Slack Investor remains IN for US, UK and Australian index shares.
Justice Kenneth Madison Hayne reflects on the “Inexcusable greed and dishonesty” shown by segments of the finance industry – Image modified from the Brisbane Times
September heralds a change of season and there is some nervousness creeping into the Australian market (ASX 200 index -1.8%) as the Banking sector continues reeling from the interim report on the finance sector by Royal Commissioner and Slack Investor Hero – Kenneth Hayne . Wall St is steady (S&P 500 +0.4%) and the FTSE 100 has bounced back a little (+1.0%). However, the Slack Investor stop losses are not breached and decisions are put away till the end of October.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
SPIVA … What’s the score?
Peerless sporting commentators Roy and HG – from The Roar
It is the end of season for winter football codes in Australia. Slack Investor welcomes back Roy Slaven and HG Nelson for brightening up his weekend and helping him keep score with their commentary on the “Festival of the Boot” – This is a distraction, but you can get a taste of the genius of Roy and HG here, here or, for a great Australian Bradbury moment here. For the “Festival of the Boot” here. It might be a sign of my perpetual immaturity, but I just don’t tire of these gentlemen.
One of the scorekeepers in the financial world are a group of boffins known as SPIVA (S&P Indices Versus Active). For 16 years they have been collecting world financial data and comparing actively managed funds to passive (Index) Funds – Slack Investor has looked at their findings before.
Their 2018 June report continues on the theme where (for a 5-yr period), almost 69% of Australian active funds failed to perform better than index funds. In the US, actively managed funds perform even worse with 84.23% of funds under performing the index over 5 years.
Over 5-years, 68.69% of AUSTRALIAN EQUITY FUNDS UNDER PERFORMED THE S&P/ASX 200 (Index ASX 200) – as of Jun 30, 2018 – From SPIVA Report 2018
The data reveals that there are some funds that beat the index, but they tend to invest in small to medium sized companies. As Roy and HG would say … You would have to be in the “Dream Room” to ignore the power of the SPIVA message.
Slack Investor remains IN for US, UK and Australian index shares.
Power to the US – It might be bewildering from afar (and probably from within!) – but Wall St booms again with a 3.0% monthly rise. A small rise in the Australian Index (+0.6%), and the UK Index sinks with a -4.1% fall. All Markets are staying clear of their designated stop loss limits – So Slack Investor puts away any Index decisions for another month.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
A recent bit of Beneficial Slackness
Slack Investor as long been a fan of Rudyard Kipling’s poem “If” and it is worth a read in full. But in particular the stanza
I like to think Slack Investor is in tune with the ebbs and flows of fortune – and he was on the good side of a stroke of luck this past week. In my last monthly update July 2018 I wrote of my worry with my holding of Altium (ALU) shares. I feared that the declining share price in July might indicate that there was bad news ahead at their reporting date. The upshot of the post was that I would leave this sort of stuff to the day traders and continue with the Slack plan of only making sell decisions at the end of the month.
The imposter of trumph prevailed on this occasion with a rise of ALU share price of over 30% on the day of their positive results announcement (FY18 Revenue up 26%).
With an estimated 2019 P/E ratio of 53.4, there is no doubt that the stock is relatively expensive. But, it is a growth stock with some very good tail winds. With the “internet of things” there will be more and more household appliances connected to the internet and to each another.
The current Australian household has an average of 14 connected devices under the one roof – this is expected to grow to over 30 devices by the year 2021. – from Andrew Mitchell – Livewire
Altium sells design software for printed circuit boards (PCB) which appear in all of these devices. ALU has been increasing its market share for PCB design software from 18% to 22% in this past year – and aims for 30% by 2025. These are good omens and I am happy to be an owner of ALU. To risk one more quote from “If”
Slack Investor remains IN for US, UK and Australian index shares.
It has been a good start to the financial year in all followed markets. Rises in the Australian Index (+1.4%), the UK Index (+1.5%), and the US index up a remarkable 3.6%. Slack Investor is cautious – but not afraid. Bull Markets are where the investor makes money. Stop losses are the insurance that enables sleep at night.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
Reporting season for end of FY 2018
Robert Hays as Ted Striker apprehensive about landing the plane in Flying High (Airplane!) gif from source – may be subject to copyright.
Despite the general market indicies doing well, July 2018 has seen some of the big Slack Portfolio achievers in the last financial year lose a bit of their froth. Although not quite as nervous as Ted Striker, Slack Investor is a “on alert” about the impending reporting season. The animated gif above is from the classic 1980 film Airplane (or Flying High) – and the full movie is most worthy of a viewing when the tension of the season becomes too great.
