Imperfections in the Brickwork and … December 2022 – End of Month Update

Detail from the Pen and Ink “Behind Armstrong Street Shops” – the remarkably talented Bren Luke, 2022.

Slack Investor is always on the lookout for new investments … and nothing attracts the jaundiced Slack Eye more quickly than continuous long term results.

Brickworks Ltd (BKW:ASX) have just had their AGM presentation. I was very impressed by the claim that they have maintained, or increased, normal dividends for the last 46 years!

Dividend record – Brickworks 2022 AGM presentation – Brickworks

Tracking the share price of BWK:ASX since 1968 – Brickworks 2022 AGM presentation – Brickworks

As well as being a very good maker of bricks, Brickworks operates as an investment company and own a 26.1% stake of the diversified investing house Washington H. Soul Pattinson (SOL:ASX). SOL, in turn have holdings in

TPG Telecom – Australian telecommunications provider
Brickworks Limited – Clay and concrete production for the construction industry
New Hope Group – Coal and oil mining and energy generation
Tuas Limited – Telecommunications provider
Apex Healthcare Berhard – Malaysia-based pharmaceutical production
Pengana Capital Group Limited – Fund management
Aeris Resources – Mining and exploration activities

Now Slack Investor does not want to get all preachy here, as as everyone has to draw their own line in the sand – These things are very subjective. I looked up New Hope Mining on the excellent Morningstar Sustainalytics site to get an idea on how well the company is ranked in terms of Environment Sustainability and Governance (ESG).

ESG Risk rating for New Hope Corp. Ltd. – from Sustainalytics

New Hope Group ranked 14571 out of 15559 in terms of ESG risk rating – on a worldwide basis. I personally would feel uncomfortable being a part owner of a thermal coal miner given the current state of the planet.

So despite the most excellent management and performance of BWK, while they still own an interest in the New Hope Group, I will look elsewhere for investments.

Puff Puff MOAT

On the subject of digging deep, I have been a long term holder of the VanEck Morningstar Wide Moat ETF (MOAT:ASX). Slack investor has many vices – Wine and beer just being just two of them … so again, I won’t lecture – as these things are very personal. However, some of the sins that my mother rubbed into me as being “particularly evil” are smoking and gambling. I will do my best to avoid ownership of these type of stocks in deference to my dear Mum.

I noticed back in 2021 that this MOAT ETF had Phillip Morris International as one of its top 10 holdings. According to the Yahoo Finance site – Phillip Morris is 2.5% of the MOAT holdings! Owning a part of a multinational tobacco company that is a leading part of Big Tobacco didn’t really sit well with Slack Investor.

According to the Global Burden of Disease Study, in 2015 alone, smoking caused more than one in ten deaths worldwide and killed more than 6 million people, resulting in a global loss of nearly 150 million disability-adjusted life-years
The Lancet

Slack Investor marked MOAT as an ETF to get rid of, despite liking the concept of its construction – “companies with sustainable competitive advantages”. I had a feeble attempt at shareholder activism and emailed VanEck about this … and enquired whether thy might screen the MOAT ETF with an ethical filter … to get rid of tobacco and gambling stocks – they replied with a polite “no”.

Modified (to protect the innocent!) email from VanEck to Slack Investor

I finally got around to attempt to sell MOAT this month and I thought I should just check the VanEck holdings MOAT site and look at their complete holdings list. Lo and behold … at 29/12/2022, Phillip Morris has now gone from their holdings list! So, for now, MOAT is a keeper!

If at a loose end during the holidays and need a distraction, Slack Investor highly recommends the free exhibition “Streets of Your Town” at the Ballarat Art Gallery, VIC. Bren Luke is an amazing artist, his exhibition runs till 5th Feb 2023.

December 2022 – End of Month Update

The year closes and, I’m not sure if Slack Investor was naughty (probably?)… but, there was no “Santa Rally” this month. All followed markets took a dive in December. The ASX 200 down 3.4%, the FTSE 100 down 1.6%, and the S&P 500 down 5.9%,

Due to the return of all followed share markets to more normal valuations, I have returned my stop-loss upper-limits to 15%. This means that when I work out my stop loss value, I add another 15% to it, this is my upper limit. If the stock price exceeds the upper limit, I will adjust my stop loss upwards. This method helps to lock in some gains if they occur.

Slack Investor remains IN for the FTSE 100, the ASX 200, and the US Index S&P 500.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been completed.

The Hubris Ark

Cathie Wood CEO of Ark Invest – from Observer

hubris: (noun) – an extreme and unreasonable feeling of pride and confidence in yourself:
Cambridge Academic Content Dictionary

Cathie Wood is the CEO of Ark Innovation and is best known for her NASDAQ based flagship fund ETF (ARKK). She has been concentrating her bets on the “disruptive technologies,” such as artificial intelligence, genomics, blockchain and cryptocurrency, and clean energy. She is a big fan of Tesla and has made the prediction

Bitcoin will crack $1 million by 2030
Cathie Wood – The Street

Slack Investor is no seer … but at the October 14, 2022 price of 16240 USD, Bitcoin has quite a way to go to reach that mark. In the words of the great BBC TV character Sir Humphrey, this looks like a “very courageous” prediction Cathie!

The ARK Innovation ETF (Nasdaq: ARKK)

Wood, is a devout Christian, and has named her company after the sacred Ark of the Covenent. Cathie Wood is a household name in the US and has a huge number of loyal fans. Her funds had 60 billion USD under management at their peak. She was named by Bloomberg as Stock Picker of the Year in 2020 . The flagship ARKK fund gained a remarkable 152% in 2020, but since then, the performance has not been so stellar – ARKK is down 65% so far this year. In interviews, she often refers to her past success, and insists, over and over again, her performance should be judged over a five-year time horizon.

The Price chart of the ARKK ETF since 2017 –

Wood is nothing but confident. She hosts a monthly finance video – delightfully called “In the Know” and is a great defender of her fund. She sees “spectacular returns” for Ark Invest over the next five years. According to a recent article by New York magazine, her initial predictions for ARK Invest were annualized returns of 15 percent, “Now we think 50 percent.”

