ASX 200 | Slack Investor

Financial Year 2020 Slack Results

“If you can follow only one bit of data, follow the earnings — assuming the company in question has earnings. … What the stock price does today, tomorrow, or next week is only a distraction.”
Peter Lynch, One Up On Wall Street:

The great investor Peter Lynch had plenty of “solid gold” insights that Slack Investor has tried to incorporate into his investing. I have long extolled the virtues of growing companies with high Return on Equity (ROE). But, before I invest, I look at the earnings and projected earnings of each company at an aggregate site such as the most excellent Market Screener – Registration is free!

For example, the current market darling Afterpay (APT) is an excellent business idea and has performed extremely well for those who own it (Up 163% FY2020). APT may be a very successful company – but it is not expected to have positive earnings till 2022. From the earnings table below, both Slack Investor and Peter Lynch would be reluctant to stump up $66 to earn $0.28 in 2022.

June FY
EPS

2017
–

2018
-$0.04

2019
-$0.18

2020
-$0.16

2021
-$0.01

2022
$0.28

Annual Earnings per Share (EPS) for ASX listed Afterpay (APT) from MarketScreener

Slack Investor tries to get things “mostly right” and fills his portfolio with companies that Peter Lynch would hopefully approve of – There are no Afterpay’s, but many other growing companies that have an established earnings record – There will probably be some temporary downgrades to earnings in the Slack Portfolio this year due to the virus. I could never match Peter Lynch’s legendary performance, where he grew his Magellan Investment Fund from 1977 until 1990, at an average 29.2% annual return – roughly twice the gains of the S&P 500 at the time.

Things were going along swimmingly for FY 2020 till mid-February and the rapid spread of COVID 19 around the world. For FY 2020, the worst performing followed index was the UK, with the FTSE 100 Total Return Index down 13.8%. Dividends helped the Australian Accumulation Index to be down 3.7% for the financial year. These Americans really believe in their stock’s ability to keep earning during this recession (maybe Slack Investor has a twinge of doubt here) … the S&P 500 Total Return Index was UP 12.0% for the same period. All of these Total Return Indexes include any accumulated dividends, wheras the chart below of the ASX 200, just shows stock prices.

ASX 2oo Weekly chart for FY 2020 – started at 6618 and finished at 5897 (30 June 2019 – 30 June 2020) – Incredible Charts

Slack Portfolio Results FY 2020

Slack Investor has three financial pillars to keep himself steady. I will expand on these in a later post.

House – Home ownership gives me great security and pleasure. The bank owned most of this 30 years ago – but now I have the upper hand! (~30% of Net Worth)
Income – This used to be my job, but in retirement I have some stable income annuity style investment (~20% of Net Worth) that would pay my bills and maintain a basic Slack Lifestyle should Armageddon befall the stock markets for a few years. This income is supplemented by income from the Slack Portfolio.
Slack Portfolio Investments – (~50% of Net Worth) – Now currently in my Self Managed Super fund (SMSF) which is almost exclusively invested in growth companies. These are great businesses to be invested in if you have a long time horizon – as stock prices can be volatile in high Return on Equity (ROE) shares. I am currently retired and would not rely on the Slack Portfolio for stable income. Because of the stability of my other two pillars, I can be quite aggressive in the allocation of my investments in the Slack Portfolio – as I know I will not have to panic sell (for income) during any downturn.

All Performance results are before tax, given the circumstances, the Slack Portfolio annual FY 2020 performance of +9.4% was a pretty good result. Full yearly results with benchmarks are shown in the table below. A mediocre year for all benchmarks exposed to Australian and UK share markets (Median Balance Fund +0.3%, Vanguard Growth Fund +0.6%, ASX 200 Accumulation -2.7%). Real Estate was a good investment in the Brisbane and Melbourne markets for FY 2020 (+8.4% and +13.8%) – but the winds for these investments are blowing the wrong way now.

