Portfolio Management | Slack Investor

That’s not a Bull … This is a Bull!

The “Fearless Girl” statue in front of the “Charging Bull” sculpture in New York City on March 29, 2017 – **Photo by Volkan Furuncu/Anadolu Agency/Getty Images**

Slack Investor is a little bit saddened to discover that the great combination of the “fearless girl” and the “Charging Bull” in New York City was only a temporary thing. The girl was removed at the end of November 2018 due to an artistic dispute with the Bull creator Arturo Di Modica. The “Charging Bull” remains in Manhattan as a reminder of the inspiration that a bull market can bring after a market crash.

Bull Markets start when there is a 20% rise in the stock market from a previous low point. The current Bull Market has been a whopper – although there have been a few “corrections” along the way, it has now lasted over a decade and is setting new records (see chart below). The reasons behind this magnificent rise are obvious in hindsight – a mixture of the rise of technology stocks and a slow-but-steady economic growth, record corporate profits and record low interest rates.

From Schroders Australia. Chart showing the extent of the last 6 bull markets. The previous bull run, Sep 2002 to October 2009 (shown in light green) lasting 61 months *(6 1/2 years )* is eclipsed by the current bull run shown as the dark green line at 127 months (to 30 September). The use of the word “Correction” in this chart to indicate the extent of the bull market collapse is a bit confusing. Normally, a “correction” is defined as at least a 10% decline, it turns into a “Bear Market” when there is a 20 percent drop in a major U.S. index

A reminder of some of the spectacular bull markets in the past 60 years is in the table below prepared by Schroders.

The table above outlines the reasons for the end of each bull market and their is usually a trigger, prior to a market collapse.

a weakening economy, or an increase in the cost of money (higher interest rates)
“irrational exuberence” – where buyers are paying grossly inflated prices for assets
a cataclysmic world event

I can’t rule out the last one … but the US economy seems to be rolling along alright. Over the past week there have been a couple of events that bode well for the bull market to continue. In the UK, “buffoon in chief” Boris Johnson, has beaten the unelectable Labour candidate Jeremy Corbyn and now a quick Brexit looks on the cards. Stock markets generally love the removal of the uncertainty that elections present. The Trump/China trade deal seems to have also made some progress with a “phase one” deal announced. This should avert an escalation of the trade war. Low interest rates seem to around for quite some time. Stock valuations are high but not crazy high.

Slack Investor eases back onto the couch. There has to be really good reasons for Slack Investor to exit the world of high earning companies with products that the world wants.

Slack Investor is off on a bike riding adventure in Vietnam over Christmas and New Year. My usual End of Month Update will be delayed until about January 7, 2020. In the meantime, be fearless .. but also aware! The stock market moves in inevitable cycles. I am optimistic in the short term – and will enjoy my holiday. The good news is that even if the Slack view is wrong, there is always the subsequent “Higher Highs”as the market recovers. Good companies will survive any downturn and eventually return to a fair price.

The best of the fest … and a happy new year to all!

The Real October 2019 – End of Month Update … and Australia’s debt binge

Apologies to my faithful email subscribers, two days ago an unfinished version of this post was released into the ether. Slack Investor has rudimentary skills in the blogging arts and didn’t know how to recall the post. Anyway … this is what it was supposed to look like – with all information updated!

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets are a mixed bag with a flat ASX200 (-0.4%), and a dropping Brexit plagued FTSE100 (-2.2%). The good old US has shrugged off chants of “Lock him up” for their president and the S&P500 has had a monthly increase of 2.4%.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 31.0%, this has been gradually dropping since a peak at 41% two months ago. However, the current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are definitely “switched ON”

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

Household debt – the couch is getting a little uncomfortable

According to 55,000 respondents to the ABC’s Australia Talks National Survey, debt is a major problem for the nation.

On an individual level, 37 per cent are struggling to pay off their own debts, with almost half of millennials reporting that debt is a problem for them personally …
Australia Talks National Survey

Australia may not be in the top four countries for Rugby these days but we are one of the world leaders in terms of household debt. In fact, we are second only to Switzerland. I am ashamed to say Australia’s Household Debt is world class and edging towards 200% of income. With such a big chunk of our disposable income leaking to debt, it is no wonder that recent interest rate cuts are not having much effect on the economy as Australian consumers try to tighten the belts. According to the Reserve Bank, it seems that, with stagnant wages growth, most are coping with their debt by reducing their consumption.

