Month: May 2021

Always Watching

Photograph: Elle Hunt/The Observer

Slack Investor is not known for his fast work … and have often taken the couch when action was probably needed. There are some stocks that I will hold for the long run, and their weekly charts are not of big concern to me. However, about half of my portfolio is on a weekly watch – I review the charts on a weekend and cast the Slack Investor jaundiced gaze over each stock that I own (Thanks Incredible Charts!)

“You can observe a lot by watching”

Yogi Berra – American Baseball Legend and Master of Tautology

I do have some routines though …

Daily

This is the least satisfying timescale and, if I could successfully train myself to ignore this daily oscillation of my investments – I would. The reason to avoid daily swings of the share price is that I have absolutely no idea about whether the price of a stock or index will go up or down on the next day – the share price is determined by others! In the chart below, in the first 7 days shown, the daily index went down, down, up, down, down, up, up, etc – monitoring daily prices can be frustrating!

ASX 200 Daily “Candlestick Chart” showing 6 months of index values since January 1 ,2021. The Red candles show a day when the value went down, and the Blue candles indicate a day when the index price went up.

I have to admit that I follow my investments every few days through a portfolio in Yahoo Finance and will download prices to my accounting software – the free Microsoft Money Sunset International Edition available at the most excellent Ameridan’s Blog. I download share prices into Microsoft Money with MS Money Quotes with a 10 USD lifetime licence. In the USA, Personal Capital is  recommended. 

I am happy to say that, when on holiday, or busy, I have no need to monitor on the daily timescale. Regardless, no decisions are made on this daily basis.

Weekly

Weekly is where the “rubber hits the road” for Slack Investor – and I look forward to my weekly sessions with my portfolio. I set aside an hour on the weekend to make sure my portfolio prices are updated and the charts are reviewed. The weekly time scale smooths out a bit of the volatility and I then open up Incredible Charts to scroll through my portfolio.

Incredible charts offer a free month sign up and then $9.95 per month for access to worldwide updated delayed charts daily from 6pm Australian time. This package is not in “real time” and does not suit a day trader. But for an investor on my slower time scale, it is very good value. These charts open up the whole world of technical analysis as it allows you to monitor trends in your stocks and mark in trend lines and stop losses.

I have always used the weekly charts to make decisions on buying a company – looking for a momentum shift in the trading using the Directional Movement System. I also like to trade a “breakout”, or a “wedgie”

Monthly

This is the timescale when I am most happiest and would like to make decisions just every month. After a life of work where decisions were a constant grind – It is a gift not to make decisions!

It is still my aim to make selling decisions monthly – but things seem a little precarious lately and, for now, I am on a weekly decisions cycle for selling. The sell happens when a stock price finishes below my stop loss at the end of the week/month (see Technical Sell below).

Yearly

This is the “Look at yourself in the mirror” period where Slack Investor does the evaluation of his portfolio performance against benchmarks at the end of each financial year. Although the financial year ends at June 30, it usually takes until the middle of August for me to get my final results and benchmarks together. I present my results at the annual Financial Year Results post.

Special Occasions Selling

Slack Investor is in one of those right now and he has to free up some cash to by selling some shares. I like to do things a bit methodically and here is my process for a sell.

Technical Sell

This is my first port of call. Technical Analysis uses charts and trends and I have been watching the charts for the past 4 weeks for a technical sell signal in my portfolio. For me, this happens when the stock price falls below the pre-determined stop loss that I have set. I will then try to sell at the start of the next week/month. My rules are not rigid here, if the stock starts to rebound after I have made my sell decision, I might stick with it for a little while longer.

Another technical signal is when a stock loses its momentum – but this is a more subjective signal than when a stock simply moves below a line.

Slack Investor bought into ESPO in October 2020 at $10.39 and sold this week at a small loss $10.19. The stock didn’t grow like I thought it would – but that’s fine. I like the concept of this ETF but I am happy to be out for now and look forward to be getting back in when a strong upward trend establishes itself.

I was also able to exit on a technical sell for the Betashares ASIA ETF and I am not sure what is going on here as I thought the tailwinds for this sector were good. Small profit this time and will get back in if the trend changes.

Weekly chart for the VanEck ESPO ETF showing a breach of the stop loss – Incredible Charts.

Fundamental Sell

Fundamental Analysis revolves around trying to determine the real value of a stock by looking at its financial data (e.g, Price/Earnings ratio, Return on Equity, Debt, etc) over time and, in reference to its competitors. This is a much more complicated process.

