haren Bhakta: yeah, yeah

Tony Kynaston: to, uh, from OWN to Hunger Games.

Haren Bhakta: Yeah.

Tony Kynaston: Index,

Haren Bhakta: Yeah.

Cameron: Yeah, but the flip side to your analogy, your zoo animal analogy, is you said before, like if, uh, if a hired gun CEO makes a $5 billion bet and it fails, he gets fired or she gets fired. If Zuck makes a $5 billion bet on the meta [00:43:00] universe, the metaverse, and it fails,

Haren Bhakta: That’s right. That’s right

Cameron: you know, pivots into something else,

Haren Bhakta: That’s right. Yeah. Jeff Bezos said it, he said it, to, to be successful, um, you have to be willing to be misunderstood. And unfortunately, uh, non-skin in the game CEOs, they just don’t have the luxury of being misunderstood,

Cameron: Yeah

Haren Bhakta: right? So,

Tony Kynaston: yeah

Haren Bhakta: it, it is a little bit of the chicken and the egg and, um, it’s not m- maybe not even their fault.

Like, they, they don’t have the luxury of being misunderstood. They have to make decisions with consensus, and that’s not how big disruptive decision- or companies get made through consensus, right? So i- yeah, it’s, it’s, you know, probably not their fault. Um, if, if they have some brilliant ideas that will make the company look not so attractive in the near term, well, they’re not gonna be able to make it.

And, um, yeah.

Cameron: From a geopolitical perspective, I mean, the analogy [00:44:00] is not great, but, you know, I look at it as the difference between China and the United States in the last 40 years. I mean, there’s a short-termism, short-term thinking that comes with a liberal democracy because you need to get reelected in a few years, and the

Haren Bhakta: Yeah, China, China’s able to think in hundred, yeah, in, in centuries, right? W- we’re, we’re thinking every four years.

Cameron: Yeah

Haren Bhakta: well, how, how do we make the economy or, or political landscape look good for four years, uh, so we can get reelected? Um, while China is thinking in, in, um, essentially, uh, century timeframes, right?

How do we make our country-

Cameron: Deng, Deng Xiaoping, when he took over in the late ’70s, said 50 years. You know, he had a, he had a 50-year vision, and they’ve pretty much stuck to that 50-year vision, um, religiously for the last 50 years.

Haren Bhakta: Yeah. Yeah. And I mean, you, we, we see China has, um, w- I think gone up by a [00:45:00] magnitude of 100, um, from over that 50-year period. I mean, it used to be, um, the number 10, maybe even 15 global power, and now it’s number two. So this rose up the ranks very rapidly, right?

Cameron: Hmm. I’m

Tony Kynaston: Hmm.

Cameron: I’m doing a podcast later on in the week, um, on, on breaking down Zbigniew Brzezinski’s book, The, The Grand Chessboard that he wrote in, uh, 1997, I think, which remarkably got a lot of things right, um, except the rise of China. He didn’t think China was gonna be able to compete with the United States in the next 30 years.

So he was, uh, you know, he was an intelligent guy and foresaw a lot of things about America’s global hegemony. But the one thing he, two things he got wrong. One is, let’s l- maybe we shouldn’t have funded the Mujahideen. The other thing was, uh, China caught up way faster than [00:46:00] he expected them to.

Haren Bhakta: You know, in, in, in, in, uh, really quickly in 2020, uh, Warren Buffett’s, uh, annual meeting or Berkshire’s annual meeting, uh, Buffett put up, um, a, a table of stocks o- of the top 10 comp- or top 25, I think it was, back in, uh, 1970. And then another one. I’m sorry, I think he went back, I forgot what year, maybe 1980, and then, um, 2020.

And, um, you know, what he asked was, or what he said was, “30 years from now, 2050, I think we’ll see a lot more Chine-” I think there was, like, one Chinese company on that top 25, or maybe it was, like, two. But he’s, uh, uh, he said, “The one difference I think is in two, 2050, we’re gonna see a lot more Chinese companies on this, on this top 25 list.”

Cameron: Mm-hmm. I think

Haren Bhakta: wanted to add that part. Yeah

Cameron: Well, [00:47:00] Haren, thanks for coming on and it was a great chat. Uh,

Tony Kynaston: Yeah

Cameron: out your website, insideownership.com. You’ve got the, uh, ETF up and running, as you said, and you’re gonna start launching them in different geographies, so particularly our American and Australian listeners, check that out, sign up for your, uh, email releases, and, uh, keep an eye on it, and congratulations and good luck to you.

I hope it, uh, I hope it does well. We’ll have to get you back on a year and you can give us an update on how

Haren Bhakta: Awesome. Looking forward to it. Yeah

Cameron: Terrific. ​







Previous Pulled Porks

Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past.

