Australia … Dumbing Down!

From abc.net,au

Further reading of the excellent article referred to in my last post by Kerr Neilson – The Rise of Asia – has got the Slack Investor onto one of his hobby horses. In a previous life, before my main working stint as a meteorologist, I was a maths and science high school teacher in Australia, UK, Jamaica, US and PNG. With the zealotry of an ex-teacher, I have been keeping a loose eye on the education system in Australia and … I don’t like what I see …

There is an international (OECD countries) test that measures student skills (in mathematics, science, and reading comprehension) called the Program for International Student Assessment (PISA). Shown below, 7 of the top 10 positions were filled by Asian countries. In 9 years, Australia has fallen from no. 9 in 2006 to no. 21 in 2015. The UK ranked 23 and has not changed much in the rankings. The US ranked 31 and also has had a declining performance this past 6 years. There are arguments that these absolute rankings can be misleading, but they are presented below.

2015 Rank Country 2015 Average Score 2006 Average Score Change In Rank (2006-2015)
1 Singapore 552 543 +1
2 Hong Kong (China) 533 542 +1
3 Japan 529 517 +7
4 Macao (China) 527 509 +10
5 Estonia 524 516 +6
6 Chinese Taipei 524 526 0
7 Canada 523 529 -2
8 Finland 523 553 -7
9 Korea 519 542 -5
10 B-S-J-G (China) 514 – –
11 Slovenia 509 506 +5
12 Ireland 509 509 +3
13 Germany 508 505 +4
14 Netherlands 508 521 -6
15 Switzerland 506 513 -3
16 New Zealand 506 524 -9
17 Norway 504 487 +11
18 Denmark 504 501 +4
19 Poland 504 500 +4
20 Belgium 503 511 -7
21 Australia 502 520 -12

Source: OECD (PISA)

What is wrong and how can we fix it …

Smarter people than myself have been contemplating this problem. Most of the information below comes from a Conversation article “Six ways Australia’s Education system is failing our kids”. .. and the answer is not just spending more money.  Education spending in Asia is around 2-4% of GDP and lags that of Western countries (about 5%).  Perhaps a clue can be found in the importance that other countries place in education – In addition to normal schooling, around 80-90% of Asian families are willing to give their kids private tuition, compared to just 20-30% of households in western countries.

The solution to this alarming relative fall in standards is complex but a good start would be to bring Education more to the forefront of Australian minds. Germany had a similar fall in its PISA scores in the year 2000. However, in contrast to Australia, it started a national conversation that saw education on the front page of newspapers for the next two years! Germany has since greatly improved its ranking.

There seems to be a morale problem with teachers. Gabrielle Stroud reports that new teachers complain of a lack of support and have difficulty getting  secure full-time jobs. Experienced teachers complain of the many non-teaching duties that they have to do and they don’t have time for mentoring younger staff. Also it seems that teachers are not hanging around …

Australian Bureau of Statistics suggest 53 per cent of people who hold a teaching degree do not currently work in education. – from abc.net.au

A few of the distressing facts from the Conversation article …

Australia ranks 22 out of 37 on the OECD league table that measures the total investment across education as a percentage of GDP.

In maths and science, an average Australian 15-year-old student has the problem-solving abilities equivalent to an average 12-year-old Korean pupil.

Australia is just about the only developed nation that does not make it compulsory to study maths in order to graduate from high school.

Teacher education degrees had the highest percentage of students entering with low University entrance scores.

You cannot expect top performances if we recruit our teachers from below average students. Perhaps we should take a lead from Singapore, where  the government has focused on a centralized system of education and a key factor in their ranking rise has been the standard of teaching, recruiting their teachers from the top 5% of graduates.

“Singapore invested heavily in a quality teaching force – to raise up the prestige and status of teaching and to attract the best graduates,” – Prof Sing Kong Lee, Nanyang Technological University

From Rise of Asia

Whatever we do, we must do it soon and hold our politicians to account for this depressing trend. The march to be successful in the future depends on ideas and technology –  and the growth trends are definitely in China’s favour.

I haven’t even started on the sparsity of financial education in Australian schools … I think I had better go for a lie down!

November 2017 – End of Month Update … and the rise of the Asian Middle Class

Slack Investor remains IN for US, UK, and Australian index shares.