Basically, the Australian economy is facing a long period of sluggish demand growth as our record high household debt becomes a giant millstone around the economy’s neck.
From macrobusiness.com.au

Debt can be multi-headed with mortgage, credit card, personal loans and education components. The ME Bank survey has found that there is stress in some parts of the community. If your employment income is steady, in these reducing interest rate times, the fortunate have been able to keep up existing monthly payments to reduce overall debt. This is a good strategy. Most Australian homeowners are ahead of their payments – so there is a bit of a buffer. RBA statistics show that the average borrower is almost 36 months ahead of their required payments. Though, there are worrying signs in some households.

Of households with debt, there was an increase in the
number expecting they ‘will not be able to meet their
required minimum payments on their debt’ and ‘can just
manage to make minimum payments on their debt’ in
the next 6–12 months – 43% combined compared to
38% in December 2017.
ME Bank survey

With the number of mature-age Australians carrying mortgage debt into retirement increasing rapidly, many are intending to use a portion of their super (which was supposed to fund retirement!) to try to extinguish their debts when they retire. The ME Bank Survey found that even with compulsory superannuation, only around 18% of households expect to ‘fund retirement with their own super’ (down four points in the past six months). The proportion of households expecting to ‘use both private savings and the government pension’ increased two points to 42%.

I hope that our politicians have a plan for all of this – although, as this involves a bit of thinking beyond the next election, I doubt it!

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.

September 2019 – End of Month Update … and Portfolio Trim

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets have had a bit of a recovery this month ( ASX 200 +1.3%; FTSE100 +2.8%; S&P500 +1.7%).

The Federal Reserve bank of Cleveland have the probability of recession within the next year at 37.9%. This exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are definitely “switched ON”

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). As it is the end of the quarter, the Slack Portfolio has been updated with some readjustment of the portfolio and a solid whack of cash (5.1%).

Trim the Sails … things might get rough

Trimming the Sails by Anton Otto Fischer – from Artnet

The economists at the Cleveland Fed are rating the chances of recession as significant. This is enough for Slack Investor to do a little portfolio trimming and try to dampen the effect on my capital if a recession does happen. I am a long way from going “all the way” and converting my entire share portfolio to cash-like products – though some pundits already have. There are a few reasons for this Slack approach

I am not a very good predictor of exactly when things might go bad
The returns for the safety of cash are not good at the moment, under 2%
I have a buffer of cash income that will help me weather through any economic downturn without having to sell any stocks at downtrodden prices – Those without a cash buffer or subject to sequencing risk should take a more prudent approach than Slack Investor.
Most of my stocks are producing reasonable dividends

Sequencing risk peaks in the seven or so years before and after retirement. Investors at this stage have a higher retirement balance and typically more of it invested in shares, meaning they have more to lose if sharemarkets tumble …
From an AFR article by Tony Featherstone

Sequencing risk refers to the possibility that a retiree that depends on his savings for income may have his capital (and future income) greatly reduced by a sequence of poor returning years (such as a recession!). The retiree would be in danger of having to draw down on capital at depressed prices.

A solution for retirees to the problem of sequencing risk is to set aside 2-3 years of income in cash assets that can be used for income while the underlying assets are waiting to recover. This strategy avoids a “fire sale of assets” during a recession.

Those younger folk still in the accumulation stage can hope that any future economic downturn does not affect the employment market too much – Jobs and income are a key to survival in tough times. As far as investments are concerned, the effects of a recession are only temporary and things will recover (see chart below). Downturns are a good time to start buying if you have any spare funds.

I am happy with my minimal trim approach as I generally invest in solid money earning companies that may suffer in earnings during a recession … but wont go broke and disappear.

For stock owners, recessions and economic downturns are only bad if you have to sell your stock before the inevitable recovery. In these trying times I am often comforted by long term share charts. Please note that any downturn is always followed by a recovery- though in some cases, it may take a few years.

This Long-term S&P chart for US stocks over 120 years (On a log scale). Periodic recessions are shown as grey columns – and the ability of stock prices to recover after any major world crisis is illustrated by the general increase in stock prices as you go forward in time. -From Business Insider Australia

My Slack trimming strategy has several components

Sell some of my stocks that have increased in price and now have extremely high PE Ratios – Although some, like Altium, are hard to let go. They are “old friends” and I am very sentimental to consistent company performance over many years.
Increase the weighting of my portfolio towards cash or bonds or fixed interest.
Try to be invested in companies may not suffer too much during an economic downturn i.e. Healthcare, Essential products.
Re-focus on dividends – the dividends might reduce a little in a downturn but the income is important. Dividends have in the past been much less volatile than share prices.