Australian companies are obliged to report on their earnings at least twice a year within two months of putting a line under their balance sheet. As 30 June marks the end of the financial year, the main reporting season takes place during August when most companies release their full-year results to the market. The accountants have been busy collating the figures and the management team has crunched the numbers and are ready to give updates on their company earnings and project some earnings outlooks. The CEO may offer his take on any changes to the economic environment at the shareholder meeting.
The day of this report release is usually the most momentous …
51 per cent of the two hundred and sixty major results (Last year) saw their share prices move more than 3 per cent on the day of their results. 35 per cent moved more than 5 per cent and 11 per cent moved by 10 per cent. – Marcus Padley in this report
There are strict rules on keeping this financial market sensitive information “in house” till the date that the results are announced. This way, everybody gets this information at the same time. Sounds fair … but sometimes information inadvertently leaks out and a decline in the share price is noticed before the actual reporting date … or, it might just be that after a sharp rise in price, the short term traders are just taking profits. There are a lot of possibilities – and it appears that something is going on with one of my major holdings Altium (ALU). There is a distinct decline in price since financial year 2019 started.
Daily chart Altium – from Incredible Charts
Regardless, I will leave action to the short-term traders, as at the end of July, ALU finished above my monthly stop loss ($19.16). Slack Investor has a plan and remains above the daily market murk and has an approach that has got him through so far. Let the market do what it must do – and if, at the end of the month, the stock price is below the monthly stop loss – then sell.
In Flying High (Airplane!), Ted Striker had a pretty good result. He overcame his fear of flying, landed the plane safely and won back the affections of his ex-girlfriend. Slack Investor is not aiming for this Hollywood finish but I have overcome my fear of rapid price declines – they are just part of investing in growth stocks.
I am diversified, have a plan and have stop losses for protection. (OK … slightly flushed with the exhilaration of reporting season!)
Slack Investor remains IN for US, UK and Australian index shares.
The Australian Index (+3.0%) has had a good month. While the UK Index (-0.5%) and the US index (+0.5%) have ended the Australian Financial Year (FY) in a steady fashion.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
Goodbye FY 2018
Slack Investor loves a review … and the end of the financial year is always a good time for introspection. Overall, it has been a good year to take some calculated risk and be involved in the satisfying world of investing in companies through the share market. Safe money in a bank is returning under 3% per year.
ASX 200 – Despite a mediocre performance by the Australian Banks (which make up a large porrtion of the ASX 200), You would have to say it was a good year for the Australian Index (+8.3%). If you take into account dividends, the ASX200 accumulation index increased a bumper 12.7%.
FTSE 100 – It was a bit of a struggle for the UK Index this year (+4.4%) with a lack of clarity on what Brexit will mean for the UK economy. Slack Investor left the index briefly as it plunged below a stop loss at the end of March, but rising momentum in April got me back in.
S&P 500 – The US Index was heading for a monster year with President Trump reducing taxes … and then he started talking about new trade tariffs There were also concerns about high valuations. But, overall, +11.8% is a very fine return in the current low interest environment for cash.
Financial Year Slack Investor Resolution – A recent ASIC report found that nine out of ten self-managed super funds recieve poor financial advice from their advisors … So start educating yourself in financial matters … become your own advisor!
Slack Investor remains IN for US, UK and Australian index shares.
The Australian Index (+0.5%) has been a bit of a laggard with the banks still generating bad news and signs of the Australian property market starting to slow. The UK Index (+2.3%) and the US index (+2.2%) have continued to have solid growth.
The good news on the Australian Index (ASX 200) is the opportunity for Slack Investor to crinch up his stop loss from 5629 to 5724. A small movement upwards, but I always like doing this as it means that the Index has now set a new “higher low” The explanation for this technical stuff can be found here. A new “low” (or minimum) has been established at 5724 and this is my new stop loss on the monthly chart
Monthly chart for the ASX 200 – From Incredible Charts
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
Productivity Commission gives the Super Industry a bit of a “Ginger Up”
I have been a fan of Australia’s Productivity Commission (PC) ever since I read their 2010 report into the sorry state of Gambling in Australia. The report is full of thought provoking and shameful material like- Australia is the world leader in number of poker (slot) machines per capita and Australia leads the world in gambling losses per person – but I digress…
The “Ginger Up” refers to an ancient horse racing practice that I wont elaborate on here – but it does make me squirm! The PC have just delivered their draft report on the state of Superannuation in Australia. God bless them .. they have put in “black and white” the rorts that exist in Australia’s good but not great superannuation system – and they have created a new Slack Investor hero.
