Control the things you can control … Super Fees

File:Tax payment to a lord - BNF Fr9608 f11v.jpg
Tax payment to a lord – Meister der Apokalypsenrose der Sainte Chapelle

While the market is doing what it does and there is the feeling of Armageddon in the price of stocks, Slack Investor knows that he has no control over market sentiments and, as a welcome distraction, he is having a look at some of the things he does have control over – the fees that he pays for financial services. Superannuation fees are still too high – some of the highest in the OECD. This is a recurring theme for Slack Investor.

I like to think that the Slack fund is a pretty trim ship – but, there is always room for improvement. Slack Investor runs his family super through a Self Managed Super Fund (SMSF) – but this is not the best option for those who are time poor or, don’t want the stress of the management of your own retirement. On the plus side, for larger balances, if you use a low cost provider, it is relatively easy for a SMSF to restrict fees to less than 0.5% of funds under management.

High super fees linked with underperformance

Fees are the other most important factor when choosing a superannuation fund. You can’t control how markets perform, but you can control how much you pay for the management of your hard-earned money.

Stockspot Fat Cat Report 2021 – Annual Report on Superannuation funds by Stockspot that sorts each fund into “Fit Cats” (Good) and “Fat Cats” (Bad).

As a general rule, for profit (Retail) super providers charge fees in the 1.4-1.8 % and the not-for profit funds charge 0.8-1.0 %. For larger balances (>50K), if your annual fees are more than 1.0% of your total super balance then it is time to look elsewhere – try to get your super fees below 1.0%.

Fees Charged by APRA regulated super funds as a percentage of assets. For profit funds (Retail) funds compared to Not-for Profit funds (Industry funds) – From Crikey: Why the hell are our superannuation fees so high?

There is a clear correlation between high fees and long-term underperformance in superannuation.

Stockspot Fat Cat Report 2021

What to do?

I recommend all Australian readers to drag out their latest annual super statement and find the total amount of fees and charges. Divide the total fees by your total super amount (x 100) and you will have the percentage of your super that you are paying in fees.

Canstar have compiled a 2022 Outstanding Value Superannuation Award winners report that allocates a star rating for superannuation funds. based upon 5-year performance (after all fees) and features of each account. A four or five star rating is good. Their top rated funds for value in 2022 are all Industry funds and are listed below – these would be on the shopping list if I wanted to change my super fund.

Super FundType
Australian Retirement TrustSuper Savings
Australian Super Australian Super
Aware Super Personal
Cbus Super Cbus Industry Super
Hostplus Personal Super
UniSuper Personal Account
VicSuper Future Saver / Personal Saver

For more detail on how your super compares with others, there is a fantastic bit of superannuation comparison software, designed by Chantwest, called Apple Check. You have to give up some contact details for the form and access it through individual super fund sites … but they have provided great comparison info on super products to Slack Investor with no spamming. Worth doing if you are considering a switch and want to be fully informed of a fee comparison that applies directly to your situation.

I have compared two non-profit Industry funds (UniSuper and AustralianSuper) with a for-profit Retail fund (AMP Summit) for a nominal $300K account – in both Accumulation and Pension mode. Clearly AMP Summit has higher fees for both an Accumulation a/c and a Pension a/c. I would be happy to pay higher fees of a retail fund (AMP Summit) if there was an established increase in performance. However, the Apple Check report shows a 10-year net return (investment returns after all fees) of the retail fund is at least 10% worse than either industry fund.

Apple Check comparison of fees for ACCUMULATION accounts of $300K. Unisuper (0.48%), AMP Summit (1.22%) and AustralianSuper (0.72%).
Apple Check comparison of fees for PENSION accounts of $300K. Unisuper (0.57%) , AMP Summit (1.22%) and AustralianSuper (0.77%).

Market downturns are never easy, but Slack Investor knows that this time will pass – and in the meantime, I will pursue the distraction of fine-tuning the financial fees that I do have control over.

Know your worth – but keep it smooth … and May 2022 – End of Month Update

“…the worth of that is that which it contains, and that is this, and this with thee remains.”

