Slack Investor | How to invest successfully without too much effort

SMSF is it a superpower OR Kryptonite? … and January 2021 – End of Month Update

Slack Investor hasn’t written much about Self Managed Super Funds (SMSF’s) despite his love affair with his own fund. SMSF’s are only found in Australia and represent a “hands on” way to accumulate, nurture, and eventually release your super funds as a pension or lump sum. They have the same status as a normal retail or industry super fund (e.g. Australian Super) but they are “self managed” and give the trustees (members of the fund) power over where the fund is invested. This control is a double edged sword, as it is also possible to destroy your super wealth with a SMSF by making unwise investments.

SMSF’s offer

Control
Flexibility in investments – But this can be dangerous!
Estate Planning and Taxation advantages

There are nearly 600,000 SMSFs in Australia with over a million member (March 2020). Although this represents less than 5% of Australia’s population, about 25% of the $2.7 trillion invested in superannuation is invested in SMSF’s. The average member balance for an SMSF was a whopping $678,621 (ATO Data 2018).

It is possible to structure an SMSF so that the investment fees are very low. A surprising finding from a SuperConcepts study was that the average annual expense ratio for SMSF’s was 2.8% for the over 20000 funds surveyed. This seems particularly high when compared to the Slack Investor SMSF portfolio expense ratio of 0.12% through a “no advice” online SMSF services provider like e-superfund. This suggests that most of the funds surveyed used the relatively high cost route of engaging an accountant to administer the fund. There are many SMSF providers – Slack Investor uses e-superfund which provides the legal structure and web-based audits and education. The yearly operating expenses are an amazingly low $999. The SMSF is so integral to Slack Investor’s strategy that I have set aside an SMSF page on the Slack Investor site – Alas, there is not much on there yet … but it will come!

Rainmaker are producing monthly comparisons of SMSF’s with the larger low cost My Super products offered by Industry and Retail Super Funds. The analysis can be found on their Superguard360 site.

SG360Jun17_2 — A comparison of the Asset mix of SMSF funds (left column) with MySuper funds – From Superguard360

SMSF funds (above left) traditionally hold more cash, property and less international shares than the larger Industry/Retail funds (My Super – above right). SMSF’s have outperformed MySuper since the GFC (see below, SMSF’s Blue line, My Super Red block). However, with the recovery of equities, the MySuper funds have been catching up and as at June 2017, 10-year returns from both types of funds are near identical at 4.2%. Under current asset allocations, the more diversified Industry and retail funds should overtake SMSF performance – on average.

SG360Jun17_1 — Comparison of how SMSF’s (Blue Line) have done , on average, against the default My Super Fund Index (Red Block) – From Superguard360

Self Managed Super is NOT for Everyone

“… That a little knowledge is apt to puff up, and make men giddy, but a greater share of it will set them right, and bring them to low and humble thoughts of themselves.”
From an anonymous author, published in 1698 as “The Mystery of Phanaticism”

Running a SMSF takes time and I wouldn’t recommend it to anyone that doesn’t want to be fully engaged with their financial future. Luckily, Slack Investor finds the whole finance and ATO compliance scene most interesting. Trustees of SMSF’s are held responsible for compliance with super and tax laws and there are many other risks in running a SMSF fund. A long term study of SMSF data by SuperConcepts, “When Size Matters” found that that SMSF’s below $200000 in total funds generally underperformed. However, the larger SMSF’s were comparable in performance with industry funds.

Over 10 years, there’s hardly any difference between the performance of not-for-profit funds, such as industry funds, and DIY (SMSF) funds.
SMH article (2017) summarising Rainmaker data from the ATO

Despite how well an SMSF style really suits Slack Investor – The large majority of people should not get into an SMSF – but stick with a good performing Industry Fund. Unless you are justifiably confident in your investing abilities, most people will be better of with a well diversified industry fund for long-term Super performance. It is always better to “have low and humble thoughts of ourselves” – it is too easy to destroy the value of your hard earned super.

January 2021 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100.

Some tested COVID-19 vaccinations have started to be rolled out internationally – but uncertainty prevails. Slack Investor followed markets all fluctuated but, overall, remained pretty flat this month. For January 2021, the Australian ASX 200 rose 0.3%, the S&P 500 fell 1.1%, and the FTSE 100 down 0.8%.

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

2021 Lets talk about the planet – ESG Sustainable investing

Oooh … this planet is hot!

The difference in mean (average) temperature for the year 2020 and the 30-year average temperature between 1981 and2010 – Sourced from the World Meteorological Organization (WMO)

This is just last year … and the red colours show where planet Earth has been hotter than the long term average temperature. Clearly, for most of the world, 2020 was between 1°C and 5°C warmer than would be expected from the long term average. The reason this is happening is almost certainly due to increases in greenhouse gases since the industrial revolution.

