Cryptocurrency | Slack Investor

The cost of retirement is increasing

A bloke with a barrow of mutilated currency circa 1910

Every quarter, the economic boffins at ASFA (Association of Superannuation Funds of Australia go to the trouble of crunching the numbers on what yearly income they think is required for a “comfortable retirement”. They assume that the retirees own their own home outright and are relatively healthy. In one year, due to inflation, the comfortable retirement amount has increased by 7.6% , or $4920, to $69,691 for a couple (Dec 2022 ).

Comfortable lifestyle (p. a.)	Modest lifestyle (p. a.)
Couple $69,691	Couple $45,106
Single $49,462	Single $31,323

ASFA calculated annual retirement requirements for those aged 65-84 (December quarter 2022) for both “comfortable” and “modest” lifestyles

ASFA’s calculations are very detailed, but notably these annual incomes do not include any overseas travel – depending on your accommodation standards and length of journey, this could easily require another $20K.

Their latest December 2022 report notes that price rises have occurred for most spending categories. In the last four quarters,

Food rose by 9.2%
Bread 13.4%
Meat and seafoods 8.2%
Milk 17.9%
Oils and fats 20.8%
Gas 17.4%
Electricity 11.7%
Household appliances 10.2%
Automotive fuel 13.2%
Domestic travel and accommodation 19.8%
International travel and accommodation 15.9%

ASFA also helpfully calculate a lump sum that you will need to supply this income – with the assumptions that the lump sum is invested (earning more than the cpi) and will be fully spent by age 92. Let’s aim high and just concentrate on the comfortable retirement – the “modest” retirement lump sum amounts are much lower (around $100K) as they assume supplementation from the aged pension.

Savings required for a comfortable retirement at age 67
Couple $690,000
Single $595,000

ASFA calculated lump sum t requirements for those aged 65-84 (December quarter 2022) for a “comfortable” lifestyle

How to Cope with Inflation

There is just one simple way – you must be invested in appreciating assets that keep pace (or exceed inflation). Appreciating assets tend to go up in value over time. This is pretty vague, but if you are unsure about an asset, try and find a price chart over a 10-yr to 20-yr period. If it is going up, it is probably an appreciating asset.

You will always need some amount in cash for day to day requirements and to ride out any investment cycles without the need to cash in your investments at a low point in the cycle.

Knowing the difference between an appreciating and a depreciating asset (e,g cars, furniture, technology equipment, boats, etc) was an important step in Slack Investor’s investing life. I can still remember the day my father gave me “the talk”, that it was OK to borrow money for appreciating assets – I think he was pushing me in the direction of real estate at the time. However, I was not to borrow for a depreciation one i.e. a car, or consumer goods – assets that lose value when you walk out of the shop!

Appreciating Assets

Below is a (not exhaustive) list of appreciating assets. I have left out cryptocurrency deliberately as it has only been traded since 2010, and it is not established yet that it is a long-term appreciating asset.

List of appreciating assets:

Real estate
Real estate investment trust (REIT)
Stocks (Shares) and ETF’s
Bonds
Commodities and Precious Metals
Private Equity
Term Deposits and Savings Accounts
Collectibles e.g. Art

Term deposits and savings accounts might keep pace with inflation (if your lucky!) – but generally do not grow faster than inflation. Slack investor will write about why owning your own home and investing in Stocks (Shares) and ETF’s are his favourite appreciating assets in a later post.

ETF Themes … and Dreams

It has become quite fashonable, worldwide, for new ETF’s to be launched onto the market with a “theme”. Robotics, Alternative Energy, Cryptocurrency, Battery Tech, or Artificial Intelligence are just some examples of themes where an ETF provider will bundle a number of companies together with a catchy ticker.

This trend seems to be also happening in Australia. Investsmart has been following the performance of a few of the new Australian thematic ETFs e.g. HACK (Cybersecurity), ERTH (Climate Change Innovators), ACDC (Battery Technologies and Lithium), ESPO (Gaming and eSports), CRYP (Cryptocurrency), CLDD (Cloud Computing) and DRUG (Healthcare). Their results, since the ETF inception dates, are a mixed bag. ACDC, DRUG and HACK outperformed the ASX200, while ERTH, ESPO, CRYP and CLDD have underperformed.

The two main problems with themed ETF’s is that they are generally expensive – have high management costs relative to other broad index ETF’s and, they concentrate risk in just one part of the market – the theme might suddenly fall out of favour e.g. ARKK.

