Ooooh … COVID-19, that is some virus! Well, the world seems a changed place now as we stay in our homes and contemplate obscure recipes for hand sanitizer. Slack Investor reaches out (from a safe distance!) to all who have lost their job or know someone who is badly affected by this pandemic. Investing seems like a peripheral activity in these times.
In the bubble world of share markets, an official Bear market (Fall of over 20% from a peak) has been established in a remarkable two weeks! There have been wild swings in both directions. This crash, in value and volatility, is unlike previous share crashes
” Rates of transacting (velocity) across global markets has been high and a good deal higher than in previous crises. Electronic systems provide a catalyst to embed the panic (uncertainly) into the pricing. We’ve seen huge swings in prices, at increased transaction rates.”
Kylie-Anne Richards from The Conversation
In these crazy times, I am not sure if this number means much, but the Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 20.6% on their latest figures – but next months update should account more for Coronovirus effects. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are “switched ON”.
Last month, Slack Investor bailed on the UK FTSE and now is pulling the cord on Australian index shares (ASX200 down 21.2% this month) and the US Index S&P 500 (down 12.5%). So I’m now OUT for all my 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 recalculated.
Keep Calm and stay in the Bunker
Slack Investor has been told to stay in his home to avoid becoming a vector for virus COVID-19 (a shortened form of “coronavirus disease of 2019″). Hurrah for Big Picture government – All well and good. The governments are at last acting like “Grown Ups” and governing. Similar advice should apply to managing your exposure to shares – Just stay in your Bunker!
In the last post, Slack investor outlined he has two systems going with his shares. For the past 16 years I have been running an experiment in trying to time the market with index funds with decisions made on a monthly basis. The results so far indicate that there is an advantage in “timing the market” – but that advantage is relatively slim. The yearly gain for the Slack Monthly method over the ASX Index, UK Index, and the US Index, respectively is 2.7%, 2.3% and 0.3%. These relatively low outperformance figures might have been outweighed by share dividends if I had held the shares instead of trading out to cash.
The main part of Slack Investor’s portfolio is in growing companies with good management that have had a good track record of increasing dividends. These companies are still held in the Slack fund and should recover when the world resumes a more normal footing.
My experimental index funds portfolio is only 3% of my total investment funds. 96% of my portfolio is still in shares. The time to muck around with your long term investments is not now!
For most people, Superannuation is a long term investment that involves (for good reason) share exposure. There has been some panic moving of superannuation funds to cash. According to Industry Super Australia, members who moved their money from an average balanced industry fund into cash after the global financial crisis were $4000 worse off after three months and $34,800 worse off after five years. To echo Mr Buffet from the last post,
“People avoid selling their house during a property market slump because they are worried about making a loss [and] the same principle should be applied to changing your super fund or investment option immediately after a market drop,”
ISA chief executive Bernie Dean, from The Financial Review
In another move, The Australian government has allowed access up to $20000 of your super. This should be an absolute last resort as the effect of COVID-19 will be around for a few months – and superannuation, for your retirement phase, should hopefully last for decades.
“… before you cash out part of your retirement savings, make sure you have exhausted every last option available to you (including eating baked beans for a few months).
Scott Pape from The Barefoot Investor
As terrible as this current crisis is – some modelling suggests it may not reach its world peak till August. Like previous epidemics and pandemics, it will eventually be over. Until then, Slack Investor will get onto the couch and wait this one out.
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