… there’s a more than 95 percent probability that human activities over the past 50 years have warmed our planet.
From climate.nasa.gov based upon the Fifth Assessment Report Intergovernmental Panel on Climate Change (IPCC)

Another way to visualize the warming is to have a look at the past 110 years in Australia. The last decade was the hottest on record with temperatures almost 1 °C above average and one third of a degree warmer than the previous decade.

110 years of Australian Temperatures with warmer tempearatures represented by the yellow, orange and reds. These maps show the anomaly of mean temperature for each calendar year, compared to the average over the standard reference period of 1961–1990. From the Bureau of Meteorology. The full beauty of this chart can be found in the pdf form of the image.

This is not a political view – but is just science. The world is getting warmer and more and more people and governments think we should do something about it.

The world’s leading climate scientists have warned there is only 10 years for us to act if global warming to be kept to a maximum of 1.5°C. If temperatures go beyond this by even even half a degree, this will significantly worsen the risks of drought, floods, extreme heat and poverty for hundreds of millions of people.

Slack Investor has tried to do his little bit in reducing his CO2 emission- but admittedly, I could do more. In addition to his puny personal efforts, by marshalling the the power of his investments, this might have greater consequences. He is not alone in this thinking.

Environmental, Social and Governance (ESG) principles

ESG has become a bit of a buzz acronym in corporate and investing circles and is linked with a set of factors associated with “responsible” or “sustainable” company behaviour. Global Warming (or Climate Change) is just one of these ESG issues – but Climate Change is the highest priority ESG issue facing investors.

Examples of ESG Issues – From Principles for Responsible Investment

To invest according to ESG principles is to undertake to exclude companies in their portfolios considered to be doing harm to the world, and often positively skew their portfolio weightings in favour of companies deemed to be doing good.
From the Sydney Morning Herald

A recent investment development has been the collection of environmental, social, and governance data. There are agencies such as Ethisphere and MCSI that rate publicly listed companies on their resilience to long-term ESG risks. But, most people just select a “Sustainable” or “Ethical” or ESG fund and let the fund manager do the company selecting.

Ethical Investing … its a murky world … but worth it!

While getting into an ethical investing fund or ETF is straightforward. Behind the door of each fund, picking which company gets into the fund sets up all kinds of dilemmas. The company selection process seems to be a bit of a “dark” art and can be done by positive screening (e.g, High ESG scores); or, negative screening with the exclusion of industries such as armaments, tobacco, gambling or thermal coal production. Screening might also be done at the company level, for instance, to exclude a mining company might have a dodgy environmental history. Each fund seems to have a different methodology. We hope that the fund managers get it mostly right. The sustainable/ESG funds that I looked at seemed to be dominated by Technology, Financial and Healthcare companies – these are the type of companies that Slack Investor invests in already. But mining companies should not be dismissed in this sustainable search as they will help enable the transition to the low carbon economy – but they too must rethink many of their practices and decarbonize production and reduce water usage.

… renewables power sources are built from non-renewable materials produced by businesses that tend to have larger carbon footprints and low ESG ratings. Mining firms produce many of the critical materials necessary to transition to a low carbon economy.
From Massif Capital – Failure to Impact (PDF):

For example, Massif Capital cite that to build a 400 kg lithium-Ion battery that might be found in most electric vehicles requires roughly 10 kg of lithium, 12 kg of cobalt, 24 kg of nickel, 36 kg of copper, 44 kg of graphite, and 160 kg of steel, aluminium, and various plastic components.

Sustainable Funds are Taking Off

It is not just the recent extreme weather related events such as the 2019 heat wave in Europe, or the recent fire events in Australia and California. There seems to be a surge in the amount of money coming into sustainable funds as investors are starting to think about climate change and sustainability and how this affects their investments.

sustainable funds estimated quarterly inflows — *Quarterly fund inflows into sustainable funds*. There has been a fourfold increase in assets that flowed into sustainable funds in the US last year – From Morningstar … A Tipping Point

A move towards sustainable investing can be done through your super fund. Each super fund will have some sort of sustainable option for your superannuation money. Or, you could invest directly through a managed fund or an Exchange Traded Fund (ETF).

If you don’t want to buy individual companies and research how sustainable/ethical each company is, I like the ETF approach and would look at ETF’s like Vanguard Ethically Conscious International Shares Index ETF (VESG) for International ethical exposure. It has a spankingly good low management fee of 0.18%. For local products, I couldn’t go past the SPDR S&P/ASX 200 ESG Fund ETF (E200). This ETF has only been going 5 months and has been doing well. It also has a low management fee of 0.13%

Move towards sustainable – and feel good about yourself – and we might just save this planet.