William Shakespeare (1564-1616) – Sonnet 74

Slack investor is accepting that Bill had quite a way with words, and that he may have been making an assessment of how a character’s worth will live on with his own writings. He wasn’t talking about financial worth here – but Slack Investor has often drawn a long bow. It is fair to say that Shakespeare wasn’t a dill with money, as a result of his works, he was well off, but not super-rich. I am not sure if the Bard took his financial independence skills seriously – but he was an investor in land.

Tracking your net worth – particularly your investing net worth – is so important to your financial well being these days. Your investments net worth is a vital number that will be used to fund your retirement income. Using the 4% rule, if you divide your investment net worth by 25, you will get an idea of your annual income that this net worth will generate in retirement.

“When you understand that your self-worth is not determined by your net-worth, then you’ll have financial freedom.”  

Suze Orman – American financial advisor and TV and podcast host. She is a prolific finance author – A noble statement, however, not sure I agree with you here Suze. Self worth is so very important – but it’s a long way from financial freedom! Lets work on both.

Measurement of Net Worth

It is a trait of Slack Investor that he likes to measure things and put them on charts. Net worth is no exception. My mother would dismiss such things as crass – but tracking your Net Worth is quite a thing amongst the financial independence set. It is a simple matter of listing your assets and then subtracting your liabilities. Slack Investor likes to keep his house (that I live in) separate from other assets – It is your non-house assets that will fund your retirement.

“Know your worth. People always act like they’re doing more for you than you’re doing for them.”

Kanye West (Slack Investor is impressed with Kanye’s self worth!)

Let’s Smooth things out

The One … the only – Kenny G. Smooth Jazz – Why are people so unkind?

I learned an important investing lesson long ago – about not treating your temporary investment gains/losses as real things. They represent a transitory moment in the great oscillation between the times when the market price for your stocks is unreasonably high – to moments when they are unreasonably low. Such is the pattern of stock volatility.

Slack Investments Net worth tracked on a monthly basis for the past 5-years. The blue columns represent the Slack Net Worth. The red line is the “lagging” average of the previous 12-mth net worth totals. This is close to the “real” Slack net worth.

Although I monitor the price of my investments on most days, and collect monthly investment net worth totals, I have taken a lead from Kipling on how I treat these totals.

“If you can meet with Triumph and Disaster. And treat those two impostors just the same.”

Rudyard Kipling – from the poem “If”

Because I grudgingly accept volatility as a price to pay for involvement in the wealth creating aspects of share ownership, I don’t accept the daily or monthly figures as real valuations of the Slack Net Worth.

I put my monthly totals in a spreadsheet and then take the average of the previous 12 months. By smoothing things out, the (red line) gives me an a figure that is close to what I think is my actual investment net worth. The reassuring thing is, that despite some serious monthly investment net worth declines in the past 5 years – December 2018 (-10%), March 2020 (-17%), and May 2022 (-12% so far!) – the red 12-mth “lagging” average line of Slack Net Worth has gone reassuringly upwards. This as been the case since I started tracking 12-mth average net worth back in 1991. An example of the excel spreadsheet that calculates the trailing 12-month Slack net worth can be found in the link below.

NetWorthWebDownload

Believe me … this helps a lot in the testing times of a falling market.

May 2022 – End of Month Update

Slack Investor remains IN for Australian index shares and the FTSE 100 – but OUT for the US Index S&P 500 due to a sell in January 2022.

Another volatile month, with the S&P 500 ending up flat +0.0%. The FTSE 100 drifting upwards +0.8% and the ASX 200 down -3.0%.

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

Is your democracy sausage a little warm?

Australia election: Fines, donkey votes and democracy sausages - BBC News

For those in far off lands, a “democracy sausage” is the exquisite mixture of sausage, onions and sauce wrapped in a slice of bread that you purchase from a charitable organizations as a “reward to self” after voting at an election booth in Australia. Australia is coming up to a national voting day on 21 May, 2022. This is a day I have always enjoyed as I exercise my democratic rights and vote. Although over half the world countries are designated as democracies, due to recent changes by national governments that curtail press freedoms and suppress dissent, there is the evaluation that less than 20 percent of the world’s people now live in a Free country!

But lets not get too depressed about things I have no control over. For now, Slack Investor does have a vote.