I have not changed the core of my portfolio, just fiddled around with 20% of it. Some more detail on the portfolio trimming in the next post.

August 2019 – End of Month Update … and “I’ll Give you a Yield Curve!”

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets have taken a bit of a savage beating this month ( ASX 200 -3.1%; FTSE100 -5.0%; S&P500 -1.8%). Thanks Boris and Mr Trump!

As well as this turmoil (kind of normal), my monthly looking at the charts this month has revealed that I have forgotten to adjust the stop loss upwards – I should have done this last month. My rule is that when the monthly index chart forms a new “minimum” and the monthly range drops below the black 10-month average line, a new minimum is formed and I should adjust upwards the stop loss. I have done this for the UK index (shown above in the green circle) and also the US Index (see the index pages for details).

I still remain nervous about the current situation. However, checking out the US Yield Curve indicator at GuruFocus , this indicator has oscillated to negative again. Because of its fluctuations, I have decided to switch to a “Probability of Recession” Indicator (see below). My monthly stop losses for Index funds are now “switched ON”(see below).

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

Inverted Yield Curve … Probability of Recession … Yeah Baby!

Tributes to the great Mike Myers for creating the most excellent character Austin Powers … I could see Austin becoming obsessed with the yield curve… Maybe not … Credit to Austin Powers: International Man of Mystery (1997)

The Inverted Yield Curve has been all over the financial and even mainstream press lately – as a possible predictor of recessions. There is some contrary evidence of an imminent recession due to continued good employment in the US, but most economists have some faith in the predictive power of the yield curve. Slack Investor will admit to not knowing much about this till recently … and is still learning. I wanted to develop a way for me to know when a slip of my index funds below a stop loss was Really Serious! – and not just a temporary downturn that would shake me out of a position … and then recover. This is the battle that a trend trading investor often has.

Trend-following systems either suffer from a large number of shake-outs or are slow to exit when the trend reverses; and often both. You can’t have your cake and eat it.
Colin Twiggs, founder of the excellent Incredible Charts and The Patient Investor

Slack Investor typically wants his cake and to eat it! – and is always on the lookout for a way for this impossible thing to happen.

Slack Investor has often made a virtue of using other peoples work in areas that require a lot of effort and research. I am happy to outsource my Inverted Yield Curve study to the boffins at the Federal Reserve Bank of Cleveland who supply a monthly prediction of the likelihood of a recession using the slope of the yield curve and GDP growth to provide predictions of future GDP growth. Like all good researchers, they caution not to take their predictions too literally but a glance at the chart below show that when the Reserve Bank of Cleveland Fed predicts a probability above say 20%, a recession (the grey columns) usually (not always) follows. As I am feeling my way on this one … I will use the predictions above 20% barrier to make my stop losses live! They currently have the likelihood of recession within one year at 44.1% … so all my stop losses are “live” at the moment.

The Fed Reserve Bank of Cleveland are predicting a 44.1% chance of recession within one year based upon end of August data. The Grey columns are the recessions, the blue line are the Cleveland Fed’s past predictions and the red line “gazes” into the future.

July 2019 – End of Month Update … and FY2019 Nuggets and Stinkers

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets are all in positive territory this month ( ASX 200 +2.9%; FTSE100 +2.2%; S&P500 +1.3%). All markets are still “exuberent”. However, checking out the US Yield Curve indicator at GuruFocus , the indicator again shows a weak positive result (Near zero, Just … +0.09%) so my monthly stop losses for Index funds are temporarily “switched off”.

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

Slack Investor Stinkers – FY 2019

Stinkers are part of investing in growth stocks. Growth stocks usually have a high Return on Equity (ROE>15%). By their nature, they have a relatively high PE ratio and are usually punished in the markets during reporting season if there is any bad news – and I am not too worried when this occurs – It is the total performance of the portfolio that counts. If they breach their monthly stop loss – I will review the stocks and ask myself the question – Factoring in what I know now about this company, would I still buy this stock at its current price? – If not, out it goes!