Golden Triangle of Happiness … and December 2020 – End of Month Update

After just going through a Christmas period where, in these COVID-19 times, I was lucky enough to spend time with some family – I was struck with an unusual contentment. It is easy to get bogged down with the day to day challenges of life, but Slack Investor occasionally gets self reflective and has long realised that he is a happy bloke. This state is much sought after and it often doesn’t naturally happen. A recent publication that has lodged in my tiny brain is the Australian Wellbeing Index. This research has been conducted twice a year over the last 15 years and involves more than 60,000 participants.

Personal wellbeing appears to increase with age, with some of the happiest Australians aged 65 and over.
Australian Wellbeing Index – 2019 Joint Research between Deakin University and Australian Unity.

The latest instalment of one of Australia’s largest wellbeing surveys has found that, besides genetics, there are three simple indicators of a happy life. Financial security, a sense of purpose in life, and good personal relationships make up the “golden triangle” of happiness. The full report can be found here.

well-being2 — Source: thenewdaily.com.au

Financial Security

This is really what this blog posts mostly about – so I wont expand too much here. But if you feel that you are in control of your money then you can avoid many of the financial stresses. While having money does not make you happy, if you don’t have any, it can make you miserable. Not surprisingly, the survey found that the feeling of wellbeing gradually rises for household earnings up to about $100,000 a year. Surprisingly, earnings over this point found the relationship between happiness and wealth drops off dramatically.

Relationships

… the people who fared the best were the people who leaned into relationships, with family, with friends, with community,”
Dr. Robert Waldinger , Harvard University

We are humans and (mostly) social creatures – a sharing of your life and having someone who cares about you makes you feel better about yourself. A Harvard study that has been going for 80 years found that people who are more socially connected to family, friends, or community are “happier, they’re physically healthier and they live longer than people who are less well connected,”

“It doesn’t need to be a sexual relationship, but it needs to be an emotionally intimate relationship where you can share troubles and sorrows and joys,”
Prof Bob Cummins, Deakin University

Sense of Purpose

Something to do … your get up in the morning and you have a project, part time job, volunteering, exercise, a hobby – but it is something! People are happier when they are active.

But, beyond the “golden triangle” of happiness, there are other approaches – Rather than take on each corner of the triangle, just try to just make little micro changes to your life – Perhaps a little more exercise, or contact an old friend …

An older friend once pointed out to me that we were lucky enough to have choices with our lives. He stressed our limited life span and suggested I make a list of the things that I really liked doing – and then try to engineer my life to maximise these good things and then minimise the other, less enjoyable. but necessary stuff. When you collect all the moments that make you happy … you might just … be happy!

Spend more time with people you like, get outdoors a bit more, listen to some music, have some new experiences, help other people …
“Happiness thinker” Professor Paul Dolan

December 2020 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. All Slack Investor followed overseas markets this month had rises (ASX 200 +1.1%; FTSE 100 +3.1%; S&P 500 +3.7%).

I still remain nervous about the US market with its high valuations. The closing value of the S&P 500 (3756) is now 18% above the current stop loss at 3200. If the margin gets to 20% (UPR LIMIT 3840)), then I will find a place to move my stop loss upward. In these uncertain times, I will monitor my index funds weekly and if, at the end of the week my Index funds are below the stop loss, then I will put a post on the blog and sell at the next opportunity. All Stop Losses are Live.

S&P 500 Monthly chart December31 2020- From incrediblecharts.com

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.

Retirement sweet spot – a place to live is a good start!

Slack Investor has thought a lot about retirement – a lot!

Even though I liked most aspects of my jobs, the thought of doing what I want each day was most appealing. I read quite a few blogs on financial independence and they seem to fall into two main types. The “retire at 30” types and the “building of financial skills to gradually gain financial independence” types. Slack Investor is definitely in the latter camp and, without outside help, or big slabs of luck, I can’t really see a way of avoiding the 25-35 years of work to build up your funds before you then launch your retirement.

This post sets out with two of the building blocks to retirement – a home and some superannuation. You might be just starting your working life, or be in your forties and thinking … “Well, how do I get to my retirement from here?”

The recent Australian government Retirement Income Review emphasised that if your are renting in retirement then things are tough.

In retirement, renters have higher levels of financial stress. A significant proportion of retiree households that rent are in income poverty …”
The Australian Treasury Retirement income Review (2019)

Get a Roof

So take the advice of Flo Rida and Slack Investor and make it a big priority in your life to own a place to live. I know this seems like an impossibility to many as the cost of houses in Australia is eye -watering in the big cities. However, the place you want to own might be an apartment or, it doesn’t have to be in a capital city – it can be in one of the many fantastic regional towns!

From Australia’s most liveable regional cities. Not sure why “Distance to Alcohol” is a criteria – or what it means … might be good … might be bad!- but this is a nice selection of great Australian towns.