… and further gains for the Australian Index (+1.0%) and the US index (up 2.8%).  The UK Index dropped 2.2% in November due to what the Financial Times attributes as the “Firmer Pound contribution”.

Slack Investor is on the couch again and

From Pixabay

marvels at the sage judgement of the Financial Times – and most other financial publications that always assign a reason for the random walk of market fluctuations after the fact.

 

Asian middle class on the rise

While on the couch, Slack investor has an ear out for world affairs and came across an article from the accomplished fund manager (and Asia Buff) Kerr Neilson – The Rise of Asia – worth a full  read if you have the time. The article points to the need to consider Asia, and its effect on the world economy, over the next 10-20 years. It is a powerful collection of facts e.g,

  • China and India have grown their economies consistently at 6-7% for the past 20 years – they are now 4 times bigger than they were in 1998.
  • When measuring purchasing power, their combined GDP of US $33 trillion is 50% larger than either the US or the EU!
  •  China and India originate nearly 120 million high-spending overseas travellers each year.

The last point is backed up by CNN Money who report that the number of Chinese tourists travelling internationally has more than doubled to 120 million people over the last five years – 1 in every 10 international travellers now comes from China. 

Chinese people tend to begin traveling abroad once their household earns about $35,000 – from CNN Money 

The rapidly rising middle class of these countries is behind this increased tourism and the graph below indicates the influence of these two economies will be on the rise.

Sourced from Australian Financial Review

Mental Note Slack Investor – Look for Asian themes in your investments.

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

 

Do not be afraid of failure

From Pixabay

Based upon fear of what he might discover, Slack Investor keeps most personal introspection to a minimum. However, for a number of reasons, I am particularly fond of reviewing  investment performance. … and always looking to tie in a quote from a great scientist and Time Magazine’s 1999 Person of the century – Albert Einstein.

Image from laserfiche.com, quote from brainyquotes.com

Anyone who has never made a mistake has never tried anything new – Albert Einstein (1879-1955)

Slack Investor has made plenty of mistakes and regularly racks up the failures. The 2017 Financial Year, (1 July 2016 – 30 June 2017) annual review of his portfolio has revealed a few “shockers” in the Slack Investor Self Managed Super Fund (SMSF ) portfolio – which I not so proudly list (with their percentage losses) as my financial year investment “fails”

  • Sirtex (SRX) -34%
  • TPG Telecom (TPM) -23%
  • McMillan Shakespeare (MMS) -16%
  • G8 Education (GEM) -15%
  • APN Outdoor (APO) -14%
  • Amaysim (AYS) -11%

These companies have usually dropped in price during reporting season where a bit of bad news, or a failure to reach projected profit forecasts, triggered dramatic price falls. In all cases, these stocks were eventually sold because they breached the end of month stop losses that I had set.

Slack Investor just accepts these setbacks as part of the investment process. The type of companies that I invest in are usually

  1. Growth companies
  2. Have an above average “return on equity” ROE
  3. Have an above average “price to earnings” P/E ratio – Where P/E =Current price/Historical earnings.

The reason that Slack Investor is interested in these stocks is that they usually have higher projected earnings in the years ahead and should perform better than the general market. When I am looking at a stock, the forecast P/E ratios are given much more importance than the actual P/E ratios. However, it is the nature of these stocks to be particularly sensitive to any change in the forecast earnings. If profit forecasts are not met during a reporting season (sometimes referred to as the “confession season”), then there is a mad rush for the exits and the price plummets. Slack Investor is not a day trader and prefers not to watch his stocks continuously. As a result, he is never able to pick the precise right time to bail out.

I am sure there is a cost to this monthly decision making technique – but it is a price a pay gladly. The “peace of mind” in knowing that I only have to make stock decisions once a month – and that I can ignore the daily fluctuations of share prices is priceless to me.

The upside of dealing with these type of companies is that they have excellent growth potential. Thankfully, there was some good news in the portfolio this last financial year due to some heavy lifting from the following stocks.

  • Corporate Travel (CTD) +66%

    from thinklikeatrader.co.uk
  • Challenger (CGF) +57%
  • Altium (ALU) +37%
  • Macquarie Group(MQG) +36%
  • Commonwealth Serum Laboratory (CSL) +25%
  • Nick Scali (NCK) +22%

So far, the Slack Investor approach has been very fruitful. I usually own about 20 different stocks and this diversity allows my portfolio to have some individual failures and still do well.

