Category: ASX 200

Market Timing and Share Market Valuation … and June 2022 – End of Month Update

Trying to time the market is a losing game

In addition to the trading … and mostly holding onto individual companies, Slack Investor has been running an experiment on market timing for Index funds in the Australian, UK and US markets. The Index funds have been doing OK .. but Slack Investor is generally just finding that timing markets is just too hard and is hinting at an end to the timing experiment in 2024.

As a recap on the experiment so far, I am still outperforming the “Buy and Hold” investor in all followed markets – but the advantage is slim. Per annum outperformance is 1.4%, 1.9% and 0.6% for the ASX, UK and US markets respectively. Not really fantastic results when you consider that I am missing out on the dividends that “buy and holder’s” receive when I am “timed” out of the markets.

The Slack Index “timing the market” method was devised with a lot of back-testing on 30-years of market performances and does really well when sustained bear markets occur as it gets out of the market at a hopefully early stage in the price downturn. Ideally, the Slack method should stay in the market for the smaller fluctuations (corrections <~10%) and get out of stocks before it becomes a full bear market. The problem with my current strategy is that I am getting “whipsawed” out of the market in these smaller downturns – and the big swings seem to happen so quickly that the damage is done before I can get off the couch.

Things were much easier in the accumulation stage – I had set amounts of money coming out of my pay each month that would be automatically invested into my trading account. With dollar cost averaging, if the market went down, it would just mean that I would be able to buy a greater number of shares – all good.

It is different in retirement mode … as, I am not a net buyer of shares now and, as I am usually am fully invested, it is difficult to take advantage of a lower-priced market. These days, the stock market downturns are just something to be endured.

A chart that caught my eye from Current Market Valuation is shown below. They have a developed a method to try to see if a market is over, or under, valued using the cyclically adjusted price-to-earnings ratio (CAPE). This is very similar to the way that Slack Investor has previously tried to work out the valuation of the Australian, UK and US markets.

S&P CAPE data showing the 1950-2022 average (mean) P/E value of 19.8 (baselined as 0%), as well as horizontal bands showing standard deviation bands. As of June 24, 2022, the S&P500 P/E ratio is 47% higher than the 1950-2022 average – From Current Market Evaluation.

Current Market Valuation define the market as “Fairly Valued” if the CAPE Ratio is between between -1 and 1 standard deviation from the “average”. If the CAPE distribution is “Normal”, then the CAPE should be ranked as “Fairly Valued” about 70% of the time. 

Slack Investor has developed similar charts – but only since 1982. I have used only a short time frame for this analysis as there are good arguments as to why the CAPE should actually rise over time – and a small time range will tend to stop this distortion. The Green shaded areas correspond to the limits of one standard deviation of the CAPE from the 40-yr average values.

Slack Investor S&P 500 CAPE data showing the 1982-2022 average (arithmetic mean) P/E value of 24.3 at the end of May 2022 -“Fair Value” is represented by the green shaded area. Despite recent price drops, the S&P 500 CAPE is still well above average (28%) but at least in the broad “Fairly Valued” range now- Data from Barclays
Slack Investor FTSE 100 CAPE data showing the 1982-2022 average (arithmetic mean) P/E value of 17.5 at the end of May 2022 -“Fair Value” is represented by the green shaded area. The FTSE 100 CAPE is close to its 40-yr mean and well into the “Fairly Valued “range – Data from Barclays
Slack Investor ASX 200 CAPE data showing the 1982-2022 average (arithmetic mean) P/E value of 20.4 at the end of May 2022 -“Fair Value “is represented by the green shaded area – Data from Barclays

Slack Investor gets very nervous when the CAPE charts are well above the green “Fair Value” range. and would love to be a buyer when any of these markets show CAPE values below their 40-year averages.

However, as my “time the market” skills are limited, and my Stable Income pile is still producing, I am prepared to strap in and “enjoy”(not really!) the ride.

June 2022 – End of Month Update

The financial year closes and looking at the 12-month charts for FY 2022 – An official “Bear Market” for the US (>20% fall from a recent high) and big drops in the UK and Australian markets. The “blood in the streets” trend in world index prices have moved the ASX 200 below my stop loss of 6917 – This triggers a sell response.

However, I will not sell against the overall trend. Given that the ASX 200 is bouncing up a little today (01 Jul 2022), this means that I will go to a weekly watch on the ASX 200 – I will now wait till the end of next week to see if the ASX 200 continues to drop – or recovers. I have developed this “soft sell” approach when I gauge that the market is not too overvalued (see above ASX 200 CAPE chart).

Slack Investor remains IN the FTSE 100, TENTATIVELY OUT for the ASX 200, but OUT for the US Index S&P 500 due to a sell in January 2022.

