Boring isn’t it. How Slack Investor goes on and on … and on and on … about long-term returns. But firstly, some short-term returns. All numbers are in for 2024 and the Slack followed markets all had an ‘above average’ year when dividends are included. The average returns are based upon the 2024 Vanguard Index chart 30-yr returns and, for the FTSE, the 20-yr return.
Index
2024 Index Return
2024 Total Return (inc. Div)
Av. Yearly Total Return
ASX 200
7.5%
11.4%
9.1%
FTSE 100
5.7%
9.7%
6.9%
S&P 500
23.3%
25.0%
11.1%
The beautiful histogram of annual ASX 200 (and proxies) returns (that include dividends) from MarketIndex.com.au has been updated for 2024. Slack Investor is always pleased with an addition on the positive side of the ledger – he notes that there are many more positive years than negative – this also helps his disposition.
Historical Annual Returns of the ASX 200 (including dividends) – Source: MarketIndex.com.au
A similar pattern with the S&P 500.
The last 151 years of annual returns (without dividends) for the S&P 500 Index – From visualcapitalist.com
For both the S&P 500 and the ASX 200, 19% of calendar years delivered a negative return. Therefore, on average, we can expect a negative return for one in every five years.
2025 Predictions?
Slack Investor is no seer. The Financial Press has come up with a range of views for 2025. In a very 2025 move, Slack Investor asked the AI Bot Perplexity for its predictions for the S&P 500 for 2025.
Based on various Wall Street analysts’ predictions, the S&P 500 is expected to deliver positive returns in 2025, with estimates ranging from approximately 9% to 20%. – Perplexity
From experience, Slack Investor knows that the financial press predictions are not very good. Perplexity cautions that the past S&P 500 predictions have generally been inaccurate and unreliable.
Whatever 2025 brings, Slack Investor will take the short-term returns on the chin – he does rely on positive returns in the long-term. As the chart below indicates. If you held a World Index Fund such as Vanguard MSCI Index International Shares ETF (VGS) for 5 years, you would expect positive returns on 88% of occasions. Longer holding periods will almost certainly yield you positive returns. VGS has a relatively low management fee of o.18% and does not hold Australian shares.
The incomparable cartoonist David Rowe capturing Donald Trump in the Australian Financial Review taking the Republican party for a swim in the sewer.
The Clown in Chief – Stable Genius? Great Investor?
Far be it for Slack Investor to disparage the wisdom of the majority of voting Americans that have just elected Donald Trump for four years as their president. Despite Trump declaring himself as a ‘stable genius’, my mother wisely used to say that ‘Self-praise is no recommendation’.
There is some contention on how much was available in ‘free cash’ but, if the available amount was invested in S&P 500 stocks in 1974, PolitiFact estimate that it would be worth at least $3 billion today. Using different initial estimates, the National Journal estimates that passive investing in stocks could have enriched Donald by $US8 billion. So, it seems that Donald was destined to be a billionaire – whether investing in real estate – or the stock market.
“Bloomberg puts Trump’s current net worth at $2.9 billion, Forbes at $4.1 billion. The National Journal has worked out that if Trump had just put his father’s money in a mutual fund that tracked the S&P 500 and spent his career finger-painting, he’d have $8 billion.” – Source: National Journal
To further harp on about the miracle of compound interest , there are huge advantages in starting to invest at an early stage. The chart below contrasts the case of Investor 1 at age 25 and investing $5000 per year for 10 years – then stopping, and allowing the compounding interest to do its work. Investor 2 doesn’t start his investing quest till the age of 35, and invests $5000 per year for 30 years. He never catches up to Investor 1.
Of course, Slack Investor is all about personal empowerment and the chart above rings the bell on starting your investment journey as soon as possible. In the journey of life, you may be one of the lucky ones to receive a gift or inheritance along the way – this advantage is huge! Slack Investor acknowledges his privilege and was given a gift from his grandfather’s estate equivalent to 30% of a year’s salary in his early thirties. The gift went straight on my mortgage.
This makes Slack Investor ponder about the help that a monetary gift can bring. Slack investor is all for self improvement, through education or travel. However, if given a gift of money, he would recommend, at least, using a good portion of it to reduce any debt – or invest. But do it now.
December 2024 – End of Month Update
OK, someone must have been naughty! The year closes and there was no December ‘Santa Rally’ this month. All followed markets fell. The ASX200 down 3.3%, the FTSE100 down 1.4%, and the S&P500 down 2.5%. Slack Investor remains IN for the FTSE100, the ASX200, and the US Index S&P500.