The themed ETF’s generally have management fees of over 0.50% p.a., wheras broad Index funds have fees closer to 0.10%p.a. – Financial Times

In a comprehensive study (over 25 years) of US ETF’s, The Ohio State News concludes that these new themed ETF’s are based mostly on “hype” and they tend to lose value in comparison to the general market very soon after they are launched.

… specialized ETFs lost about 6% of value per year, with underperformance persisting at least five years after launch.
The Ohio State News

Thematic ETFs are often launched near the top of the market when interest in that theme is at a high. As a result, the stocks in the thematic ETF can start overpriced, resulting in underperformance.
Investsmart

In the U.S. of the 277 ETFs that shut down in 2020, one-quarter of them didn’t make it to their third birthday
Stockspot – Why we avoid new thematic ETFs

Slack Investor Themed ETF Record – Not Good

Slack Investor has also not been immune to the “hype” and has bought a number of themed ETF’s, as well as a few broad-based index-type ETF’s. The latter, of which, I am generally happy with their long-term performance. My thinking was to get onboard, in a relatively easy way, to some exotic investment themes.

In the past 5 years I have bought VanEck Morningstar Wide Moat ETF (MOAT), Vanguard FTSE Emerging Markets Shrs ETF (VGE), BetaShares Global Cybersecurity ETF (HACK), BetaShares Glb Rbtc & Artfcl Intlgc ETF (RBTZ), BetaShares Asia Technology Tigers ETF (ASIA), VanEck Video Gaming & eSprts ETF (ESPO), BetaShares Global Quality Leaders ETF (QLTY), Global X Battery Tech & Lithium ETF (ACDC), and Vanguard FTSE Emerging Markets Shrs ETF (VGE).

With hindsight, I can see the trap that I have fallen into. For example, E-Sports. I had read about E-Sports in the press and didn’t know much about them – except that they were popular, and they were the new “thing” – and growing fast. I didn’t know any individual companies in the field, as most of them were based in the US. When VanEck Bundled together a few of the E-Sport companies into a themed ETF, VanEck Video Gaming & eSprts ETF (ESPO) I was excited and bought into it. The trouble was, I was late to the party. As the chart above shows, by the time I entered the market, there was already a lot of hype, and the entry price paid was probably over-inflated.

The BUY-SELL price history of the themed ETF’s that Slack Investor has added to his portfolio. The first dot for each ETF is the BUY price and the second dot is either the SELL price, or the CURRENT price. If the lines keep going to the end of the chart (01/01/2023), then I am still holding the ETF.

When I plot out the price history of the themed ETF’s that I have bought over the past few years, the theme was not a dream. With the exception of the MOAT ETF, the flat or downward lines indicate a less than lustrous performance. Ideally, all my BUYS would slope upwards from left to right over time.

This chart is a good look in the “house of mirrors” for Slack Investor, I will continue to buy themed ETF’s in a small way to expose my investments to interesting sectors. However, I will modify my purchases of these themed ETF’s in the future – Or at least, wait a few years after launch for the excitement to settle down … and then invest.

Not all is lost, there are some bright lights amongst the themed ETF’s. The Morningstar Australian ETF’s top ten performers over 5 years ar a mixture of both themed ETF’s, and broad-based ETF’s. Over a realistic 5-yr time frame, where there is enough time for “our flowers to grow”, the top 10 annualized average 5-yearly growth is shown in bold. Over 10% p.a. is impressive – but you have to be lucky – or a great ETF picker.

Name	Yield %	Fees (MER%)	1-yr p.a.	3 -yr p.a.	5-yr p.a.	10-yr p.a.
BetaShares Global Sstnbty Ldrs ETF (ETHI)	2.61	0.59%	-15.41%	11.35%	15.13%	—
BetaShares NASDAQ 100 ETF (NDQ)	3.37	0.48%	-28.41%	9.25%	14.71%	—
BetaShares Global Cybersecurity ETF (HACK)	8.72	0.67%	-22.06%	10.68%	14.32%	—
Global X Physical Palladium (ETPMPD)	—	0.49%	-2.05%	-1.16%	14.17%	14.43%
BetaShares Australian Res Sect ETF (QRE)	14.54	0.34%	22.98%	13.80%	13.72%	7.71%
VanEck Morningstar Wide Moat ETF (MOAT)	—	0.49%	-7.38%	8.17%	13.37%	—
SPDR® S&P/ASX 200 Resources ETF (OZR)	15.64	0.34%	22.90%	12.96%	13.23%	7.49%
iShares Global Healthcare ETF (AU) (IXJ)	1.1	0.40%	1.90%	9.79%	13.11%	16.93%
iShares S&P 500 ETF (IVV)	1.42	0.04%	-9.03%	10.09%	13.03%	17.94%
Global X Morningstar Global Tech ETF (TECH)	4.99	0.45%	-29.06%	5.29%	12.76%	—