This week we do a full pulled pork on Petrobras (PBR), the Brazilian oil giant that scored a perfect 100% QAV score and promptly got added to the Lite portfolio. Cameron takes Tony on a tour through Brazilian dictatorships, the “O Petróleo é Nosso” mass movement, Operation Car Wash, and why a left-wing government drilling toward the Amazon somehow makes sense. We also check in on the state of the Strait of Hormuz, the Chinese AI models rattling US chip stocks, and how the portfolio is tracking after 12 months of running roughly double the S&P 500.



This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market.



Free Podcast Archives






Transcription

QAV AMERICA 62 CLUB VIDEO

[00:00:00]

Cameron: Welcome back to QAV America TK, episode 62. This is the 21st of July, 2026. How you doing?

Tony Kynaston: Very well. How are you?

Cameron: I’m good. I’m good. Um, I’m gonna do a great, fascinating deep dive pulled pork today for you. A lot of fun stories about Brazilian dictatorships.

Tony Kynaston: Mm-hmm.

Cameron: but before we get into that, quick checkup on state of the world.

Tony, US markets closed down yesterday as oil surges on the escalating conflict. Uh, how many ships are passing through the Strait of Hormuz at the moment, Tony?

Tony Kynaston: Uh, I’m gonna say 10

Cameron: Yeah, I don’t know. Your guess is as good as mine. But interesting, to, uh, John Mearsheimer this morning, a recent interview with him, like a day old or something. And he’s saying, so we know that, you know, there used to be 20 million [00:01:00] barrels a day go through, uh, the strait, which has stopped. But he said there’s some interesting things happening. He reckons there’s 7 million barrels that the Saudis are getting out through the Red Sea or through the Oman, um, you know, side of the strait, which we talked about last week. So he said there’s 7 million of that 20 million that are still getting out, although I know, uh, the Yemenis are gonna.

the Houthis are gonna start shutting down the Red Sea traffic again, the news is this week. Iran’s bombing stuff that tries to get through the Oman side of the strait. But he also talked about, and I’ve read about this in other places this week, uh, China has cut its requirement by 5 million barrels. So, um, no one really knows how, but, uh, one of the suggestions I read is that they were tapping into their own reserves that they had been building up. [00:02:00] Plus, the rest of the world has been tapping into their reserves, so he said probably accounts for another 3 million barrels. So of that 20 million, sounds like a good 15 million of it is being accounted for in other ways, either reduction in demand or reserves being provided.

Uh, so that might explain why we haven’t seen the panic that we kind of expect to see. Oil price is back up, I think, around about 80 bucks now. What do my notes say? Somewhere around that, I think. Uh, t- t- 80? 90. 90. Sorry, not 80, 90. WTI I think is about 83, Brent’s about 90. But, uh, know, could be a lot higher. so there you go.

Tony Kynaston: Well, I think the other thing that happened for, to, to rattle US markets was the release of Kimi, uh, the Chinese AI, which is, [00:03:00] uh, taking the value out of a lot of the, the US chip manufacturers at the moment.

Cameron: Have you used Kimi, Tony?

Tony Kynaston: No, but

Cameron: I downloaded the Kimi app, uh, which is equivalent, uh, at least on paper, to the Claude Co-work and the, um, OpenAI Codex app. So it, it’ll plug into all your files on your desktop, and it can do stuff for you. I try, I’ve tried it twice in the last, uh, three or four days since it came out, and both times it said, “Sorry, Kimi’s really busy right now.

Too many users. Come back later.” I’m like, “Oh, well, that’s not really working out for me.” And I did read last night that they’ve shut down registrations for new users.

Tony Kynaston: Hmm.

Cameron: struggling to handle the demand. But, uh,

Tony Kynaston: You didn’t tell him, you didn’t tell him who you were? You couldn’t get to the front of the red velvet rope?

Cameron: I did, but I told him in English, not in, uh, Mandarin or Cantonese apparently. no, but the fact that, uh, there are three [00:04:00] Chinese models now that are

Tony Kynaston: Mm-hmm.

Cameron: much according to the benchmarks, neck and neck with the state-of-the-art US models. You’ve got Kimi from Moonshot, you’ve got DeepSeek, and you’ve got Qwen from Alibaba. all pretty close to Claude and OpenAI’s ChatGPT, a little bit ahead of G- Google Gemini. So, you know, it’s, uh, it’s interesting, uh, what this means for the, uh, forecast business models and revenue potential of these US models.

Tony Kynaston: Correct.

Cameron: Uh, speaking of models, our US model portfolio in the last month is down a little bit less than 1%, much neck and neck with the S&P 500, which is also down about 1% over the last month. Um, over the last one year, though, we’re up 35%, 36 nearly, versus 18 for the S&P 500. So 12 months, we’re doing roughly double market and all [00:05:00] time, which is, uh, for new listeners, September 23, our portfolio’s up about 113% versus the S&P up 67%. double market, but, uh, pretty damn close. Our light portfolio, on the other hand, last 30 days is also down about 0.3% versus 0.76, and it’s only been going since, uh, December last year.