I haven’t yet done the maths on the market yearly gains that include dividends. In raw terms, for calendar year 2024, the ASX 200 was up 7.5%, the FTSE 100 up 5.7%, and the S&P 500 up 23.3%.
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.
My Dad was an amateur finance bloke and would often spend the quiet hours of the night with a notebook and reading matter that would usually have the theme of unlocking great wealth for his family. One of his sayings was:
‘Money Makes Money’ – My Dad
We were from a large family and there were always sufficient ‘outgoings’ to make sure that my Dad never really got to test the theory on his own funds. But, he believed that if only he could amass a chunk of money, then this could be invested wisely and, it would keep on growing and, he would never have to worry about money, ever again!
He had seen many examples of the rich getting richer. People with money increasing their wealth in a seemingly effortless fashion e.g. A Sydney harbourside home bought for $10 million selling for $26 million four years later. He was also a fan of Noel Whitaker and bought one of the first editions (in 1987!) of Noel’s great book Making Money Made Simple. My Dad understood the simple truth of saving more than you earn, investing these savings and letting the compounding do its work over time. Although it takes more time than harbourside investing, Noel’s advice still holds up.
I have since learned that my Dad might have got the ‘money’ quote from Benjamin Franklin who, expresses the full beauty of the compound interest process.
“Money makes money. And the money that money makes, makes money.” – Benjamin Franklin
So, it is not only the money that you invest, but all the earnings are earning too.
The one-eyed political investor
Let’s suppose you were such a committed US political investor that you only had funds in the market when ‘your president’ was in power – and, quickly withdrew your investments when the other team got in. Using 70 years of S&P 500 data shows that you might be better off if you were a Democratic investor. However, your gains would be tiny compared to the situation where you were more relaxed and just kept your money in the market – regardless of President. The lesson is, that time in the market is the key.
Investing in the US S&P 500 index from Jan 1953 to September 2024- Source Financial Synergies
It is time in the market that matters – not who you vote for!
The following pair of charts presents another way of looking at the effects of one-eyed political investing, either Democrat or Republican, over a 10-yr time frame and also, a 70-yr period. The time periods are different to the above chart and hence the different final dollar totals.
If you invested ONLY when your political party was in power, you would be much worse off.
Using S&P 500 and proxy data for 10 years and 50 years till December 2023 – Source: Steelpeak Wealth
Slack Investor has seen the shape of the green curve on the right hand side before. It echoes the hundreds of compound interest charts that I have looked at for inspiration. It starts flat and then rapidly increases with time.
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” – attributed to Albert Einstein
Let’s say you managed to save $10 000 per year and you invested the money with an average return of 10%.
The blue line indicates the value of investing $10 000 p.a. and, compounding over 30 years. The green circle is where your interest earnings start to exceed the amount of your own money invested – Source: A Wealth of Common Sense
The brown line shows savings of $10 000 p.a., for 30 years, amounting to $300 000 of your money. The grey line represents the total compound interest on your investments. For the first 15 years you think you are getting nowhere – then the compounding kicks in with the help of time – your money plus earnings on that money plus time. Using the above assumptions, the total accumulated amount would be over $1 660 000.
The 10% earnings seems a little wishful. Although, past 30-yr averages for US shares, International shares, Australian stocks and Australian Listed property are, respectively, 11.1%, 8.2%, 9.1%, 7.8%. If your investments averaged 8% p.a., the total value of your investments would be $1 233 449 – Not Bad! However, life is not really like an Excel spreadsheet.
Slack Investor’s case study of compounding
A real-life example of compounding returns can be found in Slack Investor’s own tracking of Net Worth. He has diligently tracked his Net Worth (Assets – Liabilities) for 34 years since 1990 using the free software Microsoft Money Sunset International Edition. There is no magic in this chart – except for the miracle of compounding! As a family, we achieved a savings rate (including superannuation) that varied between 20% and 45%p.a. of take home salaries. During this time we have had home loans and have always been investing.
Slack Investor’s (+Ms SI) Monthly Net Worth Chart over the 34 years of saving and investing since 1990 – Microsoft Money
Even though Slack Investor is familiar with the concept of compounding interest – he is continually astonished with the spectacular gains in net worth over the latter years.
My Dad was right … Money makes Money! Start saving and investing now and get on this ride!
November 2024 – End of month update
Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
To Slack Investor’s bewilderment, in what can only be described as a ringing endorsement for Trump economic policies, the S&P 500 raged ahead by 5.7 % in November.