Fossil Fuels and Climate Change

For the progress of civilization, it seemed to be an excellent idea to use fossil fuels (Coal, oil and natural gas) to provide relatively cheap energy. These fuels took hundreds of millions of years to form as vast amounts of plant matter was converted into stored carbon.

Fossil fuels are non-renewable and currently supply around 80% of the world’s energy

Client Earth – February 2022

When we use these fuels for energy, the carbon combines with oxygen – and carbon dioxide is released. Carbon dioxide, is one of the “greenhouse gases”, that trap heat in our atmosphere, causing global warming. 

The problem is, that we have managed to release huge amounts of the stored carbon dioxide in the relatively short time since the industrial revolution.

From an IPCC Report showing the rapid observed increase in global temperature since the industrial revolution – especially since the 1950’s – Climate Change 2021: The Physical Science Basis

Firstly, we must recognise that global warming is a real problem for our Earth. There is ample evidence of climate change leading to rising temperatures, rising sea levels, decreased cool season rainfall for southern and western Australia and increased weather-related disasters. Our current amount of warming due to the rapid release of these greenhouse gases is 1.1°C. Urgent action is required if we are to keep the warming below 1.5°C- We can all do our little bit to reduce our fossil fuel consumption – But real change must be led by our governments.

Emissions of greenhouse gases from human activities are responsible for approximately 1.1°C of warming since 1850-1900, and finds that averaged over the next 20 years, global temperature is expected to reach or exceed 1.5°C of warming

IPCC Report, August 2021 – Climate change widespread, rapid, and intensifying

With the Australian election looming, I am grateful to a timely Ross Gittins article and to Climate Analytics for doing the hard work of actually assessing the impact of the politician promises to help reduce greenhouse gases in order to reduce global warming. They assess Liberal party policies as leading to a warming of 3.0°C by 2030: Labour party policies consistent with a 2.0°C of warming; Teal Independents and Green party policies are consistent with a 1.5°C of warming.

Emission reductions for 2030 are very important if the
world is to have a reasonable chance of limiting warming
to 1.5°C, the long-term temperature goal of the Paris
agreement.

Climate Analytics
Climate Analytics analysis of the likely effect of of the major Australian political parties climate policies on Greenhouse gas levels and global warming.

If you think that climate change is an important issue. Think about your vote.

Slack Investor usually writes about financial matters – but a recent survey of Australian economists found that 74% of them rated “climate and the environment” as the most important issue for this up-coming election.

Also, what is the use of having a blog – if you cant have the occasional rant!

Spurious Correlations … and April 2022 – End of Month Update

Cheese Before Bed Will Not Give You Nightmares

Slack Investor is a lover … of cheese. He follows all cheese related literature and was shocked by the revelation that “Death by Bedsheet Entanglement” is highly correlated (0.95 Pearson R correlation) with cheese consumption. The thought that over 800 people died in the US in 2008 at the hand of their sleeping equipment is terrifying.

A quick explainer on the correlation coefficient, it is just a way to measure how strong the relationship is between two variables. The correlation coefficient ranges between +1.00 (perfect positive correlation) through zero (no correlation) to -1.00 (negative corrrelation)

The close association between cheese and bedsheet deaths – Click Image for more detail – Data sources: U.S. Office of Management and Budget and Centers for Disease Control & Prevention – From tylervigen.com

Slack Investor salutes Tyler Vigen here – a bloke who wrote a program that crawls through unrelated government data sets to find spurious correlations. The above chart is one of these random pairs of data that were thrown together by his program. Almost 50 000 of these graphs that show unlikely correlations have been found so far – and one more is produce every minute! Hats Off Tyler.

Correlation does not mean causation

First lecture in Statistics 101

In the cheese consumption case, it is hard to think that eating cheese actually causes bedsheet entanglement. The first step when trying to establish a link between two variables is correlation. Then, most importantly, experiments must be done to show that A actually causes B – Is there a reason that makes sense? Some people link cheese to nightmares, but there is no scientific evidence linking cheese to death by bedsheet … so, this high correlation is probably just due to chance and a limited data set (10-yr). There is likely to be a missing other variable that’s the true driver that causes the correlation. I would speculate that both variables might be linked to general population trends – but this would have to be tested.