Since then, it’s up about 6% versus the S&P up about 8%. So we’re lagging a little bit. And, uh, some of the pulled porks I’ve done recently have done, um, particularly poorly. Uh, actually some of them not too bad. F&G, which we did on the 7th of July, is up 8%. Kohl’s, KSS Retail is up 1%. Carter Bankshares is up six.

Aeromexico’s [00:06:00] down 10. that in the 18th of June. Northrim Bancorp, though, is up 13. Some nothings from a few others, bit u- bit up, bit down. Deutsche Bank’s up 11 since we talked about it. But one that’s relevant for today is PagSeguro Digital. Remember them? Brazilian fintech.

Tony Kynaston: Mm-hmm.

Cameron: since we talked about them back in April. Some of the big winners, Pitney Bowes is up sev- 70% since we talked about them at the end of March. insane. Bread Financial we talked about at the end of February. They’re up 40% since then. Uh, so a couple of big financials doing well. One that really fascinates me, you remember, uh, the Chinese watch company, uh, uh, what are they called again? Zepp Health Corporation. At one point, we talked about them in July last year, so a year ago. point they were up 380% or something. They’re now only up 77%. So I don’t know what that means.

Tony Kynaston: Oh, probably means the bubble’s [00:07:00] burst.

Cameron: Yeah, I don’t know who’s playing what games with that, but, uh, there you go. Still up. I’m not complaining about 80% in a year. It’s good. It’s not 380%, but you know. It is what it is. right. Let me, uh, let me talk about my pulled pork today, ’cause we’ve got a guy we gotta talk to in less, in a little bit over half an hour.

Tony Kynaston: Well, I’m interested in hearing about this one because I’ve been invited to a wedding in Brazil in February next year. Yeah, so.

Cameron: Your daughter’s, Alex?

Tony Kynaston: No. My nephew, Dylan, who did some work for us many years ago, yeah.

Cameron: Wow.

Tony Kynaston: He’s marrying a, marrying a lovely Brazilian girl who wants to get married in Brasilia, well, no, São Paulo, where she, uh, near where she comes from.

Cameron: Well, pay attention and you can, uh, amaze her family with your knowledge of 20th century Brazilian politics. So today, uh, I’m gonna be talking about [00:08:00] Petrobras, ticker PBR on the New York Stock Exchange. It’s a $116 billion company. I think it might be one of the biggest businesses we’ve done a pulled pork on.

Um, bigger than Ford, I think. Um, probably. Don’t know how big Ford is, I can’t remember. this company was ranked number 71 on the 2023 Fortune Global 500 list. 58th largest public company in the world. Not often we get to invest in companies this size. Usually they’re priced out of our, um, sort of range. But this one is looking good. We’ll see what you think. A bit similar to the Argentinian

Tony Kynaston: Mm-hmm.

Cameron: about last week though. It’s largely currency movements, I think, that has brought this onto the buy list. based in Rio. “When my baby looks at me, Tony, I go to [00:09:00] Rio De Janeiro, mama mio.” Uh, Australian hit song, 1975, I think.

Peter Allen, for people who don’t know that song. but I, I hadn’t listened to Peter Allen since he was still alive and I, I. When I was preparing my notes for this last night, I went and listened to a bunch of Peter Allen tracks. lie, dude had some good songs. You know? He, he knew how to write a song. Tragically died of AIDS, I think 1992. Was the first husband of Liza Minnelli. I’d forgotten that, too.

Tony Kynaston: Mm-hmm.

Cameron: he, he used to open for Judy Garland and, uh, she him and Liza Minnelli. Anyhoo, uh, this company does report in the Brazilian reais, uh, which I found out it’s pronounced, the, the ri- what I would call the real is

Tony Kynaston: Mm.

Cameron: haio. [00:10:00] So you can use that when you go to Brazil. Haio.

Tony Kynaston: Mm-hmm. I still have some reais sitting around home from the last time I was in Brazil.

Cameron: When were you in Brazil last?

Tony Kynaston: for the Soccer World Cup when it was there.

Cameron: Oh. did you watch the World Cup?

Tony Kynaston: I did, yeah.

Cameron: I didn’t, but I heard about it. Heard it was pretty good.

Tony Kynaston: Mm-hmm.