For the ASX 200 (+3.4%) and the FTSE 100 (+2.2%) – it has also been a great month.
Van Morrison’s 1986 album No Guru, No Method, No Teacher – One of his best. Try a meditative sample – In the Garden
Van Morrison is said to have echoed the thoughts of Jiddu Krishnamurti when naming this great album back in 1986 – after 38 years, it still stands up!
“…there is no teacher, no pupil; there is no leader; there is no guru; there is no Master, no Saviour. You yourself are the teacher and the pupil; you are the Master; you are the guru; you are the leader; you are everything.” – Jiddu Krishnamurti, Indian Philosopher (1895 – 1986)
The ultimate aim for Slack Investor readers is to fund your own retirement, but for most Australians, there is still work to do. The latest available ATO statistics (FY2021) indicate that the median superannuation balances for ages 65-69 are $213,986 (Male) and $201,233 (Female).
According to the Association of Superannuation Funds of Australia (ASFA) estimates – the minimum Superannuation balances required to achieve a comfortable retirement are set out below – and these figures rely on a couple of big assumptions. You need to own your own homeand have access to the aged pension, or part-pension, to make this sum work.
To retire independently (i.e. no government aged pension), a greater lump sum would be required! Things are slowly getting better with recent increases in compulsory superannuation. By 2050, the expected percentage of “comfortable retirees” should be 50%. This is outlook shows promise – but there is a need for more Australians to take action for themselves – Right Now!
Currently, (only) around 30 per cent of couples and singles reach or exceed the ASFA Comfortable Standard (in retirement savings) – ASFA Update – November 2023
Slack Investor would add to this wonderful guidance:
Educate Yourself in the ways of finance – The internet and financial independence books are your friend here. No-one will represent your interests better than you
Automate your savings – Into superannuation and your own investments – What you don’t see, you wont spend
Your Savings Rate is a very important number – my savings rate while working and raising a family fluctuated between 20% and 45%. Far more heroic rates are documented by F.I.R.E. enthusiasts e.g. Strong Money Australia – this will accelerate your journey
Let time be your partner in long-term investing – start as early as you can.
The Slack Investor path was more of a climb up a cobbled street than a path. It involved lots of different strategies. Trying to maximise my superannuation contributions, buying a house to live in, using home equity to gear into individual stocks and ETF’s. In the last 10 years, I have been trying to invest mostly in growth stocks, without too much trading. This has been a good fit for my temperament.
Long term Investing
The real business is to be invested at leastsomewhere in appreciating assets – and let time do its work. Below is an extract from the Vanguard 2024 long-term investing chart. The numbers on the right are the results of investing $10,000 in the Index funds of the indicated asset classes for 30 years. It is Slack Investors favourite chart.
Extract from the 2024 Vanguard Index chart (Just the 2007-2024 portion is shown) – the dollar values on the right are the results of investing $10,000 in index funds in each asset class for 30 years (since July 1994). – Check out the full 30-year glory of the Vanguard 2024.PDF chart – Click image for better resolution of this portion.
August 2024 – End of Month Update
Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.
The S&P 500 (+2.3) continues its enthusiastic progress. Slack Investor is pleased to go with the flow but remains nervous for the US markets.
For the ASX 200 (+0.0%) and the FTSE 100 (0.1%) – things have ended up dead flat. Although, all markets have shown a lot of variation this month.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
This continues the series of judgement – on a few calls by Slack Investor in recent blogs. The good and the bad are presented – to illustrate that you don’t have to get everything right to be a successful investor.
I tried to make the case that the ASX 200 was both undervalued and showing signs of momentum in the charts. At the the publishing dates, the ASX 200 was trading at 7328 and 7267. At 30/06/24, it is 7767, up 5.9 % and 6.8%. In the meantime, the US S&P 500, which Slack Investor thought was overvalued at the time, is up 32% for the same period. Could do better, Slack Investor – 5/10
I went through a whittling down process for a few stocks that might be suitable for my nephew who was just starting out on his investing journey. I wanted to gather a basket of well known, growing companies that were not outrageously over priced- I generally don’t like the predicted P/E Ratio to get above 40 when I’m buying, as this indicates the current price of the company is 40 times its predicted earnings (expensive) . The yield (dividend) is not that important to a young investor, it is the total growth that counts.
Looking at the figures, even Slack Investor is surprised with the success of his suggestions after only 12 months – an average 1-yr growth of +34.2%.
