Image from Sydney Esports Open – dailyesports. The Melbourne Esports Open is now postponed to 21-22 AUGUST 2021
A month ago, if you asked Slack Investor what these people are doing, I would have scratched my head. However, in the spirit of trying to know a little bit about a few things, I have been researching the Esport phenomena. I would have guessed that Esport has something to do with multiplayer video gaming … but I have found that Esports are much much more than this – a jumble of entertainment, video gaming, sports, and media. For a brief insight into this strange world of competitive gaming, check out even a few seconds of this Youtube video of an Esports gathering in Paris.
Once you drill down to the specifics of Fortnite or League of Legends, I am lost – but when it comes to growth prospects, Slack Investor pays attention. China is the largest market by revenues, followed by North America. It is not just PC-based games, Esports on smartphones are showing strong growth in Southeast Asia, India, and Brazil.
The upward trajectory for gaming brought on by the pandemic has accelerated what was already a growth industry, with Australian estimates suggesting demand for esports has at least tripled since the coronavirus outbreak.
Slack Investor has been generally ignorant on the details of this new phenomena, but I can recognize growth. In October 2018, the fund manager and ETF provider VanEck started an Esports ETF in the US (also called) ESPO . They aimed to replicate the Global Video Gaming and Esports Index by investing in the whole industry. I have watched this ETF from afar and, after a shaky start, the chart below shows that they have been doing OK.
Performance of the VanEck Vectors Video Gaming and eSports ETF (ESPO) against the eSport index (MVESPOTR) since ESPO inception in October 2018.
In September 2020, VanEck have introduced an Australian-listed Video Gaming and ESports ETF (ASX:ESPO)offering exposure to the larger global Esports connected companies. The fund’s top holdings include Nintendo, AMD, Tencent and Nvidia. The management expense ratio is higher than I would like (MER 0.55%), but it is a convenient way to get involved.
Usually Slack investor makes his decisions on weekly or monthly charts. The ESPO ETF was listed on the ASX less than a month ago (at an initial price around $10) and there is not enough information on the larger time scales. The Daily chart is presented below.
The Daily chart (Click to get a higher resolution) of the newly established Australian listed ESPO ETF established by Van Eck – From incrediblecharts.com
This is not advice, but Slack Investor bought in at $10.39 and set a stop loss at $9.85 at a previous minimum point (“Higher low“). I try to keep initial stop losses at less than 10% of purchase price at a point on the chart that “makes sense” to me. I will check this stock on a weekly basis … and, if ESPO is below the stop loss at close of business on Friday, I will try to sell it on the next Monday – unless it is rebounding strongly!
In many ways, Slack investor has an “actions per minute” at the opposite end to Esports gamers … but, when it comes to smelling growth, Game On!
Back in the last century when I was a big fan of Superman, DC Comics released a specialty series called “Tales from the Bizarro World”. Bizarro World was a square planet inhabited by imperfect copies of earth dwellers and they do the opposite of all earthly things. Little did I know that I would be living in Bizarro World in 2020.
As of last month, every advanced economy and all emerging economies are in a recession. Unemployment rates have increased rapidly and, due to COVID-19, over a third of the world has been in lockdown. Yet, in the worlds largest economy, on the day the US fell into recession in February, the S&P 500 overcame the COVID crash and rose above where it began the year!
Some governments are going through heroic efforts to inject cash into these flailing economies with some unforeseen results.
In this Bizarro Universe, with empty CBD’s and flourishing suburban strips, Australian retailer Harvey Norman reports its sales for July to September were up 30.6% on the previous year.
“People can’t spend their money on other things anymore, so they are spending time upgrading their home,” he said. “And that’s happening right across the world.”
“There’s also been so much money thrown into these economies, and because they can’t spend it [elsewhere], we’re getting the advantage of that. We’re in a very fortunate position.”
It is not only furniture, but food expenditure has also increased in the 12 months to June 2020. Naturally, there has been reduced spending in lockdown crushed areas like health, transport, restaurants and accommodation.
Quarterly changes in Household Spending for the 12 months to June 2020 – From Auscap Asset Management – Click to Enlarge
It is probably due to fear about the future, but these troubled times have also modified the savings behaviour of Australians. In June 2020, credit card debt has been reduced by 20% (still $22.4bn though!). Savings as a percentage of income have increased from the paltry long term average of 5% to 20%.