Slack Investor would agree that a 5-yr holding period is a good minimum to judge how a fund is performing – to allow for volatility and to allow growth stocks to grow. She might be right that tech stocks are undervalued at the moment. But let’s have a look at her results as a fund manager over the last 5 years. The total return of ARKK expressed as a compound annual growth rate (CAGR) since November 2017 was a not so impressive 3.5% when compared with other “no stock picking” index funds.

Instrument	Value Nov 2017	Value Nov 2022	5-yr CAGR
ARKK	36.44	43.31	3.5%
NASDAQ 100 TR	7159	13881	14.2%
S&P 500 TR	5212	8407	10.0%
FTSE 100 TR	6510	7564	3.1%
ASX 200 TR	56486	81102	7.5%

Based upon the 5 years preceding November 2022, the compound annual growth rate (CAGR) of various Total Return (TR) index values compared with the ARKK ETF (including dividends since Nov 2017 of $2.91 USD). These TR calculations include dividends. Data from Yahoo Finance and CAGR calculations from CAGRCalulator

Cathie Wood conducted a recent session at a Morgan Stanley event in Sydney. where she maintained her bullish outlook. According to the Financial Review, the fund manager essentially argued it’s the market that’s got it wrong, not her!

Slack Investor is far more humble … he “takes his licks” when times are bad – doesn’t “crow” when times are good – and is mostly wary when a new “stock guru” emerges.

In the stock market, volatility is the price he has to pay for being involved with long-term asset growth.

November 2022 – Mid-Month Update

This image has an empty alt attribute; its file name is trend-1445464__180.jpg

My small-scale, and often very frustrating, market timing experiment continues until its projected end in 2024. On a weekly signal for the FTSE 100 from the momentum following Directional Movement system. I have bought back into the UK index. I am back now to fully invested in the ASX Index, UK Index, US Index.

The buy signal can show itself as a downward dip in the trend strength indicator ADX (grey line) of the lower panel below. There are many ways of setting up this Directional Movement system. Slack Investor likes the “smoothing” that is enabled by a system that looks back over the previous 11 periods – but the complexities are best left for the Resources page.

FTSE 100 Weekly chart showing a BUY signal on the Directional movement Index *weekly chart. The weekly price ranges are at the top and Average Directional Movement Index (ADX) patterns below – From* Incredible Charts

The Index page has been updated for the UK Index .

Finding Value … and October 2022 – End of Month Update

In amongst the general carnage of the market, Slack Investor has been doing a little buying. An opportunity came up with an existing holding. Dicker Data (DDR). DDR is an Australian-based technology hardware, software and cloud distributor.

From time to time, a company will go to institutions and shareholders to raise a bit of working capital using a Share Purchase Plan (SPP). Dicker Data (DDR) needed to expand its warehouse facilities. Fair enough – but does Slack Investor want to part with more cash to invest in this company? Lets take a fresh look using the excellent Market Screener Financials Page. The Slack “basics” of a high return on equity (38.7% in 2022) and projected growth – on top of an established period of growth – are still intact – Tick

DDR – Historical (Black)and analyst projected income growth (grey) till 2024 – Market Screener

The price of DDR has been generally “beaten up” in the last 6 months as interest rates have risen and growth stocks have suffered. There are probably some more tough times ahead … but Slack Investor likes to take the “long view”. This business has a long term growth strategy and will probably persevere despite current headwinds – Tick.

DDR – Analyst projected PE ratio till 2024 – Market Screener

The current DDR Price/Earnings ratio is 22.9 – below recent values and projected to reduce further as income increases. – Tick.

Although analyst predictions can be wrong, on balance, the miserly Slack Investor was happy to part with a few dollars in this Share Purchase Plan as he could find some value in this business. There is every prospect that the DDR share price will increase in the next few years.

Finding Index value using CAPE

As with individual companies, the whole share market will oscillate betwee overvalued and undervalued. Slack Investor has written about the Cyclically Adjusted Price to Earnings ratios (CAPE) which use ten-year average inflation-adjusted earnings to take out some of some of the volatility of annual earnings. By plotting this CAPE over a period of time, we can look at how the whole sharemarket is currently valued in terms of historical data.

Using monthly CAPE data from Barclays, the 40-yr mean is calculated and plotted together with the CAPE values. A “fair value” zone is created in green where the CAPE is within one standard deviation of the mean.

Historic CAPE ratios for ASX 200 – From 1982 to September 2022

Historic CAPE ratios for FTSE 100 – From 1982 to September 2022

Historic CAPE ratios for S&P 500 – From 1982 to September 2022

From the above, The ASX 200 (7% below av.) and the FTSE 100 (13% below av.) are “On Special” at the moment as their CAPE values are below their long-term averages. Even the S&P500, after a long 2-yr period of being “Over valued”, is now getting close to being “Fair valued”.

October 2022 – End of Month Update

Slack Investor remains IN for Australian index shares though it is still on watch after breaching its stop loss at the end of September 2022.

My last post described how I had left the UK and US Index in the middle of October 2022. I am now back IN to the US Index – and, for the moment, OUT of the UK Index. Although, I am keeping a weekly watch on the FTSE 100 in case there is a signal to return to the market.

This month illustrates why I feel glad that my 20-yr index timing experiment is coming to an end in 2024. After exiting the US and UK markets only 2 weeks ago, there has been a rally in both the US Index S&P 500 and (to a lesser extent) the FTSE 100. The momentum has been sufficient for Slack Investor to be “whip-sawed” back into the US Index on a weekly buy signal – I am starting to get “really over” this timing the market experiment.

For the experiment, Slack Investor uses a trend following (or momentum) system called the Directional Movement Index. The buy signal shows itself as a downward dip in the ADX (grey line) of the lower panel below. There are many ways of setting up this system. Slack Investor likes the “smoothing” that is enabled by a system that looks back over the previous 11 periods – but the complexities are best left for the Resources page.

