Category: Individual shares

HACK

From Pixabay.com

Cripes … it seems that even cyber criminals with circuit board faces wear hoodies!

Slack Investor has had minor issues with PC viral infections over the years – these types of virus seem very benign in current circumstances. I also had a distant brush with a more organized form of cyber hacking back in 2015 with my previous employer.

“I can confirm reports that the Bureau of Meteorology suffered a significant cyber intrusion which was first discovered early last year” 

Prime Minister Malcolm Turnbull in 2016 – the ABC News

Were the Chinese after my 30 years of sea breeze wind data? Probably not. This breach triggered an injection of government funds to try and combat cyber attacks. More recently, the current Australian government is talking about a huge $1.35 billion investment to increase Australia’s cyber security capabilities, Even smaller businesses are having to invest in cyber security as technology invades our lives.

As well as worrying about cybersecurity, the COVID-19 crisis lurches on. It is not just the retailers that are suffering, In the US, major companies such as Hertz and several US airlines have recently filed for bankruptcy due to COVID-19. At the moment, many companies are drawing down on available credit, standing down their staff, delaying projects and taking advantage of government relief programs.

It will be a delicate dance by national governments trying to support the economy with limited funds until a viable vaccine is established. When they halt these stimulus programs, each company will start burning through their cash. That’s when bankruptcy cases are likely to soar and stay elevated.

… this year (2020) will easily set a record for so-called mega bankruptcies — filings by companies with $1 billion or more in debt … the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis.

Edward I. Altman, Professor Emeritus of Finance at New York University’s Stern School of Business – from Intelligencer
A Graph of US stocks showing valuation trend since 1998. Valuations derived from P/E ratios and comparing them to the long term mean and scaling it to 50. Companies in the US look definity over valued. Sourced from Livewiremarkets.

Slack Investor has been a big fan of some of the companies in the technology sector – as these shares are exposed to growth. This internet thing keeps increasing its grip on our lives. The recent “recovery rally” has led to stock prices being “fully” or “over valued” – particularly in the US. It is difficult to argue against this in these uncertain times as estimates for future US earnings decrease.

In an environment when many sections of the economy are in big trouble, in many ways, it might be a good time to take a bit of risk off the table and build up a little cash. However, not all tech companies are tied to the consumer economy and there will be a continuing need for individual companies and governments to make investments for the protection of their internet structures. Cyber security is now the fastest growing technology sector. 

BetaShares Global Cybersecurity ETF (HACK)

HACK is a BetaShares ETF that provides exposure to the leading companies in the global cybersecurity sector. Most of these companies are based in the US (87%). HACK is currently invested in 49 companies that include well known names such as Broadcom and Cisco. There are many other companies that Slack Investor has never heard of such as Crowdstrike, Splunk and OKTA – and, I assume the fund managers know much more about the sector than I do.

Weekly chart of HACK for the past 12 months. On June 30, 2020 there was a 91c distribution which accounts for the big price drop – incrediblecharts.com

The management expense ratio is high at 0.67%. I will “suck this up” while it is performing well. Can’t argue with past yearly HACK performance – over 1-year (+19.9%) and 3-years (+20.3%). Probably not the best time to buy, but Slack Investor can’t help himself – this must be close to a recession-proof section of the economy. I dived in last month as I can’t resist a growing industry!

Hail to the Geeks

In honour of the upcoming International Geek Pride Day to be celebrated on 25 May.

Being a geek is cool (Just ask Bill Gates!). They have rights … the top 5 rights of a Geek are:

1. The right to be even geekier.

2. The right to not leave your house.

3. The right to not like football or any other sport.

4. The right to associate with other nerds.

5. The right to have few friends (or none at all).

During the past month. Slack Investor has certainly lived the geek lifestyle and he has reflected on the magnificent gift that geeks gave to the world – technology!

The NASDAQ (National Association of Securities Dealers Automated Quotations) is a special US based electronic stock exchange that was created in 1971 and now lists over 3500, mostly tech, companies. The top 15 companies in the NASDAQ consist of the household names below.