The Hubris Ark

Cathie Wood CEO of Ark Invest – from Observer

hubris: (noun) – an extreme and unreasonable feeling of pride and confidence in yourself:
Cambridge Academic Content Dictionary

Cathie Wood is the CEO of Ark Innovation and is best known for her NASDAQ based flagship fund ETF (ARKK). She has been concentrating her bets on the “disruptive technologies,” such as artificial intelligence, genomics, blockchain and cryptocurrency, and clean energy. She is a big fan of Tesla and has made the prediction

Bitcoin will crack $1 million by 2030
Cathie Wood – The Street

Slack Investor is no seer … but at the October 14, 2022 price of 16240 USD, Bitcoin has quite a way to go to reach that mark. In the words of the great BBC TV character Sir Humphrey, this looks like a “very courageous” prediction Cathie!

The ARK Innovation ETF (Nasdaq: ARKK)

Wood, is a devout Christian, and has named her company after the sacred Ark of the Covenent. Cathie Wood is a household name in the US and has a huge number of loyal fans. Her funds had 60 billion USD under management at their peak. She was named by Bloomberg as Stock Picker of the Year in 2020 . The flagship ARKK fund gained a remarkable 152% in 2020, but since then, the performance has not been so stellar – ARKK is down 65% so far this year. In interviews, she often refers to her past success, and insists, over and over again, her performance should be judged over a five-year time horizon.

The Price chart of the ARKK ETF since 2017 –

Wood is nothing but confident. She hosts a monthly finance video – delightfully called “In the Know” and is a great defender of her fund. She sees “spectacular returns” for Ark Invest over the next five years. According to a recent article by New York magazine, her initial predictions for ARK Invest were annualized returns of 15 percent, “Now we think 50 percent.”

Slack Investor would agree that a 5-yr holding period is a good minimum to judge how a fund is performing – to allow for volatility and to allow growth stocks to grow. She might be right that tech stocks are undervalued at the moment. But let’s have a look at her results as a fund manager over the last 5 years. The total return of ARKK expressed as a compound annual growth rate (CAGR) since November 2017 was a not so impressive 3.5% when compared with other “no stock picking” index funds.

Instrument	Value Nov 2017	Value Nov 2022	5-yr CAGR
ARKK	36.44	43.31	3.5%
NASDAQ 100 TR	7159	13881	14.2%
S&P 500 TR	5212	8407	10.0%
FTSE 100 TR	6510	7564	3.1%
ASX 200 TR	56486	81102	7.5%

Based upon the 5 years preceding November 2022, the compound annual growth rate (CAGR) of various Total Return (TR) index values compared with the ARKK ETF (including dividends since Nov 2017 of $2.91 USD). These TR calculations include dividends. Data from Yahoo Finance and CAGR calculations from CAGRCalulator

Cathie Wood conducted a recent session at a Morgan Stanley event in Sydney. where she maintained her bullish outlook. According to the Financial Review, the fund manager essentially argued it’s the market that’s got it wrong, not her!

Slack Investor is far more humble … he “takes his licks” when times are bad – doesn’t “crow” when times are good – and is mostly wary when a new “stock guru” emerges.

In the stock market, volatility is the price he has to pay for being involved with long-term asset growth.

November 2022 – Mid-Month Update

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

My small-scale, and often very frustrating, market timing experiment continues until its projected end in 2024. On a weekly signal for the FTSE 100 from the momentum following Directional Movement system. I have bought back into the UK index. I am back now to fully invested in the ASX Index, UK Index, US Index.

The buy signal can show itself as a downward dip in the trend strength indicator ADX (grey line) of the lower panel below. There are many ways of setting up this Directional Movement 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.