All markets down for the month. The FTSE 100 (-5.8%), the S&P 500 (-8.4%) and the ASX 200 (-8.9%).

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.

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).

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.

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).

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).

Well … That was Fun – S&P 500 Index SELL Alert Update

Jimmy Fallon and Kevin Hart Ride a Roller Coaster

January 2022 – S&P 500 SELL Alert Update

This image has an empty alt attribute; its file name is trend-1445464__180.jpg

Normally, Slack Investor likes to work on a monthly scale i.e Slack! He usually limits himself to just two posts per month – so this is an unusual post.

I have to report that I am tentatively OUT on the S&P 500 – but remain IN for Australian index shares (ASX 200) and the UK Index (FTSE 100).

Slack Investor has been a little bit on edge lately due to the high valuations of stock prices – particularly with the S&P 500. As a result, I have been working with tightened stop losses on my Index funds and tried to keep them within 10% of the latest end of week price.

Sadly, on a weekly basis, the S&P 500 has just sunk below the current stop loss of 4495 and is on a SELL watch.

S&P 500 Weekly chart since May 2020 – Incrediblecharts.com

This means that, on the US open of trade, Monday 10am (New York Time) – I will try to sell my S&P 500 Index holding. The only situation that will stop me is – if there is a dramatic reversal in the first hour of trading. In other words, if the S&P 500 starts increasing in price – I will not try to trade against the trend and I will put a hold on the selling.

A quick look at the S&P 500 futures shows a continuation of negative sentiment likely for the Monday – and it is probable that I will sell. It has been a good association with the S&P 500 since May 2020. I will give full details of the trade in the end of January update.

This is not advice – just an outline of Slack Investor’s trading intention.

Betting from the couch … and December 2021 – End of Month Update

The satirical website, the Betoota Advocate, have beautifully summed up the barrage of gambling ads on TV that saturate any sporting viewing on commercial TV – in a recent article “Game Of Cricket Interrupts Endless Stream Of Predatory Gambling Ads”

Australia: World leaders in Gambling losses

Slack Investor has long been appalled at the prevalence of gaming machines “pokies” in pubs in Australia. These “pokie rooms” are full of sad faces. With a machine “return-to-player percentage” of 85 -90% each gambler is methodically destroying any chance of achieving financial independence.

Australia is actually home to 20 per cent of the world’s pokie machines, because it is one of the few countries that allows machines outside of casinos.

From Eliza Bavin, Yahoo Finance

In 2019, NSW and Victorian poker machine gamblers lose an average of about $3500 a year in pubs and clubs – three times the average $1245 spent annually on electricity and gas. There are countless stories of the tragic consequences of poker machine addiction. Poker machines are concentrated in Australia’s poorest suburbs. The state governments are, in turn, addicted to the revenue from these gaming machines. However, this situation can’t be good for the community and it can be turned around. Western Australia has banned poker machines in Pubs and Clubs. If you want to ban these machines or reduce their harm in your state – Let your state representative know.

Gambling Losses in $USD – Australia are the biggest gambling losers, per capita, in the world! Not anything to be proud of- From savings.com.au

Online Gambling and Sports Betting

Pokies aren’t the only gambling demon. Online betting, which includes sports betting, is expected to be the fastest-growing gambling segment over the next 5 years, compounding at 11.5% per year. In 2017, sports betting accounted for 25% of all money bet by Australians. The target of these betting companies is young men (aged 18-34 years) who are most most likely to sign up for new online accounts and to be at risk of long term gambling-related harm.

Since March 2020, the stock markets have been quietly accumulating and Slack Investor has spent some quality time on the couch – Sometimes watching sport. Hitting me in the face have been an avalanche of betting advertisements enticing me to get an app, to lay down some hard-earned cash on a match outcome, identify a “first try scorer” or a “multi” (???). Always, I am advised to “gamble responsibly” but this guidance is always accompanied with a wry grin as they collect my credit card details.

Commercial TV networks all seem to have an overlay of gambling ads as they cling to this growing industry – as their other advertisers are looking elsewhere. One of Australia’s largest advertisers is Sportsbet, they spent $AUD 139 million on ads in 2020. It is all about “Brand awareness”. In 2021, US Sports betting companies have spent a staggering $USD 1.2 billion on acquiring new customers. This will only increase as more US states legalize sports betting. With brand awareness comes a desire to download an app, promotional codes are given for gambling credits, you give your own bank details, place a bet … and suddenly you are a customer, and subject to further online conversion.

Slack Investor can see that gambling can introduce a bit of excitement to a life, but I would always take the long view. What are the chances that I would succeed in any form of gambling with repeated trials – where the odds are set by hardened professional compilers. Rather than gambling, I would much rather invest in a growing companies that produces useful things. That’s enough excitement for me.