The point of this post is that you can fail in the stock market … but also succeed. I certainly do not dwell on these failures – they are just part of investing.

For the 2017 financial year my SMSF portfolio achieved an overall return (IRR) of 19.5%.

Cryptocurrency … Kryptonite!

Bitcoin is everywhere in the media. Tales of fortunes made from just investing in this cryptocurrency and waiting till it rapidly accelerates in price – it sounds like the ideal investment vehicle for the Slack Investor!

Superman encounters Kryptonite and starts to lose his powers … Image found here … but original material from DC Comics

Well … not really!

Slack Investor is a student of history and feels like this has all happened before … Some people may be able to make their fortunes through this type of vehicle … but I reckon you would be taking a big risk … Cryptocurrencies might become Kryptonite for the casual investor.

There have been many famous “bubbles” in history, see The Bubble Bubble, The trading commodity may vary but they they all have some things in common, a period of “rampant speculation” … where the price rises sharply …  and an eventual crash. Bitcoin has been through several of these cycles already in its brief history – and each time so far has gone on to make higher prices.  Those around in the late 1990’s may remember the dot.com bubble the bubble burst in a big dip of the NASDAQ index shown below left.

Dot-com Bubble Chart (Nasdaq Bubble)
The dot.com bubble shown on a late 1990’s NASDAQ chart from thebubblebubble.com
The South Sea Company bubble 1716-1720, from thebubblebubble.com

 

 

 

In the days of the British Empire, in the early 1700’s, the South Sea Company purchased the rights to trade in the South Seas from the British Government and then went to the public to raise money. This was a time of prosperity for some and the money flooded in … and the price rose spectacularly (above right). Despite having this great trade monopoly, the company was mismanaged and eventually failed when the news came out that the management had sold their shares.

A hero of Slack Investor’s, and not a bad scientist and mathematician, Isaac Newton became involved in this saga as an investor. The quote below comes from the updated version of Benjamin Graham’s  “The Intelligent Investor,” by Jason Zweig.

Sir Isaac Newton

“Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he ‘could calculate the motions of the heavenly bodies, but not the madness of the people.’ Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in [2002-2003’s] money. For the rest of his life, he forbade anyone to speak the words ‘South Sea’ in his presence.”

I have included a $USD price chart for Bitcoin – worth over $7000 USD on 7th November, 2017. The chart is below and it maps a spectacular rise since 2010 – when you could pick up a bitcoin for under a dollar! It might be possible to make money using the “greater fool” theory of investing – but your timing had better be impeccable –  it looks like a “bubble” to me!

The bitcoin price in US Dollars – From coindesk

Rather than “Bubble” investing, Slack Investor likes to invest in a diverse range of growth companies – these are real businesses that hopefully have unique products. They are businesses that are run well and are forecast to grow. Financial independence might take longer this way … but the results are surer, and I sleep well at night. I will leave Bitcoin to the speculators.

After all, if a very clever bloke like Issac Newton couldn’t make money on a bubble … what hope does Slack Investor have?

October 2017 – End of Month Update … and Index Page Updates

Slack Investor remains IN for US, UK, and Australian index shares.

… and what a bumper month it has been with all markets that I follow on the rise – The Australian Index rockets 4.0%, the UK index up 1.6% and the booming US market up a further 2.1%.

From Incredible Charts

Slack Investor gets off the couch and has a look at the UK Index … as it is recovering from a small fall in September where the monthly price range (the red third bar from right) breached the 10-month moving average (black line). This breaching is a trigger for the Slack Investor trading method as it establishes a new “higher low” for a moving of the stop loss upward – as a new support price has been established.  The stop loss for the UK Index was moved upward from 6677 to 7196.

Index Pages Updates … Radical Man!

Based on image from Pixabay

I have undertaken a major change to the Index pages (ASX, UK, US). Previously I have been basing my decisions on Exchange Traded Funds (ETF’s) that I own that are proxies the actual Indexes for each market. As there are a multitude of these ETF’s, it makes more sense to make my decisions on the actual indexes – as this will have more relevance to the readers that are exposed to the general market indicies through whatever means e.g. another index-based ETF, Superannuation funds or Retirement Plans (US).