Australian quarterly savings have rocketed up From Auscap Asset Management – Click to Enlarge
But there is also evidence of increased spending. Australians were recently given the chance to access up to $20000 of their retirement savings. In an illion survey of 10000 people, almost two-thirds (64%) of this additional spending was on discretionary items such as clothing, furniture, restaurants and alcohol.
“Financial comfort levels are up for now, but many households are on the cliff’s edge. They’ve lost income, their jobs and entire livelihoods, … and government support is the main action stopping them from falling over.”
Slack Investor feels that things are precarious in Bizarro World – government spending is just holding things together. As of July 2020, according to the AFR, the Australian government has spent 10.6% of GDP on COVID-19 stimulus (+1.6% Loans). In the UK it is 3.1% (+15.7% Loans) and the US 6.9% (+4.2% Loans). This spending will not go on for ever and the Bizarro World party may end badly for households that, through the lottery of occupation, are stressed.
September 2020 – End of Month Update
Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. All Slack Investor followed overseas markets this month slumped (ASX 200 -4.0%; FTSE 100 -1.6%; S&P 500 -3.9%).
I am very nervous about the US market with its high valuations, forthcoming election and, what pushed me over the edge, was the beautifully described “S*%tshow” of a debate. Slack Investor has had to act and adjust his Stop loss for the S&P 500.
When pushing up stop loss levels, it is always about finding a sensible place to leave the level at a “higher low”. I couldn’t really find one on the monthly or weekly chart. The Daily chart below revealed a higher low of 3200 in July 2020 that wasn’t breached in late September. So this is my new stop loss.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been attended to.
But it’ll be all right, it’ll be all right, it’ll be all right in the long run …
Excerpt from the “Long Run” lyrics by Redgum (John Schuman) released in 1980.
Slack Investor looks at the shares that he owns occasionally and has a bit of a tinker. Earlier this year I had a portfolio review that saw a dumping of managed funds and high fee ETF’s. I also made an attempt to exit shares that I thought might be severely affected by gloomy economic times. However, sometimes it is good to lift the sights to the horizon and forget about the short term pricing of the market.
“Over the 210 years I have examined stock returns, the real return on a broadly diversified portfolio of stocks has averaged 6.6 percent per year.”
Although the last financial year was a bit bleak for the median of super growth funds (-0.5%), Slack Investor has been around long enough to know that the gloomy times are periodic, and that, “In the Long Run” shares are a very good investment – as can be seen on the 28-year performance chart below.
The Performance of the median Australian Superannuation Growth Fund over the past 28 years. A “Growth Fund” is defined to have between 60 – 80% of Growth Assets – From Chant West
During my portfolio review I realised that over half my portfolio is in several companies that I would never sell – unless circumstances changed greatly! These companies usually have great management, a plan for growth, and an established track record in increasing Earnings per Share (EPS). Prices may go up and down, but great companies ride though all this and figure out a way to keep growing.
Coles (COL)
COL (2022 ROE 36%, 2022 PE 23) – With around 30% of all supermarket sales, Coles is one of the lucky retailers classified as essential and is getting a boost from COVID-19. This boost wont last forever, and, I cant see any big growth ahead. But, I can’t see myself selling this company as I visit it twice a week to “kick the tyres” and they are doing a good job. There is also the perverse satisfaction of knowing that if I am waiting at the checkout for a time … that it must be good for the bottom line!
Altium (ALU)
ALU (2022 ROE 32%, 2022 PE 56). The PE ratio of Altium has it priced for big future growth and it would be a stretch to buy it now. But this printed circuit board designer is a company for the times and it has a well defined, and so far achievable, global growth strategy.
Although relatively expensive (Forecast PE 56), Altium has no debt, a decent cash balance and keeps growing its profit margin and market share. In 2019, Altium spend 14% of its revenue on Research and Development – This is a commitment to growth in a changing industry.
Commonwealth Serum Laboratory (CSL)
CSL (2022 ROE 29%, 2022 PE 38) – Slack investor first bought into this company 10 years ago at around $30 and I have had the good fortune to add to my holding (at much higher prices!) along the way. CSL is expensive at a forecast PE of 38, but I can remember at my initial purchase in 2010, I thought it was expensive then! With great companies, sometimes you just have to hold your nose and jump in – they are rarely cheap! If it wasn’t already such a large part of my portfolio, Slack Investor would buy more CSL if I could get it below $300. The price chart below is reassuring.