Cameron: Um, and the plural of reais is reais, R-E-A-I-S. So there you go. So I had to adjust a few numbers in the checklist to account for this, but it didn’t make any difference. Uh, still scored the same way it scored before, the IV1 and the IV2, and the, uh, double the, um, FCIV. But it, um, scored at us, scored z- scored its Brazilian ass off. So there you go. This company is controlled by the Brazilian federal government. The state holds just over half the voting shares directly, plus more through the National Development Bank, [00:11:00] and I’ll explain why as we get into it. So the origin story. Founded 3rd of October 1953, when Getúlio Vargas, the president of Brazil at the time, signed Law 2004 into being. Vargas served as the 14th and 17th of Brazil. First was from 1930 to 1945, and then from 1951 until his suicide in 1954. Never heard of this guy before, despite all the attention I’ve paid to Latin American politics over the years. I have to talk about him, though, in my Cold War show at some point. This guy, fascinating. Ran a dictatorship from 1937, the Estado Novo. Justified it with a faked communist plot, complete with censorship, a censorship ministry, and a personality cult that [00:12:00] branded him the Father of the Poor. a lot, a lot from fascism, but crushed Brazil’s actual fascists, the Green Shirts, the Integralists as they were known, who tried to storm his palace in 1938 and lost a shootout with Vargas and his daughter. Then he gave workers real rights, minimum wage, paid holidays, the 1943 labor code, and also banned strikes in the same breath. So it’s been portrayed as it was a gift from the state, not something you fought for, not, not something you could withhold. It was a gift. Then he sent 25,000 Brazilians to fight fascism in Italy while running a quasi-fascist dictatorship at home. Got him deposed in 1945, came back as elected president, democratically elected in 1951. Signed Petrobras into existence in October 1953, and then shot himself in the chest 10 [00:13:00] months later. His final words in his suicide note were, “I leave life to enter history.” So there you go.

There’s a lot more to that story, but we don’t have time. But it’s a good story, and I will tell it in full on the Cold War Show at some point. Now, the nationalization of oil came out of a genuine mass movement. It was called O Petróleo é Nosso. The oil is ours. Reminds me of, um, Al Pacino’s Scarface, “The world is mine.”

No, “The world is ours.” I think the world is ours. It was like the oil is ours. This was launched in 1948. There was a, um. It, it goes, it goes that. So before 1953, Brazil imported most of its oil, produced a little bit, but barely any. And then there was this guy called Monteiro Lobato. He was Brazil’s most famous children’s author, basically Roald Dahl, uh, the Roald Dahl of Brazil, but wrote books about how the government was lying about oil.

He was convinced that [00:14:00] Brazil was sitting on massive petroleum reserves and that the bureaucracy in league with foreign majors was deliberately suppressing exploration. In August 1936, he published O Escândalo do Petróleo, The Oil Scandal, sold out multiple, uh, editions and, um, his line was that the federal bureaucracy, “Não perfura nem deixa que se perfura,” doesn’t drill and won’t let anyone else drill. Vargas had him arrested. Uh, arrested, sentenced to six months, reportedly with a specific prohibition on sunbathing. I mean, you know, you can throw someone in the hole, but even worse is you leave them outside but prohibit them from sunbathing. Um, he censored, Vargas censored, uh, the book. [00:15:00] he was pardoned after three months, came out broken but right.

So 1938. Sorry, what?

Tony Kynaston: And he was pale.

Cameron: Pale.

Tony Kynaston: Yeah. Yeah.

Cameron: than being a pale Brazilian. Um, Vargas created the Conselho Nacional do Petróleo, the National Petroleum Council, in took control of who could explore. 1939, they struck oil Salvador in Bahia, but it wasn’t commercially viable, but there was proof that oil existed. promptly banned private companies from exploring within 60 kilometers of the strike. Then in 1948, President Dutra sent Congress the Estatuto do Petróleo, a petroleum statute that would have opened the sector to private and foreign capital, most of them American. This was the era of the Seven Sisters, and it was basically gonna hand Brazilian oil to the American cartel. And then something called [00:16:00] CEDPEN, C-E-D-P-E-N, which was basically a campaign group, was set up in 1948. Included army officers, uh, communists, students, all these people that were, like, joining together to stop foreigners from getting control of their oil. I guess they saw what was happening in Iran and Venezuela and places like that, and they acted up. They marched in the streets for years. That’s where “O petróleo é nosso” comes from, “The oil is ours”. Killed the statute, and five years later, Vargas was back in, and he signed Law 2004 in. And, uh, yeah, they, they took a, had a monopoly on Brazilian oil, which lasted for 44 years until a constitutional amendment finally broke it in 1995. Um, by the way, Brazil, named after a tree, the brazilwood, gives a deep red dye from the Portuguese [00:17:00] brasa, meaning an ember, a glowing coal. So the country that’s named after the color of burning wood, its biggest company is the stuff you burn made from fossilized wood. that nice? Gotta love that.

Tony Kynaston: The circle, yep.

Cameron: Yeah, it’s beautiful.

By the way, guess where Brazil nuts come from?

Tony Kynaston: Uh, I’m guessing not Brazil.

Cameron: Bolivia. 54% of Brazil nuts

Tony Kynaston: Mm-hmm.

Cameron: Bolivia. Brazil produces a lot too. But t-together they produce about 91% of the world output. Brazil nuts, Brazilians don’t call them Brazil nuts. They call them castanha-do-pará, the Pará nut, after the Amazonian state. a fun fact: you can’t farm Brazil nuts.