The percentage yearly returns quoted in this post include costs (brokerage) but are before tax. This raw figure can then be compared with other investment returns.

Costa Group (CGC) -34%

This should be a lesson to Slack Investor … try to avoid growth companies that do not set the price of its products i.e. are “price takers”. This agricultural company had some earnings revisions during January and May due to weather and some difficulties in their Morocco operations. I have hung in and still own the company as it looks cheap on projected price earnings … but another downgrade would test my good humour.

Costa Group (CGC) Daily Chart with some bad news in January and May 2019

Challenger (CGF) -30%

I have been listening to the story of this company for ages. Its income products (annuities) should really appeal to the retiring baby boomers. However, there has been a long slide in price of its shares. In a bit of “hands on” research, I had a look at their CarePlus product for a relative moving into Aged Care – Their package was difficult to sign up to, and the web examples used were underwhelming. Perhaps they market more to financial advisors than for retail investors. The good thing about reviewing the chart of a stock every week is that eventually you “wake up”. I sold the shares in March.

Dishonourable mentions to Corporate Travel (CTD), Platinum Capital (PMC) and Worley Parsons (WOR), which all lost more than 10% this financial year.

Slack Investor Gold Nuggets – FY 2019

By investing in companies with high return on Equity with a track record of increasing earnings, you can expose yourself to some pleasant surprises. The Return on Equity (ROE) and forward Price Earnings (PE) ratio values for each stock are found on the excellent Market Screener site.

ProMedicus (PME) +148%

Pro Medicus is an Australian company that produces medical imaging software for hospitals and medical specialists. Their products are used worldwide and there are e projected increasing sales. Their ROE 2020 is an excellent 41%,however, their projected PE ratio for 2020 is over 100. This is dangerous over value territory – and I am watching this stock closely for any price declines. But until then, I am riding this horse home.

Appen (APX) +101%

Appen supplies data services to global tech companies and their language division provides machine-learning technologies for devices. Perhaps because I don’t really understand what they do and because of their high estimated 2020 PE ratio of 61. I said thanks very much and then I got out of this stock last month. However, the price of this stock is still climbing! Ouch!

Rhipe (RHP) +79%

Rhipe is another tech company that I had a speculative interest in. It provides software licences that help their clients transition into a “cloud” environment. Rhipe has a working relationship with Microsoft in Australia but their high 2020 projected PE of 39 makes it another stock that may be overvalued and I am watching it closely.

Altium (ALU) +53%

Another fantastic year for ALU The designing of integrated circuit boards for technology products is proving to be a lucrative business. A high 2020 projected PE of 39 is a concern -but I really am smitten with this company – as they have been great growers of their business.

Service Stream (SSM) +52%

Service stream provides network services to Utility companies. This is the sort of company that Slack Investor loves. A high ROE of 20% and a reasonable 2020 projected PE of 19 with anticipated earnings growth.

Honourable mentions for Slack Investor portfolio stocks AMC and RHC that increased more than 20% in this financial year.

Slack Investor Total SMSF performance – FY 2019

In another good year for shares where Chant West reports median growth super funds made 7%, the FY 19 Slack Investor preliminary Total SMSF performance looks like coming in around 20%. Anyone can fluke one good year so 5-yr performance is a more useful benchmark to me and the Slack Portfolio now has a compounding annual 5-yr return of over 18%.

Not bad Slack Investor … now get back on the couch … with full FY 2019 results and benchmarks next post.

Robo On

When Robo Advice gets it wrong … Exterminate Financial Freedom! – Image from aminoapps.com

Last month’s post on robo advice had a look at a couple of options … but there is more. They all work in much the same way. In the “old days”, to enter the investing world you would have to register with a broker (e.g. Self Wealth, CommSec) to get access to shares or Exchange Traded Funds (ETFs) – and you would be charged brokerage for each buy and sell. Each ETF also has a management fee (usually 0.10% to 0.50% per year) but that is deducted from your returns internally.

A recent Choice article outlines two things have worked against young people investing in the stock market. Firstly, a lack of knowledge about how to start investing, and then, not having a decent stash of money saved up to make broker fees worthwhile.

With the robo advisors, small amounts are no problem. For a monthly fee they take care of the purchasing and the brokerage – This is usually a much easier experience as it takes less thought and action.