(GOOGL – 2022 ROE 18%, 2022 PE 24). Alphabet is listed on the US-based NASDAQ exchange and needs an International Broker to invest directly (Commsec will set you up for a cost of 0.31% for trades above USD $10,000). For a growth company, Alphabet is not outrageously expensive with a forecast Price to Earnings Ratio of 24.
One of the first charts I look at before buying a stock is how its income has evolved – Thank you Market Screener. The GOOGL income chart below is typical of how I like to see them. A steady track record of 3 years growth of sales/income, and then a plan to grow income over the next 3 years.
Income and Forecast Income for Alphabet (GOOGL) – from marketscreener.com
A common theme amongst companies that I am reluctant to sell is their willingness to invest in new projects that might feed back into the earnings of the company. Alphabet spent a staggering US$ 16.2 Billion on research and development – 14.6 % of its revenue in 2018
BetaShares NASDAQ 100 ETF – (NDQ)
(NASDAQ Index – Current ROE 14%, Current PE 23) – Australian exposure to this index comes at a cost (MER of 0.48%) through the NDQ Betashares ETF, but Slack Investor thinks this is well worth it – my costs in owning GOOGL directly are around 0.43%. This ETF is Slack Investors favourite way to own International Tech stocks. With NDQ, you get exposure to 100 of the world’s best tech companies. The NASDAQ Index is a collection of growing household tech names e.g. Apple 13.9%, Microsoft 11.2%, Amazon 10.9%, Alphabet 7.2%, Facebook 4.5%. With a forecast PE of around 23, it still looks reasonably priced if tech world keeps growing.
August 2020 – End of Month Update
Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. Rises all round for Slack Investor followed overseas markets this month ( ASX 200 +2.2%; FTSE 100 +1.1%) In Crazy Brave USA, the S&P 500 had a monthly rise of an astonishing 7.0%.
At the end of August, the US S&P 500 had a 12-month trailing PE Ratioof 30.09 . The mean and median values are 15.81 and 14.83.
“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.”
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 Indexdown 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.
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.
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.”
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.”
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
From Pixabay
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 BetaSharesRBTZ that increased more than15% 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.
Cripes … it seems that even cyber criminals with circuit board faces wear hoodies!
Slack Investor has had minor issues with PC viral infections over the years – these types of virus seem very benign in current circumstances. I also had a distant brush with a more organized form of cyber hacking back in 2015 with my previous employer.
“I can confirm reports that the Bureau of Meteorology suffered a significant cyber intrusion which was first discovered early last year”
Prime Minister Malcolm Turnbull in 2016 – the ABC News
Were the Chinese after my 30 years of sea breeze wind data? Probably not. This breach triggered an injection of government funds to try and combat cyber attacks. More recently, the current Australian government is talking about a huge $1.35 billion investment to increase Australia’s cyber security capabilities, Even smaller businesses are having to invest in cyber security as technology invades our lives.
As well as worrying about cybersecurity, the COVID-19 crisis lurches on. It is not just the retailers that are suffering, In the US, major companies such as Hertz and several US airlines have recently filed for bankruptcy due to COVID-19. At the moment, many companies are drawing down on available credit, standing down their staff, delaying projects and taking advantage of government relief programs.
It will be a delicate dance by national governments trying to support the economy with limited funds until a viable vaccine is established. When they halt these stimulus programs, each company will start burning through their cash. That’s when bankruptcy cases are likely to soar and stay elevated.
… this year (2020) will easily set a record for so-called mega bankruptcies — filings by companies with $1 billion or more in debt … the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis.
Edward I. Altman, Professor Emeritus of Finance at New York University’s Stern School of Business – from Intelligencer
A Graph of US stocks showing valuation trend since 1998. Valuations derived from P/E ratios and comparing them to the long term mean and scaling it to 50. Companies in the US look definity over valued. Sourced from Livewiremarkets.
Slack Investor has been a big fan of some of the companies in the technology sector – as these shares are exposed to growth. This internet thing keeps increasing its grip on our lives. The recent “recovery rally” has led to stock prices being “fully” or “over valued” – particularly in the US. It is difficult to argue against this in these uncertain times as estimates for future US earnings decrease.