From the current investment cycle, Slack Investor will base his decision on the following charts

All Index pages are updated together with the charts to reflect these changes. Also, the the previous charts based upon the Index ETF’s are also kept at the bottom of the page for reference (for the super keen!) on the index pages – (ASX, UK, US).

Measurement … The Sweet Science Part 3


Paul Keating, the father of dividend imputation (franking credits) in 1987 – when he was the Treasurer for the Australian Government. He was Prime Minister 1991-96 and is shown here ready to nail to the wall any “24 carat pissants” and “mangy maggots” that cross his path. Source

Previous posts One and Two in this series show a few simple ways to calculate your portfolio performance. Slack Investor has a complicated set of portfolios with inflows and outflows during the year and, for an accurate performance figure, it is necessary to account for the time that your money is available for investment. For example, an additional $10000 invested at the start of the year should add more value to your portfolio compared to an addition in the last week of the year.

I usually calculate returns before taxes, this is sometimes referred to as “gross of tax”. An important reason to do these calculations is to compare your investments with other investments, such as a managed fund, super fund, ETF or another benchmark. With very few exceptions, performance figures are always reported pre-tax. In Australia, we are lucky enough to have our dividends mostly “franked” or tax paid at the rate of 30%. Thanks Paul Keating … you are a legend!

So I include these franking credits in my return calculations as they represent tax already paid on my Australian Dividends.

The Internal Rate of Return (IRR) and Time-Weighted Return (TWR) are two different ways of calculating portfolio performance. The IRR measures the actual return achieved by an investor’s money in a portfolio. There are also good arguments for using the TWR, Both IRR and TWR take into account the time value of money … The arguments for each are presented here –

Slack Investor likes to do things accurately … but easily! The TWR requires a portfolio valuation after every inflow/outflow and this adds an extra step to the calculation. With a spreadsheet, the IRR calculation is a simpler process. So Internal rate of Return (IRR) is what I use.

3. Portfolio with inflows and outflows – Internal Rate of Return (IRR)

The IRR is also known as the “money weighted rate of return” and the calculation is complex as it involves trial and error mathematics – for the enthusiasts further details can be found here.

The good news is that with an Excel spreadsheet, all this is taken care of by the XIRR function and you only have to enter the start value of your portfolio, dates of inflow/outflows and finish value. I have included the rather complex set of inflows and outflows based upon my SMSF portfolio and hope that your portfolio is simpler. Just use the lines that you need, but it is important that you have an initial date and balance, and a finish date and balance – (scroll down to the bottom of the spreadsheet). Inflows are entered as positive numbers and outflows as negative.

To download the Excel spreadsheet that that performs these calculations go to the Resources Page.

Of course, if this is too difficult, you can always get a bit of software to do your portfolio management and return calculations. Slack Investor likes to keep the costs of investing on the down low and Sharesight in Australia is an excellent choice for the starting investor. They offer free monitoring of investments, capital gains and performance reports if you have 10 or less investments to track. Slack Investor monitors his shares with the retired but excellent (and free) “Sunset” international version of Microsoft Money  Australian Version, UK Version, US Version linked into share prices with MSMoneyQuotes. The latter is not freeware but it is $10 US well spent.

In the USA, Personal Capital is recommended. 

Infrastructure … Boom!

There are plenty of naysayers in the market today but, from the couch, Slack Investor has been noting a few things.

Since 2008, the Reserve Bank of Australia (RBA) has been cutting interest rates from 7.25% to 1.5%. This is the right thing to do for this independent body when the country is recovering from a bit of trouble and they have helped Australia avoid a recession for over 25 years.

Portrait of Isaac Newton at 46 in 1689 by Godfrey Kneller – Wikipedia

However, the great mathemetician and scientist,  Issac Newton (1642 -1727), the inventor of Calculus and the Laws of Motion – and heaps more – had a few insights.

To any action there is always an opposite and equal reaction

It is not quite opposite (or equal!) but there are a few consequences of these lower interest rates. This cheap money, together with overseas investment (and a few other factors) have helped home prices in Sydney increase  76% from December 2011 to March 2017. The state government “clips the ticket” on all of these home transfers and the state budgets of New South Wales (and Victoria) are moving rapidly into big surpluses as home prices rise. Where will this money go?