*S&P 500 Weekly chart showing* a BUY signal on the Directional movement Index *weekly chart. The weekly price ranges are at the top and Average Directional Movement Index (ADX) patterns below – From* Incredible Charts

This month, there are positive movements all round. The ASX 200 +6.0%, the FTSE 100 +1.6% and the S&P 500 +8.0%.

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

Let’s Lay a Few Bricks … and Mid-Month Update

A 1999 extract from The Sydney Morning Herald showing a 13-yr old Chris Brycki – smartcompany.com.au

Slack Investor will admit to being less than young … but I am still capable of being a “Fan boy” when I see something impressive happening in the financial world.

After a series of schoolboy stock picking successes – winning the ASX’s Share Game a remarkable 3 times and, at university, he entered the JP Morgan Trading Competition, which he also won several times. The talented Chris “the Brick” Brycki, launched into a career with stockbrokers and financial houses. After a while, he started to question the long term performance of fund managers.

“… The problem is that over time, even by being right, the value added is not big enough to counteract the 1% fee that a lot of these fund managers charge.”
Chris Brycki – Stockspot – Livewire

Chris founded Stockspot in 2013 as an alternative way to invest. Their Robo Advice model offers a low-cost automated alternative to traditional fund managers and advisors. After a simple online survey to determine your investing stage and risk tolerance, an investment portfolio type is recommended to you.

Stockspot Building Blocks

Chris, founder and CEO of Stockspot, in 2020 – From smartcompany.com.au

Chris (and Stockspot) have come up with the breathtakingly simple, yet genius (Both Slack Investor and Donald Trump have a loose definition of genius), strategy. After researching thousands of ETF’s and, based on exposure, performance and low fee costs – Stockspot has selected just 5 of them as the building blocks for a range of different portfolios. The portfolios are based on risk tolerance, financial situation and the investor’s appetite for volatility. The five component ETF’s are in Australian Shares (VAS), Global Shares (IOO), Emerging Global Markets(IEM), Australian Fixed Income (IAF), and Physical Gold (GOLD).

ETF	Symbol (ASX)	1-yr Performance	Growth since Inception	Management Fee
Vanguard Australian Shares Index	VAS	-7.92%	8.25%p.a (13+ years)	0.10%p.a.
iShares Global 100	IOO	-4.43%	7.37%p.a. (15+yearsr)	0.40%p.a.
iShares MSCI Emerging Markets	IEM	-20.59%	7.18%p.a.(19+ years)	0.69%p.a.
iShares Core Composite Bond	IAF	-11.42%	2.73%p.a.(10+ years)	0.15%p.a.
ETFS Physical Gold	GOLD	+7.34%	7.75%p.a.(19+ years)	0.40%p.a.

The five ETF’s that Stockspot use to build their portfolios (1-yr Performance is to 13Oct 2022) – most of these ETF’s have a $500 minimum if you are investing directly.

It is best to disregard the above 1-yr performance – It has just been a bad year for most assets. The ETF management fees are low (depending on ETF complexity), there is good long term performance (Growth since Inception) and they have selected Physical Gold for inclusion.

Slack Investor does not naturally lean into Gold as it is a speculative, non-income producing asset. However, I might have to change my mind here. The reason Stockspot include Gold in all their portfolios is based upon historical data and the way gold tends to outperform in times of crisis. The results in this last year performance of +7.34% for Gold, speak for itself – as other asset classes flounder.

Mixing it all up

Slack Investor has written about Stockspot before in terms of Robo Advice and their valuable Superannuation reports. By using these 5 ETF’s in various combinations, Stockspot is able to give their customers a combination of returns and risk at a relatively low cost. There are even sustainable versions of each of the below portfolios available. As an example, the moderately conservative Sapphire portfolio is constructed with the following portions.

VAS: 27.2%
IAF: 35.2%
IEM: 14.4%
IOO: 7.9%
GOLD: 14.8%

A chart showing relative risk and return (grey line) of a portfolio varying between 100% Australian Bonds and 100% Australian Shares. The Stockspot portfolios have historically yielded lower returns than 100% Australian Shares) – but only slightly in their most aggressive Topaz portfolio. **Overall, through their diversification, the portfolios represent much lower risk.**

After fees, over a 5-yr period, Stockspot has outperformed 99% of similar funds over 5 years.

AMETHYST Conservative	SAPPHIRE Moderately conservative	TURQUOISE Balanced	EMERALD Growth	TOPAZ High growth
3.1% p.a	4.8% p.a	5.3% p.a	6.1% p.a	6.8% p.a

5-yr annual performance (After Fees) – to 30 September 2022 – From Stockspot

There are fees involved for Stockspot to manage your money. For a balance of $200000, they amount to 0.66%. At first blush, these fees (on top of the ETF fees) sound a bit steep to Slack Investor. However, for all types of investors, with a time horizon of at least 3-5 years, for a stress-free place to put your money, this might be exactly what they are looking for. Stockspot do a tailor-made portfolio construction, all the re-balancing of assets and, they take care of all brokerage costs – Not Bad! They even have zero management fees for children accounts up to $10,000 (for under 18s) and the ability to dollar cost average with regular top-ups.

Stockspot does not earn fees from or have a commercial relationship with the ETFs we recommend. We don’t pay professionals for recommending our service to their clients.
Stockspot

Slack Investor can think of lots of situations where people would like a decision-free, low-fee, diverse investment that is designed to grow in the long term. Well done Chris Brycki (and Stockspot), for advancing the investing cause with particular attention to keeping the fees down … you are a Slack Investor Hero.

October 2022 – Mid-Month Update

Despite the above discussion, my small-scale market timing experiment continues until its projected end in 2024. My frustration with this experiment continues – as it often goes against one of Slack Investors firm beliefs. If you can avoid it – Do not sell an asset when it is undervalued. Using historical CAPE values, at the end of September 2022, the UK Index (FTSE 100) was 13% below its long term mean, the US Index (S&P 500) was 9% above its long term mean, and the Australian Index (S&P 500) was 7% below its long term mean.