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH	CPI
2010	6.6	9.8	12.3	13.1	10.8	26.9	4.2	3.1
2011	2.5	8.7	9.1	11.7	-2.4	0.9	4.4	3.7
2012	8.3	0.4	1.3	-6.7	1.3	-0.9	4.3	1.2
2013	26.5	14.7	18.6	22.8	7.7	8.3	3.2	2.4
2014	23.6	12.7	14.5	17.4	11.5	12.8	2.6	3.0
2015	2.4	9.6	11.8	5.7	7.7	15.6	2.5	1.5
2016	14.2	2.8	4.2	0.6	8.4	9.5	2.2	1.3
2017	19.5	10.4	8.8	14.1	6.5	17.7	1.9	1.9
2018	37.6	9.2	10.0	13.0	1.1	5.2	3.9	2.1
2019	19.7	7.2	9.8	11.2	1.7	-6.0	2.0	1.3
2020	9.4	0.3	0.6	-2.7	8.4	13.8	1.1	-0.3

The Slack Fund yearly progress vs BENCHMARKS. The Median Balanced Fund (41-60% Growth Assets), Vanguard Growth Fund, ASX 200 Accumulation Index, Corelogic Residential Property total return in both Brisbane and Melbourne, and Cash (Australian Super Cash Fund) and Consumer Price Index (CPI)

The Five-year compound annual performance gives me a much better idea about how things are going and will smooth out any dud (or remarkable!) results.

The beauty of compounding with a succession of good performance results can be seen in the chart below showing the growth of an initial investment in June 2009 of $10000.

FY 2021 Resolutions

Image from the perceptive Gary Markstein.

The delusional President Trump provides many lessons to Slack Investor. The absence of these traits in Trump reminds me that humility and compassion are such worthwhile qualities. I will continue to work on these personal attributes this coming financial year and always be grateful for good fortune. I made plenty of mistakes this year and in hindsight sold some shares just before a decent price rise (e.g, IRI, CIP, VGE) – but Slack Investor accepts this as just the “normal path” of investing.

Slack Investor has no form in trying to predict the future … In the last 6 months I have tinkered with the Slack Portfolio and tried to get rid of any companies that would suffer severe setbacks in this COVID-19 led global recession. I have no great faith in my ability to time the exit and entry of exposure to sharemarkets, and I remain fully invested. Slack Investor is prepared to “ride this one out” with cash in the Portfolio at less than 1%.

In the wise words of Peter Lynch …

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”
Peter Lynch, One Up On Wall Street:

FY2020 Nuggets and Stinkers and July 2020 – End of Month Update

“Just get things mostly right“
Slack Investor 2020 –

Not that I think Slack Investor is worth quoting – but I searched high and low for a quote that expressed the Slack aim. The great Warren Buffet got closest to the sentiment with “You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – but I used this quote last year!

It is good for me to have a yearly display of my failures. It reminds me of the bumbling path of Slack Investor in the pursuit of financial independence. As for the nuggets, just get the foundations right … and luck might intervene.

“You can never be a first class human being, until you have learnt to have some regard for human frailty.”
Abhijit Naskar, Conscience over Nonsense

The percentage yearly returns quoted in this post include costs (brokerage) but are before tax. This raw figure can then be compared with other investment returns.

Slack Investor Stinkers – FY 2020

The Slack Investor Portfolio comprises of (mostly) high Return on Equity (ROE>15%) and high Price to Earnings (PE) ratio stocks. Historically, these companies are quite volatile as they are priced to account for future growth. If there is an earnings revision … or a change that would affect future earnings, then the price of the share usually plummets. Slack investor accepts that stinkers are just part of life when dealing with growth stocks.

Slack Investor has a look at his stocks on a chart (Thanks Incredible Charts!) every weekend – and, I eventually get the message if a stock price is moving lower and take the exit.

Rhipe (RHP) -22%

After being a star performer last year … this software technology company took a dive in share price this time last year. Slack investor bailed out in February 2020 – but not before taking a few licks.

Treasury Wine Estate (TWE) -13%

In Wine is Truth .. and this became evident at the start of this year as the global wine oversupply made it difficult for Treasury to raise prices. Their attempts to break into the US market were floundering and the stock price took a tumble. Slack investor “cleared the decks” in February 2020.

Centuria Industrial REIT (CIP) -11%

Centuria invests in industrial properties and was a victim of my COVID-19 portfolio trim. I sold out in April 2020 on my fears that the virus would affect tenancies. It seems that I took flight a little early as the stock price has rebounded 17% since I sold – Ah well … that’s investing!

Costa Group (CGC) -11%

Costa is agricultural company that grows and distributes mushrooms, berries, tomatoes, citrus, avocados and heaps more. My involvement with this company unfortunately coincided with a 2-year price slide due to a series of farming misfortunes. I parted ways with Costa in October 2019. Slack Investor held this stock for far too long. However, owning this stock taught me a lesson – avoid business that are “price takers” – where the cost of goods is set by seasonal factors or competitors. The best businesses have an exclusive product that people want and there are barriers to entry for other competitors.