When you have found a place that you could retire to, the next step is to get yourself into the property market by saving for a deposit and buying a place. There will now be 30 years of pain … and then you own it! But, at least you have borrowed money for a “hopefully” appreciating asset. Make sure that any property you buy makes good sense – Schools, Transport, Parks, Shops, etc.

Another way to do this is “rentvesting”. This an option where you rent your place to live near your work while your are buying a place that you might want to retire to one day. Rentvesting makes sense when the costs to rent a place is cheaper than the buying costs (Loan Interest/Rates/Stamp Duty, etc). While you are renting in a share house or apartment the extra rental income from the property you own, and tax incentives, will allow you to use any surplus funds to invest in a share portfolio. Rentvesting can also increase your borrowing power and hopefully get a better property – Just don’t over extend yourself.

Get some Super

According to Investblue, in 2018, as boomers are retiring, the average retirement super balance in Australia for men is $270,710, and for women $157,049. This is not really enough, but an “average couple” would have over $400000. Things should get better as compulsory super has only been with us since 1991 . Boomers have had many advantages during a period of rapidly increasing asset prices – but compulsory superannuation over their whole working life was not one of them.

If you are relatively healthy and own your home outright, the Association of Superannuation Funds of Australia (ASFA) have estimated the annual retirement income required for a modest and comfortable lifestyle.

The Association of Superannuation Funds of Australia (ASFA) retirement standards for 2018

Using the average figures, there is a big gap between existing super saved and a comfortable lifestyle

80% of retirees fund their retirement years with a combination of superannuation and the age pension
Money Magazine June 2018

It is worth some study into how the pension and superannuation systems interact. The bare minimum to aim for is the “sweet spot” where under current rules, home owning couples can have $400000 in superannuation (singles $300000) and still qualify for the full government pension. Using this mix of super and the pension, when reaching the pension qualifying age of 67, a modest to comfortable retirement is possible under current rules.

Situation	Superannuation	Drawdown from Super @ 5%	Age Pension	Total Income
Single Home-owner	$300,000	$15,000	$19,210	$34,212
Couple Home-owner	$400,000	$20,000	$33,272	$53,272

Table from Realize Your Dream and based upon 2018 values

This “sweet spot” is our first “port of call” in super terms, and meant to demonstrate that if you own your own home and have a good chunk of super … then you are going to be OK in retirement.

Slack Investor hopes that you have got onto the idea of financial independence a bit earlier than aged 40. By starting to plan in your twenties or early thirties, you can aim to fund your own retirement … and, perhaps not wait until you are 67.

Hits and Misses … and November 2020 – End of Month Update

Back in happier times, September 2019, the Mayfair 101 business founder, James Mawhinney. His skills are described by Mayfair as “generating substantial value for shareholders”. Sadly for investors, the signature Mayfair 101 investment in Dunk Island has now fallen through due to Mayfair being “unable to meet their obligations”– Original image from the Courier Mail

Mayfair 101 bites the dust

It may take some years, but this Mayfair 101 thing … it’s not going to end well for the punters!
Slack Investor – November 2019

It has now been 12 months since Slack Investor warned about investing in the highly promoted glitzy “alternative to term deposits” Mayfair 101. I urged any investors to get their money out while they could. Things have now gone pear-shaped for participants in Mr Mawhinney’s vehicles – as well as the Dunk Island resort repossession, one of Mayfair 101’s three main investment products, IPO wealth, has had its investor’s money frozen.

I take no solace in being right as many small and large investors have since been hurt by the appointment of receivers to Mayfair 101’s $86 million IPO Wealth fund. ASIC alleges that the money raised by the Mayfair group was not fully secured, and investors may be unable to recover the full amount of their principal investment.

According to The Guardian, Mayfair 101 had received more than $67.5m from investors but, by 1 July, had just $2,765 in the bank and that investor’s money was “used to fund a loan that was not adequately secured”. They were unable to come up with the $32m that would have completed the purchase of Dunk Island. ASIC feared the fundraising was “akin to arrangements colloquially referred to as a ‘Ponzi scheme’.”

A year ago there were full page ads in the AFR, full of glowing self praise as the “new face of investment” In investing, it pays to be wary of big announcements, “management speak” and things that sound too good to be true … trust the nostrils!

“[Mayfair Platinum CEO, James Mawhinney, is] an experienced business builder who is focused on creating win-win outcomes for investors, clients, suppliers and staff
A quote from Mayfair (sourced from crikey.com )from the golden days of Mayfair 101 … but perhaps win-lose might be more appropriate. I am hoping that investors can get a decent portion of their capital returned.

Bitcoin again

Bitcoin chart (USD) since 2014 – From Coindesk

This would be objectively classified as a miss by Slack Investor – the bitcoin price is now higher than when I initially talked about bitcoin as a “bubble” at around $7000 USD. Despite the rocketing bitcoin price, the Slack Investor view has not changed and it is not the type of investment that appeals to me. Bitcoin is a speculative investment that depends entirely on what the next buyer is willing to pay for it.