At the end of September 2022, Slack Investor was on SELL ALERT for Australian index shares (ASX 200), the US Index (S&P 500) and the UK Index (FTSE 100). Each of them had broken through their monthly stop loss.

I have a “soft sell” approach when I gauge that the market is not too overvalued. I generally will not sell against the overall trend but monitor my index funds on a weekly basis once the monthly stop loss has been triggered.

Well … I can see no obvious up-trend at the end of the week for the US and UK markets and will exit at the end of week price of 3583 for the S&P 500 and 6858 for the FTSE 100. I am still just hanging in with the ASX 200 as they had a strong finish to the week.

The Index pages and charts have been updated for the UK Index and US Index.

Financial Year 2022 Slack Results

“When you can measure what you are speaking about, and express it in numbers, you know something about it. ”
Lord Kelvin (William Thomson, Mathematician and Physicist, 1824-1907)

Slack Investor reflects on a tough investing year. I have mostly “stuck to my guns” investing with growing companies that have an established earnings record and forward P/E ratios <50. There have been a few lapses (e.g. XRO) which had a forward PE ratio of about 100 when I bought it last financial year … and, I paid the price when the higher interest rates and threats of inflation caused a rapid change in valuation of most tech stocks.

I expect a bit of volatility in my mostly “growth” investment portfolio and I try to reassure myself that, despite the odd negative year in the Slack Investment Portfolio the Stable Income portfolio is doing its job and keeping Slack Investor with enough cash to keep things running. In the world markets, the FTSE 100 Total Return Index was up 5.7% (last FY down 13.8%). Dividends helped the Australian Accumulation Index to be down 7.5% for the financial year (last FY +27.8%). The S&P 500 Total Return Index took a breather at last – and was down 10.7% (last FY up 36.4%) for the same period. All of these Total Return Indexes include any accumulated dividends, wheras the chart below of the ASX 200 for FY 2022, just shows stock prices.

The ASX 2oo Weekly chart for FY 2022- Dividends helped stem the losses for FY2022, but the ASX Accumulation Index is still down 7.5% for the FY – Incredible Charts – Click for better resolution.

Slack Portfolio Results FY 2022

All Performance results are before tax. The Slack Portfolio is Slack Investor’s investment portfolio and it had its first negative year since its establishment in 2010 – with an annual FY 2022 performance of -14.3%. Full yearly results with benchmarks are shown in the table below. It was a challenging year for all of my benchmarks that were exposed to sharemarkets (Median Balance Fund -2.5%, Vanguard Growth Fund -13.0%, ASX 200 Accumulation -6.5%).

Slack Investor seems to be clueless in real estate predictions … I have thought for some years that there must be a sizable correction soon – as the prices are still stratospheric in Melbourne and Sydney compared to incomes. The correction may still yet happen as interest rate rises are yet to take their toll.

The Brisbane real estate market was the place to be for FY 2022 (+25.6%) on top of a big year last year!) – Inflation was also a suprise for the challenged Slack Investor – with the CPI at +6.1%.

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH	CPI
2010	6.6	9.8	12.3	13.1	10.8	26.9	4.2	3.1
2011	2.5	8.7	9.1	11.7	-2.4	0.9	4.4	3.7
2012	8.3	0.4	1.3	-6.7	1.3	-0.9	4.3	1.2
2013	26.5	14.7	18.6	22.8	7.7	8.3	3.2	2.4
2014	23.6	12.7	14.5	17.4	11.5	12.8	2.6	3.0
2015	2.4	9.6	11.8	5.7	7.7	15.6	2.5	1.5
2016	14.2	3.1	4.2	0.6	8.4	9.5	2.2	1.3
2017	19.5	8.1	8.8	14.1	6.5	17.7	1.9	1.9
2018	37.6	7.2	10.0	13.0	5.2	3.9	3.9	2.1
2019	19.7	6.2	9.8	11.5	1.7	-6.0	2.0	1.3
2020	9.4	0.3	0.6	-7.7	8.4	13.8	1.1	-0.3
2021	21.7	13.0	20.3	27.8	17.9	10.7	0.2	3.8
2022	-14.3	-2.5	-13.0	-6.5	25.6	3.1	0.3	6.1

The Slack Fund yearly progress vs BENCHMARKS. The Median Balanced Fund (41-60% Growth Assets), Vanguard Growth Fund, ASX 200 Accumulation Index, Corelogic Residential Property Home Value Index in both Brisbane and Melbourne, and Cash (Australian Super Cash Fund) and Consumer Price Index (CPI)

However, the five-year compound annual performance gives me a much better idea about how things are going and will smooth out any dud (or remarkable!) results. The Slack Fund is still ahead of Benchmarks – but currently being challenged by Brisbane Residential real estate.

Slack Investor 5-year compound annual rate of return – compared to benchmarks *– Click for better resolution.*

The beauty of compounding with a succession of good performance results can be seen in the chart below showing the growth of an initial investment in June 2009 of $10000.

The rate of growth of $10000 invested by *Slack Investor in FY 2009 – compared to benchmarks – Click for better resolution.*

10-year compound annual rate of return

The Slack Fund has been around a while and, at last, I am generating some long term data (10-year compound “rolling” annual rate of return). Over this time frame, the Slack Fund has been performing very well. A long-term annual rate of return of over 15% – Go Slack Fund!

However, the 10-yr rates of return of the Median Balanced Fund, Vanguard Growth fund, ASX200, and residential property in Brisbane and Melbourne are also great long term investments, generating a 10-year compound annual rate of return of at least 7% p.a.