Slack Investor Gold Nuggets – FY 2020

The other side of investing in companies that have a high Return on Equity, and with a track record of increasing earnings, is that you can sometimes expose yourself to some pleasant surprises. The Return on Equity (ROE) and forward Price Earnings (PE) ratio values quoted below are “forward looking” and are analyst predictions for the year 2022. They were extracted from the excellent Market Screener site. These ratios are just predictions, but Slack Investor finds them very useful.

Appen (APX) +58%

APX (2022 ROE 19%, 2022 PE 32) remains a company that I don’t really understand but after taking profits and selling last year, I bought back in during November 2019 after a price fall and then a breakout from a “falling wedge”. Another excellent year for this machine learning and artificial intelligence company – Ignorance can be bliss!

Commonwealth Serum Laboratory (CSL) +31%

CSL (2022 ROE 31%, 2022 PE 32) is now the largest company on the ASX. Their blood products and expertise in gene therapy and vaccinations are used worldwide and there are projected increasing sales. Driving this fabulous company is a commitment to innovation. Spending on Research and Development is in the target range of 10 to 11 per cent of turnover – in an environment where a typical manufacturer will spend 2%. It is no coincidence that this company is doing well.

Alphabet (GOOGL) +30%

The Alphabet list of products is large … and getting larger. Everyday I use Google, GoogleMaps, gmail, android devices and YouTube. Alphabet (GOOGL – 2022 ROE 19%, 2022 PE 32) has just announced a quarterly rise in profits of 22% as it moves deeper into peoples lives. Alphabet and the other FAANG Stocks have been acting a bit like pirates in the multinational tax world. There are some regulatory risks on the horizon though. Nations are rightfully demanding a share of these tech giants revenue as taxation. There is also a bit of “pushback” by governments and media companies who want a fair share of revenue generated by their content. However, on the plus side, profits should continue to grow as advertisers are spending more to reach an expanding number of customers that are engrossed with their smartphones and YouTube.

A2 Milk (A2M) +26%

A2M (2022 ROE 28%, 2022 PE 29) sells A2 protein type branded milk, infant formula and other related products to the world. The actual benefits of the A2 only protein have been indicated in small studies but longer-term studies with larger sample sizes are needed. However, in the mean time, sales are increasing and the share price is still going north.

Honourable mentions for Slack Investor Portfolio stocks BetaShares NASDAQ Index NDQ, Integral Diagnostics IDX and BetaShares RBTZ that increased more than 15% in this financial year.

Slack Investor Total SMSF performance – FY 2020 and July 2020 end of Month Update

A tough financial year for shares through the COVID-19 financial crisis. Chant West reports the median of “growth” super funds struggled to a small loss of 0.5%. The FY 2020 Slack Investor preliminary total SMSF performance looks like coming in around 9%. The 5-yr performance is a more useful benchmark to me. At the end of FY 2020, the Slack Portfolio has a compounding annual 5-yr return of over 19%.

My wise mother used to say to me that “Self praise is no recommendation” So Slack Investor will meekly slink back to the couch and get prepared for what might be a tough time ahead in the share market. The full FY 2020 results and benchmarks will be expanded on next post.

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. A mixed bag for Slack Investor followed overseas markets this month ( ASX 200 +0.5%; FTSE100 -4.4%; S&P500 +5.5%).

The US S&P 500 has shown more resistance to gravity than the Trump hairstyle – but all parties must end some time. As the S&P 500 has moved more than 20% higher than its stop loss, I have adjusted the stop loss to 2965 from 2721.

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).

My House … and June 2020 End of Month Update

… Welcome to my house, Baby take control now, We can’t even slow down, We don’t like to go out, Welcome to my house …
Flo Rida “My House”

Slack Investor’s taste may not be quite as “gangsta” as Flo Rida – check out his full video to get a flavour of what I mean – But, both Flo Rida and I share a genuine passion for the joys of household ownership.

In my last post, I had a bit of a rant about the exorbitant transaction costs of buying a house. Despite the costs, I hope that I didn’t mislead about the absolute joy that Slack Investor feels about house ownership. A Slack Investor pillar for financial independence is to own your own place before you retire – as the cost of housing keeps rising for retired renters. The typical homeowner aged over 65 spends just 5% of their income on housing, this compares to nearly 30% for renters.