Again, Coles Group (COL) is the only dud. Despite COL having a high Return on Equity (ROE), I should have considered the competitive retail environment, its lack of history of growth and how it was spending most of its profits – returning to shareholders as dividends, rather than growing the business.
I hope that my nephew took this advice and is now a convert to stocks as a way to make your money grow. A top effort Slack Investor9/10; Nephew?/10
I went through the Slack investor buying process and I had to narrow things down to the one new share that I would buy at the time with a limited amount of funds. I selected Computershare (CPU). In hindsight, I should have trusted my gut here – I have never liked their confusing website! At the the publishing date, CPU was trading at $25.85. At 30/06/24, it is $26.34, up 1.8%. I had sold out of this stock, at a loss, 5 months after I bought it as I didn’t like the way that the chart was heading. A dud trade Slack Investor – 1/10
Slack Investor went a bit in depth here as to why Alphabet (NASDAQ : GOOGL) was such a major portion of his portfolio. At the the publishing date, GOOGL was trading at $137.36 USD. At 30/06/24, it is $182.15 USD, up 35%, A good trade Slack Investor, is this all your own work? – 9/10.
I am delighted to report that Centrelink have sent me a Commonwealth Seniors’ Health Card (CSHC). I have yet to make use of it … but I am excited that my perseverance with the forms (with the help of very generous new annual income limit rules) has paid off. You really tried hard here Slack Investor8/10; Centrelink 3/10 – The application process is confusing and tedious. The turn around time for the application was about 2 months – but, I don’t blame the workers at Centrelink here – there has been chronic underfunding in staff and processes for years.
Financial Year 2024
A quick review of how the Slack followed markets fared in FY 2024 – pretty well I might say!
ASX 200
ASX 200 Weekly chart for FY 2024 (Click to Enlarge) – From Incredible Charts
After a solid 2023, FY 2024 could be described as a slow start – but big finish. In raw figures the Australian Index rose 7.8 %. When accumulated dividends are re-invested, the ASX 200 Net Total Return, the yearly returns are more impressive, up 12.2%.
FTSE 100
FTSE 100 Weekly chart for FY 2024 (Click to Enlarge) – From Incredible Charts
This bad boy has shown great improvement. The UK Index rose 8.4 %. When accumulated dividends are re-invested, the FTSE 100 Total Return was up 11.4%.
S&P 500
S&P 500 Weekly chart for FY 2024 (Click to Enlarge) – From Incredible Charts
That crazy country, the mighty US of A, has done it again. the US Index rose 22.7 %. When accumulated dividends are re-invested, the S&P 500 Total Return was up a mighty 24.2%.
Slack Investor does not provide specific advice, but occasionally he will expand on the way he invests and report on the things that he is looking at. I will sometimes mention actual stocks or financial products that I am interested in.
I don’t regard myself as a gun “stock picker”- my long-term success rate for “winning” stocks is about 55% for completed trades over a 20-yr period. What I think I am OK at though, is weeding out the dud trades and sticking with the winners. My overall results are good. I find that if you surround yourself with solid growing companies – more good things will happen than bad things.
I think a couple of follow up posts are in order to pass judgement on some of the good, and bad, ideas that Slack Investor has thrown out into the world.
Slack investor had a bit of loose change and was “on the buy”. I outlined my case for Alphabet (GOOGL.NASDAQ), the Betashares NASDAQ 100 ETF (NDQ.ASX), and the Coles Group (COL.ASX).
Slack Investor was looking at technology changes in the music Industry using one of the more interesting charts that he has found. Who knew that “Peak Revenues”, from cassettes was in 1980, from CD sales in 1999, and peak music downloads in 2005. The only music revenue games in town now, are streaming, and live performances.
This was a roundabout way of showing the profound effect and fast moving pace of technology. I suggested a good way to capture this technology tidal wave was Betashares NASDAQ ETF(ASX: NDQ). The share price at publishing time was $32.47, at 30/06/2024 it is $45.51, up 40.1%. Well done Slack Investor– 8/10
The human trait of innovation was explored and this was also seen to be a great attribute for companies that I would like to invest in. A simple way to expose yourself to innovation on the Australian market was through ETF’s. Betashares NASDAQ ETF(ASX: NDQ), BetaShares Asia Technology Tigers ETF (ASX: ASIA) and the ETFS Morningstar Global Technology ETF(ASX: TECH) were thought to be a way to do this.