Bitcoin is the dominant cryptocurrency (Etherium, Ripple, Litecoin, etc) that uses the potentially useful blockchain technology to monitor transactions. The Guardian points out that bitcoin is not a true currency as it not widely accepted as legal tender, the transaction costs are not small (it costs between 3 and 6 USD per transaction) and, it does not have a relatively stable value that would help vendors in setting prices. Central banks and Facebook have outlined plans for their own digital currencies that would be in competition with existing cryptocurrencies.

There is also a high energy cost in the “mining” of bitcoin. The current “Proof of Work” algorithm requires 215 kw/h of electricity to produce each bitcoin – the equivalent of an average US home energy consumption for a week.

Slack Investor holds no regrets about not buying in. He will stick with investing in growing real companies that produce tangible things that people want. An investment should be something that has a real monetary or social value, regardless of whether someone wants to buy it from you.

My assessment in 2017 that bitcoin is a casino investment still holds. Well done to anyone that has made money with bitcoin. In the same way that I will always congratulate someone who has made money on a bizarre sports bet – or who has won money on 5 reds in a row in roulette table – but, it is not investing, it is not for me.

November 2020 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100.

During a time when world COVID-19 related deaths are 8866 per day and there are 54.9m cases confirmed globally – the stock markets have gone a little crazy . It is a good demonstration of how difficult it is to predict short-term stock market movement. Slack Investor followed markets all grew by more than 10% this month. For November 2020, the Australian ASX 200 rose 10.0%, the S&P 500 up 10.8%, and the FTSE 100 up 12.4%.

All it took was a US election and some good vaccine news.

“Most Americans who want to be vaccinated will be able to do so by April or May next year”
Dr. Anthony Fauci – from CNN

On the FTSE 100 Index a new “Higher Low” was established and this gave me the opportunity to move up my monthly stop loss to 5525 – see Monthly UK Index chart.

The US economy entered a recession in February 2020 and still in uncertain times, Slack Investor has his stop losses live for all Index funds.

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

Cash is not King

My nephew is a carpenter and he would often gleefully say “Cash is King” when offered a cash job – no paperwork and no tax. This was fine for him as he was on a travel holiday and didn’t want the hassle of being on the books and claiming his tax back at the end of his holiday.

But, to the investor, Cash is not King.

If you hold too much of your wealth in cash, you won’t be able to keep pace with inflation, meaning your purchasing power will go down and it will be more difficult for you to achieve your goals.
Black Swan Capital

Slack Investor cannot argue that money in the bank is not safe, The government guarantees balances up to $250,000.

Cash is important for day to day expenses and your emergency cash buffer, “the cushion” to keep you going for about 2-3 months in an emergency. However, to get on the path to financial independence you must invest in appreciating assets.

Term Deposits, Bonds and Fixed Interest

For a relative, Slack Investor was trying to find a place where cash would earn a decent rate – without too much risk. There is not much around. Most transaction accounts pay no interest or 0.1% interest per year. If you are prepared to lock your money away for a year in a term deposit in a major bank, you might get 0.85%. One of the newer banks, Judo Bank, is offering 1.01%.

There are a few offerings in the bonds and fixed interest area. I ended up in the Vanguard Australian Fixed Interest Index Fund with a management fee of 0.24% and 1 and 3 year returns of 3.2% and 4.7%, respectively. The fund lends money to mostly government authorities – but, unlike term deposits, the returns are not guaranteed. A similar product is offered as an Exchange Traded Fund Vanguard Australian Fixed Interest Index ETF (VAF).

Growth Assets – Shares and Property

Higher up the risk curve are funds based upon share (equity) investments. In these funds or ETF’s the rewards can be higher – but the risks are also much greater. Only invest in shares or share funds with money that you can lock away for 3 to 5 years.

To grow wealth we must have exposure to growth assets such as shares and property.
Shane Oliver, AMP

Asset classes shown on a logarithmic scale for the past 120 years – From “5 charts to help you through COVID-19 investment fear” – Shane Oliver

Australian shares have returned on average 11.5% per year from 1900 to 2020. The incredible value of sustained compounding over long periods is shown by the dollar amounts achieved over 120 years – A $ 1 investment yielded $481, 910 for Australian Shares, $1017 for Bonds and a paltry $242 for cash. But these high returns on investment in Australian shares did not come without risk. Since 1900, Australian shares have had negative returns for two years out of ten.

A similar chart with data to 2016 shows that Australian residential property has a similar trajectory to Australian Shares (11.1% p.a.). There are many hidden costs to owning property – but that is another story. Lower on the risk curve, are Bonds and Cash.