Tony Kynaston: In Brazil or anywhere?

Cameron: Anywhere. They, they I read this whole thing. I don’t have time. Don’t have time, but you have, they, they, they’re, they’re wild trees [00:18:00] standing in rainforests that have to be pollinated by a particular bee that, has to do something with, um, uh, uh, uh, what are those big flowers? Orchids. They’re an orchid bee.

Tony Kynaston: Mm-hmm.

Cameron: big enough to open an orchid, and there’s something with the orchid pollen and the Brazil nuts.

It’s this whole thing. They can’t farm it. It’s biz- it’s bizarre. never gonna eat Brazil nuts the same way again. Anyway, too expensive to eat Brazil nuts anyway. Too much fat. Fast-forward to back to oil. Stop distracting me. So where, where are we with time? I’m running out of time.

Tony Kynaston: Have you had too much coffee this morning, Cam?

Cameron: drinking

Tony Kynaston: Okay

Cameron: with cardamom and cinnamon in it. I don’t know where cardamom comes from, but I love it. It’s my new thing. Fast-forward to 2006. They drilled into the Santos Basin, punched through two kilometers of water, then a couple of kilometers of rock, then two kilometer layer of salt, underneath the [00:19:00] salt there was oil. Uh, do you wanna tell me about the connection between the Santos Basin and then the Australian oil company, Santos?

Tony Kynaston: Oh, I was just thinking, I’m just wondering what it was. No, I don’t know. Sorry.

Cameron: None. Santos, the

Tony Kynaston: wow

Cameron: is an acronym for the South Australian Northern

Tony Kynaston: Yeah. Okay

Cameron: that bizarre? And our Santos has been around since 1954. Their Santos Basin oil discovery was only 2006.

Tony Kynaston: Right

Cameron: How’s that? Somebody should have sued. Anyway

Tony Kynaston: It wasn’t made by Santos, was it, in Brazil?

Cameron: No.

Tony Kynaston: No. Okay.

Cameron: nice, but no.

Tony Kynaston: Okay

Cameron: it’s the name of a region off of, uh, Brazil.

Tony Kynaston: Right

Cameron: anyway, uh, they announced it to the world in 2007. They called the field the Tupi Field, named after the, uh, tribe. There was a tribe called the Tupi. Then in 2010, they renamed it Lula, some think after the president, but it’s actually after a mollusk. then there was a court case and they had to change it back to Tupi. [00:20:00] Long story, don’t have time to go into it. Anywho, core business is, uh, I mean, basically this is a behemoth of a company.

Tony Kynaston: Yeah

Cameron: Three layers of the oil business, um, and they pr- pretty much have a functional monopoly in Brazil. Exploration and production, that’s the engine room of course. And a lot of this stuff, g- you know, the, the stuff that they’re getting out of Tupi. So they have a converted supertanker they call an

Tony Kynaston: Mm-hmm.

Cameron: FPSO, moors over the field, sucks the oil up, separates out the water and the gas on deck, stores it until a shuttle tanker comes up alongside it, put it in the shuttle tanker. You know this, you’re an ex-Shell guy.

Tony Kynaston: Well, yeah, we sh- and we’ve spoken about it with other stocks like Karoon who do this as well.

Cameron: yeah. No pipeline, no fixed platform, factory on a boat.

Tony Kynaston: Mm-hmm.

Cameron: they do about 3.23 million barrels of oil a day, did last quarter, which is up about 16% on a year ago. One [00:21:00] field, Buzios, does over a million on its own, more than Venezuela from one field.

Tony Kynaston: Mm-hmm.

Cameron: It’s Then they do the refining. They have about 10 refineries, about 79% of Brazil’s entire refining capacity they control. Basically every service station in the country is more or less downstream of these guys. third is they provide gas and power. They pipe the gas that comes up with the oil. They sell the electricity. So they find it, refine it, sell it a country of 210 million people. It’s, um, bonkers business

Tony Kynaston: Yeah. And very cheap too. I mean, the other thing I found out when I was researching this was because of the, the, what, what’s called the pre-salt layer, so where they’re drilling, uh, it’s, it’s actually very cost efficient and it’s high quality crude. So it costs them about US $25 a barrel to drill for oil and bring it to the surface, um, which is, which is very cheap compared to other places in the [00:22:00] world

Cameron: Right. So, uh, in r- Hay Ice, Ice Ice Baby, their first quarter revenue was 123.7 billion versus 123.1 billion a year earlier. So flat, um, more or less. Um, but in US dollars, the same quarter reads as revenue up 12%

Tony Kynaston: Mm-hmm.

Cameron: the real appreciated. Um, so why did the real appreciate? Well, remember when we talked about PagSeguro back in April, the Brazilian fintech. I talked about, uh, Tom Selick, the Selic rate, as they call it, Brazil’s equivalent of the Fed funds rate or Australia’s RBA cash rate, setting it around about 14 point something percent, 75, 25, somewhere around that, [00:23:00] versus I think the US Fed’s around about 3.5, 3.75. What’s Australia at now? 4.1, 4.6?