ETF
Price 30/06/23
Price 30/06/24
% Growth
NDQ
$35.25
$45.51
+29.1%
ASIA
$9.29
$9.21
-0.6%
TECH
$101.90
$95.9
-5.8%
Average Growth
+7.6%
Some “Innovation” ETF’s
With the exception of NDQ, not so good here and it is another internal warning to avoid the over-curated themed ETF”s. I am sill investing in NDQ, but I sold out of ASIA after 9 months as China was adding some “government risk” to their stock market. Fortunately, I didn’t get around to investing in TECH. An inconsistent effort, Slack Investor seems easily distracted – 5/10
One of the Slack favourites, CSL, asked shareholders to stump up some money in a Share Purchase Plan. The asking price was $273 – which I thought was OK for such a great, growing company. The share price at 30/06/24, is $295.21, up 8.1%. A solid performance, Slack Investor, but not shooting the lights out – 6/10
I liked the look of Dicker Data (DDR) after a slump in its share price. At the the publishing date, DDR was trading at $10.44. At 30/06/24, it is $9.66, down 7.5%. Since November 2022, there has been a downgrade in profits and the CEO has sold 10% of his shares. The forecast numbers still look OK, but so far disappointing. DDR is on shaky ground – and could get the chop! Needs Improvement, Slack Investor – 2/10
Slack Investor had a “bit of a go” at famous US investor Cathie Wood and her ARK Innovation ETF (NASDAQ: ARKK). My case was, that their was a lot of talk … and not much performance from her $6 billion USD actively managed fund. The price chart has continued to languish, and her 5-yr performance figures have got worse – and well behind the performance of the passive S&P 500 and NASDAQ 100 ETF’s. The 5-yr trailing annual return for ARKK is currently -1.6%. Compared to the NASDAQ 100 (20.5%) and the S&P 500 (15.0%). It seems as if Ms Wood’s Mojo has deserted her for now. Cathie Wood – 1/10; Passive US Funds – 9/10
The financial year closes and the Australian, UK and US markets are all in positive territory.
Slack Investor remains IN for all followed markets. The ASX 200 (+0.9%) and FTSE 100 (-1.3%) didn’t move much for the month. It is a continuation of good times in the US with the S&P 500 rising 4.6%. There has been a big gain in the US market this financial year of 22.7%. On top of an increase of 16.4% last financial year, Slack Investor is getting a little nervous about the US – especially after the debate last week!.
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.
The ruthless faces of the tax collectors depicted by Marinus Van Reymerswale do not ring true to Slack investor. These days, tax and fee collectors sit smugly behind desks as the fees and taxes roll in. Don’t get me wrong, Slack Investor is pleased to pay his fair share of tax … but excess fees for investing, that’s another story.
Most people have money in a super fund during their working life – this is normally known as an Accumulation Fund. When they retire, and the money can be released, they rely on this saved money to pay of debt – or fund their retirement. It is usual practice that you ask whoever runs your super fund when it is accumulating to also run your retirement fund – that pays you a pension at regular intervals.
For a fee, the super funds take care of the “back end” of this retirement fund – where your money is invested and all the administration for the fund. The Super provider sets up a new account within your super called an Account Based Pension (ABP). There is a great advantage in doing this as all earnings from from money transferred to this pension part of the fund are tax free if you are over 60. At 60, Slack Investor converted all of his accumulation funds into an Account Based Pension.
Naturally, Slack Investor is all for minimising these fees. Lets have a look at some of my favourite industry funds (Low cost high/performance) – Australian Super, Hostplus, UniSuper, and HESTA. Using the Chant West AppleCheck online tool available through the Australian Super site we can compare what they charge for running an accounts based pension.
For comparison, I invested our hypothetical ABP in the “conservative growth” option (21-40% shares) on all funds. This is usually the least risky of pre-mixed types of investments – and might be favoured by retirees. There are more other pre-mixed options that have better long-term performance – but these other options have more volatility. I have shown below the fees on a $550K account comprising of a $500 000 Account Based Pension together with a smaller $50 000 Accumulation account that you might have still running for any extra contributions.
FUND
10-yr Perf (%)
5-yr Perf (%)
Fees 500K Pension
Fees 50K Accum.
TOT Fees 550K
Australian Super
5.1
3.5
2602
322
$2924
HostPlus
4.7
2.9
3043
404
$3447
UniSuper
4.8
3.5
2696
356
$3052
HESTA
5.4
4.3
3152
362
$3514
The more you have … the more they charge.
Looking at just the cheapest of the above Industry Super providers, Australian Super with a pension account of $500K, $1m, and the current maximum amount for an accounts based pension $1.9m – again using the Chant West AppleCheck online tool.