Slack Investor acknowledges that people have different appetites to risk, but if you are in the fortunate position to be sitting on some cash in excess of your emergency fund … the current rates for term deposits encourage a first journey up the risk curve and consider fixed interest funds or ETF’s. For money that you wont need for the next 3-5 years, then shares have the best long term returns. If your time frame is longer, then a well positioned property has been a good investment.

“Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.”
H. Jackson Brown Jr. from Goodreads

Know when to Fold’em … and October 2020 – End of Month Update

“He said, “If you’re gonna play the game, boy
You gotta learn to play it right …
You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run
Excerpt from “The Gambler” written by Don Schlitz and recorded by Kenny Rogers.

Kenny makes this sound easy, but selling shares is tricky and Slack Investor does not always get this decision right – and I’m OK with that. The Slack Investor art is just to attempt to get things “mostly right”. There are some stocks that I will hold for the long run, and their weekly and monthly charts are not of a big concern to me. However, about half of my portfolio is on a weekly or monthly watch – I review the Incredible Charts output for each of these stocks on the weekend or at the end of the month.

I pay particular attention when the stock price falls below my stop loss on the monthly chart. In hindsight, I should have been more alert back in August. A2M is a good company with a unique product and has shown excellent growth in the last 5 years. However, earnings season is always a bit volatile for the growth sector.

The FY20 results showed a record profit but there were some question marks about FY21. The real catalyst for a downward price move was the later release of an acquisition and that members of the board and senior executive team had sold over 1.8 million shares. Selling by insiders is not always bad, as the executives might just be diversifying their portfolios – However, in this case, the market took a dim view. Overall, the A2 Milk Company Ltd (ASX: A2M) share price has slumped more than 15% since the release of its FY21 outlook.

Monthly Price chart of The A2 Milk Company (A2M) showing a buy in at $11.66 in January 2019 and a sell at $15.40 at the end of September 2020. I took the opportunities to gradually creep up my stop loss from the original value of $11.11 to $17.08 – From incrediblecharts.com

I am not known for my fast work and have tended to take the couch rather than make a decision in the past. However, in the spirit of incremental improvement, I didn’t wait till the end of the month and pounced on the sell button on the day that the A2M fell more than 10%, 28th September 2020.

*Daily Price chart of The A2 Milk Company (A2M)*. Slack investor sold on the day news leaked out about insider selling on September 28 *– From* incrediblecharts.com

I am not put off A2M forever. The end of month share price was $13.67. There is now a reasonable case for re-investing given the growth pathway beyond 2021 and the Market Screener , relatively low, 2023 predicted PE of 19. There has now been a downward trend of 3 months and Slack Investor’s favourite pattern has started to emerge … “The Wedgie”. If there is a break above “the Wedgie”, I will reinvest and hope the share price resumes an uptrend.

” … the secret to survivin’
is knowing what to throw away,
and knowing what to keep …”
Further … from The Gambler

Ooooh Kenny … the secret to investing is simple to describe, but harder to do … but you knew how to tell a good story!

October 2020 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. However, the US and UK charts are hovering close to their monthly stop losses.

The state of recent COVID-19 surges in Europe and the US seems to be worrying punters and monthly falls were recorded in these markets (S&P 500 -2.8%; FTSE 100 -4.9%). In Australia, the governments are handling the response to the virus in a constructive fashion and the ASX 200 rose 1.9%.

On the ASX 200 Index monthly chart, a new “Higher Low” was established and this gave me the opportunity to move up my monthly stop loss to 5763.

The US economy entered a recession in February 2020 and Slack Investor has his stop losses live for all Index funds.

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

ESPORTS For Me Sport

Image from Sydney Esports Open – dailyesports. The Melbourne Esports Open is now postponed to 21-22 AUGUST 2021

A month ago, if you asked Slack Investor what these people are doing, I would have scratched my head. However, in the spirit of trying to know a little bit about a few things, I have been researching the Esport phenomena. I would have guessed that Esport has something to do with multiplayer video gaming … but I have found that Esports are much much more than this – a jumble of entertainment, video gaming, sports, and media. For a brief insight into this strange world of competitive gaming, check out even a few seconds of this Youtube video of an Esports gathering in Paris.

Esports have evolved from the recreational to the competitive and, putting aside arguments of what constitutes a sport, in the world where Chess is considered an Olympic Sport, Esport is the world’s fastest-growing “sport”. There are now more than 2.7 billion active gamers worldwide. Incredibly, the video game business is now larger than both the movie and music industries combined. The top Esports tournaments are transmitted live and are where fans meet and socialise with friends. They draw crowds rivaling the World Cup football and the Olympic Games.

From Newzoo – 2020 Global Esports Market Report

Once you drill down to the specifics of Fortnite or League of Legends, I am lost – but when it comes to growth prospects, Slack Investor pays attention. China is the largest market by revenues, followed by North America. It is not just PC-based games, Esports on smartphones are showing strong growth in Southeast Asia, India, and Brazil.