Using Sector Correlations in Investing

Slack Investor has been banging on a bit about “Sectors” lately. and despite not feeling the need to match his portfolio with the sectors of the S&P 500 (Or ASX 200), sector analysis can be useful.

My Investments portfolio consists mostly of “growth stocks” in the Technology and Healthcare sectors. The table below shows a high correlation of these sectors with the total market – they will tend to move with the general market during an occasional downturn. The Nasdaq Composite is down about 23% from its November 2021 high – the Slack growth portfolio is down about 7 % so far this financial year – Not fun, but I do expect the occasional down year.

Sector correlations with the US stock Market – A Sector that would exactly move up and down with the US stocks would have a correlation of 1.00. Low scores ie Utilities do not move up and down the same way as stocks. – From Morningstar 2000-2018 data

However, I want my Stable Income pile, 30% of non-house wealth, to be much more conservative. It holds annuities, fixed interest products and some shares. The shares in the Stable pile need to have a low correlation with the general stock market – as, when the stock market does poorly, I want this pile to be OK.

For my Stable pile, I choose stock sectors that are not highly correlated with stock market fluctuations (circled in red below). I already have some REITS (Listed Real Estate – Correlation 0.59), and some Consumer Staples (Correlation 0.57) which Perhaps I should buy some more Utilities and REITS (real estate). When I get an opportunity, I would like to buy some Utilities (Correlation 0.40) for the Stable pile.

I am always on the lookout for spurious correlations and the 19-year data set, in the above table seems sufficient (would like longer!). Do the correlations make sense? For example, it seems reasonable that Utilities would have a low correlation with the general market. It is a sector that would be able to keep its earnings and maintain its stock price – even during a market downturn.

An asset that has an even lower correlation to the S&P 500 is Gold – and is often seen as a “hedge” to to the stock market. Over a 20-yr period (2000-2020), Gold has a correlation of -0.28 with Australian Equities and -0.12 with Global Equities

Gold has a low (and at times, negative) correlation to other assets

ETF Securities

Smarter people than Slack Investor provide compelling reasons for including Gold in your portfolio – to improve long term returns. But the pig-headed Slack Investor has not yet overcome his old fashioned view that Gold is a speculative investment that does not earn a dividend or interest.

April 2022 – End of Month Update

Slack Investor remains IN for Australian index shares and the FTSE 100 but OUT for the US Index S&P 500 due to a sell – back in January 2022.

Despite some big daily fluctuations, the FTSE 100 (+0.4%) and The ASX 200 (-0.9%) ended relatively flat this month. All is not well in the USA where inflation fears and some mixed results from the Tech sector allowed the S&P 500 to fall -8.8%.

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

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

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

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

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

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

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

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

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

Annual performance for each sector in the S&P 500

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

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

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

Some things that I have gleaned from this graphic

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

Should I change my sector allocation?

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

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

From businessinsider.com

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

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

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

Asset Decisions … and March 2022 – End of Month Update

Between Wealth and Love – by William-Adolphe Bouguereau– From Arthive.com (Private Collection)

Slack Investor doesn’t face such vexed issues as this poor young woman. In this sad, but beautifully painted, scene from the 16th Century there are two suitors – the old bearded one offering wealth in a jewellery box, while the young musician offers only love. Her gaze is turned away from both men and she has a despondent expression that suggests that the decision may not be hers alone.

My decisions seem feeble in comparison to the young girl depicted by Bouguereau. Looking at this painting just reinforces to me that men must do a better job of recognizing some of the often horrible decisions that women have to make. Sure, things have improved for women since the 16th Century – but there is still plenty of inequalities. It is the duty of all men to “lean in” and try to make things better.

Asset Allocation Decisions before the end of the financial year

Slack Investor likes to have a look at my income producing piles at this time of year – The Stable Income pile and the Investments pile. I have to decide how to allocate money for living expenses and how to allocate the amounts in my investment asset mix before financial year end to get it ready for next year.