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH
2019	15.6	8.0		10.0	5.8	8.5	2.9
2020	15.9	7.0		7.8	5.5	7.3	2.6
2021	17.9	7.4		9.3	7.5	8.3	2.2
2022	15.2	7.1	8.1	9.3	9.9	8.7	1.8

The Slack Fund 10-year compound annual “rolling” rate of return – compared to benchmarks- The Median Balanced Fund (41-60% Growth Assets), Vanguard Growth Fund, ASX 200 Accumulation Index, Corelogic Residential Property Home Value Index in both Brisbane and Melbourne, and Cash (Australian Super Cash Fund). The Vanguard Growth Fund was established in 2012 and has only just been able to generate a 10-yr rate of return.

FY2022 Nuggets and Stinkers and … July 2022 – End of Month Update

“So the last shall be first, and the first last: for many be called, but few chosen“
Matthew 20:16 – King James Version of the Christian Bible

Slack Investor is not a very religious person – but he is a numbers man and 84% of the global population identifies with a religious group – so I have to go with the flow here. This sort of majority demands respect. The Christian disciple Matthew was reporting on one of Jesus’s teachings. Biblical scholars think that Jesus was trying to point out that Heaven’s value system is far different from earth’s value system.

The “Last first and First last” might also be applied to how some of the Slack Portfolio stocks have been going over consecutive years. There seems to by a cycle of last years Nuggets … might end on the Stinker pile the year after – and vice-versa. Growth stocks have many virtues … but they are not immune to the cycles of price – bouts of overvaluation followed by a period of undervaluation.

The percentage yearly returns quoted in this post include costs (brokerage) but, the returns are before tax. This raw figure can then be compared with other investment returns. I use Market Screener to analyze the financial data from each company and extract the predicted 2024/2o25 Return on Equity (ROE), Dividend Yield and Price/Earnings (PE) Ratio on the companies below. This excellent site allows free access (up to a daily limit) to their analysts data once you register with an email address.

Slack Investor Stinkers – FY 2022

Financial year 2022 was the Pepé Le Pew of all of Stinktown for Slack Investor.I hold mostly growth shares in the technology and healthcare sectors. These sectors have been heavily punished across the world so far in 2022.

This is the first time I have had a negative result for my investments over a financial year since 2009. Slack Investor is a great believer in long term investing returns – usually evaluated over a 5-year period – so this year’s result, while painful, does not change my overall strategy.

Three of my “stinkers” this year were actually “nuggets” from last year. For FY 2020, Codan +161%, REA +59% and IDX +37%. Such is the cyclic nature of some growth stocks.

Codan (CDA) -58% (Still held)

(CDA – 2025: PE 14, Yield 3.8%, ROE 25%) Codan is a technology company that specializes in communications and metal detecting. This company was one of my big nuggets last year (+161%) – so I should not have been really surprised that there could have a bit of a pullback. The decline hurt, but the fundamentals of the company remain sound. Holding on.

Xero (XRO) -41% (Sold)

(XRO– 2025: PE 81, Yield 0.3%, ROE 15%) Xero is an innovative cloud -based accounting provider for small business. Every business owner that Slack Investor talks to say that Xero is a boon to their business. This sort of “word of mouth” got me over-excited this year and I just held my nose and jumped in – against all my rules of avoiding the excessively high forward PE ratios of over 50! It is these high PE companies that are usually punished first in a downturn – and that’s exactly what happened. I still look at it and think its a decent growing business – but I can feel the recent bite!

Integral Diagnostics (IDX) – 39% (Still held)

(IDX – 2024: PE 16, Yield 4.5%, ROE 12%) This medical image company provides diagnostic image services to GP’s and specialists. IDX was another of my nuggets from last year (+37%) that has just shed all of last years gains. The Return on Equity of this company is starting to get a bit low (<15%) – But the PE and yield seem OK. Will keep this company on watch for the moment.

BetaShares Asia Technology Tigers ETF -33% (Still held)

(ASIA – 2022: PE 14, Yield 0.7%,) Growth in Asia … What could go wrong! Plenty it seems.

These “technology tigers” that make up this ETF have been part of a global selloff of tech-related shares this year.

A lot of the Chinese companies (such as Alibaba) have been marked down because the Chinese government imposed its will on a few industries. Also the US government has hinted at action on Chinese companies that have listed on American market. However, the ASIA ETF has large holdings in such monsters as Taiwan Semiconductors, Samsung and Tencent Holdings – so I will accept the current pain and stick with this as a long-term holding

REA Group (REA) -33% (Still held)

(REA – 2024: PE 29, Yield 1.8%, ROE 32%) The owners of RealEstate.com.au. which is the go to portal for house selling and buying. 65% of Australia’s adult population are checking the site every month looking at property listings and home prices. Another long-term holding.

I have only listed the stinkers that lost over 30% this year … sadly, there were many more rogues that lost over 15% for the Slack Fund. They include PPK Group (PPK) -28%; Altium (ALU) -25%; Nick Scali (NCK)-20%; Pushpay Holdings (PPH)-16%; and A2 Milk (A2M)-15%.

Slack Investor Nuggets – FY 2021

Nuggets were few and far between this year. A great benefit of investing in companies that have a high Return on Equity (ROE), and with a track record of increasing earnings, is that they sometimes behave as “golden nuggets”.

Technology One(TNE) +17%

(TNE – 2025: PE 34, Yield 1.7%, ROE 36%) This Software as a Service (SaaS) and consulting company continues to be profitable. This year is the 13th year in a row of record half-yearly profits. A high 2025 PE of 34 (Expensive) is a little scary but, if the high Returns on Equity (36%) remain, on balance, this is OK.

Macquarie Group (MQG) +10%

(MQG – 2025: PE 25, Yield 4.0%, ROE 13%) Macquarie is a complex business with a range of banking and financial services, and plays in global markets and asset management. Once again, the management seem to know what they are doing – Slack Investor remains a fan.

Honourable mention to the only other company that ended in the black – Coles (COL) a decent +8% in these troubled times.

Slack Investor Total SMSF performance – FY 2022 and July 2022 end of Month Update

In a year that Chant West describes as “a rough year for markets”. Following FY2021, which was one of the strongest years for Super funds (+18% for FY21), things have now lurched south with the median growth fund (61 to 80% in growth assets) returning -3.3% for FY22.