Flo Rida and I are enamoured with owning our surroundings:

The Serenity – Ownership gives stability and control – You can do what you like in your own house and are immune from sudden evictions.
Access to aged pension and taxation benefits – the home is treated differently than other assets. However, Slack Investor thinks that these concessions are too generous and will probably be capped in the future – Currently in Australia, $6 billion in pension payments go to people with homes worth more than $1 million.
Flexibility – No need to ask the landlord to make changes – If you go on an extended adventure, then why not rent your house out for the dates that you are away – to help pay for the holiday – Or, House swap to an exotic location!

Slack Investor understands that owning a home may seem an impossible dream to some – and, sadly, ownership rates are decreasing . But do not give up hope – Many real estate pundits are expecting prices to fall from their current eye-watering levels. This fall should be accelerated by COVID-19 factors.

Home Ownership rates are on the decline for all age groups. – Grattan Institute

A home does not have to be large and, it could be out of a capital city. There seems to be a trend already for millennials (and older folk 60-69) to be moving from cities to the regions according to the Regional Australia Institute. They suggest that equitable access to housing is one of the pull factors for this move to the regions. Slack Investor has spent most of his working career outside of big cities and can highly recommend the simplicity of life away from the capitals.

More than 400,000 Australians moved from capital cities to regional destinations between 2011 and 2016
Regional Australia Institute report – February 2019

June 2020 – End of Month Update

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Slack Investor admits to being only an amateur economist and finds the current situation in the US confusing – Stock market up, economy down! These are wild times … but I am back to all IN for my Index funds!

US Data keepers, the National Bureau of Economic Research (NBER) have now determined that the US economy entered a recession in February 2020 “with different characteristics and dynamics than prior recessions”. The Federal Reserve bank of Cleveland strangely have their forecast of a recession in the next year at 19.2% (below Slack Investors threshold of 20%). However, reality always beats forecasts and Slack Investor has his stop losses live again for all Index funds.

Monthly rises in all followed markets ASX200 +2.5%, FTSE100 +1.5% and S&P500 +1.8%.

COVID-19 problems go up … stock markets go up? I know stock markets are usually forward thinking and obviously see an end to COVID problems soon. Slack Investor is not so sure … but the charts have him invested in all markets. My portfolio is trimmed to industries that should be OK( I Hope?)

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.

Is it safe to come out now … and May 2020 End of Month Update

Viktor Bulla’s photograph of the “Pioneers of Leningrad” in a defense drill, 1937, showing the well equipped youth ready for anything … taken 4 years before the horrific Siege of Leningrad– From rarehistoricalphotos.com

This striking image of Leningrad children in their gasmasks has left a haunting impression on Slack Investor. The 900-day siege of the Russian city during WW2 claimed the lives of 800000 civilians – Many of the photographed children would have been involved.

Not trying to draw any parallels, but it is true to say that we are all a bit apprehensive about how to deal with this new post-lockdown world in Australia.

The number of fatalities for COVID-19 is still shocking and it is causing great hardship in many lives. In perspective though, the “big Daddy” virus is the 1918 Influenza where nearly a 1/3 of the world’s population was infected and global deaths amounted to almost 50 million people.

Given sufficient leadership (are you listening Donald and Boris!) the world will eventually see this COVID-19 off – like it has with all previous past viral outbreaks.

Slack Investor does have a furrowed brow about the whole world economy thing. Even bevore COVID-19, China’s economy was shrinking – and has now tanked.

Although China is expected to recover later this year, things don’t seem so good for the moment. The International Monetary Fund (IMF) are describing it as the worst economic downturn since the Great Depression. It is tough to provide forecasts for this event and, as a retired meteorologist, I feel for my economy forecasting brothers and sisters. They predict both advanced and developing economies are expected to show signs of life in 2021.

World economic growth projections by the International Monetary Fund (IMF) World Economic Outlook April 2020

No country is spared in this global crisis, in particular, nations with weak health systems, and more limited funds to provide support will struggle.

Slack Investor will leave the big world predictions to others and continue tinkering in a small way with his portfolio. What is obvious is that companies reliant on tourism, travel, hospitality, and entertainment for their growth are in big trouble. Emerging market and developing economies face additional challenges as they will find it harder to find investors to fund their projects in this climate.

This is not advice, but I will sell off my shares in emerging market ETF VGE and the Malaysian property trust UOS and buy some ETF’s such as NDQ or QLTY. I have had second thoughts about selling down my overweight position on CSL . This company continues to grow – and I just love owning it. – I would have topped up my holding this week as it is currently slipping in price to below $280 – but it is already a big chunk of my Portfolio.

