Based upon fear of what he might discover, Slack Investor keeps most personal introspection to a minimum. However, for a number of reasons, I am particularly fond of reviewing investment performance. … and always looking to tie in a quote from a great scientist and Time Magazine’s 1999 Person of the century – Albert Einstein.
Anyone who has never made a mistake has never tried anything new – Albert Einstein (1879-1955)
Slack Investor has made plenty of mistakes and regularly racks up the failures. The 2017 Financial Year, (1 July 2016 – 30 June 2017) annual review of his portfolio has revealed a few “shockers” in the Slack Investor Self Managed Super Fund (SMSF ) portfolio – which I not so proudly list (with their percentage losses) as my financial year investment “fails”
- Sirtex (SRX) -34%
- TPG Telecom (TPM) -23%
- McMillan Shakespeare (MMS) -16%
- G8 Education (GEM) -15%
- APN Outdoor (APO) -14%
- Amaysim (AYS) -11%
These companies have usually dropped in price during reporting season where a bit of bad news, or a failure to reach projected profit forecasts, triggered dramatic price falls. In all cases, these stocks were eventually sold because they breached the end of month stop losses that I had set.
Slack Investor just accepts these setbacks as part of the investment process. The type of companies that I invest in are usually
- Growth companies
- Have an above average “return on equity” ROE
- Have an above average “price to earnings” P/E ratio – Where P/E =Current price/Historical earnings.
The reason that Slack Investor is interested in these stocks is that they usually have higher projected earnings in the years ahead and should perform better than the general market. When I am looking at a stock, the forecast P/E ratios are given much more importance than the actual P/E ratios. However, it is the nature of these stocks to be particularly sensitive to any change in the forecast earnings. If profit forecasts are not met during a reporting season (sometimes referred to as the “confession season”), then there is a mad rush for the exits and the price plummets. Slack Investor is not a day trader and prefers not to watch his stocks continuously. As a result, he is never able to pick the precise right time to bail out.
I am sure there is a cost to this monthly decision making technique – but it is a price a pay gladly. The “peace of mind” in knowing that I only have to make stock decisions once a month – and that I can ignore the daily fluctuations of share prices is priceless to me.
The upside of dealing with these type of companies is that they have excellent growth potential. Thankfully, there was some good news in the portfolio this last financial year due to some heavy lifting from the following stocks.
- Corporate Travel (CTD) +66%
- Challenger (CGF) +57%
- Altium (ALU) +37%
- Macquarie Group(MQG) +36%
- Commonwealth Serum Laboratory (CSL) +25%
- Nick Scali (NCK) +22%
So far, the Slack Investor approach has been very fruitful. I usually own about 20 different stocks and this diversity allows my portfolio to have some individual failures and still do well.
The point of this post is that you can fail in the stock market … but also succeed. I certainly do not dwell on these failures – they are just part of investing.
For the 2017 financial year my SMSF portfolio achieved an overall return (IRR) of 19.5%.