Lets just back track a bit here and remember that Slack Investor finances were thrown into three piles before retirement– a House, Stable Income, and Investments. Now that I am retired and fortunately have my house paid off, there are only two piles that really concern me – The Stable Income pile (30 %) consists of Annuities, Bonds, Term Deposits and Fixed Interest. I have recently added some shares to this pile that I think won’t be too affected by a share market downturn. This share tranche consisting of a small amount of property trusts, consumer staples and infrastructure shares.

The other pile is Investments (70%)- consists of mostly growth shares (high Return on Equity, historical and forward earnings growth).

Despite the tough recent times for growth shares, after extracting living expenses, the total of the piles has grown slightly so far this financial year (0.2%). With 70% growth shares, positive pile growth will not always be the case. But my asset allocation strategy should help be ride out the bad times.

Dividend season is almost over and throughout the financial year I have taken out most of my living expenses from both piles using income from annuities, interest payments, distributions and dividends. At this stage, my current allocation is 29% Stable Income and 71% Investments. In order to maintain my 30%:70% asset allocation, if I need anymore living expenses I will take it out of my over-allocated Investments pile. I will make final adjustments at the end of the financial year – so that the initial allocations are roughly intact (30%:70%) – ready for the next year.

The decisions I make on asset allocation are to keep my nest egg in good shape – so that it continues to provide income. In a good year for investments most of my living expenses can be withdrawn from the Investments pile. In a bad year for investments, then I dip more into the Stable Income pile. Also, in a bad investments year, I might cut back on my discretionary expenses eg. Travel.

March 2022 – End of Month Update

Slack Investor remains IN for Australian index shares and the FTSE 100 but OUT for the US Index S&P 500 due to a sell in January 2022.

The FTSE 100 was flat this month (+0.4%). There were substantial rises for the ASX 200 (+6.4%) and the S&P 500 (+3.6%).

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

Here comes the Sun … It’s alright

The Beatles at Tittenhurst Park, 1969 – From Rolling Stone

It has been 53 years since the Beatles) recorded “Here Comes the Sun” from their landmark Abbey Road Album. It has been 18 months since Slack Investor installed Solar Panels on his roof and is in complete agreement with George Harrison … This Sun, “It’s alright”.

Here comes the sun

Here comes the sun,

And I say, It’s all right

From “Here Comes the Sun” – Songwriter: George Harrison

Always looking for distractions during the declining months of the stock market … and I can always rely on my solar panels for good news. Solar Choice evaluate solar panels in Melbourne (where I live) to have a 22% – 36% internal rate of return on your investment (that’s good!) – and then there is the mantra of “doing the least harm” by minimising fossil fuel use.

The road to Solar Panels

Firstly, great apologies to planet Earth that it has taken me 6 decades to harness some of the sun’s energy for my personal power use. But what is done is done .. and I am moving forward with the zeal of a reformer.

Like all big financial decisions, Slack Investor was not immune to procrastination. There is always an excuse not to act … ” I’ll wait till I pay off my mortgage”, ” I’ll wait till I get to my dream home”, etc. What I wished that I knew during these periods of hesitation was that solar panels on your roof does not only make environmental sense … but it makes great financial sense.

What is sadly missing in energy debates is an analysis of the “total environmental cost” of each way of producing energy. A 2021 report on production and environmental costs of various means of electricity generation in Europe revealed a compelling case to move to wind farms and solar panels to make electricity. This report does not seem to include the vital battery storage costs in its analysis, but another study found the use of solar panels with utility-scale battery storage will have at least 10 times less emissions and air quality impact compared with natural gas or coal for power generation.

A graphic comparing the cost of various energy sources, along with environmental and health costs

Slack Investor tries to do his homework before dipping into his wallet and, during his solar research, I came across a very informative website solarquotes.com.au. Not only can you find great information on solar energy, but they can arrange quotes from 3 local installers. The system is free to the homeowner – I have no affiliation except for the great satisfaction of using their service. Where I live in Victoria, Australia, the governments are encouraging of Solar Panels and offer incentives to install a solar panel system.

Solar Panels now on Roof

The hard part is always deciding on the detail and, after 3 quotes, only one installer actually climbed on our roof and assessed the shading of surrounding obstructions. I decided to reward this initiative and ended up with a

  • 7.7 kW system
  • 6 kW Inverter
  • 22 x 350W panels
  • Solar Analytics Smart Monitor and lifetime subscription (Well worth it!)