NameWeight (%)
MICROSOFT CORP12%
APPLE INC12%
AMAZON.COM INC10%
FACEBOOK INC4%
ALPHABET INC4%
ALPHABET INC4%
INTEL CORP3%
NETFLIX INC2%
NVIDIA CORP2%
PEPSICO INC2%
CISCO SYSTEMS INC2%
ADOBE INC2%
PAYPAL HOLDINGS INC2%
COMCAST CORP2%
TESLA INC2%
The growth of the NASDAQ composite index since 1971 – Shown on a log scale – From Macrotrends

Despite a few downturns, mostly in recessions (shaded grey columns above), being invested in technology has really delivered. Betashares, an Australian company, offers simple exposure to the top 100 companies in the NASDAQ through NDQ, their Australian listed NASDAQ ETF. Slack Investor owns some US Listed shares directly and the hassle of different currencies, maintaining a US Broking account, and filling out US taxation forms make the NDQ ETF Management Expense Ratio (MER) of 0.48% seem reasonable. Morningstar also offers a Global technology ETF TECH. Good global technology access for a 0.45% management fee.

Weekly chart of Australian listed Betashares NDQ – Incredible Charts

The use of technology to connect people and develop new businesses has been well demonstrated during the COVID-19 crisis – these tech businesses are growing. Slack Investor has a big amount of technology stocks – over 35% of his Portfolio. NDQ has grown over 50% in the 18 months since the original Slack Investor buy.

One of the things that Slack Investor has learned over the decades is that a high PE is OK, providing that there is a lot of growth involved. Stamped on the little Slack Investor brain is that technology is becoming increasingly important in our lives – this sector is definitely growing.

The NASDAQ index usually has a relatively high average PE Ratio – but as of May 13 2020 it has slipped down to a very reasonable 20.55. There is also a decent trailing dividend yield of 1.73% – the dividend is showing an increasing trend.

This is not advice, as Slack Investor has no divine guidance on what will happen in the next 12 months. – but, with a 2-3 year time frame, will Slack Investor invest more into NDQ or TECH as funds become available? You bet your geekin’ life he will!

Coronovirus Panic

A 3d rendered illustration of a Coronavirus – from hopkinsmedicine.org

COVID-19 (SARS-CoV-2) was first first recorded in China in December 2019. In a few short months, the world is in turmoil. There is panic in the streets and this coronavirus epidemic is likely to be an exceptionally serious global problem with many fatalities. Slack Investor couldn’t buy toilet paper last week. That’s when this problem got the attention of my small brain!

It is a good thing that governments are acting decisevely to try and stem the spread of this virus. No one really knows how this pandemic will play out. It is a fact that the world GDP will suffer – but the extent will depend on whether the pandemic is mild, moderate or severe. A good snapshot of how things are going can be found at the World Health Organisation (WHO) Dashboard which keeps a world wide tally of confirmed COVID-19 cases and tracks the drift of concern towards Europe.

Based on current knowledge, the case fatality risk for COVID-19 is higher than observed for seasonal influenza virus, which has a fatality risk of about 0.1%. Annually, seasonal influenza virus is estimated to cause up to 290,000 deaths globally.

From Coronovirus: The Conversation

The latest WHO data on COVID-19 have the death rate (currently over 5000) from confirmed cases at 3.7% – but this is likely to decline as testing is rolled out and the number of confirmed cases more adequately reflect the actual number of those with the virus. This is a major health problem and will impact the world economies for the immediate future – but is unlikely to have a long-term effect.

The MSCI World Index since 1970 with various world epidemics marked – Original source Charles Schwab but found in marketwatch.com

The important thing from the chart above is that even though COVID-19 is a significant challenge for the world. The world MSCI Index always recovers from viral epidemics – It just takes a bit of time.

The way things are going, Slack Investor will probably sell his remaining Index funds (US S&P500 and ASX 200) at the end of this month if they are below their stop loss level – as this is system that I am running with my Index funds.