Australian politicians (of all persuasions) have been getting a lot of (mostly deserved) bad press – but behind the scenes, some good things are going on. When money is cheap, this is exactly the right time to borrow for nation building assets. According to a recent Milford analysis for the next budget cycle, the NSW Government will be spending an additional $4.4 billion on school upgrades, $7.7 billion on health infrastructure and a staggering $72.7 billion on infrastructure.

An AFR article quotes the Commsec economist Craig James. He laments that the focus has been on “negatives such as high household debt, weak consumer sentiment and low wages growth, research published this week shows almost $100 billion in local, state and federal government spending will hit the economy this financial year alone.” The cool graph of proposed infrastructure spending is presented below – please click for image for greater resolution.

Modified From Source
 Slack Investor generally does not think in terms of investment themes, but the chart of an Australian infrastructure firm WorleyParsons Ltd (WOR) has been speaking to him. After a long term down trend in price, WorleyParsons management have cut costs and are riding the wave of this infrastructure development since the start of 2016. This is not advice, and Slack Investor is a bit late to this party, but he has cut himself a slice of the WOR cake. Click on chart for greater resolution.

September 2017 – End of Month Update … and “Ultimate Job”

Slack Investor remains IN for US, UK, and Australian index shares.

A mixed month for all markets that I follow – The Australian Index slumped 1.6%, the UK index flat (-0.5%) and the booming US market up 2.1%. Slack Investor stays on the couch and almost does nothing …

In response to the US SPY Index rising over 20% from the last setting of the stop loss at the end of December 2016. This movement triggers a reassessment of the stop loss from 208 up to 232. Hopefully this will lock in some profits when the inevitable correction on the US Markets occurs.

… and now to Slack Investors ‘Ultimate Job’ The AFR reports that the Reserve Bank of Australia (RBA) could potentially set a record for doing nothing. 

The new ‘Guvner’ riding the horse of the Australian Economy. From HeraldSun.com.au

The RBA Governor Philip Lowe who, by the way, is yet to match Slack Investor’s favourite RBA chief (Glenn “Sexy” Stevens) for lack of charisma, is looking at an unusual record … the longest stretch of monetary policy inaction in more than 20 years. Dr Lowe is only in the second year of his new job.

Australian economists expect no movement from the “emergency low” cash rate of 1.5% this month which will be the 13th month in a row  of inaction. However, for a record to fall into place, all he has to do is nothing right up to the May 2018 board meeting. This would be no action for 18 straight meetings – beating the record 17 meeting run of inaction for between early 1995 and July 1996.

No wonder this is Slack Investor’s ideal job! Pulling the levers on the Australian economy comes with a salary of over a million dollars – and, I don’t really begrudge him that … (there are meetings to attend!) … this is a wage package that wouldn’t get him into the top 50 of Commonwealth Bank executives! Don’t get me started here!

Dr Lowe is sitting tight because of the sensitive nature of the Australian economy with very low wage growth and the large amounts of household debt that Australians have. But other world economies are starting to climb out of the exceptionally low borrowing rate world. There have been rate rises in Canada and England. The US Federal Reserve chair Janet Yellen has flagged further rises this year … and, this is not such a bad thing as it means that she is starting to think that the US economy is getting stronger.

I have updated all Index pages and charts to reflect the end of month data. My Portfolio page is also updated as it is the end of the quarter.

Measurement … The Sweet Science Part 2

Lord Kelvin (1824-1907) – based on image from Wikimedia

 

Measuring your portfolio performance can do your head in … but Slack Investor thinks that it is important that you set aside a time to evaluate your investment performance at least once a year. I choose the end of the financial year in Australia (June 30) as a good time for these calculations … but you can chose your own date … and, if whatever you do, you do it consistently … you are going to be OK.

First of all … why measure? Lord Kelvin was a smart bloke – as discussed previously, measurement adds to our knowledge – By measuring your own portfolio performance you get an idea of how you are doing compared to other portfolios, share indicies, or managed funds. If you consistently underperform against other bench marks … then it might be time to become the ultimate Slack Investor and outsource your portfolio to Index funds.

Outsourcing into passive investment is not so bad … if the fees are kept low … “The Buff” , (aka Warren Buffet, the worlds greatest investor!)  has promised to give away 99% of his $65 billion fortune when he dies – the remainder of his fortune will be invested in bonds and index funds to support his wife and family.