The FY 2022 Slack Investor preliminary total SMSF performance looks like coming in at around -14%. However, the 5-yr performance is a more useful benchmark to me – as it takes out the bouncing around of yearly returns. At the end of FY 2022, the Slack Portfolio has a compounding 5-yr annual return of over 13%.

Despite a breach of the stop loss for the ASX 200 last month, Slack Investor remains tentatively IN for Australian index shares on a dramatic rise of 5.7% this month. The FTSE 100 also had a good month (+3.5%)and I remain IN. The US Index S&P 500 eclipsed them all with a remarkable 9.1% gain – and I am now a BUY back IN.

Last month the ASX 200 price went below its stop loss. Slack Investor tries not to exit a stock against the momentum of the market, so I have been off the couch and closely watching the ASX 200. It has remained above the rising trend line and emerged above the monthly stop loss. I am tentatively still IN.

ASX 200 Weekly chart – From Incredible Charts

After a sell, it is important to have a notion when to get back IN to an Index or a stock. When trend trading, my main tool for finding a buy signal is a trend following (or momentum) system called the Directional Movement Index. There are many ways of setting up this system. Slack Investor likes the “smoothing” that is enabled by a system that looks back over the previous 11 periods – but the complexities are best left for the Resources page.

In addition to the BUY signal from the Directional Movement Index for the S&P 500, the charts show a triggering of the “Wedgie” pattern where the stock price breaks through a long term down-trend. This reinforces the BUY.

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

Diversification … It’s a good thing … up to a point

This collection of herbs and spices makes me hungry – From Systematic Risk Systematic Value

Slack Investor tries to diversify his investment risk by keep a 70% growth oriented investments portfolio with a 30% stable income portion. So far this financial year, my Investments portfolio performance has been a bit lacklustre – so I have gone to the “hall of mirrors” and had a long, hard look at myself. I decided to do a sector analysis of my investments portfolio. The biggest revelation is the large proportion of Investments in the Information Technology (INFT) and Healthcare (HLTH) sectors.

A breakup of the Slack investments portfolio by sector. Dominated by Information Technology (INFT) and Healthcare (HLTH) – but a scattering of Financials (FINL), Broad Index-type funds (INDX), Consumer Discretionary (COND), Communication Services (COMS/TELS), and Consumer Staples (CONS)

Both of my main sectors have had a rough time these last few months – as can be seen by the monthly sector performance chart below. Materials (Resources) and Energy have done well – But these are sectors that I do not own.

Monthly Sectors heatmap for S&P 500 Sectors – Click on Image for better resolution – From Livewire

Slack Investor is not too old to learn new tricks … or, at least, evolve a little. so I was interested to see how my sector analysis compared with the US S&P 500 (below). I chose the S&P 500 f0r comparison as it not dominated by Financials and Resources like the ASX 200. My weightings are very different to the S&P 500.

Dow Jones 30,000: Here's Why It's Still Underperforming the S&P 500 and the Nasdaq | The Motley Fool — S&P 500 Sector analysis – From The Motley Fool

Annual performance for each sector in the S&P 500

I came across a great graphic showing how each sector of the S&P 500 performs annually

10 yr excerpt from the annual S&P 500 Sector Performance ranking – Click on the Chart to get the full interactive experience – From Novel Investor

Some explanation of this beautifully coloured quilt is in order. The vertical columns represent each of the last 10 years performance of each sector of the S&P 500 in ranked order. The right hand column is for 2021. The 2021 sector leader was Energy (ENRS) after a long period in the doldrums. Next is Real Estate (REAL), Financials (FINL), Information Technology (INFT), S&P 500 (S&P), Materials (MATR), Health (HLTH), Consumer Discretionary (COND), Communication Services (TELS), Industrials (INDU), Consumer Staples (CONS) and Utilities (UTIL). The full glory of this graphic is found on the Novel Investor website with a bit of interactivity.

Some things that I have gleaned from this graphic

Every dog has its day – Depending on the year, each sector can have it’s day in the sunshine.
If you want neither the best of returns or the worst sector returns – buy the S&P 500 Index.
Often … if a sector tops the rankings in one year, it usually performs much worse in the next year.
The Information Technology (INFT) sector, to which Slack Investor is heavily exposed, is in the top four rankings for performance for 7 of the last 10 years. This year is not one of them.

Should I change my sector allocation?

There are good arguments for passive investing and, if I did not enjoy investing in individual companies, and my 5-yr results were not OK), then that is what I would do. To completely diversify my investment portfolio to match the S&P 500 would mean that I would be investing solely in an S&P 500 Index fund. This has been an excellent idea for the past 50 years.

Berkshire Hathaway has tracked S&P 500 data back to 1965. According to the company’s data, the compounded annual gain in the S&P 500 between 1965 and 2020 was 10.2%
From businessinsider.com

However, Slack Investor still thinks that the S&P 500 is over valued. Regardless of the current cycle, to invest in the whole index would be lumbering my portfolio with some cyclical and low growth companies.

I will continue to skew my investments portfolio with growing businesses – regardless of which sector they are in. I will not always get the company selection right – and will suffer the occasional whack. That’s fine, as long as I get it “mostly right”.

At the moment, many of the high P/E, growing businesses that Slack Investor owns are being sold down as analysts adjust down future earnings because of anticipated inflation. But the companies I own were usually selected for their ability to set their own prices and increase their earnings … these are the qualities of businesses that will prevail – regardless of short-term fluctuations.

CSL Goes to the Well – Share Purchase Plan 2022

I did a north to south crossing of Africa 36 years ago, mostly in a 4-wheel drive truck and, if we stopped in a village, my routine would be to grab the water containers and find a well. This was always a pleasant task as it involved a line-up, sign language and usually a few giggles at the strange visitor’s expense. Overwhelmingly, the well would be attended by women and there was usually an air of joy and strong comradery in the queue.