For the individual companies that make up over 95% of the Slack Portfolio, I am not selling into a panicked market. Again, I tap into the wisdom of Warren Buffet. Rapidly falling markets are a test for every investor. Buffett says that investors should treat their stocks like a house – what matters is the 10, 20 and 30-year outlook of each company, not the latest newspaper headlines. To paraphrase Mr Buffet, If you bought a house for $500 000 and a month after someone offers you $350 000, you probably wouldn’t take it – You would have your own idea of the house value and hopefully wait until you are offered a more suitable price. Slack Investor feels the same way about his carefully selected shares in a growing companies with good prospects – the sell-off is probably over done.

In the meantime, while lamenting that I have no spare cash for the inevitable upturn. Slack Investor will be washing his hands a lot and trying to avoid close contact with those with flu-like symptoms, and trying not to touch his well-worn face.

The Wedgie is Working – January 2019 Wedgie stocks 1-yr review

Australian lifeguards are known to roll their Speedos up during surfboat races to give better contact between the buttocks and the wooden seat of the boat while rowing. The image is gratuitously included because “Wedgies” are just …just … funny! -Downloaded from http://westalai.blogspot.com/ – may be subject to copyright

Slack Investor introduced one of his favourite technical chart patterns in January 2019 … “The Wedgie”. I promised to look at the results in 12 months time.

Looking at charts of stock prices and trying to recognise useful patterns is known as Technical Analysis. Some investors do not have faith in in this dark science … and Slack Investor would not act on chart signal alone – the underlying company must be sound with established earnings and good prospects.

“The Wedgie” is Slack Investor’s name for a pattern more boringly known as the “breaking of a long-term downtrendline“. You have to admit … “the Wedgie” has a more of a ring to it.

The breakout from a Wedgie on a share price chart is discussed in detail in the original post and it is when the share price rises out of the wedge pattern. The top of the wedge downtrend line should be drawn for a period of at least 3 months and connect at least 2 (and preferably 3) descending high points.

This pattern has the potential to be a trend “reversal” – Lets see how it has performed over 12 months for the Slack Investor bought stocks. The first 3 are all still in the portfolio.

CSL – Commonwealth Serum Laboratory

This great company share price was consolidating a year ago but has recently boomed with a 71% gain.

COH – Cochlear

Weekly Chart for COH – from incrediblecharts.com – 40% gain.

RHC – Ramsay Health Care

Weekly Chart for RHC – from incrediblecharts.com – 37% gain.

In the January 2019 post, ALU, APX, CAR, CCP, FPH, SEK, and A2M were also mentioned as breaking the wedgie pattern. All of them have made very good gains since the breakout from “the wedgie”. Gains of 73%, 64%, 48%, 76%, 74%, 29% and 25%, respectively – from January 18, 2019 to February 10, 2020. Slack Investor thinks that, so far, the Wedgie is working in most cases! – but, it has no guarantee – vigilance is required.

The Wedgie does not always work, CGC – Costa Group –

Weekly Chart for CGC showing two distinct wedge patterns. The first one showed promise then the price quickly turned south after some earnings downgrade announcements. The second wedgie looks worthy of investigation – from incrediblecharts.com

CGC was not mentioned in the original post and clearly the first break of the downtrend in November 2018 lost a bit of steam due to drought and supply problems – Slack Investor was, sadly, an investor in this stock at the time – and it was a loser! This is an example of the wedgie pattern NOT working. However, for all of 2019, CGC has been in a long-term downtrend but the pattern is starting to get interesting again as the longer the downtrend line the more bullish it will be when the stock breaks above the trendline.

As always, however great the pattern may look, Slack Investor is interested in the fundamentals of this stock before he will invest. Wisetech (WTC) is also breaking its Wedgie. Using marketscreener.com, CGC has a good 2021 forecast PE and yield, but the 2021 ROE is too low (<15%). WTC has good Return on Equity (ROE) but the 2021 forecast PE is too high for me (Slack Investor likes the forecast PE to be less than 40-50) … So, despite good looking technical patterns, it is no investment from Slack Investor for these two.