Although the big stadium Esports events are suffering due to COVID-19 separation rules

The upward trajectory for gaming brought on by the pandemic has accelerated what was already a growth industry, with Australian estimates suggesting demand for esports has at least tripled since the coronavirus outbreak.
From The Guardian

How to invest in Esports

Slack Investor has been generally ignorant on the details of this new phenomena, but I can recognize growth. In October 2018, the fund manager and ETF provider VanEck started an Esports ETF in the US (also called) ESPO . They aimed to replicate the Global Video Gaming and Esports Index by investing in the whole industry. I have watched this ETF from afar and, after a shaky start, the chart below shows that they have been doing OK.

Performance of the VanEck Vectors Video Gaming and eSports ETF (ESPO) against the eSport index (MVESPOTR) since ESPO inception in October 2018.

In September 2020, VanEck have introduced an Australian-listed Video Gaming and ESports ETF (ASX:ESPO) offering exposure to the larger global Esports connected companies. The fund’s top holdings include Nintendo, AMD, Tencent and Nvidia. The management expense ratio is higher than I would like (MER 0.55%), but it is a convenient way to get involved.

Usually Slack investor makes his decisions on weekly or monthly charts. The ESPO ETF was listed on the ASX less than a month ago (at an initial price around $10) and there is not enough information on the larger time scales. The Daily chart is presented below.

The Daily chart (*Click to get a higher resolution)* of the newly established Australian listed ESPO ETF established by Van Eck – From incrediblecharts.com

This is not advice, but Slack Investor bought in at $10.39 and set a stop loss at $9.85 at a previous minimum point (“Higher low“). I try to keep initial stop losses at less than 10% of purchase price at a point on the chart that “makes sense” to me. I will check this stock on a weekly basis … and, if ESPO is below the stop loss at close of business on Friday, I will try to sell it on the next Monday – unless it is rebounding strongly!

In many ways, Slack investor has an “actions per minute” at the opposite end to Esports gamers … but, when it comes to smelling growth, Game On!

Tales from the Bizarrro World and September 2020 – End of Month Update

Bizarro World

Back in the last century when I was a big fan of Superman, DC Comics released a specialty series called “Tales from the Bizarro World”. Bizarro World was a square planet inhabited by imperfect copies of earth dwellers and they do the opposite of all earthly things. Little did I know that I would be living in Bizarro World in 2020.

As of last month, every advanced economy and all emerging economies are in a recession. Unemployment rates have increased rapidly and, due to COVID-19, over a third of the world has been in lockdown. Yet, in the worlds largest economy, on the day the US fell into recession in February, the S&P 500 overcame the COVID crash and rose above where it began the year!

Some governments are going through heroic efforts to inject cash into these flailing economies with some unforeseen results.

In this Bizarro Universe, with empty CBD’s and flourishing suburban strips, Australian retailer Harvey Norman reports its sales for July to September were up 30.6% on the previous year.

“People can’t spend their money on other things anymore, so they are spending time upgrading their home,” he said. “And that’s happening right across the world.”
“There’s also been so much money thrown into these economies, and because they can’t spend it [elsewhere], we’re getting the advantage of that. We’re in a very fortunate position.”
Gerry Harvey, founder of Harvey Norman – from the Sydney Morning Herald

It is not only furniture, but food expenditure has also increased in the 12 months to June 2020. Naturally, there has been reduced spending in lockdown crushed areas like health, transport, restaurants and accommodation.

Quarterly changes in Household Spending for the 12 months to June 2020 – From Auscap Asset Management – Click to Enlarge

It is probably due to fear about the future, but these troubled times have also modified the savings behaviour of Australians. In June 2020, credit card debt has been reduced by 20% (still $22.4bn though!). Savings as a percentage of income have increased from the paltry long term average of 5% to 20%.

Australian quarterly savings have rocketed up *From* Auscap Asset Management – Click to Enlarge

But there is also evidence of increased spending. Australians were recently given the chance to access up to $20000 of their retirement savings. In an illion survey of 10000 people, almost two-thirds (64%) of this additional spending was on discretionary items such as clothing, furniture, restaurants and alcohol.

In July 2020, the 2nd tranche of government stimulus and early access super caused big changes in household weekly expenditure. Although the actual dollar amounts were not reported, looking at bank data from 250 000 Australian consumers, the biggest spending changes were found in the allocation to Online Gambling (+95%) and Food Delivery (+342%)!

“Financial comfort levels are up for now, but many households
are on the cliff’s edge. They’ve lost income, their jobs and entire
livelihoods, … and government support is the main action stopping them from falling over.”
ME Bank Household financial comfort report 2020

Slack Investor feels that things are precarious in Bizarro World – government spending is just holding things together. As of July 2020, according to the AFR, the Australian government has spent 10.6% of GDP on COVID-19 stimulus (+1.6% Loans). In the UK it is 3.1% (+15.7% Loans) and the US 6.9% (+4.2% Loans). This spending will not go on for ever and the Bizarro World party may end badly for households that, through the lottery of occupation, are stressed.