Tony Kynaston: Yep.

Cameron: around there, right.

Tony Kynaston: Mm-hmm

Cameron: So with the US, it’s about a 10 and a half point spread between the two. strip out inflation and the real policy rate is about 9%, one of the highest on earth. there’s this thing which you probably know, but I had to look it up. It’s called a carry trade. You

Tony Kynaston: Mm-hmm.

Cameron: trade is, Tony?

Tony Kynaston: Yeah, you borrow in a low interest environment and you invest in a high interest environment and you pocket the difference, basically

Cameron: S- sweet. Why aren’t we doing that?

Tony Kynaston: We could.

Cameron: we could.

Tony Kynaston: Yeah

Cameron: risk is that the currency

Tony Kynaston: moves, yeah.

Cameron: the other way

Tony Kynaston: Yeah. Mm-hmm.

Cameron: it can go both ways. so yeah, you borrow US dollars at 3.5%, you convert them to reais, and then you, uh, buy Brazilian government paper paying [00:24:00] 14.25%, collect the difference. The spread is the carry.

The catch is can go both ways, and you have to convert it back to dollars eventually. But, uh, so but apparently all of this happening, people need to buy the reais and what that’s doing is driving up the value of the currency at the same time. So, uh, it’s partly a dollar story as well. Um, the US to BRL, which is the, the currency code for the reais, fell 12.5% in 2025, uh, because Trump, the economic genius’ tariffs, Fed cuts, the One Big Beautiful Bill Act, which basically said, “Yeah, we’re gonna borrow a ton of money and not tax anyone.” rotating out of the dollar into gold, et cetera, et cetera. So the dollar, the US dollar is broadly weakened, the reais is one of the, uh, the [00:25:00] real is one of several currencies that looks pretty strong by comparison. And why this matters for Petrobras specifically, it cuts both ways. So they sell oil priced in dollars but report in reais.

Tony Kynaston: Right

Cameron: So when the real strengthens, the same barrel converts into fewer reais. That’s why production is up, but revenue is flat, so the currency ate the volume growth. But they also carry about 28 US billion dollars worth of debt, of it is dollar denominated, plus they have leases. All the FPSOs, the ships, they lease

Tony Kynaston: Mm-hmm.

Cameron: and they pay US dollars for them apparently.

Tony Kynaston: Mm-hmm.

Cameron: So when the real appreciates, the value of the debt shrinks, you book a gain. It’s all very complicated, messy currency stuff that I’m not gonna pretend I understand. Bottom line is their numbers look good, um,

Tony Kynaston: Yeah

Cameron: of the weakening of the dollar and the strengthening of the reais and the [00:26:00] interest rates and all that kind of stuff.

Sorry, I gotta sneeze.

Tony Kynaston: But there were also some other reasons. I mean, the stock price is up dramatically this year, not the least of which is because the oil price was up at some stage. It’s gone back, but it’s up again now.

Cameron: Yeah

Tony Kynaston: but also too, there’s a few other things going on which you might get to, um, in terms of the, the, the way Wall Street views the government’s, um, holding in Petrobras and what that means

Cameron: Well, no, I’m not gonna get into that. You wanna talk about that? I’m gonna get into Operation Carwash

Tony Kynaston: Yeah. Well, it was that was gonna lead me to Operation Carwash for sure.

Cameron: okay. don’t you, you tell your bit, then I’ll talk about Operation Carwash

Tony Kynaston: Okay. Well, there’s a, there’s a, a lot of things going on, um, with, with this company and how Wall Street views it. So, uh, traditionally this company, uh, would yield sort of very high amount, 7 to 9%. Um, [00:27:00] and then last year, uh, there was a big expansion, um, because they’re always continuously exploring and, uh, they, they’re very successful at exploring and they found some new fields which, um, had a, a kind of windfall profit effect on the company.

Uh, and so Wall Street started buying into the stock expecting, um, that that windfall would be shared with the shareholders, but the government said, “No, we think we’d like to put it back into, uh, developing the c- the, the reserves and, um, the future of the company.” Basically trying to, uh, future-proof the company because eventually like any oil company, the oil will run out.

Um, even though this, uh, this country has a pretty good replacement rate. It’s running at about 175%, and that means that for every barrel they take out of the ground they’re finding another 1.75 barrels to replace it. But even given that, they’re still saying that it’s probably got about 13 years before it starts to deplete.

Um, so the government [00:28:00] said last year when they found these new reserves, “We’re gonna put them into a special fund and that’s gonna help us to reinvest in exploration, uh, or, you know, driving costs out of the business.” Wall Street said, “Hang on. We’ve bought into the stock thinking that the dividend yield is going to increase because you’re gonna pay out that.”