SI Wedgie 2020 P/E 2021Yield % 2021ROE % 2021
Costa GroupCGC173.39
WisetechWTC820.221

Let’s visit CGC and WTC in 12 months for the sake of curiosity. Long live the Wedgie!

2019 Calendar Review and, at last … some quality

Slack Investor’s in-depth reviews of performance are done at the end of the Australian financial year (30 June) – but a brief look at how things went in calendar year 2019 is in order. It has been a great year for the share investor. Roger Montgomery reports that the Australian All Ordinaries Accumulation Index delivered a return of 24.0% in calendar 2019 – more than double long-term average annual total return. Other World Index yearly changes for 2019 (without dividends) are listed below.

Indicies% Change
Australian All Ordinaries19.10%
S&P 50028.90%
Nasdaq35.20%
Nikkei 22518.20%
FTSE 10012.10%

Quality Street

Slack Investor puts a bit of time into initial stock selection. Before entry to the Slack portfolio, I comb the company universe for high Return on Equity stocks that have low debt and a proven track record of increasing dividends. Delighted to report that a couple of Australian ETF’s have recently emerged that do a similar thing, using parallel principles to the great Benjamin Graham in selecting quality stocks – automatically!

BetaShares Global Quality Leaders ETF – QLTY

QLTY provides access to the 150 highest quality global companies (ex-Australia) based on a combined ranking of four key factors – return on equity, debt-to-capital, cash flow generation ability and earnings stability.

VanEck Vectors MSCI World ex Australia Quality ETF – QUAL

QUAL has a similar objective screening process, to fill its stock register. Companies must have a high return on equity, stable annual earnings growth, and low financial leverage. 

There are common elements to the top 10 holdings for each ETF. Companies like Apple, Visa, Facebook and Alphabet feature on both registers. Either of these ETF’s would be a great addition to a portfolio but Slack Investor would lean towards BetaShares QLTY because of their slightly less expensive management costs (0.35% vs 0.40%). Past results indicate there is outperformance attached to this “quality” approach.

Cumulative “Quality” index performance vs world Benchmark – net returns (30 November 1994 to 30 April 2015) – From Van Eck Whitepaper

My only criticism is that both ETF’s have quality filters that do not seem take into account how expensive the stock is. When Slack Investor researches stocks, I usually dismiss a company if the forecast earnings (+2 years) produce a PE that is over 40. With QUAL and QLTY, it is quality first, regardless of price. I am mollified slightly by the determination that, in the past,

MSCI World Quality Index traditionally has its strongest relative performance during economic downturns

From Van Eck Whitepaper

Sometimes people ask me what stocks to buy – and I seldom have a good answer for them – particularly if they are just starting out on the path of buying shares and their portfolio carries the risk of just one or two stocks. These two ETF’s have given Slack Investor an easy answer.

  • Instant Diversification – International exposure
  • Access to high growth companies with a good track record of increased earnings
  • Rules based stock selection – no ‘active manager’ fees -this should keep expenses low ~ 0.4% … but could be lower!

The early results are not bad either with Morningstar listing one-year performance for 2019 for QUAL and QLTY at 35.8% and 34.5%, respectively.

These sort of products might just put Slack Investor out of a job!

What’s that smell? … Banks!

With great thanks and acknowledgement to the insightful and talented Randy Glasbergen

KPMG have just reported that banks are starting to lose their shine and the big 4 banks in Australia have reached a “turning point”. Slack Investor would argue that, after a pretty good recovery post the GFC, Australian Banks have been in decline since early 2015. NAB is the last to confess this reporting season … They are all businesses that will find growth difficult.

With its full-year profit of $4.8 billion, down 13.6 per cent, it joined ANZ, Commonwealth and Westpac in announcing a big decline in earnings.

From abc news
The ASX Bank Index since 2000. Except for the GFC 2008/9, the banks have performed well – as well as paying high dividends. Things changed in March 2015 where, despite temporary recoveries, there has been a general decline in share price. From Investing.com

Self Managed Super Funds are a great place to park your super money for the hands-on investor. But, they are not for everyone. You really need to have a real interest in investing and at least $200 000 in your super savings. According to ATO Data, at 31 December 2017, the most commonly held SMSF share investments (by investment size) are below: There are a lot of banks!