May 2020 – End of Month Update

Governments around the world have been mostly doing their job responsibly and adding stimulus to the world economies in these troubled times. In response to this, the Federal Reserve bank of Cleveland have stabilized the probability of a US recession within the next year at 19.4% (below Slack Investors threshold of 20% – so stop losses on index stocks are in hibernation). There has been some real optimism in the markets with further big monthly rises in all followed markets ASX200 +4.2%, FTSE100 +5.4% and S&P500 +7.6%.

The rise in the ASX200 has Slack Investor back into the market with a weekly change in momentum of the weekly charts signaling a BUY. It’s all a little bit crazy … but I am back to all IN! The 11-Period Directional Movement Index (ADX) change of greater than 0.6 is used as the momentum indicator for entry with the complexities of this process explained on the Resources page.

Weekly chart of the ASX200 Index showing the weekly price ranges and the three lines of the directional movement system for momentum trades below – incrediblecharts.com

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

April 2020 – End of Month Update … The Real Cost of Early Super withdrawl

In relaxed lock down through the courtesy of COVID-19. But the stockmarkets never sleep.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 20.0% but there has been some optimism in the markets that there might be an eventual end to this wicked virus crisis. Rises in all followed markets ASX200 +8.8%, FTSE100 +4.0% and S&P500 +12.7%.

The rises in the UK and US have got Slack Investor back into the market with a change in momentum on the weekly charts signaling a re-entry. But it is with much trepidation – the rapid recovery seems to have been priced in a bit early!

Slack Investor has outlined in many posts about how to get out of trades with stop losses. But has been a bit lacking in detail on when to get back IN. When trend trading, my main tool for finding a buy signal is a trend following (or momentum) system called the Directional Movement Index. There are many ways of setting up this system. Slack Investor likes the “smoothing” that is enabled by a system that looks back over the previous 11 periods – but the complexities are best left for the Resources page.

UK Index weekly chart showing the weekly price ranges at the top and Average Directional Movement Index (ADX) patterns below – From Incredible Charts

I am quite comfortable with the re-entry into the UK Index shown above, but the rapid swings for the US charts have the Slack method back IN, but so far, performing worse than the “buy and hold” method. I will continue this index market timing experiment for another 4 years (to make it a 20-year trial).

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

Super Withdrawal … should you?

“A Run On the bank” an etching from the 1930’s – from sutori.com

The Australian Government has gone into real governing mode and set up some measures to help people get through this COVID -19 crisis. They have established “JobKeeper” payments ($1500 per fortnight), doubled “JobSeeker” payments (up to $1100 per fortnight), and allowed the unemployed and people whose hours have been cut by 20 per cent to access up to $20000 of their super early. There are some rules.

Slack Investor understands that times are tough for the many who have lost their jobs, but is disturbed that 881,600 people had registered with the government for early superannuation access – and this could blow out to 1.5 million people. Unfortunately (particularly if you have credit card debt), this will be a necessary step for some. Slack investor implores those affected to exhaust all other options first – an early superannuation withdrawal does have repercussions further down the track.

Comparing potential withdrawal impacts at different ages

Investor’s current age	Years to retirement	Value of $10,000 at retirement	Value of $20,000 at retirement
67	0	$10,000	$20,000
57	10	$17,908	$35,817
47	20	$32,071	$64,143
37	30	$57,435	$114,870
27	40	$102,857	$205,714

Source: Vanguard calculations – These calculations show a significant projected eventual cost of super withdrawal. However, these raw figures do not allow for inflation. A projection allowing for inflation (2%) using the smartasset inflation calculator shows that the $10 000 withdrawal after 40 years will grow to a still significant $46578 in 2020 dollars ($102857 in 2060 dollars).

Slack Investor knows that accessing cash like this has consequences and that people should make an informed choice between their short term financial need and their long term financial position.

There is also the effect on your insurance with the withdrawal of super … if you go to a zero balance, your super-related death and disability insurance will cease. Even if you return to work, it will not automatically reinstated until your account balance reaches $6000.

A real-life example from the Slack Investor chronicles. A long long time ago in 1982, a 25-year old Slack Investor wanted to travel overseas for the first time. Funds were a bit short and he had saved some money … but not enough for a whole year travelling. I had a superannuation balance of $3500 (This would be worth almost $10000 in 2020 dollars using the smartasset inflation calculator).

Back in those days, prior to compulsory super, you were allowed to cash your super in – and I stupidly did. To save up this kind on money would have taken another 3 months of saving and working – I chose the instant gratification.