FTSE 100 Weekly chart showing a BUY signal on the Directional movement Index *weekly chart. The weekly price ranges are at the top and Average Directional Movement Index (ADX) patterns below – From* Incredible Charts

The Index page has been updated for the UK Index .

Financial Year 2021 Slack Results

“In the business world, the rear view mirror is always clearer than the windshield.”
Warren Buffett

Slack Investor has a proven track record in not being able to predict where speculative assets (such as Bitcoin or precious metals) are going. I would also add to the “speculative list” some companies whose share price have become divorced from the link to their actual earnings. As a rough guide, I try not to invest in companies that have a forward P/E ratio of greater than 50. I get these forward P/E ratios from the excellent Market Screener site.

This means that I have missed out on the great gains of being by in companies like Afterpay (APT – 2023 P/E ratio 190) or TESLA (TSLA – 2023 P/E ratio 193). Some folk have made a lot of money with these companies …. but they are just too speculative for me. Slack Investor tries to “stick to his knitting” with growing companies that have an established earnings record and forward P/E ratios <50.

After an eventful FY 2020 and the COVID-19 dip in the markets around the world. FY 2021, has seen very good gains for most global markets. In the UK, the FTSE 100 Total Return Index is up 18.1% (last FY 20 down 13.8%). Dividends helped the Australian Accumulation Index to be up 27.8% for the financial year (last FY down 7.7%). These Americans remain stupendously optimistic … the S&P 500 Total Return Index was UP 36.4% (last FY 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 for FY 2021, just shows stock prices.

ASX 2oo Weekly chart for FY 2021 – started at 5897 and finished at 7313 (30 June 2020 – 30 June 2021) – Incredible Charts – Click for better resolution.

Slack Portfolio Results FY 2021

All Performance results are before tax. The Slack Portfolio had a cracking year with annual FY 2020 performance of +21.7%. Full yearly results with benchmarks are shown in the table below. It was also a top year for all benchmarks (Median Balance Fund +13.0%, Vanguard Growth Fund +20.3%, ASX 200 Accumulation +27.8%).

Against all Slack Investor predictions … Real Estate turned out to be a great investment in the Brisbane and Melbourne markets for FY 2021 (+17.9% and +10.7%) – Perhaps I should also give up on the “looking ahead” in the residential property market – I just don’t get it!

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	3.1	4.2	0.6	8.4	9.5	2.2	1.3
2017	19.5	8.1	8.8	14.1	6.5	17.7	1.9	1.9
2018	37.6	7.2	10.0	13.0	5.2	3.9	3.9	2.1
2019	19.7	6.2	9.8	11.5	1.7	-6.0	2.0	1.3
2020	9.4	0.3	0.6	-7.7	8.4	13.8	1.1	-0.3
2021	21.7	13.0	20.3	27.8	17.9	10.7	0.2	3.8

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.

Slack Investor 5-year compound annual rate of return – compared to benchmarks *– Click for better resolution.*

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 rate of growth of $10000 invested by *Slack Investor in FY 2009 – compared to benchmarks – Click for better resolution.*

The lessons of long term investing

Every year Vanguard publish their performance data on each asset class. Slack Investor looks forward to this – as it reminds him of the power of the appreciating asset classes of Shares and Property. Vanguard highlights the volatility of asset values in the short term – but also emphasizes the joys of holding and accumulating shares or property for long periods of time. These asset classes have steadily increased in value over the last 30 years. $10000 invested in Australian Shares in 1990 would have compounded to $160 498. Staying in Cash would have yielded $38 938.

2021 Vanguard Index Chart

Financial year total returns (%) for the major asset classes

In the chart below, for each asset class the total annual returns are given and the best performing class for each year is marked in green … and the worst in gold. What stands out to Slack Investor is that is rare for and asset class to lead in annual returns (green) for two years in a row – and there are years where the leading asset class (green) becomes the worst performer (gold) in the next year. This drives home the often repeated sentence in the finance world.

Past performance is not a guarantee of future results.

Total returns for each asset class for the 30 years since 1991 – Check out the full glory of the Vanguard 2021 PDF *– Click for better resolution.*

This table highlights the benefits of diversification across asset classes for the long term investor.

Sitting on the couch, Slack Investor is quietly pleased with his 2021 results – Roll on Financial year 2022. However, when comparing this year’s bumper returns with the long term average returns for Australian and International shares of around 10% – Slack Investor can’t help but be a little nervous.