Commonwealth Bank
Westpac Banking Corporation
National Australia Bank
Magellan Global Fund
BHP Billiton Limited
Platinum International Fund
ANZ Limited
Telstra Corporation
CSL
Wesfarmers

Not a bad portfolio for the past 10 years … but, the tide for the banks has already turned with low interest rates affecting margins, increased competition from the more nimble digital banks, the Hayne Royal commission “blowback” forcing the banks to separate from their profitable wealth management businesses, and recent dividend cuts announced. A closer look at the top 5 SMSF shares with financial statistics from the excellent marketscreener.com. The 1-yr returns over the past year for each stock are lifted from marketindex.com.au .

SMSF 2017 Top 5 Shares P/E 2020Yield %ROE %1-yr Ret %
Commonwealth BankCBA155.51312.4
Westpac BankWBC145.911-3.7
National BankNAB1261216.7
BHP BillitonBHP125.32210.9
ANZ ANZ12612-3.9
Average 135.7146.5

Slack Investor can understand the lure of juicy bank dividends for SMSF funds. But, if the dividend is coming with a reducing share price due to the bank business shrinking – then this is not a good deal – and perhaps look to higher yield industrial shares or industrial/office REITs for that cherished income rather than banks.

Sing the praises for Return on Equity (ROE) and Earnings per Share (EPS) Growth

This is one of the first financial statistics that I look at when deciding on a company to buy. Return on Equity is a company’s Net Profit ÷ Average Shareholder Equity. If a company had a net worth of $10 million and made a profit of $2 million, its ROE would be 2/10 x 100 = 20%.

High ROE companies generate a lot of cash – this cash they can then use to grow their business. If they also have a good increase in their Earnings Per Share (EPS) – Slack Investor would classify them as “Growth” Companies.

CSL Earnings per Share- and projected EPS for 2022 -2024

Generally, companies with a ROE of >15% get Slack Investor’s attention but some businesses require lot of infrastructure before they can generate profit. For this reason ROE is best used to compare companies in the same industry. For contrast with the 2017 SMSF, let’s have a look at Slack Investor’s Top 5 stocks from the Portfolio page (This is not advice!). Data gathered from marketscreener.com and marketindex.com.au .

Slack Investor Top 5 Shares P/E 2020Yield %ROE %1-yr Ret %
CSL LtdCSL381.23538.3
Altium LtdALU461.63144.9
Cochlear LtdCOH411.73826
Macquarie Group LtdMQG164.41611.5
REA Group LtdREA401.33527.9
Average 362.03129.7

The average ROE for the Slack Portfolio is much higher than for the 2017 SMSF top 5 (31% vs 14%) . They also all have a projected increasing Earnings per Share (EPS) – and this indicates the Slack preference for growth companies.

However, with growth comes volatility and the Slack Investor top 5 would not suit those who rely on their investments for income. The Slack portfolio would probably suit an investor with a longer term view and a separate income. If you are still working and want to grow your wealth through shares … then the ROE should be one of your guiding lights for company selection.

Portfolio Trim and Fitcats

From House Beautiful – May be subject to copyright

On the theme of a trim … who doesn’t like a bit of topiary. My portfolio has had a little haircut in the past 3 months as I have been thinking about the potential of a recession and the effect it might have on my investments. Lacking the skills of Nostradamus, Slack Investor has chosen the “middle path” for his individual stocks i.e . Between doing nothing and “selling everything”, I have chosen to fiddle with about 20% of the portfolio. Some of the things I have bought are expanded on below, in order of investment commitment. This is not advice, just a random walk through stock selection. To make room for the new purchases I sold a few high PE stocks and a few underperformers. The sold stocks include APX, CGC, PMC, AGL and CTD.

Alphabet -Google ( GOOGL)

This is new ground for Slack Investor as GOOGL is US based company and the investment has the additional complexity that I have to use an international broker (Saxo) to purchase shares on the NASDAQ exchange. But, I feel the extra effort is worth it as I can’t think of a better company to ride with through the next 10 years.