The lead author in the report is the Productivity Commission deputy chair Karen Chester who has delighted Slack Investor with the following refreshing quote. Ms Chester’s attitude was like a snowball in the face after the my last depressing post on the mostly self interested world of banks and financial advisers.
Karen Chester – Photo from Quentin Jones
“the only thing I care about is member outcomes” from source
The Productivity Commission identifies two structural problems with Australia’s super model. The unintended creation of multiple accounts and the entrenched underperformance of some of the super funds that are allocated to the employee.
From Productivity Commission Superannuation report.
“Members are really lost in the weeds of product proliferation with 40,000 products. They’re bamboozled by poor disclosure and … poor advice.” Karen Chester from source
I am hoping that Ms Chester will get the final report out with haste. Slack Investor loves the smell of the draft report. The Federal Government would do well to take up her recommendations. The info graphic above puts some real world figures on what might happen if the PC recommended changes to Australia’s superannuation model are adopted.
It is a promising sign that the current Finance minister seems to recognize the problem.
“Super has become worse than a honey pot; it’s a trough.” – Financial Services Minister Kelly O’Dwyer source
Slack investor will look at the “trough” and PC draft recommendations in the next post. There are things you can do right now to protect your super.
Slack Investor remains IN for US, UK and Australian index shares.
After all the doom in March, the Australian Index (+3.9%) has had a great April. The UK Index (+3.4% since our buy IN in the middle of the month) has also bounced back. The US index (+0.3%) has been steady – but Slack Investor is still on high alert – considering high company valuations in the US at the moment.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
Slack Investor is always looking for a new hero and it just might be the Honourable Kenneth Madison Hayne AC QC.
The driver of the Hayne Train and new Slack Investor Hero Hon. Kenneth Hayne. – from source
The driver of the Hayne Train is in charge of the new Royal Commission into Australian Financial Services. Commissioner Hayne is very ably assisted by a crack team of lawyers. Kenneth Hayne seems appalled by some of the practices in banking and the financial industry that his commission is exposing. Slack Investor also has a very poor opinion of the bulk of the financial advice industry and is heartened by recent goings on at the Royal Commission. Perhaps the state of financial advice in Australia is best summed up by the seemingly toothless industry watchdog ASIC (Australian Securities & Investments Commission) in a report in January 2018.
ASIC found that in 75% of the advice files reviewed – the advisers did not demonstrate compliance with the duty to act in the best interests of their clients – from ASIC Report 18-019MR 24 January 2018
Wow! … this is a real scandal! Our Australian government regulator that has oversight for financial services and consumer credit has found that three out of four people who go to see a financial advisor receive advice that is not in their best interests!!!
The ASIC report received relatively little press on its release in January and it has taken Kenneth Hayne’s team to forensically go through some astoundingly bad practices of banks and financial advisors for this issue to finally gain some traction with our government, press, and the Australian public – Things have to change!
Power to you Kenneth – you Slack Investor Official Hero (Calling it Early!) … keep exposing and I will present some more of your most excellent initial findings in the next post.
Slack Investor remains IN for US, and Australian index shares.
However, it is time to temporarily leave our cousins in England – I am OUT for the FTSE 100.
… a tricky month for investors with all markets declining. The Australian Index (-4.3%) and the US index (-2.7%) had solid falls but managed to stay above monthly stop losses. The UK index (-2.4%) has just had its third monthly fall in a row and finishes the month below its stop loss – Slack Investor must sell his FTSE100 ETF.
UK INDEX FTSE100 Monthly Chart Trade Cycle 29 Jul 16 – 29 Mar 18 – Click for better resolution – From Incredible Charts
As always, there is a time of reflection when I sell – I like owning a share of these UK companies – it is much more satisfying than owning cash. Slack Investor bought the UK index at the end of July 2016 and, after 20 months, is looking at a profit of 4.9%. Not a fantastic profit – but this is the fourth Slack Investor profitable trade in a row for the UK market (31.7%, 27.1%, 17.6%, 4.9%). For simplicity, dividends are not included in these calculations.