My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers. from source

  1. Portfolio with no inflows or outflows

Lets start simply … supposing your have the most basic portfolio that reinvests its earnings with no external inflows (“cash in”, contributions, or transfer) and no external outflows (“cash out”, pension payment, or transfer) from your investment portfolio during the year and you want to do a performance calculation to benchmark yourself with other funds and investments. Most people can come up with a starting value and an ending value of their portfolios at the year (financial year) end – this includes the value of your stocks and any portfolio cash. Slack Investor prefers to calculate his returns before tax. So, tax credits such as franked dividends are included in his portfolio return.

Whatever happens inside this portfolio – buys and sells, dividends, interest, expenses, brokerage and fees – are just part of the portfolio business and will be reflected in its finishing value.

An Excel spreadsheet that will make this job easier is available on the Resources Page.

2. Portfolio with inflows and outflows – Approximation

However, for most real portfolios, there is money transferred into, or out of, your portfolio account during the year. Unlike the Beardstown Ladies, if you want to accurately portray how you are doing, it is imperative that you account for cash flows either in or out of your portfolio. If you want the least amount of work and you are willing to calculate your portfolio return approximately – the way below will work a treat. A net contributions figure is obtained (inflows – outflows) to give an ‘average’ amount of capital invested during the year and by subtracting 50% of net additions from the ending value and adding 50% to the beginning value – we get an approximate percentage return.

An Excel spreadsheet that that performs these calculations is available on the Resources Page.

Of course, in real life, rather than using averages, portfolio returns depend greatly in the timing of when you had capital available. The above is an approximation. Slack Investor chooses to go into more detail to reflect the time value of money for his portfolio. These intricate ways will be revealed in the last of this measurement series next month.

 

August 2017 – End of Month Update … and Fund Returns FY2017

Slack Investor remains IN for US, UK, and Australian index shares.

A steady month for all markets that I follow – Slack Investor stays on the couch and does nothing …

The Chant West media release  referred to in the previous monthly update has plenty of other useful information.

Fund Performance Results (Up to June 30, 2017)- Source Chant West

The above table quotes the median performance figures from various types of funds that Chant West monitors, ranging from All Growth to Conservative. As mentioned in a previous post, the 1-Yr column shows it has been a bumper year  for all types of funds – If you owned any growth fund during the last 7 years, you would be tremendously pleased with the 10% pa returns.

The GFC (Global Financial Crisis) of 2008 (and later years) continues to weigh down the ten year returns (4-5% for growth assets).

Over the last 25 years, Chant West found the returns of growth funds were a more reassuring 8.3%. It just drives home the devastating affect of a major downturn that an event like the GFC has on growth funds. The figures are, in the jargon of the industry,”net of investment fees and taxes” … but curiously before admin fees and advisor commissions … but this is another story!

Growth Funds – Rolling 5-Year Performance (Returns %pa) – Source Chant West

The above graph compares the growth category median (rolling 5-year) with the average return objective for growth funds – CPI (Consumer Price Index) plus 3.5%. This is a typical target for growth funds. In an environment where cash returns are mostly below 2% there is risk involved with investing in growth assets.

I never ever ever thought I would be quoting the far-right (recently) former Trump employee on this site.

“My old firm, Goldman Sachs – traditionally, the best banks are leveraged 8:1. When we had the financial crisis in 2008, the investment banks were leveraged 35:1.”
― Steve Bannon, Media Executive and former Investment Banker source

However, “Breitbart Steve”, after the fact, your quote rings true … the signs are always there …  Excessive borrowings (leveraging) and a willingness for people to pay top dollar for overvalued assets are sure signs that trouble is coming.

Slack Investor is comfortable with risk and would always prefer growth funds – especially with a large time horizon – but I will never be able to avoid ordinary fluctuations (corrections) in the stock market. A disciplined approach to stop losses should keep me out of the huge falls that the GFC presented to owners of shares.

Although valuations are generally high, Slack Investor does not see a bubble in the Australian or UK Stock Markets for now – Unlike the US market, Australian and UK share valuations are not too far higher than long term averages – and there has never been a calamitous fall in stock values without a bubble first. Regardless, my stop losses will protect me from huge losses of capital.

I have updated all Index pages and charts to reflect the end of month data.