Google search has 92% global market share. Chrome is the world’s most widely used web browser. Android is the world’s most popular mobile operating system with 2 billion-plus active users. YouTube is watched for more than 1 billion hours a day. Alphabet has about US$100 billion in cash which, for a sense of scope, is larger than the combined market values of Telstra, Woolworths, and Macquarie.

Joe Magyer from Motley Fool on the dominance of Google’s Alphabet

I use Google products countless times a day and with a Return on Equity of 21 % and a reasonable Price Earnings ratio (for the growth tech sector!) of 24. I would like to own more of this and will seek to add to my position over time. The international shares thing is a bit of a hassle and has some extra expenses. A far easier, way to get a slice of Google (and other great tech growth companies) is by buying the Australian-listed NASDAQ ETF (NDQ). Alphabet represents 8.6% of the NASDAQ Index.

Vanguard Australian Fixed Interest ETF (VAF)

For ETF’s, I naturally lean towards Vanguard due to their relatively low fees and a commitment to keep them low (Thanks Jack Bogle!) I bought this ETF to try and derisk my shares portfolio by getting some exposure to the Australian Government Bond and Fixed Interest Market. I have also bought some Vanguard Emerging Markets ETF (VGE) and Vanguard Global Infrastructure (VBLD).

Centuria Industrial REIT (CIP)

The lure of property rentals during tough times and a bit of exposure to Industrial Real Estate has brought me to this area. I was tossing up buying Goodman (GMG) or Centuria. Both have a similar Weighted Average Lease Expiry (WALE) and occupancy rate. GMG has a relatively high 2020 PE of 26.1 compared with a CIP 2020 PE of 14.8. CIP also has a more fruity yield of 5.7%. Case Closed.

United Overseas Australia (UOS)

A Malaysian real estate developer … Steady on, this sounds a bit wacky! – UOS is a bit of a speculator for Slack Investor. Real estate is a place where I am underdone and I am alway convinced by good arguments. A respected investor (by me), Tony Hansen, from EGP Capital has this stock as his highest portfolio allocation. UOS has a solid cash position, a decent yield and the discount to net worth got me over the line. What is life without a little bit of risk!

Fitcats – Get your super runnin’

With apologies to the legendary Steppenwolf, Slack Investor has the news from Chris Brycki (the tireless CEO of Stockspot and author of the Fatcat/Fitcat report). He has produced his yearly assessment of the best super funds (Fit Cats) and the worst (Fat Cats). Fat Cat Super Funds on average charge 2% a year in fees, while, in comparison Fit Cat Super Funds charge less than 1% a year in fees. 

“One of our golden rules of superannuation is; the less you pay, the more you get. Always pay less than 1% p.a. in fees so your super isn’t eroded by high fees. I know 1% doesn’t sound like a lot, but for the Aussies stuck in these Fat Cat Funds they’ll be worse off by $200,000 or more compared to their friends who are in a low-fee fund,” 

Chris Brycki, Stockspot

So, if you haven’t already done so … get financially fit, grab yourself an account number in one of these top performers. Most will allow new customers. Then continue to get some Fit Cat action by asking your employer to make any future contributions to your new account. Then rollover your super to the new fund and your sweet.

March 2019 – End of Month Update … and Revised Slack Index Method

Slack Investor remains IN for Australian index shares and IN for the US Index S&P 500. The dogs’s breakfast of Brexit still weighs heavily in my mind but I am buying back IN for UK Index shares – as the FTSE 100  has shown remarkable resilience to the fraught politics of Brexit and displayed a monthly uptrend. I will buy back IN to the FTSE at near the end of March value of 7279 (See UK Index Page).