And there was a bit of a tussle so it, uh, went up and down. Um, the government did, did sort of walk away from that a little bit. New c- new CEO came in, um, and there’s been a kind of compromise deal reached so Wall Street, uh, fell back in love with the stock and with the oil price rising, um, they’ve done pretty well over the last 12 months.

But there is always this tussle between what’s in the best interests of Brazil as viewed by the government and what’s in the best interests of the investors. Um, and that’s probably even more so the case now that Lula is in power in, in, uh, Brazil. But the other interesting point about Lula being in power is that, um, even though he is, you know, a left wing leader of the [00:29:00] country, there’s still, um, there’s still a paradox that’s going on in terms of how they run Petrobras.

And, and one of the interesting issues is that, uh, ’cause, ’cause oil drilling is basically shunned by e- ecologists, um, and greenies, uh, who traditionally have voted for someone like Lula. But now he is, um, taking them on and saying, “No, no, we need to keep expanding our, um, oil drilling, uh, for this company in order to increase the welfare payments to, um, to members of society.”

And one of the sort of, um- leading edges of that kind of movement is that they are getting closer and closer to the Amazon River basin with their exploration, and that’s caused a lot of consternation amongst the left-wing community in Brazil. And Lula’s been kind of fighting them off saying, “No, no, we need to keep drilling, keep making money, uh, putting it aside, and then I can, um, pay out, uh, high dividends back to the government to support the welfare state.”[00:30:00]

So just an interesting sort of paradox going on, uh, with, uh, this company and the government that, that has a controlling interest

Cameron: Yeah. Reminds me of, uh, Petro we talked about in a previous episode. Uh, Gustavo Petro, wasn’t that his name? Where is he the president of? Colombia. Colombia. And, uh, similarly, I think he’s like a left-wing, uh, president in Colombia, but they also have a lot of oil,

Tony Kynaston: Mm-hmm.

Cameron: do that dance. He s- he said, “We’re getting rid of, we’re, we’re getting rid of oil mining one day.

Right now we need the oil money.”

Tony Kynaston: Yeah. And that’s an interesting thing too when I, when I compared this company to some of the other oil majors. It’s about the size of BP in market cap sense, market cap sense, but it’s doing a lot less to, um, to get out of the oil industry. Like BP and Shell in particular in Europe are, are getting very heavily into alternative fuels, getting very heavily into EV [00:31:00] charging stations and electricity and things like that.

Whereas this company is doing very little. Um, it’s doing a bit on biofuels, but it’s not doing much to try and get a– wean itself off the oil industry

Cameron: Yeah. Well, uh, we’ve got 10 minutes left, Tony. I’m gonna quickly run through Operation Car Wash and then talk about the scoring and the numbers.

Tony Kynaston: Okay

Cameron: Operation Car Wash, like we love a good corruption scandal, a good scandal in these American stories and, um, this is one of the best. So the biggest corruption scandal in the hemisphere, um, is, uh, Operation Car Wash or Lava Jato, uh, kicked off in March 2014, got its name because the money laundering was first spotted running through a car wash in Brasilia and

Tony Kynaston: Yeah, one, one single car wash.

Cameron: one

Tony Kynaston: Just it’s just amazing, isn’t it?

Cameron: Ended up taking down [00:32:00] leading businessmen, congressmen, senators, state governors, federal government ministers, and former presidents, including Lula, who went to prison and,

Tony Kynaston: third of the Congress was indicted.

Cameron: crazy. Uh, I think Glenn Greenwald, when he was running The Intercept for Brazil, was part of this too, leaking stories about it. Um, yeah, basically the, the, the, the core of this was construction and engineering companies formed a cartel, agreed amongst themselves who’d win which Petrobras contract, inflated the price, kicked the difference back to various Petrobras executives and politicians, it was going on for years. The judge who sentenced Lula, by the way, Sergio Moro, announced he would resign from his position as a federal judge in 2019 and joined the administration of the right-wing president, Bolsonaro, as his [00:33:00] justice minister, Bolsonaro being Lula’s main political competition at the time. of course, Bolsonaro’s in jail and Lula’s the president again. Bolsonaro’s in jail after an attempted coup after he lost to Lula. The president, um, somewhere in there, uh, Dilma Rousseff, um, I can’t remember if she was. I think she was after Bolsonaro, before Lula came back maybe. She was the chair of the board of Petrobras from 2003 to 2010, but denied knowledge of any wrongdoing.