If Slack Investor can’t find a technical sell, I look for a fundamental sign. I will list all of my sellable stocks (Shares that I don’t hold for “the long run“). The first step is to get some financial data on each company from the very good Market Screener then put them in a table and hope that something stands out as a sell. A sell signal might be a trend of falling earnings, increasing debt, or decreasing Return on Equity (ROE). I also get nervous about a stock if its predicted (+ 2 years) Price Earnings (PE) ratio goes over 50. Fortunately, I didn’t have to resort to any fundamental analysis this this time … and this approach probably needs a post in itself.

In the meantime, like my pumpkin friend … always watching …

Euphoria … and April 2021 – End of Month Update

People, Football, Footballers, Group, Team Sport

“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”

Sir John Templeton

John Templeton (1912 – 2008) was a great investor, fund manager and philanthropist. He is best known for setting up the Templeton Growth Fund which averaged returns of over 15% per year for 38 years. Slack Investor salutes this kind of behaviour and listens when great investors say something. If Mr Templeton is right, this game should be pretty easy and we wait till the “Euphoria” sets in and the we sell … Right?

Well, according to the CitiGroup Panic and Euphoria Index , which looks at sentiment in the market back to 1950. The section from 1987 through to the start of 2021 is shown below – Euphoria is already well and truly established by December 2020. However, most markets have gone up considerably further since then!

Source: Haver Analytics, Pinnacle Data, and Citi Research – diamondportfolio.com.au – Click image for better resolution

This is a bit of a complex chart, and the grey solid columns represent the return from the US Stock market for the next 12 months (forward return) and the Magenta line is the Citibank Euphoria Index which tracks market sentiment.

Visually, it looks like whenever the Euphoria Index (LHS – Magenta) goes to a high value, there is a downturn in the next 12-month return (RHS – Grey). Citibank have defined a range (Blue Lines) where the market is operating “normally” and outline areas of Euphoria and Panic when the market is beyond that range. According to Citibank, we are in a period of Euphoria and the prospect of good returns in the next 12 months looks bleak. The Chief Economist from Citigroup, Tobias Lekovich, suggests that there is a “100% historical probability of down markets in the next 12 months at current levels.” – that proclamation was made 5 months ago.

Another Slack Investor hero, Warren Buffet, talks about the ratio of total United States stock market valuation to US Gross Domestic Product (GDP). This is now known as the “Buffet Indicator” – and, although he admits to its limitations, it still is “the best single measure of where valuations stand at any given moment“. At April 22, 2021 the Buffett Indicator is calculated to be 234% – the highest value since 1950. In contrast, the Australian market using this indicator is either “fair valued” or “modestly overvalued”

From Current Market Valuation – The Buffett Indicator is the ratio of total US stock market valuation to GDP – Click image for better resolution

By our calculation (the US Stock Market) that is currently 88% (or about 2.9 standard deviations) above the historical average, suggesting that the market is Strongly Overvalued

Current Market Valuation

There are a lot of current examples of “investor exuberance” in the stock markets – particularly in the US. There is no doubt that the pricing of some companies has got well out of hand. The earnings of a company are critical when I look at my investments.

Another risk is that pockets of the market at the moment appear to be speculative bubbles. You can easily tally about US$5 trillion of assets, from cryptocurrencies to Tesla, that are not underpinned by any fundamental earnings. They’re speculation. And if these bubbles were to pop, that could drag down a wider range of investments.

Hamish Douglas, Magellan Financial Group – Livewire Interview

There are a group of companies that I like that I have no intention of selling – because they have a good track record of increasing earnings and there future prospects look good – no matter what the market does in the short term. There is also about 40% my portfolio in stocks where I am not so sure of their long term prospects. It is these stocks that I will be watching closely at the end of every week and have set stop losses that will indicate to me that I should sell if the price falls below the stop loss.

Slack Investor is happy to go along for the ride and has no real faith in his prediction ability. Sure, stocks are at extreme valuations but these are very unusual times. Interest rates are very low and there has been an unprecedented amount of government spending to keep economies going along.

Still on the couch, I don’t feel euphoria … but I feel OK … I have a plan.

April 2021 – End of Month Update

Despite the “exuberance”, Slack Investor is still on the wave and remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. All Slack Investor followed markets this month had strong rises (ASX 200 +3.5%; FTSE 100 +3.8%; S&P 500 +5.3%).

In these uncertain times, especially with the high prices on the US market, I am monitoring my index funds weekly and if, at the end of the week my Index funds are below the stop loss, then I will put a post on the blog and sell at the next opportunity. All Stop Losses are Live.

All Index pages and charts  have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).