Slack Investor is a great believer in the “tried and true” problem solving method of

Research – Weigh up the pros and cons …
Make a decision
Move On … No Regrets – you have made the decision with the available facts.

However, the pulling out of my super when I was in my twenties is one of the few things that brings me just a tinge of regret.

The Hesta Retirement Balance Projection Calculator shows that my $3500 would have grown to nearly $31000 at my 62-year old retirement date (Assumptions: at 8% growth and 2% inflation). Slack Investor likes this calculator as it allows you to set assumptions that help account for inflation as well as growth.

Perhaps if I had just delayed my trip by a few months and worked a bit longer, I might have been able to retire just a little bit earlier. Ah well … we make our decisions and … such is life.

Be safe, be kind … and make an informed decision about releasing your super early.

Is Market Timing Just Too Hard?

Slack Investor has not too many attributes … but one of his few features is self-awareness and the constant need to review techniques on the way to financial independence.

I have been trying to run a timing strategy with my index funds since 2004. With some success, but I would only give a “try harder” sticker to the results.

The average yearly gain for the Slack Monthly “market timing” method over the alternate strategy of “buy and hold” (leaving funds in the ASX Index, UK Index, and the US Index), is respectively is 2.7%, 2.3% and 0.3% (At March 2020). Check out the charts, trades and the gains at the page links for each index.

Although these figures show outperformance for the Slack “market timing” method. These gains might have been outweighed by share dividends if I had held the shares instead of trading out to cash. At the moment cash returns are very low (0.5 – 1.5%) and, at the current average ASX 200 yield of 5.2%, shares make a lot of sense – But being in stocks is not for the faint-hearted.

The bear market of March of 2020 — Chart showing the historical number of days to reach a Dow Jones market fall of 30% – From a Beth Kindig article in Forbes

2020 has been the financial equivalent of the “Battered Sav” with wild swings in the stock market – and the fastest fall in stock market prices in history. The ASX fell 20.5% in 14 days to enter “Bear Market” territory on March 11. It was down 30% from its peak by March 16. It is the speed of the market falls that is making Slack Investor starting to question his monthly timing strategy. For the US Dow Jones index, the rapid fall of 30% in just 18 days during March 2020 has set new records.

Things are getting freaky!

A visualization of the daily moves for the US Market 2010-2019 shows that usually most daily movements are less than 1% either way – This is Slack Investors comfort zone. But, occasionally, the market moves much more in a day. I think these large moves are getting much more common with the increased prominence of high frequency trading.

A great visualization from 2019 showing the daily percentage movements of the US stock market since 2009. **Most** of the daily moves are between -1% band +1% – but higher fluctuations do occur. – from www.chartr.co

Compare the size of daily movements on the US market in January 2020 with March 2020 – where most days had changes more than 3%.

A comparison of daily percentage change on the US Dow Jones Index in January 2020 with March 2020. From Bloomberg ofdollarsand data.com

Large share brokers and investment firms use trading systems that automatically buy into rising markets and sell into falling markets. These trades are executed by computers that use a defined set of instructions known as an algorithm to place a trade. If the market is moving up or down then these trading systems inflate the movements of the market as they try to get in or out of a trade. These computer trades make it hard for individual investors as their trades happen in microseconds. Algorithmic trading is growing rapidly at 11% per year.

“fundamental discretionary traders” accounted for only 10 percent of stock trading volume
JP Morgan quote from 2017

That means that we individual traders are up against the machines for 9 out of every 10 trades.

“Investors may have to get used to big, sudden moves in the stock market due to fewer institutions pushing equities to attractive valuations while hedge funds reach unprecedented levels of employing computerized momentum-based strategies. The result will be “faster and deeper” corrections.”
JP Morgan

I will keep my market-timing experiment for index funds (Less than 3% of my Portfolio) going for another 4 years (to make it a 20-year trial). My feeling is that by waiting till the end of the month, sometimes the market has corrected too far. However, for the bulk of my stocks, my message is to embrace the volatility of the stock market … it is what it is! The share market is still one of the most convenient way to build wealth for the investor.

Slack Investor cannot beat the computers in a momentum trade. But I do have some advantages over the the machines. I can try to judge what a business is worth. Does it have barriers to entry for other companies? Is it growing? Does it have too much debt? Find yourself some good growing companies with a track record of increasing earnings. Do a little “tweaking” to suit the times … and stay safe in these troubled times.