From the robo advice website you open an account and establish your identity.
After a few questions to get your risk profile, the robo advisor will suggest a portfolio of ETFs.
Your bank account details must be given to fund your initial portfolio of ETFs.
You might also setup a regular investment and some of the robo advisors ( Raiz and FirstStep have a cool rounding feature where your everyday card purchases are rounded to the nearest dollar – and the rounding excess will go towards your portfolio.
The Robo Adviser does regular rebalancing of your portfolio.

Robo your Investing

Lets Robo On, Six park, Stockspot, Raiz, Clover, QuietGrowth and FirstStep have some great offerings and are worth a look.

ROBO ADVISOR	Fee Schedule	$2,500 portfolio fees pa	$10,000 portfolio fees pa	$200,000 portfolio fees pa
Six Park	Minimum $10000. Management Fee 0.4% to 0.5%	……	$50	$1,000
Stockspot	Fixed fee of $66 pa for balances < $10k with asset based fees of 0.396% to 0.66% pa	$66	$66	$1,320
Raiz	$1.25 per month <$5K; 0.275% pa >$5K	$15	$27.50	$550
Clover	Minimum $2500. $5.50 per month <$10K; 0.45% -0.65% pa >$10K	$66	$71.50	$1,210
Quietgrowth	Minimum $2000. Promotion No Monthly Fees <$10K; 0.40% – 0.60% pa >$10K	$0	$0	$1,045
First Step	$1.25 per month <$5500; 0.275% pa >$5500	$15	$27.50	$550

The above prices were compiled July 2019 and should be checked before you start investing.

Robo your Super

All of the above Robo advisors will help you build up your ETF investments as a “side hustle”. But, there is a new way of adding to your existing super (hopefully you have made an effort to make sure it is an Industry Fund!) in a relatively painless way. Longevity has a mobile phone app that automatically tops up your Super calculated as a percentage of your everyday purchases – into whatever super account you choose. It is based on your everyday spending and then calculated as a percentage of your spend (default 1% – but go higher if you can -and maybe a set amount each payday!). At the minimum, if you spend $200 on groceries, this will generate a 2 dollar deduction at the end of the month. You can limit your monthly deductions to an amount – so that you don’t go negative in your everyday account.

Because Longevity operates in the superannuation environment it is taxed favourably compared to investments outside of super where earnings are taxed at your marginal tax rate.

What to do Now?

There is always a bit of inertia involved to enter the world of investing. More experienced investors who already have a lump of cash and a disciplined approach to saving perhaps don’t need savings apps like Raiz. They could buy ETF’s directly through a discount broker (e.g Self Wealth), or setup a more sophisticated robo account with Stockspot. Robo investment apps such as those in the above table aren’t after this demographic. Most Robo Advice platforms are targeting younger people who might not otherwise start investing until much later in life.

“Raiz aims to encourage its customers to be mindful of their spending and to start saving and investing some of their income … the average Raiz customer has made 11% per annum since launch
Raiz’s Managing Director, George Lucas. from Choice

Simple steps

When in doubt, do something.
Singer-Songwriter Harry Chapin of “Cats in the Cradle” fame

The beauty of Robo Apps and instruments is that they are an easy way for anyone to start investing. Slack Investor says … just start! The rounding and transactional nature of Raiz and Firststep really appeal to me. Slack Investor likes this sort of painless saving and would get either of these apps as a great first step into investing. I wish these vehicles were around in my younger days. There are risks involved (i.e. share prices going down!) – but hey, That’s Investing – and the risks diminish over period of time (say, 5 years) – According to ASIC, Risk is part of the investing experience.

Given the huge returns money invested early in life can generate, the costs of the lower priced robo devices (e.g Raiz, FirstStep, Longevity) of around $1.25 a month is very reasonable. Pick a platform, install their app and set your contributions – You are launched into the wonderful world of investing – get on that road!

June 2019 – End of Month Update … and “nudging” to good financial habits

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. If last month was a “Risk Off” then for the month of June they have slapped on the crazy pants and become definitely “Risk On”. The Slack Investor followed overseas markets have bounced back from a shocker last month (FTSE100 +3.7%; S&P500 +6.9%) and the ASX 200 powered on with +3.5%. All markets are above the monthly stop losses – but feeling a bit “frothy”. However, checking out the US Yield Curve indicator at GuruFocus shows a weak positive result (Near zero, Just … +0.09%) so my monthly stop losses for Index funds are temporarily “switched off”.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). – As it is the end of the Financial year and quarter, the Slack Portfolio has been updated with some stock exits and a gradual build up of cash. Now over 8% – A slack record!