There were rises in all  Slack Investor followed markets (ASX200 +0.2%; FTSE100 +2.9%;  S&P500 +1.8%).  All Index pages and charts  have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

The Slack Monthly Index Trading Method – Revised

Last month I mused about the diminishing returns of the Slack Monthly Index Trading Method. I am still outperforming the “Buy and Hold” investor in all followed markets – but the advantage is slim. Per annum outperformance is 2.9%, 1.2% and 1.1% for the ASX, UK and US markets respectively. Not really fantastic results when you consider that I am missing out on the “buy and hold” dividends for the times when I am out of the markets.

The Slack Index method was devised with a lot of back-testing on 30 years of market performances and does really well when sustained bear markets occur as it gets out of the market at a hopefully early stage in the price downturn. Ideally, the Slack method should stay in the market for the smaller fluctuations (corrections <~10%) and get out of stocks before it becomes a full bear market. The problem with my current strategy is that I am getting “whipsawed” out of the market in these smaller downturns.

Connection between US Bear markets and Recessions

There is a link (not a perfect link!) between US bear markets (drops of more than 20%) and US recessions. In the chart below, the bear markets are shown in thick purple lines and they mostly coincide with US recessions (grey columns).

Modified chart 1920-2019 showing (in purple) the bear markets (where the red US stock prices fall >20%) and the US recessions shown as grey columns – From Gavyn Davies Financial Times – Original source Haver Analytics

All well and good so far, but we want to be out of the markets before a recession … how can we predict recession? Should we ask economists? A recent survey found that 3/4 of those surveyed thought there would be a recession before 2021. This is good to have in the mind … but not that useful in a practical sense. Economists have a poor record in predicting recessions. I don’t mean to be mean to economists … I also have had a career in prediction (weather!) and there are many similarities. Like the atmosphere, economics is complicated, not all factors are known, and not all processes are truly understood – But we do our best!

The “Inverted Yield Curve” as a predictor of US Recession

There might be an answer to predicting recessions by using the US Treasury Bond “Yield curve” . You may have heard about the yield curve (Probably not! but read here) – where short-term US treasury bill yields are compared to long-term yields. Normally, you would expect the yields on your money to be higher the longer that you lock it away – this corresponds to the periods above the red line on the graph below. Usually, the 10-year Treasury bill yield is greater than the 1-year bill yield. However, if there is a very a gloomy US outlook and the Feds are raising rates, you can earn more in the short term. This is when the yield difference [10-yr minus 1-yr (or 2-yr)] slips into negative territory, and you have an inverted yield curve – shown with the thick purple lines below. Note that these inverted yields usually occur one to two years before a recession (grey columns).


Chart showing where the yeild curve becomes inverted (purple lines) with the US recessions shown as grey columns. Modified from Morningstar report – original source Gurufocus.com

I love being the owner of companies and much prefer being in the share market than not. I will adopt the brand new exciting Slack Monthly method that should keep me in shares for the smaller downturns (corrections). I will ignore any monthly downturn signals UNLESS there is a sustained period of the US Inverted Yield Curve. I can check this at the end of the month at Gurufocus.com. This should maximise my chances of staying in shares until there is a threat of recession and the expectation of a larger downturn.

Jacinda Ardern shares a hug at a Wellington Mosque – From The Guardian

This has been a tough month for this part of the world – where, in Christchurch, a hate-filled idiot with a gun can a cause so much heartache for decent families. Great respect to the people of New Zealand and their exceptional leader Jacinda Ardern for bringing gun reform and such a strong message for humanity in the wake of this tragedy.

Power to love, tolerance and humanity.

Innovation Boom

Tim Berners-Lee (in the white shirt) demonstrating the world wide web to nerdy enthusiasts at a 1991 conference in Texas.  – From theguardian.com

I have been lucky enough to live through one revolutionary innovative idea that has changed the world. The magnificent Internet – a global system of connected computer networks which has been developing since 1983 – but it was Tim Berners-Lee who introduced the publicly available World Wide Web in 1991 – This was a way of connecting the vast resources and documents on the internet through hypertext and URL’s.

It was 26 years ago, in 1993, when things really started to take-off with the first graphical web browser. Imagine how different the world was without the internet innovations such as Search Engines, Web Browsers, Real time streaming, emails, e-banking, online shopping, wi-fi and, my favourite, GPS linked to an internet map.