March 2020 – End of Month Update … Keep Calm – and stay in the Bunker

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.

*Monthly chart of the ASX200. The latest cycle is showing a buy at 5252 and a sell at 5076 – a loss of 3.4% – 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 recalculated.

Keep Calm and stay in the Bunker

Nuclear Bunker at Broadway Tower, The Cotswalds

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.

Coronovirus Panic

A 3d rendered illustration of a *Coronavirus –* from hopkinsmedicine.org

COVID-19 (SARS-CoV-2) was first first recorded in China in December 2019. In a few short months, the world is in turmoil. There is panic in the streets and this coronavirus epidemic is likely to be an exceptionally serious global problem with many fatalities. Slack Investor couldn’t buy toilet paper last week. That’s when this problem got the attention of my small brain!

It is a good thing that governments are acting decisevely to try and stem the spread of this virus. No one really knows how this pandemic will play out. It is a fact that the world GDP will suffer – but the extent will depend on whether the pandemic is mild, moderate or severe. A good snapshot of how things are going can be found at the World Health Organisation (WHO) Dashboard which keeps a world wide tally of confirmed COVID-19 cases and tracks the drift of concern towards Europe.

Based on current knowledge, the case fatality risk for COVID-19 is higher than observed for seasonal influenza virus, which has a fatality risk of about 0.1%. Annually, seasonal influenza virus is estimated to cause up to 290,000 deaths globally.
From Coronovirus: The Conversation

The latest WHO data on COVID-19 have the death rate (currently over 5000) from confirmed cases at 3.7% – but this is likely to decline as testing is rolled out and the number of confirmed cases more adequately reflect the actual number of those with the virus. This is a major health problem and will impact the world economies for the immediate future – but is unlikely to have a long-term effect.

The MSCI World Index since 1970 with various world epidemics marked – Original source Charles Schwab but found in marketwatch.com

The important thing from the chart above is that even though COVID-19 is a significant challenge for the world. The world MSCI Index always recovers from viral epidemics – It just takes a bit of time.

The way things are going, Slack Investor will probably sell his remaining Index funds (US S&P500 and ASX 200) at the end of this month if they are below their stop loss level – as this is system that I am running with my Index funds.

For the individual companies that make up over 95% of the Slack Portfolio, I am not selling into a panicked market. Again, I tap into the wisdom of Warren Buffet. Rapidly falling markets are a test for every investor. Buffett says that investors should treat their stocks like a house – what matters is the 10, 20 and 30-year outlook of each company, not the latest newspaper headlines. To paraphrase Mr Buffet, If you bought a house for $500 000 and a month after someone offers you $350 000, you probably wouldn’t take it – You would have your own idea of the house value and hopefully wait until you are offered a more suitable price. Slack Investor feels the same way about his carefully selected shares in a growing companies with good prospects – the sell-off is probably over done.

In the meantime, while lamenting that I have no spare cash for the inevitable upturn. Slack Investor will be washing his hands a lot and trying to avoid close contact with those with flu-like symptoms, and trying not to touch his well-worn face.

February 2020 – End of Month Update … and wisdom of “the Buff” in times of trouble

A wild month in all stock markets with increasing concerns of the punters about virus COVID-19 and its effect on the world population and economy. There is a selling fever at the moment. Slack Investor is no predictor of the future, but he reminds himself that stock prices are set by the market and there are often times when prices exceed the “value” of each individual company – and times when prices fall due to panic selling. Stock markets are volatile and while we frail humans (and a few robots!) are in charge of setting the price – this will always be the case. Some markets have had an official correction (10% fall from their peak). This is quite normal and usually happens after a period of strong rises. Marcus Padley points out that

“Normal” risk is the stock market having a 20 per cent correction every three years and bouncing rapidly afterwards.
Marcus Padley in article from The Age

Slack investor has two systems going with his shares. With his funds that track whole Indexes, he attempts to time the market a little with the use of stop losses. However, for individual companies, I deal with them on a “case by case” basis and think about how this current Coronavirus crisis will affect them. If I owned companies in tourism, international education, airlines, or those who source most of their goods in China – I would be cutting my losses and getting out. If the crisis worsens, and COVID-19 is declared Pandemic, then I would have to have a closer look at my share holdings as health epidemics are a risk to all businesses.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 32.9%. This probability is starting to creep up again. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are “switched ON”

Slack Investor remains IN for Australian index shares (ASX200 down 8.2% this month) and the US Index S&P 500 (down 8.4%). I have not had much luck with the fluctuating FTSE100 and it has breached its monthly stop loss (down 9.7%). So I’m OUT. The latest trading cycle showed a loss of 9.6%. But since 2004, the Slack Investor timing method for indexes has beaten the FTSE “buy and hold” strategy by 17%.