Australian Super
Fees – Pension
Fees 50K Accum.
TOT Fees
$500K Pension Fund
2602
322
$2924
$1m Pension Fund
4802
322
$5124
$1.9m Pension Fund
8762
322
$9084
You could argue that these fees are reasonable, at around 0.5% of your invested funds, as there are inherent costs in investing and responsibly administrating these large amounts of money. Take the time to check what fees you are paying on your Super fund – and compare with a low cost/high performance fund using the AppleCheck tool – it might be time to switch funds!
Comparing Retirement fees with SMSF funds
Slack Investor is a great fan of the Self Managed Super Fund (SMSF) but recognizes that it is not for everyone – you must really be prepared to put a lot time and thought into the SMSF for it to be successful. To save on costs, rather than divesting responsibility to an accountant, Slack Investor uses a low-cost (no advice) provider and takes on a lot of the administration duties and investment responsibilities himself.
Unlike the Industry funds sliding scale for fees, a significant advantage in SMSF funds is that the costs are fixed – no matter what amount you have. For the 2023 financial year, Slack Investor’s costs through his provider eSuperfund were.
Task
Amount
Admin and Audit Costs (eSuperfund)
$1,330
Brokerage (10 trades)
$300
ETF Fees
$2,300
Time (50h@$50)
$2,500
TOTAL
$3,930
In the above example of annual fees, I have tried to include a charge for my own time at a nominal 50 hours at $50 per hour. On average, a hour per week. Most weeks I wouldn’t spend any time on my SMSF but, around tax time, and when making decisions about buying or selling, pensions, or contributions, I would spend a few hours thinking or researching. Annually, 50 hours is a fair approximation. I would gladly perform these tasks for free as finance is an interest and a hobby, but I’ve included them above to make a proper comparison – as not everyone is a Slack Investor.
Running an SMSF, because of their fixed costs makes more sense with a large super fund (>$500K). However, at the core of any successful self-managed fund (SMSF) is the amount of time and effort that the trustees (you, and other members of the fund) are willing to put into it.
Given the all the above data, it could be better, but the amount of fees that a good industry fund charges to run your pension seem reasonable at around 0.5% of funds under management. Slack Investor hopes that competition and transparency should gradually lower these fees.
September 2023 – End of Month Update
Slack Investor remains IN far all followed markets. The ASX 200 (-3.5%) and the S&P 500 (-4.9%) have had a poor month. However, the FTSE 100 is emerging from the doldrums with a positive month (+2.3%).
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.
The last time Slack Investor wrote about how he buys shares was two years ago, and The Slack Buying Process is worth a read for the detail. I must admit that not much has changed in the method that I use. Two of the shares that I bought back then Alphabet (US:GOOGL) and Betashares NASDAQ 100 (ASX:NDQ) have done OK in that time period, but Coles (ASX:COL) has lagged a bit, but because of dividends, is not on the losing pile yet.
Regardless of these preliminary two-year results, nothing fundamentally has changed for these companies and will stick things out for at least a 5-yr period – and then judge performance.
Since retiring, not much buying and selling goes on in my stable pile. For the investing pile, as I am now mostly a fully-invested “Buy and Hold” type of bloke, I don’t get to buy very often. The only opportunities come when I sell something, or my dividends build up beyond my living expenses.
The first thing to do is get a list of companies that you might be interested in. Slack Investor is an avid reader of the financial press. I get heaps of buying ideas from investment sites such as the AFR, Livewire, Morningstar, ShareCafe, InvestSmart, Motley Fool, etc. I pay particular attention when any articles I read mention “growth”.
Unlike when I am buying fish, for buying shares, I really want to look at the “guts” of a company. For this purpose, my best friend is the excellent Market Screener site. I type in the company name and then look at the Financials Tab. This gives me an overview of what the company has done and what analysts project that a company will do. There are lots of things to look at when evaluating a company – Management team, past performance, level of debt, projected sales, etc. However, if I could boil down a company to its essence with just two financial measures, it would be these two discussed below.
Return on Equity (ROE)
The ROE is usually expressed as a percentage and is the Companies
ROE = Stated Net Income/ Shareholder Equity.
For an instant way to look at whether a company is profitable, they will report a positive ROE. It is an indicator of how well the company uses shareholder funds. If I was getting a 5% return on my money in the bank, my ROE for that investment would be 5%. Obviously a high ROE is good. Slack investor likes his investments to have an ROE of at least 15%.