The Downside of being Slack
FTSE100 Daily Chart -Click for better resolution – From Incredible Charts
As I wrote about the upside of being slack last month, it is only right that I illuminate the downside. At times, there is a cost to being a monthly trader. If I was a daily trader that used stop losses, I would have unloaded the FTSE 100 on Feb 8, 2018 at 7170 when the closing price first fell below the stop loss. Slack Investor sold at 7056 a discount of 1.6% to the daily exit – but as mentioned many times, the piece of mind found in monthly decisions makes this a small price for me to pay.
All Index pages and charts have been updated to reflect the monthly changes – (ASX, UK, US).
Slack Investor remains IN for US, UK (Just!), and Australian index shares.
… a very volatile month and a test for the fainthearted. The monthly overall declines do not tell the whole story – rapid declines then recovering. The Australian Index (-0.4%) had the best recovery and the US index (-3.9%) and UK index (-4.0%) had similar overall monthly falls.
Slack Investor is already off the couch and is still on alert for the US Market considering its high valuation and its recent 10.2% correction. The UK market is also under watch as it is very close to its monthly stop loss (See UK Index page).
The Upside of being Slack
Some of the time there is a price to pay for being Slack – and only making sell decisions on a monthly basis. But it is not this day!
… A day may come when the courage of men fails, when we forsake our friends and break all bonds of fellowship. But it is not this day.–Excerpt from Aragon’s Sons of Gondor speech – Lord of the Rings – Wikiquote
Well, … quoting from Tolkien’s The Return of the King is perhaps is a little dramatic but this post is a bit technical and needed a picture of Viggo Mortensen just to brighten it up.
There are many share traders who set automatic stop losses with their brokers that trigger a sell order when the price moves below a designated value. This technique can be good when you want to set a stop loss and forget about it – But there are pitfalls. Slack Investor has tried this method before and has found that the automatic sells are sometimes triggered by a particularly volatile day and your automatic sell order may trigger at $3.00 but at the close of the day the stock may have recovered to $4.00.
More common (and disappointing!) is when a rapidly falling price jumps below your automatic stop loss without triggering the sell. You then would sell the stock manually – usually at a lower price.
There are many traders who, like Slack Investor, set there stop losses manually … butact on them on a daily basis. The chart below is a daily chart of the US Index S&P 500. As a refresher, each vertical line represents the daily price range for the S&P 500. A red line indicates that the price has dropped during the day, and a blue line shows a daily price rise. Clicking on the chart will increase the resolution and you can then make out little tabs either side of the vertical daily line. The tab on the left represents the opening daily price and the tab on the right the closing price for the day. A daily trader might act on his stop loss immediately the S&P 500 falls below the stop loss (e.g. big red arrow). This technique can be a very good thing if there are further falls! However, in this case, the recovery from the 10.2% correction has rewarded the Slack Investor’s slackness.
Slack Investor does not like the daily grind of decisions. He likes to do most of his trading based on monthly charts (See left) … where each vertical line represents a month of price movement for the US Index S&P 500. At the end of February 2018, the right hand tab of the last vertical red line indicates a closing price of 2713 – well above the stop loss of 2557 (for now!) so my trading method says to hang in there.
Sometimes there is a price to pay for this slackness – For instance, when there is not a recovery in the stock price! But the delight of only making monthly decisions outweighs this concern for me. My monthly trading method together with diversification (~20 stocks) and a bit of effort in selecting growth stocks has proved to be sound so far.
All Index pages and charts have been updated to reflect the monthly changes – (ASX, UK, US).
Easy does it Ladies and Gentlemen … slide back in your seats … there has been a correction in the S&P 500 … the world is not ending … Yet!
The market volatility has been driven by the US market which was overvalued due to stellar gains of 22% in 2017 and big gains in 2016. According to AMP Capital, as of early February, European shares have fallen 8% and Australian shares have lost 6% – there have been substantial recoveries in all markets since.
On Feb. 6, 2018, the (US) stock market officially entered “correction” territory. A stock market correction is defined as a drop of at least 10% or more for an index or stock from its recent high. –from fool.com referring to the Jan/Feb 2018 correction in the US S&P 500 index.
The stock market is a wonderful way to accumulate wealth … but it does not always behave rationally. The driving force behind increased stock prices is company earnings … if they are rising then “generally” the price of the stock increases. But rationality is not a common trait where the share market is concerned – as the market is combination of buyers and sellers with differing motivations.
I often find it useful to take a step back from the daily price fluctuations, the chart below shows the last 5 corrections of the S&P 500 US market (in dark grey) since the market crash (>20%) of 2008/9. It has been a couple of years since the last correction and the US market has made some substantial gains since then.