Hits and Misses … and November 2020 – End of Month Update

Back in happier times, September 2019, the Mayfair 101 business founder, James Mawhinney. His skills are described by Mayfair as “generating substantial value for shareholders”. Sadly for investors, the signature Mayfair 101 investment in Dunk Island has now fallen through due to Mayfair being “unable to meet their obligations”– Original image from the Courier Mail

Mayfair 101 bites the dust

It may take some years, but this Mayfair 101 thing … it’s not going to end well for the punters!
Slack Investor – November 2019

It has now been 12 months since Slack Investor warned about investing in the highly promoted glitzy “alternative to term deposits” Mayfair 101. I urged any investors to get their money out while they could. Things have now gone pear-shaped for participants in Mr Mawhinney’s vehicles – as well as the Dunk Island resort repossession, one of Mayfair 101’s three main investment products, IPO wealth, has had its investor’s money frozen.

I take no solace in being right as many small and large investors have since been hurt by the appointment of receivers to Mayfair 101’s $86 million IPO Wealth fund. ASIC alleges that the money raised by the Mayfair group was not fully secured, and investors may be unable to recover the full amount of their principal investment.

According to The Guardian, Mayfair 101 had received more than $67.5m from investors but, by 1 July, had just $2,765 in the bank and that investor’s money was “used to fund a loan that was not adequately secured”. They were unable to come up with the $32m that would have completed the purchase of Dunk Island. ASIC feared the fundraising was “akin to arrangements colloquially referred to as a ‘Ponzi scheme’.”

A year ago there were full page ads in the AFR, full of glowing self praise as the “new face of investment” In investing, it pays to be wary of big announcements, “management speak” and things that sound too good to be true … trust the nostrils!

“[Mayfair Platinum CEO, James Mawhinney, is] an experienced business builder who is focused on creating win-win outcomes for investors, clients, suppliers and staff
A quote from Mayfair (sourced from crikey.com )from the golden days of Mayfair 101 … but perhaps win-lose might be more appropriate. I am hoping that investors can get a decent portion of their capital returned.

Bitcoin again

Bitcoin chart (USD) since 2014 – From Coindesk

This would be objectively classified as a miss by Slack Investor – the bitcoin price is now higher than when I initially talked about bitcoin as a “bubble” at around $7000 USD. Despite the rocketing bitcoin price, the Slack Investor view has not changed and it is not the type of investment that appeals to me. Bitcoin is a speculative investment that depends entirely on what the next buyer is willing to pay for it.

Bitcoin is the dominant cryptocurrency (Etherium, Ripple, Litecoin, etc) that uses the potentially useful blockchain technology to monitor transactions. The Guardian points out that bitcoin is not a true currency as it not widely accepted as legal tender, the transaction costs are not small (it costs between 3 and 6 USD per transaction) and, it does not have a relatively stable value that would help vendors in setting prices. Central banks and Facebook have outlined plans for their own digital currencies that would be in competition with existing cryptocurrencies.

There is also a high energy cost in the “mining” of bitcoin. The current “Proof of Work” algorithm requires 215 kw/h of electricity to produce each bitcoin – the equivalent of an average US home energy consumption for a week.

Slack Investor holds no regrets about not buying in. He will stick with investing in growing real companies that produce tangible things that people want. An investment should be something that has a real monetary or social value, regardless of whether someone wants to buy it from you.

My assessment in 2017 that bitcoin is a casino investment still holds. Well done to anyone that has made money with bitcoin. In the same way that I will always congratulate someone who has made money on a bizarre sports bet – or who has won money on 5 reds in a row in roulette table – but, it is not investing, it is not for me.

November 2020 – End of Month Update

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

During a time when world COVID-19 related deaths are 8866 per day and there are 54.9m cases confirmed globally – the stock markets have gone a little crazy . It is a good demonstration of how difficult it is to predict short-term stock market movement. Slack Investor followed markets all grew by more than 10% this month. For November 2020, the Australian ASX 200 rose 10.0%, the S&P 500 up 10.8%, and the FTSE 100 up 12.4%.

All it took was a US election and some good vaccine news.

“Most Americans who want to be vaccinated will be able to do so by April or May next year”
Dr. Anthony Fauci – from CNN

On the FTSE 100 Index a new “Higher Low” was established and this gave me the opportunity to move up my monthly stop loss to 5525 – see Monthly UK Index chart.

The US economy entered a recession in February 2020 and still in uncertain times, 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).