Sadly, the ROE can sometimes be manipulated by the management team by using a number of tricks. They might use accounting loopholes to distort earnings, or hiding assets off the balance sheet – both of these tricks will inflate the ROE.
As the denominator of the ROE equation is just shareholder equity, it ignores the effect of borrowings. Companies can boost their ROE by taking on large loans (risk). Also, a company with a large cash reserve (desirable for potential take-overs and share buy backs) will be penalised in the ROE calculation.
By screening out companies with large debt and including only companies with a track record of good management,- you can try to mitigate these risks in ROE calculation. Slack Investor is always looking forward, and he likes to use the Projected ROE of Future Income/Shareholder Equity.
Price/Earnings Ratio (PE)
The PE Ratio is defined as a companies share price to its earnings per share.
PE Ratio = Current Share Price/ Current Earnings per Share.
Slack Investor is usually looking at “growth” companies with a relatively high PE Ratio. A high PE ratio could either mean that a company’s stock is overvalued, or that there is an expectation that there might be high growth rates in the future.
A PE ratio is best used when compared against similar companies in the same industry or, for a single company across a period of time. Slack Investor usually gets the jitters when the projected PE Ratio is over the 40-50 mark.
Putting it all together
PE 2026
ROE % 2026
ASX
20
14
CPU
16
33
TNE
38
34
XRO
62
20
SEK
25
11
COH
38
23
RMD
18
22
I put all my possible “growth” stock buying options into a table and used Market screener Financials to get the projected (future) values for PE Ratio and ROE for 2026. I rejected XRO as it was too expensive (PE Ratio greater than 40) and ASX and SEK for low ROE ( <15%). TNE is a great company with good ROE and no debt, but slightly expensive (ROE 38). COH was also slightly expensive (ROE 38).
This left me with CPU (Computershare) and RMD (Resmed). Both good companies with good prospects. Lets have a look at the charts.
For now, Resmed (RMD) seems to be on a downward trend – and Computershare (CPU) on the up. The trend is your friend. This is not advice, but I bought some Computershare on the basis of the above analysis – slightly worried about the debt levels of CPU (which would tend to inflate the ROE), but I bought a small amount and will give this investment 5 years – then re-evaluate.
I was recently delighted when my 14-yr old nephew asked me what I thought he should invest in with his earnings from his part-time jobs.
Firstly, it is a compliment to an old bloke to be asked anything, and secondly, it is testament to the financial maturity of this fine young man that he would be thinking about the world of the share market while still at school.
If he was older and in a steady full-time job I would advise he automate his savings as much as possible and lash into index funds via a platform such as Stockspot, Pearler, Vanguard Personal, or Raiz)
His first investment would be in the order of a few thousand hard-earned dollars from part-time jobs. It is vital that the investment has good prospects and unlikely to lose money over a 5-yr period (no guarantees though!). Given that he would not feel the need to access the money for 5 years (hopefully longer!)
For a first investment, I would add the criteria that it should be a well-known Australian company that might appear in the news occasionally and remind him that he is a part-owner … and an investor!
If he was already 18, it would be “off to the races” and we would immediately set up a broker account in his own name and he would begin to experience the magic of being a shareholder. Being under 18 complicates things a little as minors are not allowed to directly own shares- we need to enlist his parent’s help.
If the parent already has a broker account the best way to start is for the parent to buy the shares on his behalf. When he turns 18, my nephew can start his own account with a broker (e.g. Self Wealth, Commsec, Pearler) and the parent can use an off-market transfer (get the form from the broker) to get the shares into my nephew’s hands as a “gift” including any dividends earned. During this brief holding period, any dividends and any capital gain will count as taxable income in the parents name – but this is a small price to pay to tap my nephew’s enthusiasm.
Alternatively, you could open a broker account in their name (as the trustee for “Nephews name”). The process is a little more complicated and is explained in detail by SelfWealth.
The Nuts and Bolts of Stock Selection
Naturally, I would address this problem in a methodical way and set up a list of Slack owned companies – I couldn’t recommend a company that I didn’t own myself. Some of my favourite stock metrics are gathered from the excellent Market Screener site on the financials page for each stock.
My number one metric for looking at companies is their Return on Equity (ROE), estimated for the year 2024 – Slack Investor is looking forward. This gives me an idea about whether a company is making an investment dollar grow. Higher the better, I start getting curious about a company when ROE is above 15%.