Source financialsamurai.com showing the last 5 corrections(>10%) of the S&P 500 since 2009.
Corrections are a normal part of stock market growth and the chart below (In logarithmic scale – representing percentage increases on the same vertical scale) shows how Australian share market values have continued to increase over all – despite the many world crises that have presented in the last century.
The chart below sums up why Slack Investor is happy to be predominantly invested in shares at the moment. The “Grossed up dividend yield” is the effective yield “after tax” that Australian shares are returning to the investor – around 6%, compared with the safe term deposit rate which languishes at around 2%. While the gap in annual earnings between Australian shares and bank deposits remains high I am happy to stay with the “risk on” options of shares – The price of shares, or capital value, may fluctuate temporarily but the annual dividends should continue to be paid. In any case, my downside risk is protected by monthly stop losses. The economic news from around the world remains mostly positive pointing to a growing global economy. So, … stay optimistic – but be ready to bail if the charts start turning south in a significant way!
Slack Investor remains IN for US, UK, and Australian index shares.
… some monthly setbacks for the Australian Index (-0.5%) and the UK index (-2.0%). However, confidence remains high in the USA with another huge (I mean … It’s like … Really Huge!) rise of 5.6% – This is “irrational exuberance” territory!
Slack Investor gets off the couch and is on alert for the US Market. The two strong rises over the last two months have pushed the S&P 500 up to breach the the 20-25% upper limit from his previous stop loss. This involves some necessary action – finding a new stop loss that is a little closer to the current price.
From Incredible Charts
The old S&P 500 upper limit of 2786 was surpassed by the end of month price (2823). I then go back to the charts and find a new, higher stop loss that makes sense to me. This is usually a new “higher low” – and I had to look at the weekly charts to find a sensible stop loss minimum at 2557. If this chart stuff interests you, go back to an earlier post. Otherwise, be happy that Slack Investor has moved his stop loss upward and is ready for the inevitable fall (Correction) in the US markets.
A2 Milk Company (A2M)
Slack Investor was blissfully unaware that there are two types of proteins in Milk – Conveniently labelled A1 and A2 – Who knew?? I am blissfully unaware about most things.
A2M is a New Zealand company listed on the Australian Stock Exchange and they own the patent for identifying cows that only produce the A2 protein in their milk. The selling point, backed up with a slick marketing campaign “Enjoy Milk Again “, is that there is evidence to suggest milk containing just the A2 protein is easier for some people to digest.
Slack Investor has been an owner of this fantastic company since last year and has taken the opportunity to top up his holding when A2M reached a new high in the middle of the month at around $8.00 – This is not advice.
There are many claims for A2 Milk, including that the lactose intolerant folk find it easier to digest than normal milk. Slack Investor has had a glance at A2M’s supporting 100 independent studies and he is refreshingly skeptical of these claims till a large sample, “double blind”, piece of research emerges. There are also other skeptics.
However, he cannot argue with success of A2M’s new campaign and the converts to A2M’s products that are reflected in recent sales growth. The action on the price charts and projected sales get me off the couch. Particularly with a recent announcement that A2M is expanding into the large US market. Suprisingly (for me!), 70 percent of African Americans and 90 percent of Asian Americans are lactose intolerant.
Always, before I invest, I want a deep look at a company – I use the excellent 4-Traders site and, in particular, the Financials tab – for A2M has revealed the type of growth trend that Slack Investor likes – the black columns are projected sales through to 2020. Projected increasing sales and income are the type of thing that I am looking for.
From 4-traders.com – click image for better resolution
A2M’s Current Price to Earnings ratio is an “eye watering” very high 48. This does not compare favourably with the ASX average PE of around 15. A high PE ratio can be a sign of an overpriced stock- but there are exceptions!
The exceptions are made for exceptional companies. A2M is growing its earnings so fast that the forecast PE is much more reasonable in a few years (i.e. A2M estimated PE is a more reasonable 28 in 2019) and A2M is the type of company that is excellent at using its resources to make money – an extremely high Return on Equity (ROE ~50%). These high PE, high growth companies make up a large portion of Slack Investor’s portfolio. They can be a wild ride … as they are often punished (price drops) if they do not meet forecast earnings during reporting season – but I am happy to hang onto this company for now – there might even be some further A2M good news ahead – If not, my monthly stop loss at $6.97, and diversification, will protect me from catastrophe.
All Index pages and charts have been updated to reflect the monthly changes – (ASX, UK, US).
Slack Investor remains IN for US, UK and Australian index shares.