September 2020 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. All Slack Investor followed overseas markets this month slumped (ASX 200 -4.0%; FTSE 100 -1.6%; S&P 500 -3.9%).

I am very nervous about the US market with its high valuations, forthcoming election and, what pushed me over the edge, was the beautifully described “S*%tshow” of a debate. Slack Investor has had to act and adjust his Stop loss for the S&P 500.

When pushing up stop loss levels, it is always about finding a sensible place to leave the level at a “higher low”. I couldn’t really find one on the monthly or weekly chart. The Daily chart below revealed a higher low of 3200 in July 2020 that wasn’t breached in late September. So this is my new stop loss.

Daily chart for the S&P 500 – From Incrediblecharts.com

In the real world, the US economy entered a recession in February 2020 and Slack Investor has his stop losses live for all Index funds.

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 attended to.

Human Frailty: 1. Anchoring Bias

Ahhh the Humanity … Election night crowd, Wellington, 1931 Photographer: William Hall Raine – From the National Library of New Zealand

“We all are men, in our own natures frail, and capable of our flesh; few are angels.”
William Shakespeare, Henry VIII

Yes William, we humans are weak … even Slack Investor has a few human biases that get in the way of his investing. We humans are constantly battling against traits formed deep in human past where we were hanging out in caves and each day was a battle for existence. A lot of human foibles can be explained by Evolutionary Psychology. This fascinating field of study tries to identify which human psychological characteristics have evolved. In primitive times, if we found a trait that was successful and helped our survival, then we would try to repeat it.

Anchoring Bias

Anchoring bias occurs when we put to much weight on the first bit of information that we hear. A good example of anchoring is provided by Weingarten Associates.

Do you think a porcupine has more or less than 5000 quills ?

Do you see what happened here? An “anchor” was sneakily thrown in, and potential guesses from the “porcupine uninformed” would cluster around the 5000 mark. According to Science, any well dressed porcupine will have 30 000 quills.

Another great example from the world of commerce that Slack Investor would fall for is provided by Stockspot. It is common for a restaurant to have an outlier as an “anchor” in the wine list to make the other wines seem like a bargain. Confronted with this list, after the heart attack, Slack Investor would probably go for the tried and true method of going for the 2nd least expensive bottle – Although tempted, I wouldn’t order the “low price” Chateau Gloria and risk being labelled cheap for the sake of 5 bucks!

Stock prices are good examples of anchors. If a share price falls from $4.00 to $2.00, it doesn’t necessarily mean that the stock is now a bargain. Neither price should act as an anchor – the stock may never return to $4.00. The important thing is the value of the share now … At the price of $2.00, is there potential for growth? – you would have to look deeper than just the stock price to answer this question.

Slack Investor has observed how share prices move like a river, sometimes in flood and ahead of their true value and sometimes in a drought – and lagging their real worth. This is a difficult lesson, but there is no logical reason to be anchored to either your buy price or a recent high or low price. If you buy a stock at a price, and it starts heading south, the price you paid should not anchor you into waiting till it returns to the buy price – this has been one of Slack Investor’s frailties in the past. Unfortunately, much of the finance press reinforces anchors with language like “down 20% from a recent high”. It is up to the investor to take a hard look sometimes and make a decision on the future prospects of all our investments.

Chasing Last years Returns

Anchoring also influences we poor humans when we are thinking about investing and confronted with fund manager, ETF, or stock performance figures from last year. It is natural to be drawn to the high performers for the previous 12 months. A look at the Vanguard chart below showing % returns for 9 different asset classes reveals how rare it is that an asset class will repeat a top performance for the next year. Most asset classes will have their “moment in the sunshine” and this adds to the argument for diversification.

*Chart showing % annual market returns for 9 different asset classes. The chart from Vanguard* *dates back to 2007 (can be clicked on to get better resolution) … or the ultimate is the big … beautiful (Thanks Donald)… chart pdf download* here which goes back to 1991

This anchoring also is prevalent when choosing managed and superannuation funds. Last year’s top performers are always heavily promoted and usually attract the most new money. Retire Happy has done some fund research and concluded that chasing last years performance works about 15% of the time. Or, Slack Investor would say, a “not working rate of 85%!

The only way to combat anchoring is to be aware of it. Slack Investor always tries to be conscious of this anchoring bias prior to an investment decision. Are you giving enough thought to how the investment fits into the general economy? How is the stock looking on the charts? Have you done the fundamental analysis on the investment – looked at the projected sales, PE ratio, ROE? Or, are you basing your investment decision on an anchor point?