Gambling is a “tax on stupidity”

Attributed to Samuel Johnson – Or Voltaire (When talking about Lottery)

What can you do?

Three-quarters of 8 to 16-year-olds interviewed could name at least one gambling brand, and one-quarter could name four or more.

Based on a 2016 survey of Australian children in NSW and Victoria

If you would like tougher rules to stop the saturation of prime-time television with gambling ads in Australia, you can put the commercial TV Networks on Notice and register a complaint with the Free TV umbrella organization. It seems to be that the language they understand is the threat to move your viewing to the streaming services that don’t show harmful and repetitive gambling ads (Netflix, ABC iview etc.). Slack Investor is not sure how effective this is – but it made me feel better.

December 2021 – 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 markets this month had substantial rises (ASX 200 +2.6%; FTSE 100 +4.6%; S&P 500 +4.4%).

Well, Santa did come to most index holders. The theory is that, in the US market, there is a lot of spending at this time of year (good for retail) and pay bonuses are also awarded at this time. The “Santa Claus Rally” has occurred 76% of the time between 1950 to 2019. Although this seems to be a regular calendar event, Slack Investor would not bet on it – as there also have been some sharp declines in December – particularly in the last ten years. Long-term accumulation for me – but it is a delight to see Santa when he comes.

Slack Investor has been busy with adjusting stop losses upwards again for the US Index. In these over-valued times for the US Index, and to a much lesser extent the Australian Index, I am keeping my stop loss within 10% of the end of month price. See the US Index page for details.

Monthly chart for the US Index (S&P 500) showing upward movement of the Slack stop loss from 4278 to 4495 – from Incredible charts

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.

Throwing toothpicks at a mountain … and November 2021 – End of Month Update

Throwing toothpicks at the mountain': Paul Keating says Aukus submarines plan will have no impact on China | Australian foreign policy | The Guardian
Paul Keating, at the National Press Club in November 2021, likening Australia’s recent announcement of buying 8 submarines as part of our defence strategy against Chinese expansion as “… like throwing a handful of toothpicks at the mountain.” – The Guardian

Paul Keating is an established Slack Investor hero for helping to modernise Australia’s economy and also introduce compulsory superannuation back in the early 1990’s. He has certainly not lost his ability to cut through with memorable quotes. In amongst the barbs at his latest Press Club interview was a compelling message for the need to feel comfortable with Australia’s place bordering Asia. Keating stressed the positive aspects of Australia’s potential for engagement with the region, particularly with Indonesia and China.

Now, back to finance … and the need to engage with our own mountain. At the end June 2021, Australia’s total superannuation assets were $AUD 3300 billion ($USD 2360). This staggering sum is almost 150% of the whole of Australia’s annual Gross domestic product(GDP) for 2021 of $USD 1610.

Australian superannuation fees are still too high

Although it is far from perfect, we should be proud of our superannuation system – it is the fourth largest pension pool in the world – not bad for a small country. But we can do better.

Data collected by the Productivity Commission showed that superannuation fees and costs were at the upper end of global comparators, and significantly higher than pension top dogs, Denmark and the Netherlands

Harry Chemay – Morningstar
From Morningstar: Why has Australia slipped down the global super ranks?

It is difficult to make direct comparisons to other countries as each country has its own quirks. For instance, the average Netherlands worker contributes 22.5% of salary to their defined benefits super scheme – compared to the current rate in Australia of 10% and (hopefully) moving towards 12% in 2025.

There are some structural changes that must happen to make our superannuation system more efficient. A good start is the Australian Prudential Regulation Authority (APRA) introduction of a performance test to identify poor performing super funds. But readers of Slack Investor do not need prompting from APRA – they have already engaged with their super and switched to be in one of the top performing funds.

In a recent speech, Margaret Cole, a board member for APRA, pointed out that Australia has too many small super funds – Of the 156 APRA-regulated superannuation funds, there are 116 funds that each have less than $10 billion under management.

The red ellipse shows the multitude of small superannuation funds that exist under APRA’s jurisdiction. From Margaret Cole – speech to the Financial Services Council webinar

To get costs down there must be much greater consolidation of these toothpicks to achieve economies of scale so that they can be at least a “tree on the mountain”. Unfortunately, each of these funds have their own board, investment officers, and other “hangers on”. Self interest keep them going … not the needs of their clients. Their members must overcome their super inertia and change funds if they are performing badly. Or, the funds need to be told … and regulated out of the picture.

November 2021 – End of Month Update

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

Most markets drifted down this month. The Australian market down -0.9%. The FTSE 100 down -2.5% and the S&P 500 down -0.8%. Slack Investor remains watchful with stop losses in place.

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