The projected Price Earnings ratio in 2024 is next – I don’t like the P/E Ratio to get above 40, as this indicates the current price of the company is 40 times its earnings (expensive) – but some exceptions are made if the company is growing fast (High ROE). The yield (dividend) is not that important to a young investor, it is the total growth that counts.
Stock
Symbol
2024 ROE
2024 P/E
2024 Yield
Price 30/06/23
% Price below consensus
CSL Ltd
CSL
18%
30
1.5%
$277.38
-18%
Wesfarmers
WES
30%
22
3.9%
$49.34
Fair Value
Coles
COL
31%
22
3.9%
$18.42
Fair Value
Altium
ALU
32%
41
1.9%
$36.92
-6%
Macquarie Bank
MQG
13%
14
4.2%
$177.62
-10%
Car Sales
CAR
10%
28
2.8%
$23.82
-3%
RealEstate.com
REA
29%
41
1.3%
$143.03
-7%
Analysis of some Slack Investor owned stocks using the projected Return on Equity (2024 ROE); price earnings ratio in 2024 (2024 P/E); 2024 Yield; and the current price (30 June 2023); and current discount from the average analyst perceived value – marketscreener.com – Financials Tab
Looking at the figures, even though the stock price of CSL hasn’t really gone anywhere in the last 3 years, it would be my first pick as it is currently 18% below its fair value price (by a consensus of analysts). It is such a strong Australian company that really thinks of the future by continuing to increase its spend on research and development each year.
Wesfarmers (Bunnings, K-Mart, Officeworks, etc) and Coles look OK too because of their high Return on Equity (ROE) – they also have the benefit that you can continually pop in to see how your business is going. Altium has languished in price this last few years but remains a great company for the future – if my nephew was interested in the “tech” space.
This isn’t advice, Unless, of course, you are my nephew!
June 2023 – End of Month Update
The financial year closes and looking at the 12-month charts for FY 2023 – Slack Investor concludes … “It was better than last year”!
Slack Investor remains IN far all followed markets. The ASX 200 (+1.6%) and FTSE 100 (+1.1%) drifted slightly upward for the month. It is boom-time in the US with the S&P 500 rising 6.5%. The US index had moved more than 15% above its stop loss, so I have moved the stop loss upward to 4048.
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.
What exactly these angelic cherubs are up to in this etching will remain a mystery to Slack Investor, but he would say that looking at things from a distance is a worthwhile trait in the stock market world. Slack Investor is currently in Europe on holiday and the geographical distance and time zone shift have helped him take more of a holiday from the markets … and just let them get on with it – without interference!
Take the long view
There are some scary headlines and plenty of volatility on the stock markets with worries about inflation and international bank collapses. Slack Investor will just pass on some sage advice. Here is the secret to being a good investor …
Don’t get caught up in what happens in three months, six months, or 12 months. It’s about the next five to seven years.
Paul Taylor is no mug … his Australian Equities Fund is of the managed fund variety and, despite a slug of 0.85% p.a. in management fees, his fund has kept pace or slightly bettered the performance of the ASX 200 Accumulation index over the 5 and 10-yr periods. Even though the managers of the fund appear to know what they are doing, the difficulty of beating index funds over every time period is shown by the negative relative performance over 1 and 7-yrs.
Now, Slack Investor completely agrees with Mr Taylor, when investing in equities (shares), you should be locking them up for at least 5 years so that any volatility will be swamped by the beautiful long-term march of increasing value for Australian and International Shares. See the latest Vanguard Long Term Chart to see what I mean.
Slack Investor is still “pretend hurting” from his own last year’s (FY22) annual Slack performance (-14.3%). However, he realises his 5-yr and 10-yr performance is the critical measure for his Slack Fund. As these returns p.a. (13.5% (5-yr) and 15.2% (10-yr), are comfortably above benchmarks, I have reconciled the poor one year figures as just part of the volatility of owning mostly growth shares.
Contribute regularly to your savings
Whether adding to your super, or investment savings, the best way to do this is to add regularly, without even thinking about it. Set up an automatic personal deduction from your salary to your super – or automatically contribute to your savings through a vehicle that is in sync with your risk tolerances (e.g. Stockspot, Pearler).
As my super was accumulating, it was mostly in broad-based index funds (Australian and International). My other investments were mostly in individual companies.
While it’s possible to beat index funds, it’s not easy to do over the long run … and as it isn’t worthwhile for most of us to try.
Slack Investor has some exposure to index-type ETF’s but continues to dabble in individual companies. Despite the above warning, Slack Investor will continue to “have a crack” at stock selection and portfolio management – but only while his long-term performance still stands up.