CSL have just gone to the “well” – with a Share Purchase Plan (SPP). They have purchased a Swiss company, Vifor Pharma (VIFN:SWX), which specialises in iron deficiency and renal disease. The acquisition cost US$11.7 billion and they have already covered most of this with an institutional placement and some new debt. CSL is trying to raise another $750 million from the “well” of shareholders pockets – and they seem likely to get it – let’s hope they will be welcomed back when they need water next time.

It seems to be the way of things that institutions (Brokers and Super Funds) get the first slice … and when this is done, there is a limited offer to retail investors – just to stop them whinging. Most of the time I participate in any share purchase plans as a convenient way to accumulate shares without the cost of brokerage. The CSL offer is set at $273 (or a 2% discount to the share price if CSL shares fall below this mark). Bids for the stock must be lodged by the 7th February, 2022.

“The combination with Vifor Pharma is expected to be financially compelling for our shareholders while expanding and diversifying our revenue base. It is expected to be immediately earnings accretive in the first full year of CSL ownership …”
Paul Perreault, Chief Executive Officer and Managing Director of CSL

Nice words Mr Perreault … but I have never ever read a share purchase plan that didn’t offer these comforting sentiments – CEO’s usually love to inform us of their astute decisions. “earnings accretive” just means that after all costs and synergies, the earnings per CSL share (EPS) should go up … and, when earnings go up, the share price should go up.

The projections for acquisitions and mergers are always complicated – the only real proof … will be down the track.

(There is) 30 years of evidence demonstrating that most acquisitions don’t create value for the acquiring company’s shareholders
Harvard Business Review

CSL do have a good track record of acquiring new assets and turning them into future growth engines. However, The CSL offer to acquire Vifor Pharma was generous at 40% above the Vifor list price. But this is where it gets even more complicated, the size of the premium is historically not a good predictor of how the deal will turn out. The most pertinent question is “Has CSL paid more than the acquisition was worth to to CSL.” Slack Investor has no answers yet … We will see how this deal settles.

On 14/01/2022, the CSL share price was $276.00 – A premium of $3.00 to the $273 offer price – or about 1% – so the SPP offer price is no real bargain. Despite Slack Investor’s endless devotion for the company, it seems that the market is currently out of love with CSL.

In the background, despite ongoing problems with plasma collection due to COVID-19, CSL has increased its profit for the past two financial years by 20% – but its share price does not really reflect that. After a rapid increase in 2019, the share price has gone nowhere in the last two years. Macquarie analysts have a 12-month price target on CSL of $338.

CSL Share price over the last 3 years – From marketscreener.com

Unlike Big Kev, I’m not super excited … The investor presentation, as always, looks compelling – full of talk about global reach, synergies and “developing a significant renal franchise”. But what really impressed me was the confirmation of CSL FY22 NPAT guidance of US$2,150 million – US$2,250 million. This is not advice, even though Slack Investor already has a big holding in this company, he will be participating in a slice of the CSL 2022 SPP.

Scaling Back

One of the annoying things about share purchase plans is the “scaling back”. If the SPP represents a good deal … they are usually oversubscribed. The 2021 Commonwealth Bank (CBA) SPP was such a good deal for retirees that they stumped up $18 billion more than the amount of shares on offer. Their share bids were scaled back by 79.4%. If you applied for $20 000 of CBA, you would have to send off this amount – and you would have been rewarded with $4120 of shares – and then have to wait for your refund.

The CSL 2022 SPP is not as immediately financially rewarding as the CBA offer and will probably not be scaled back as much. CSL has assured share owners that after the SPP, they will at least retaining their percentage shareholding in the company,

Slack Investor has done some rough calculations. As this new placement and SPP represents approximately 5.1% of current CSL ordinary shares on issue -This means that I should be able to buy at least 5.1% of my current holdings in the SPP without the inconvenience of scaling back.

If I owned $120 000 of CSL shares, I would be guaranteed to get at least $6120 (120K x 0.051) in the new SPP without scaling back. I round this up to the nearest allowable dollar value parcel, which is $10000 – and that’s how much I will apply for. Most people would apply for more (up to $30K) – but my portfolio is heavy with CSL, and this scaling back process just annoys me! CSL will of course refund any scaled back monies as soon as practicable after 14/02/2022 – without interest.

Innovation

pizza scissors — Pizza scissors – The new “Must Have” – These highly rated Kitchen Maestro Pizza Scissors were available at **Amazon for $12 USD**, but sadly, for pre-Christmas shoppers – currently out of stock.

Fish swim, birds fly, humans think, create and innovate. Thinking is not something that people do because we like it, we do it because it is our way of surviving.
José Luis Álvarez – From KnowledgeWorks

An amazing trait that we humans have is the ability to innovate. Slack Investor admires the innovators and the intellectual capital that they bring to businesses. Ideas and research are a vital part of a growth company. Research and Development (R&D) may lead to more efficient production processes or better products that give a company future growth. I have long been a big fan of companies with a high spend on R&D and I am happy to invest in these stocks.

According to the data from EFPIA, in the percentages below, the big spenders are in just a few sectors. The survey looked at 2,500 companies around the world. Technology companies usually have a big R&D budget, but the pharmaceutical and biotechnology industry lead by spending 15% of revenue on R&D. NASDAQ figures for specific companies, show R&D expenditure for Google (Alphabet) was 15% of its revenue in 2020, CSL about 11%, and Microsoft 13%. Apple was a relatively low 7% – but they have a very small range of products.

Proportion of Revenue spent on R&D by each Industry sector – EFPIA

Just because a company has a high R&D spend does not always guarantee success. As well of the discovery of ideas that might be useful in the business, a company must be really good at the Incubation, and Acceleration of these ideas. It is important to look for an established record in the way a business brings new products to fruition.

However, there is a broad link between innovation and value. The Boston Consulting Group(BCG) compile a yearly list and map the performance of the 50 most innovative companies. In 2021, they found that the more innovative businesses had an average Total Shareholder Return (TSR) premium of 3.3% over the MSCI World Index.