The total cost was $10 906, but with the Australian government $3750 solar credits and the Victorian state government rebate of $1850, out of pocket costs were reduced to $5306

After 18 months, the first revelation to me was the daily variability of solar output of my system due to cloud and rain. The next revelation was the seasonal variability of the output. During winter, the sun is low and relatively weak – Summer is the time of peak production. The third revelation is the economies of using your own power rather than exporting to the grid due to a lower feed in tariff – but that analysis is worthy of a future blog.

The raw daily production of my solar panels in kWh during 2021, showing large daily and seasonal variation – The red line is the daily expected average of solar energy generated by my system – 27 kWh

The projections from my installer suggested a return on my investment after 4 years. The first hurdle is to recover the environmental cost of producing the raw metal, silicon and glass of these panels. With the increasing efficiency of solar panels, the environmental pay back period is between 1-2 years. The next hurdle is the financial costs including installer’s fees. My installer projected a break even point after 4 years.

Pleased to report that, after 18 months, everything is going according to expectations. Go Solar … good for planet … good for pocket … Slack Investor happy!

I am 18 months in to this grand solar experiment, and 39% paid off. The savings come from power sent back to the grid and the use of my own electricity during the day. On current projections the financial cost of the system will be fully recovered in 47 months – Just 4 years!

Get a job, mate … and February 2022 – End of Month Update

LETTERS TO THE EDITOR: Climate action, jobs go hand in hand | The Courier Mail
For admirers of Australian art – this clever cartoon by Harry Bruce, The Courier Mail

The February 2022 Australian Labour Market report indicates that now might be a pretty good time to look for a job. Due to closed borders and huge government stimulus, Australia’s unemployment rate is at a rock bottom 4.2% – a 13-year low!

  • Skills and labour shortages increasing
  • Employers report increasing hiring difficulty

It might seem a little strange that Slack investor, a retired bloke, would be thinking about jobs … but I’m in need of distractions – as the stock market is tanking due to all sorts of uncertainties. I have set my portfolio mostly into stocks that I would like to keep. Although I missed the boat on a couple of my more speculative recent purchases. I have “trimmed the boat” a little, and will now will just wait for better times.

I found an intriguing graphic, amongst many other excellent visualisations, at Four Pillar Freedom. By combining data on occupational stress levels (100 = maximum stress) with median US salaries for 623 occupations, this interactive data plot was produced. The searchable raw data with much more detailed information can be found for occupational occupational stress levels and US job salary estimates.

By hovering your mouse around the data points below, occupations, salaries and stress levels are revealed. Ideally, you would not want a high stress, low-paid job (top left) e.g. Police, Fire, and Ambulance Dispatchers. Even a high stress, highly-paid job would not be that marvellous (top right) e.g. Nurse Anesthetist. The sweet spot for Slack Investor is the relatively low stress and a relatively high salary occupations lower right. As it happened, my working life moved from Secondary Teacher ($54K, Stress: 73) to Atmospheric Scientist ($94K, Stress: 85). I could play with this interactive plot for hours.

Jobs and automation

When thinking about what job you would like to do – it is good to think about the prospects of this job for many years to come. One of the threats to certain occupations is that technology and artificial intelligence will replace your finely honed skills. About 35% of current jobs in the UK are at high risk of automation over the next 20 years.

The top 8 occupations at risk from automation in the UK – Will a Robot take your job? – BBC

A more dense read on the same subject, How susceptible are jobs to computerisation? Over the next two decades, the authors estimate that 47 percent of total US employment is in the high risk category. The sectors featured on the right hand side of the chart below have the biggest probability of computerisation. Jobs in Sales, and Office and Administrative support will be affected the most. A lot of the service jobs will be impacted – but some areas (left of chart) will remain needed.

A US study of occupations that breaks each occupational sector into risk categories, the “Low”, “Medium” and “High” risk of automation – From How susceptible are jobs to computerisation?