Monthly chart of the FTSE100. The latest cycle is showing a buy at 7279 and a sell at 6580. From Incredible Charts.

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

When “the Buff” talks … Slack Investor Listens

It is not unusual for Warren Buffet to expand on his thoughts on investing. Every year his investment company Berkshire Hathaway reviews the last 12 months and gives a fair chunk of investment thinking according to Warren Buffet and his distinguished offsider Charlie Munger. The full 2019 year letter is here.

Year after year the advice is remarkably constant.

“What we can say is that if something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments.”
Warren Buffet from the Berkshire Hathaway annual letter for 2019

In other words, despite the world-wide Corona virus inspired rout on stock prices, “the Buff” feels quite comfortable with his exposure to shares “over time” and feels confident that his portfolio will outperform bonds and cash.

Warren Buffet tries to tune out the daily fluctuations in share price and he has always said that investors should see themselves as long-term part owners of corporations. “The Buff” looks for companies with low debt, good management and a high return on equity. Mr Buffet does not anticipate selling any of his top 15 stock holdings.

Corrections aren’t much fun, and Slack Investor has as much investing prowess as Mr Buffet’s toenail, but, Like “the Buff”, I would rather have the bulk of my investments in good companies than anywhere else.

January 2020 – End of Month Update … and Super Australia

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The ASX probably had a bit of catching up to do and put in a big month (+5.0%) – These type of rises make Slack Investor nervous! There was also an opportunity to revise upward the stop loss for the ASX 200. When the share price gets to be 20-25% above a stop loss on the monthly charts, I usually look for a sensible place to put a new stop loss at a higher value. The ASX 200 is still in an uptrend – and a “Higher Low” had been established at 6396 on the monthly chart. The Stop Loss was moved upward to 6396.

The FTSE100 (-3.4%) lost last month gains and the S&P500 was flat at (-0.2%). Both are still well above monthly stop loss levels.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 25.9%. There has been not much change in the past 3 months. There was a peak at 41% five months ago. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are still “switched ON”

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

The introduction and growth of Australian Super

Former Australian Prime Minister and Treasurer, Paul Keating introduced compulsory Australian Superannuation and often used “cut through” language. In this case, to reporter Richard Carleton. Background on what constitutes a “pissant” can be found at grammarist.com

Not really a fan of insulting language but sometimes it is necessary to cut through, and Paul Keating was a master of this art. Imagine what it was like back in 1991 – where Keating, with the help of Trade Union Leader Bill Kelty, was able to convince Australian unions and workers that an overdue 3% pay rise should go into compulsory savings. Instead of going into worker’s pockets, he argued that the payrise should go into a retirement scheme called “superannuation”. ABC economist Peter Martin describes this incredible feat of persuasion as a means to avoid inflation at a critical time in Australia’s economy.

The most excellent compulsory Australian super has been going since 1992, accounts for 9.5% of workers income, and now stands at 2.9 trillion AUD . According to ASFA, Australia is the 4th largest holder of pension fund assets in the world. But the Productivity commission says that super fees are still to high and that some super funds are duds. For most of your working life, you should be in a “growth” fund that is not a dud!. The Chant West compiled funds below have an excellent track record over 10 years – a good place to start.

From Morningstar, using *Chant West growth funds data, (61 – 80 per cent allocation to growth assets).* *Performance is shown net of investment fees and tax.*

New Australia Day please

In contrast to many current day politicians, Paul Keating was a real leader, prepared to argue the case for a proposal – even if it wasn’t initially popular.

Australia Day is currently celebrated on January 26th – The anniversary of when Captain Arthur Phillip took formal possession of the colony of New South Wales in 1788. This date does not sit well with many indigenous people who understandably see this as a commemoration of “invasion day”. It is time for a new date! – the anniversary of the opening of the first Federal Parliament in Melbourne, 9 May 1901 has been suggested.

May might be a bit cold though. Noel Pearson suggests the more inclusive celebration of both the 25th and 26th of January. The first day a recognition of the 65 000 years that indigenous Australians occupied the land – and a putting to bed the false idea of “Terra Nullius”. The second day, a celebration of modern Australia.

Nice work Noel … I am sure Paul Keating would approve – and two holidays instead of one … very Australian.