My portfolio is filled with companies that have made growing businesses based upon this innovative technology. Altium (ALU), Appen (APX), RealEstate.com (REA), Rhipe (RPH), and Seek (SEK) are all companies that make extensive use of the Internet.

The science man in me (Nerdy part) doesn’t really trust a graph without a vertical scale but I came across this image below from an Ark Investment report that really made me think. It puts other great innovations into some historical context and points to a series of new innovations that are predicted to have a large effect on economic activity in the future – One thing I don’t agree with on the image is the author’s notion of tapering off the impact of internet as we go towards 2020. But I can see that at least some of the innovations mentioned on the right will have a big impact on our future.


Impact of innovations on the economy – ARK Investment Management LLC, 2018 from Ark Invest

Part of being Slack is not wanting to research all of these head-hurting new ideas myself (but they do sound interesting!) and I think I should outsource this to someone else. Luckily there are a few research boffins at BetaShares that have come up with the BetaShares Global Robotics and Artificial Intelligence ETF – (RBTZ).

The ETF covers two of the emerging innovative sectors, Robotics and AI. This fund invests in an index of companies involved in Industrial Robotics and Automation, Non-Industrial Robots, Artificial Intelligence and Autonomous Vehicles and Drones. There is a cost – a management expense ratio of 0.57% ($57 per $10000 invested p.a.). Costs of investment are really important for the total returns on your investments. In this case, this is a cost that I am willing to pay and am looking for an opportunity to invest in the RBTZ ETF soon as I have finally unloaded my Challenger (CGF) shares and have a bit of cash to invest. I will wait till this chart shows some upward price momentum and breaks through the orange line “double top resistance” on the CGF daily chart at $9.15.

Daily RBTZ chart BetaShares Global Robotics and Artificial Intelligence ETF – from incrediblecharts.com

Oh … and in passing, thanks to Sir Timothy John Berners-Lee for that world wide web thing … it was a pretty good idea!

February 2019 – End of Month Update … and Challenger rethink … and Trump

Slack Investor remains IN for Australian index shares and OUT for UK Index shares. The US Index S&P500 has now shown enough sustained positive momentum on the monthly chart that I am buying back IN on the S&P500 today (1 Mar 2019).

Recovery continues with rises in all  Slack Investor followed markets (ASX200 +5.2%; FTSE100 +1.5%;  S&P500 +3.0%). 

A Reprieve for Challenger

Last post I was looking to get out of Challenger … a stock that I have fallen out of love with … due to months of disappointing declining share price. On the day of intended disposal, I noticed that it had gone up 2%. Slack Investor doesn’t like to swim against the tide … and I delayed … it went up again the next day on increased volume – the sign that someone is buying the stock in some numbers. The daily chart started to look like an uptrend was being established. Higher Highs and Higher lows … so, I am still an owner of the stock until this uptrend pattern breaks. This takes a bit more vigilance than Slack Investor really likes as it takes a daily look at the chart pattern … The reasoning is that it is annoying when a stock bounces back immediately after I sell (this has happened a few times!) and I will ride this (could be temporary) upswing as long as it lasts.

Challenger (CGF) Daily chart -From Incrediblecharts.com

Trump

Image from tenor.com

The Donald is never far away in the news. Never boring … frequently appalling. A question in #Quora asked “Why do some British people not like Donald Trump?” An English writer, Nate White, penned this magnificent response in full here – but you can get the jist from the opening paragraph .

Trump lacks certain qualities which the British traditionally esteem.
For instance, he has no class, no charm, no coolness, no credibility, no compassion, no wit, no warmth, no wisdom, no subtlety, no sensitivity, no self-awareness, no humility, no honour and no grace – all qualities, funnily enough, with which his predecessor Mr. Obama was generously blessed.

From an article by Nate White
From The Telegraph

Further education on the quality of Donald Trump’s character can be found on the Donald Trump sexism tracker. It is a great article that is almost impossible to finish without feeling a little ill – and an uneasy feeling about how we got to this point.

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