In these times of turmoil … tune out a bit on the stock market … and keep working if you can. Slack Investor is heartened to find out (from research for this blog) that, for the next few decades, the likelihood of job automation for a manager of licenced premises … is only 0.4%.

February 2022 – End of Month Update

Slack Investor remains IN for Australian index shares and the FTSE 100 but OUT for the US Index S&P 500 due to a sell in January 2022.

A volatile month, but the FTSE 100 ended up flat +0.3%. The Australian market drifted upwards +1.1% and the S&P 500 down -3.1%.

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

Einstein’s thought experiments

Everyone has heard about Albert Einstein – The theoretical physicist that came up with the famous relationship between Mass and Energy ( E = Mc2 – where c is the speed of light in metres per second). He also came up with ground breaking work in relativity and quantum mechanics. As a student of physics in my younger days, Slack Investor was in awe of this wild-haired genius but, even understanding the very basic concepts of general and special relativity at university … just made my head hurt.

“There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle.”

Albert Einstein

Einstein had a brilliant mind, the 1921 Nobel prize winner was instrumental in developing new ways of looking at energy, time, space and gravity. He often would construct a “thought experiment” to help him visualise the difficult concepts that he was tackling. I will try to explain one of his many thought experiments

Einstein’s elevator thought experiment

The first part of Einstein’s elevator thought experiment is the “equivalence principle” – where Einstein concludes that there is no difference between gravity and acceleration.

From wikiwand.com

To an observer in an elevator drifting along in space experiencing weightlessness. If some “being” attached a rope to the elevator and then started pulling it along with the same acceleration force that gravity provides (9.8 m/s per second), the experience of someone inside the elevator would be exactly the same as if he was in Earth’s gravitational field — they are the same thing to the elevator man.

Because of this acceleration, if a light beam entered one side while the elevator is moving, the beam would appear to drop or curve down as it crossed the elevator. Einstein postulated that light would behave in the same way if the elevator was in a gravitational field. He concluded that gravity could ‘bend’ light.

This prediction was tested by Arthur Eddington in 1919 who devised a very clever experiment during an eclipse that demonstrated a shift in locations of distant stars when recorded during the day (when light would have to move past the sun’s gravitational field) compared with night time measurements.

Celebrating gravity’s light-bending landmark
A drawing showing Eddington’s marvellous experiment. The sun’s gravity really did bend starlight just as Einstein’s theory predicted.

Einstein proposed an extension of this concept with the introduction of the idea of “black holes” in 1916. These strange dense objects have a gravity that is so strong, even light cannot escape their clutches. Black holes remained as theoretical objects for decades – the first physical black hole was not discovered until 1971.

Slack Investor volatility thought experiment

In these tough times where Slack Investor is currently getting a bit of a whack in his share portfolio, he has adapted a thought experiment on coping with volatility.

I go to the end of my driveway and construct a big sign for all the passersby. It says “Shout out how much you would pay for my house”

In this thought experiment, I imagine I am also sitting out the front in a chair and listen to the informed offers as people go past. There would be a great variance in the offers and whenever an offer is heard below what I thought it was worth, I would wince a little. After a while I would just get sick of it and tear down the sign and go back inside my house – completely satisfied that most of these people had got it wrong … and I am happy with my house – it represents a value to me that is higher than nearly all of those shouted offers.

This is exactly how I try to think my share portfolio in troubled times. I own mostly good companies with good management that are projected to increase earnings. Earnings are critical. People can shout out whatever they want about what they will pay for my small percentage of these companies. While their earnings story is basically intact, I will hang on to them.

Albert Einstein Facts
Getty Images

“It is not that I’m so smart. But I stay with the questions much longer.”

Albert Einstein

Trading in troubled times … and January 2022 – End of Month Update

nature, waves, lighthouse, landscape, Portugal, heavy, wind, HD wallpaper

It is worth revisiting corrections, these annoying dips in the market are testing – even for experienced investors.

A correction is a 10% or greater decline in the stock market in a short period of time. The average rally period without a correction is 357 trading days, according to a Deutsche Bank analysis of stock market moves since the 1950’s.

CNN Business

As there are about 250 trading days in a year and Slack Investor is hoping for a 50-year investing career (50 x 250 / 357 )= 35 . That’s a lot of corrections … so I had better have a plan on how to handle them.