Most Innovative Companies 2021 — Outperformance of the most Innovative companies – From the VisualCapitalist

“If I have 1,000 ideas and only one turns out to be good, I am satisfied.”
Alfred Nobel

Top 10 Most Innovative companies – published in the Visual Capitalist from BCG data.

The full list of top 50 innovators is worth a look and is a reminder that these are the companies that a lot of people interact with every day.

I have been a continual investor in the Betashares NASDAQ ETF (ASX: NDQ) that gives me access many of these great innovative companies. Every time that Slack Investor looks at the businesses that make up the NASDAQ 100, I think that this technology area must be where growth is still happening – and I want to be invested here.

According to GuruFocus the 12-mth forward PE of the NASDAQ 100 is 27 (A bit expensive) but the Return on Equity is at 18% – and growing (This is good).

Slack Investor also owns a slice of the Asian Technology giants with BetaShares Asia Technology Tigers ETF (ASX: ASIA). The heavy hand of Chinese government interference in some tech stocks has led to a pullback in price this year. But I have maintained my holding because Chinese companies like the search engine Baidu, the e-commerce giant Alibaba, and the technology beast Tencent will not be held back for long.

A good compromise, if you want a more whole world approach, is the ETFS Morningstar Global Technology ETF (ASX: TECH). This ETF has holdings distributed across the United States (89.6%), Australia (5.8%), Japan (2.4%), and Germany (2.2%) and has a “moat” filter that will only select companies that have built a competitive advantage around their businesses. All of this for a Management fee of less than 0.5%.

Innovative company shares do not always go up. An example of this is is the new Cathie Wood disruptive innovation stocks ETF – (ARKK). Early investors are very happy, recent investors not. However, with a 3-5 year time frame, exposure to the whole NASDAQ index – the top 100 of the (mostly) great NASDAQ companies must be a good thing.

This is not advice, but if I cant buy pizza scissors for Christmas – I might as well top up with some more NDQ or ASIA, or expand into TECH.

The Times They Are A-Changin’

And you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’
The Times They Are A-Changin’ – Bob Dylan

That old troubadour Bob Dylan released this back in 1964 …on vinyl … I might add! Bob’s lyrics were written almost 60 years ago about the cultural and political divide that existed way back in the early 1960’s. His message to “start swimmin’ or you’ll sink like a stone” continues to have relevance – even to investors.

Music has been an important part of Slack Investor’s life and starting with my first “record” vinyl purchase in high school, I then went through the cassette phase. Cassettes were always a bit dodgy, but they did have their moments – who can forget the sublime “mix tape” given to you by a friend. The gradual degradation of cassette musical quality as they lost their magnetism and, the ultimate tragedy when your precious “mix tape” starts unravelling in the car. All this made me glad when CD’s were introduced in 1982. Aaahh … the beautiful world of the CD – Digital quality and a format that I thought would live forever. Only in hindsight do we see that “Peak CD” was in 1999 and this was also the peak of recorded music revenue for artists. I could look at the below chart for hours.

The changing shape of revenues from recorded music delivery 1980 – 2020. – This incredible graphic is from Statista

Despite the recent uptick in vinyl sales, it seems obvious that the days of owning music are numbered. It is also sad to note that revenues from recorded music in 2014 sank to a third of those in 1999. Revenues are on the increase but royalties from streaming remain pitifully low and artists can be paid as little as 13% of the streaming income generated. The recording artists must resort to touring and merchandising to provide the bulk of their income. The highest grossing act of 2017 was U2. According to Billboard – their streaming income was only just over 1% of their total revenue of 54.4 million USD.

Spotify generally pays between $US.003 and $US.005 per stream, meaning you’ll need about 250 streams to make a dollar.
Business Insider Australia

In an unbelievable turn of events for all “Boomers”, streaming is now the way to access recorded music and now accounts for 83 percent of music industry revenues in the U.S. Physical CD’s and even music downloads are in major decline.

Streaming revenue percentage from 2005 till 2020 – Another great chart from Statista.

Music Delivery Change … and Investing

All of that music stuff was just to provide an example about how unexpected change can happen in just a few decades. Slack Investor had built up an impressive CD collection over the past 30 years and, he thought he was set up for life. This collection is now in a box as I now tend to now use digital versions for my musical pleasures. To the great dismay of my children, I am still hanging on to ownership of my music – they tell me this is typical “boomer” behaviour and are urging me to get on board the streaming train.

We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.
Bill Gates

Bill has pointed to a bit of a weakness in the vision of investors … and Slack Investor obviously cherishes his moments of inaction – but will act if he has to. He has already made a few tweaks in his portfolio

I have been thinking of relatively safe investments lately … and this is tricky in these weird times as, besides precious metals, it is difficult to name a sector that would be unaffected by an inevitable downturn in the markets. Will bricks and mortar retail be the same? Will CBD office real estate be the same? Will banks be the same with the new competition from Neobanks?

With the exception of consumer staples, safety may not be found in traditional industries. Technology is such a large part of our lives now – and this is where growth will happen. I keep returning to the utility of an Index like the NASDAQ 100. It has the beautiful self correcting mechanism where dud technologies get shuffled out of the bottom of the index and the companies that are still making money tend to stay in.

Weekly chart of the Betashares NASDAQ 100 ETF (NDQ) showing 2 1/2 years of solid growth – From IncredibleCharts.com

I have been a buyer of this ETF along the way and a recent dip in price (perhaps due to the recent Facebook revelations) point to an increasing mood for more regulation in some of the tech stocks. Barrons have the current PE at 34.5 which does not make it cheap but the PE based upon the forward 12-mth earnings forecast is a bit more reasonable for the growth sector at 28.0. In this changing world, the one thing that you can bank on is that the technology industry will be an important part of it. Not advice … but I think I will buy some more.

Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
The Times They Are A-Changin’ – Bob Dylan