Give us a Nudge

The classic Monty Python “Nudge Nudge” sketch – the full delights of this 3-minute romp can be found on youtube

We frail human beings do not behave rationally. It is easy to project a path to a well funded retirement on paper – yet so few really achieve it. A couple of clever cognitive psychologists , Danny Kahneman and Amos Tversky put some effort into studying human behaviour.

Mr Kahneman, an Israeli-American psychologist and Nobel economics laureate, has delivered a full catalogue of the biases, shortcuts and cognitive illusions to which our species regularly succumbs. In doing so he makes it plain that Homo economicus—the rational model of human behaviour beloved of economists—is as fantastical as a unicorn.
From The Economist – Not So Smart Now

To account for our lack of rational behaviour -it is sometimes necessary to give ourselves a nudge in the right direction by tricking our feeble brains into good habits.

Compulsory Saving

The best way to save money is to convince yourself that you didn’t really have it in the first place – and, as the new financial year starts, this is the time … seize the day and quarantine some of your hard earned cash.

There are lots of ways to do this

Direct debit funds to your Savings account from your transaction account – After every payday, set up a regular direct debit instruction with your bank to divert funds to your online savings account
Add to your Super – Set up with your paymaster to add to your superannuation through salary sacrifice – the first $25000 is taxed at only 15%. Or, you can make a contribution straight from your bank account directly to your super fund but there is a bit of ATO paperwork to claim its tax-free status.
Use a bit of robo technology to set up periodic payments and rounding up of your daily transactions – Use Raiz to set up a savings account that invests your savings in shares and bonds or Longevity to add to your super account – More on these robo bits next post.

May 2019 – End of Month Update … and, that recession vibe

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. In what the cool investor analyst types call a “Risk Off” month there were big falls in Slack Investor followed overseas markets (FTSE100 -3.5%; S&P500 -6.6%) – but for the moment, still above the monthly stop losses. Checking out the US Yield Curve indicator at GuruFocus shows a negative result (Just … -0.05% though!) so my monthly stop losses for Index funds are definitely “live”.

The Australian ASX200 had a positive month (+1.1%) – but this was due mainly to the election of a “business-friendly” government on May 18. General nervousness prevails though.

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

That Recession Vibe

Trump and Xi are shaping up for a trade war and I don’t like the smell of it … especially with news reports such as “If you want to talk, the door is open; if you want to fight, we’ll fight to the end,” said a Chinese TV anchor, capturing the mood in Beijing. – Image from Business Insider

Slack Investor is no great predictor of trends – But, whenever things are going well in the stock market, experienced investors naturally get skittish – Particularly when two belligerent world leaders are at loggerheads. There is a chance that all of this will get solved at the next G-20 in June. But Bloomberg analysts think it is more likely that the trade war will be long, messy—and expensive. Thanks Donald!

(The US economy is going OK) but … other countries remain sluggish or are slowing. Diminishing global growth could drag down the U.S. also. … although the Federal Reserve is now signaling a halt in its rate hiking, it has raised interest rates nine times since December 2015. At some point, those higher rates become the gravitational force that pulls down stock prices.
From Ray Martin at CBS News

All of this uncertainty is talked about constantly in the media and with trade war stuff thrown in as well, as all fans of The Castle know … ” It’s the Vibe!”, When all of this negative stuff gets too much. for a quick recession-busting refresher, try this Youtube highlights clip from the film.

Slack Investor has mentioned one of the pre-indicators of a recession, the US Bond Yield Curve, which has just gone into the “Red Zone”. The economist boffins have been very diligent at Citibank and have tracked a range of 18 economic statistics up to the end of April. The US Yield curve is just one of these and is #6 on the list. They compare current statistics with those from previous “proper” recessions.

The Citibank Global Bear Market Checklist

Citi’s Bear Market Checklist (BMC) shows only 4 out of 18 red flags, and suggests that it is too early to call the end of this ten year bull market. In previous cycles, the BMC red flags have accumulated gradually before rising exponentially in the last year of the bull market. Citi analysts would be more concerned when 7-8 factors are flagging caution.
From Citi Insights

So Slack Investor does what he does best … and leaves the economics research to those who can do it well … business as usual. There are a couple of my individual stocks (CTD, CGC, PMC) that are on the slide and may need attention. I will look at their numbers and outlooks (and charts) again this week on Market Screener . But other than that, I will ease, ever so slowly, into the couch.