Despite recent rallies in the last few trading days – In January 2022, there was a technical “correction” in both the US and Australian markets.

The S&P 500 index dipped into “correction” territory on Monday for the first time since March 2020. The benchmark fell 10% or more from its recent high in early January, before a late-day rally.

Greg Iacurci – CNBC – Jan 25, 2022

Most corrections solve themselves. A 2018 Goldman Sachs report found that the average correction for the S&P 500 lasted only four months. In the 40 years prior to 2020, the S&P 500 experienced 17 corrections – only a third of them resulted in the larger falls associated with bear markets.

This is not an exact science – but when a correction occurs, I try to think about the scenario where a correction will turn into something worse.

As most bear markets are associated with a recession – Are the economic conditions are such that a recession is likely? – Is this current correction likely to lead to a “bear market”?

The Omicron COVID-19 variant has showed that it is difficult to project into the future. However, even though some industries are suffering, while interest rates remain low and there seems to be some signs of economic recovery. I will try to shut out the “noise” this time.

Index stocks – S&P 500, ASX 200, FTSE 100

I am running a personal 20-yr experiment using “stop losses” to try to time the market for index funds, rather than “buy and hold”. The results so far can be found on the index pages of this blog (ASX Index, UK Index, US Index). The annual gains using this timing method have been modest so far with outperformance of +1.5%, +1.9% and -0.3% , respectively. The jury is still out on this experiment and a full report will be given in 2024.

For the bulk of my holdings – do nothing

For most of my stocks, I take no action during these corrections. Most of my portfolio contains individual companies that I have built up a history with, and I am mostly convinced of their viability and growth outlook for the next 5-10 years. For these companies, I am comfortable to ride the stock price up … and down – this is something I accept about owning stocks. For example, although getting out of the US Index last week, I am happy to keep my holding of US Alphabet stock (GOOGL) – for many reasons.

Tinker with the stocks that you are not so sure about

There is a second-tier in my stock portfolio that includes my theme ETF’s and other companies that I am not so totally convinced about – or, I have changed my mind about their growth prospects. A correction is a good time to review these stocks.

With shares, the market decides what “it thinks” that your stock is worth on a minute by minute basis. This stock price can vary a lot on a daily basis – but over a longer period, the stock price should be decided by more fundamental levers such as earnings, amount of debt, quality of management, and growth potential.

January 2022 – End of Month Update

Slack Investor is off the couch and sold his US Index shares. He remains IN for Australian index shares (only just!) and the FTSE 100.

A bit of turbulence in the markets this month. The ASX 200 and S&P 500 dipped into correction territory briefly. At the end of the month, the Australian Index had a monthly fall of 6.4% and the US Index, down 5.3%. The FTSE 100 was a relative star +1.1%. Slack Investor remains watchful.

On Monday 24 January, (New York time) I sold my US Index shares at the S&P equivalent of 4332. This was below the previous days closing price (4397) … but I have to accept the possibility of a bit of “sell shrinkage” on the next day – in this case 1.5%. However, for consistency. I have used the closing price on the previous week for my calculations.

Despite the end of month rally in S&P 500 price (Jan 31 4515) – I am glad to out of the US Index as I have been troubled by the high valuations for some time. Slack Investor would not have the foresight to get out right at the top of the market. In the spirit of “trying to get things mostly right” I am happy with the US Index trade – a gain of 55.4% over 19 months.

As a way of “zooming out” to get an idea of how current prices are in relation to long term trends – I have updated my Cyclically Adjusted Price to Earnings ratios (CAPE) to include December 2021 data for the S&P 500. Despite it’s limitations, CAPE is still Slack Investor’s best way of assessing quickly whether a market index is under or over-valued compared to its long term average.

At the end of 2021, the S&P 500 was still 61% above its 40-yr average! This is in contrast to the ASX 200 (14% above average) and the FTSE 100 (about average). When valuations get this far out of kilter, for the US Index, my assessment is that there is much more downside risk than upside. The recent breach of the stop loss on a weekly basis gave me an excuse to get out of this broad index.

CAPE ratios for the S&P 500 from January 1982 till December 2021

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