I think she got, uh, she got away with it. then on 19th January 2017, a small plane carrying Supreme Court Justice Zavascki crashed into the sea, uh, near the tourist city of Paraty in Rio de Janeiro, killing the magistrate and four other people. was the main guy, uh, [00:34:00] prosecuting the case. His plane crashed. Uh, in the end, Petrobras delayed reporting its annual financial results in 2014, and in April 2015 released financial statements showing $2.1 billion in and, and total of almost billion in write-downs due to graft and overvalued assets, which the company characterized as a conservative estimate. Uh, there was a 2.95 US billion dollar class action that they had to pay out, plus another 853 US million to the US Department of Justice and the Se- Securities Exchange Commission in 2018. Petrobras’ legal position throughout it was they were a victim of the cartel, not the author of it. And that’s broadly how the whole thing was framed. But, uh, recurring problem with the company isn’t fraud anymore, it’s that the [00:35:00] controlling shareholder has to win elections. Um, in May 2024, the previous chief ex- chief executive, Jean Paul Prates, was fired. fight was over how much cash went out as dividends versus how much got plowed back in, like you were talking about.

The government wants investments. Magda Chambriard replaced him in June 2024 and was reappointed in 2025. Her term runs through to, uh, 2027. uh, it’s. There’s a sort of messy fight going on still between executives and shareholders, and the government harkens back to what you were talking about. So there’s a

Tony Kynaston: Yeah

Cameron: coming up in October. Be interesting to see how that plays out.

Tony Kynaston: And that, that sort of tussle you talk about, the, the, all the corporate governance, um, hand-wringing that goes on for investors in this company is why it’s on our value buy list really. It tr- it trades at, it trades at, you [00:36:00] know, maybe up to half the value of its competitors in the oil industry, the large oil majors

Cameron: Well, I got a lot more notes, but I gotta wrap this up. Um, let me just run through some of the numbers, I guess, and, um, we can leave it at that. So let me see Current share price is, when I did the analysis, was around about $17.97. It was below our intrinsic value number one, which was $18.14, and below our intrinsic value number two, which was $38.99.

So it scored for both of those. Um, score for price to book. Price to book is about 1.33. Um, and even when I did book plus 30, it didn’t quite pass, but you can tell it was pretty close to passing for that. Price to operating cash flow was 3.04 for the 53rd largest publicly owned [00:37:00] in the planet, um, pretty low. Average daily trade volume sits at about $395 million. Um, nearly big enough for your portfolio, but big enough for the rest of us. Earnings per share, uh, was about $3.54. estimates for EPS are $3.76 for the next fif- fiscal year. P/E ratio is about 5.08. Has a stock rank on Stockopedia of 98 and a quality rank of 82, a Piotroski score of seven, so very strong on all of those metrics. positive shareholders’ equity growth. Doesn’t have a recent three-point upturn because it’s been going up for a while. Went down as the oil price dropped, but it’s ticked [00:38:00] back up. yield is about 7.04%, which is pretty good. Despite what you said about them paying out dividends versus keeping investments, they have some dividend yield

Tony Kynaston: Yeah. Well, they’ve, they’ve historically had a very high dividend yield. It’s just that they had that expansion into a new field

Cameron: Right

Tony Kynaston: when, uh, what was his name, the last guy that got– get the sack?

Cameron: Yeah

Tony Kynaston: Yeah. Um, that’s– So they had a large, um, cash windfall in terms of being able to write up the, uh, assets under the ground and then, um, that was when the government said, “No, we’ll keep that.”

Cameron: So that’s, uh, basically it. All up, got a QAV score of 100%, Tony, which is pretty good. Um

Tony Kynaston: Seems like a no-brainer, doesn’t it? I mean, from a political point of view, you’ve got a left-wing government in now with Lula, who faces elections in October. So [00:39:00] even if Lula gets back in, you wouldn’t think things would deteriorate, uh, much in terms of the investment profile for this company. But if the right-wing side of things, and there’s another Bolsonaro running because the Bolsonaro who was last in government’s in jail, um, and– or has been banned from standing for office.

If he’s out of jail, he can’t stand. Uh, but if they get in, it, it probably gets better, um, in terms of their policies for how this company’s run. So it, you know, it seems like a bit of a win-win going forward

Cameron: Depending on what happens with the oil price, maybe. Anyway, the, um, quality score was 100% and the QAV score was.329, which is pretty, pretty solid. So I added it to our portfolio. It’s the last stock. I’ve run out of cash now for our QAV Lite portfolio, so that will be the last official stock unless I have to sell something, which I haven’t had to this week yet.

But there you go, PBR, Petrobras. Hey, [00:40:00] bra

Tony Kynaston: Yeah, it was a good one. It was a good one to research too. All that, the car wash stuff going on was amazing. And the, and I couldn’t, I couldn’t help thinking, what if the US government worked like this when they had, uh, July, uh, January 6th and, pe- people being put in jail and refused, people being indicted so they couldn’t stand again for office.

Yeah, but, uh, but Trump, I mean. But I mean, Trump wasn’t put in jail or, and he wasn’t banned from holding political office for 30 years or whatever Bolsonaro was, happened, happened to him.

Cameron: Yeah.

Tony Kynaston: interesting.

Cameron: We, should go.

Tony Kynaston: Okay. Thank you







Previous Pulled Porks

Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past.