Slack Performance … Not So Slack

Last post I described a change to the Slack Method for managing Index funds. Index “whole market” funds are just a small part of my share portfolio – about 3%. The bulk of my share market exposure is in individual growth companies.

Slack Investor is a great believer in measurement and is most un-Slack when it comes to record keeping and recording his investment results.

If you can not measure it, you can not improve it
Attributed to Lord Kelvin … his more verbose quote is here

My main cycle of measurement is at the end of the tax year in Australia, June 30. Because the results of one-year performance can be a bit misleading. I am much more focused on results over 5 years as these longer term measures are more meaningful to the investor. The benchmarks I have used have been mainly sourced from the excellent NetActuary site. A shout out to the low cost Vanguard Growth Index Fund. When I tire of investing in individual companies, this (or Vanguard ETF’s) is the type of vehicle that would be a good resting place for funds that require minimal supervision.

The SLACK FUND 5-yr average compound return vs BENCHMARKS. The Median Balanced Fund, Vanguard Growth Fund, ASX 200 Accumulation Index, Residential Property median in both Brisbane and Melbourne, and Cash (Online bank Interest)

A good way of measuring growth is comparing $10000 invested in the Slack Fund in the 9 years since 2009 against benchmarks.

*The SLACK FUND growth of $10000 invested October 2009 vs BENCHMARKS. The* Median Balanced Fund, Vanguard Growth Fund, ASX 200 Accumulation Index, Residential Property median in both Brisbane and Melbourne, and Cash (Online bank Interest) and Consumer Price Index (CPI)

Year by year results are presented in table form below. I will add results at the end of each financial year and put them on The Slack Way page.

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH	CPI
2010	6.6	9.8	12.3	13.1	8.5	24.3	4.2	3.1
2011	2.5	8.7	9.1	11.7	-3.6	-2.0	4.4	3.7
2012	8.3	0.4	1.3	-6.7	-2.7	-4.8	4.3	1.2
2013	26.5	14.7	18.6	22.8	3.7	3.3	3.2	2.4
2014	23.6	12.7	14.5	17.4	6.8	9.3	2.6	3.0
2015	2.4	9.6	11.8	5.7	3.4	7.8	2.5	1.5
2016	14.2	2.8	4.2	0.6	4.9	8.2	2.2	1.3
2017	19.5	10.4	8.8	14.1	3.0	13.8	1.9	1.9
2018	37.6	9.2	10.0	13.0	1.1	2.3	1.8	2.1

For this site I have only presented my share trading results since 2009. Any cherry-picking of data to avoid the terrible investing years of 2008 and 2009 is coincidental. Out of the ashes of the Global Financial Crisis (Great Recession), 2009 is the year that I started my Self Managed Super Fund (SMSF Slack Fund) and from which I have independently audited results. For the record, prior to 2012, I was not what I regard as a very successful investor. My investments for the 2003-2011 period performed worse than the Median Balanced fund on 6 out of 9 occasions.

What changed? I started to go to a local investment class which made me re-evaluate my investment method (Thanks Robbie Fuller!)

Took a more disciplined approach to investing by documenting everything and having weekly and monthly and yearly chart reviews of my investments
Tried to reduce confirmation bias from my portfolio – i.e. I bought this stock for a good reason … I am smart … the price has gone down … the market must be wrong! – I would score myself 5/10 on this goal!
Started using charts and stop losses extensively.
Started investing mostly in growth companies that have some barriers to entry for competitors (moats) – Companies with manageable debt, with future PE less than 25 -30, and with a return on equity (ROE) of >15%
Before investing in an individual company use both fundamental analysis (Thanks Market Screener) and technical (chart) analysis (Thanks Incredible Charts) before I make a buy order.
Tried to follow the Peter Lynch approach to my portfolio. Selling the bad performers (weeds) and trying to add to my position on stocks that are doing well (flowers).

You won’t improve results by pulling out the flowers and watering the weeds.
Legendary Investor Peter Lynch from quoteswise.com

Investing in growth companies can have its despairing moments and I cannot guarantee that the Slack Fund will continue to outperform the benchmarks … but, the results, so far, are good.