In an environment when many sections of the economy are in big trouble, in many ways, it might be a good time to take a bit of risk off the table and build up a little cash. However, not all tech companies are tied to the consumer economy and there will be a continuing need for individual companies and governments to make investments for the protection of their internet structures. Cyber security is now the fastest growing technology sector.
BetaShares Global Cybersecurity ETF (HACK)
HACK is a BetaShares ETF that provides exposure to the leading companies in the global cybersecurity sector. Most of these companies are based in the US (87%). HACK is currently invested in 49 companies that include well known names such as Broadcom and Cisco. There are many other companies that Slack Investor has never heard of such as Crowdstrike, Splunk and OKTA – and, I assume the fund managers know much more about the sector than I do.
Weekly chart of HACK for the past 12 months. On June 30, 2020 there was a 91c distribution which accounts for the big price drop – incrediblecharts.com
The management expense ratio is high at 0.67%. I will “suck this up” while it is performing well. Can’t argue with past yearly HACK performance – over 1-year (+19.9%) and 3-years (+20.3%). Probably not the best time to buy, but Slack Investor can’t help himself – this must be close to a recession-proof section of the economy. I dived in last month as I can’t resist a growing industry!
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
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!
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.
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.
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.
In honour of the upcoming International Geek Pride Day to be celebrated on 25 May.
Being a geek is cool (Just ask Bill Gates!). They have rights … the top 5 rights of a Geek are:
1. The right to be even geekier.
2. The right to not leave your house.
3. The right to not like football or any other sport.
4. The right to associate with other nerds.
5. The right to have few friends (or none at all).
During the past month. Slack Investor has certainly lived the geek lifestyle and he has reflected on the magnificent gift that geeks gave to the world – technology!
The NASDAQ (National Association of Securities Dealers Automated Quotations) is a special US based electronic stock exchange that was created in 1971 and now lists over 3500, mostly tech, companies. The top 15 companies in the NASDAQ consist of the household names below.
Name
Weight (%)
MICROSOFT CORP
12%
APPLE INC
12%
AMAZON.COM INC
10%
FACEBOOK INC
4%
ALPHABET INC
4%
ALPHABET INC
4%
INTEL CORP
3%
NETFLIX INC
2%
NVIDIA CORP
2%
PEPSICO INC
2%
CISCO SYSTEMS INC
2%
ADOBE INC
2%
PAYPAL HOLDINGS INC
2%
COMCAST CORP
2%
TESLA INC
2%
The growth of the NASDAQ composite index since 1971 – Shown on a log scale – From Macrotrends
Despite a few downturns, mostly in recessions (shaded grey columns above), being invested in technology has really delivered. Betashares, an Australian company, offers simple exposure to the top 100 companies in the NASDAQ through NDQ, their Australian listed NASDAQ ETF. Slack Investor owns some US Listed shares directly and the hassle of different currencies, maintaining a US Broking account, and filling out US taxation forms make the NDQ ETF Management Expense Ratio (MER) of 0.48% seem reasonable. Morningstar also offers a Global technology ETF TECH. Good global technology access for a 0.45% management fee.
Weekly chart of Australian listed Betashares NDQ – Incredible Charts
The use of technology to connect people and develop new businesses has been well demonstrated during the COVID-19 crisis – these tech businesses are growing. Slack Investor has a big amount of technology stocks – over 35% of his Portfolio. NDQ has grown over 50% in the 18 months since the original Slack Investor buy.
One of the things that Slack Investor has learned over the decades is that a high PE is OK, providing that there is a lot of growth involved. Stamped on the little Slack Investor brain is that technology is becoming increasingly important in our lives – this sector is definitely growing.
The NASDAQ index usually has a relatively high average PE Ratio – but as of May 13 2020 it has slipped down to a very reasonable 20.55. There is also a decent trailing dividend yield of 1.73% – the dividend is showing an increasing trend.
This is not advice, as Slack Investor has no divine guidance on what will happen in the next 12 months. – but, with a 2-3 year time frame, will Slack Investor invest more into NDQ or TECH as funds become available? You bet your geekin’ life he will!
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 balancereaches $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.
