Category: Global Shares

Market Value – December 2024 Update

A few times a year, Slack Investor likes to take a snapshot of the markets using the Cyclically Adjusted Price to Earnings ratios (CAPE) – which use ten-year average inflation-adjusted earnings. He first started using CAPE as a ‘value’ tool in September 2021 and, the most recent post on Market Value was for the end of May 2024. That was 6 months ago and, probably due to the strange ‘Donald 2.0’ effect, the US and Australian markets have powered on since then.

There are some critics of CAPE as a predictive tool. However, there is some good research that links CAPE to future returns … and future returns are what Slack Investor is all about.

Shiller P/E and S&P 500 10-year annualised forward returns from 1983. There is a clear relationship between higher CAPE and lower expected 10-yr returns for the S&P 500. Data valid as of 31 December 2023 – Investco

The CAPE (cyclically adjusted PE) ratio is not a useful timing signal for market turning points, but is a powerful predictor of long-term market returns.

Research Affiliates

For the following charts, Slack Investor uses monthly CAPE data from Barclays, the 40-yr mean is calculated and plotted together with the latest CAPE values – up till the end of November 2024. A ‘fair value’ zone is created in green where the CAPE is within one standard deviation of the mean (average) – click images for better resolution.

ASX 200 CAPE Value 23.0 (12% above long-term av.)

ASX CAPE values – up till the end of November 2024

FTSE 100 CAPE Value 16.3 (7% below long-term av.)

UK CAPE values – up till the end of November 2024

S&P 500 CAPE Value 37.7 (52% above long-term av.)

US CAPE values – up till the end of November 2024

What is Slack Investor doing about the high US market values?

Not much. The predictive skill of the Schiller CAPE is not very good over 1-yr and 5-yr periods. It does show some skill for periods of 10 years and longer. This poses the question – should he withdraw his investments and just wait out the next ten years? Not likely! Time in the market is what matters.

The CAPE ratio is a helpful way for Slack Investor to look at the current state of the markets – it doesn’t change his approach to investing. He will just stick to his guns with his tried and true investment strategy.

  • Invest in a range of companies using ETF’s or a portfolio of at least 15 stocks.
  • For the individual stocks, continually monitor these investments to make sure that they still have some competitive advantages (e.g. A Moat), generate sustainable profits, they are continuing to grow and predicted to grow further.

These type of companies should do OK over most market cycles.

Slack Greetings from the UK – an ode to English Pubs

Slack Investor is not really much of a cold season traveller but he is here in the UK for some family business. England in winter is pretty grim with short days and cold weather. However, there is joy in slipping into a great English pub with a fire going and conversation everywhere. Experience tells me that most English pubs are good. But, he wasn’t just in any pub – Slack Investor was drinking at the RAF bar of The Eagle in Cambridge. Famous for being the pub where Francis Crick and James Watson (based on the work of Rosalind Franklin and others) celebrated and announced the double helix structure of DNA in 1953. Long live the English Pub.

The Eagle, Cambridge, UK. Long live the English Pub.

The World According to GARP ETF

Slack Investor has never seen the film, though well reviewed, but he did struggle through the complex book by John Irving in the late eighties. His interest in GARP has been rekindled by a new ‘Smart Beta’ ETF that has been floated by Global X in October 2024. This one is fresh!

Smart Beta refers to an enhanced indexing strategy that seeks to exploit certain performance factors in an attempt to outperform a benchmark index – Fidelity

This is good … is it possible to get the benefits of passive investing with some of the advantages of active investing strategies? Can you have low fees with better performance than benchmarks? Perhaps all the hard work in selecting growth stocks can be done with a financial selection algorithm and Slack Investor can get back to the couch.

Global X S&P World ex Australia GARP ETF

Exposure to companies with robust earnings growth and solid financial strength trading at reasonable valuations – Global X S&P World ex Australia GARP ETF

Growth at A Reasonable Price (GARP) … in an ETF … am I dreaming? Is this too good to be true? Ahh … there is a management fee. But, it’s 0.3%. Not bad for a fund that has some selection smarts plus international exposure. There is a lot to like about this ETF.

Selection Process for GARP ETF

The GARP ETF tracks the S&P WORLD EX-AUSTRALIA GARP INDEX using a rules based stock section process. From the global shares universe, all companies are assigned a Growth score for their previous 3-yr growth. Then there is a Quality score that combines company assets to debt ratio, return on equity (ROE), and the earnings to price ratio (Inverse of P/E Ratio).

Once the ranking is complete, shares are selected that score highly in both categories and some restrictions on exposure to individual shares and sectors is applied – Mark LaMonica, Morningstar

So, by weeding out some of the companies that are ‘unreasonably’ priced the top 250 global companies are selected according to GARP principles. The price (P/E Ratio) filter should help mitigate the portfolio downside in a market downturn.

Performance

The GARP ASX ETF has only been running a month but Morningstar has gathered some data based upon the GARP principles over time.

GARP seems to perform better than the S&P 500 in some time frames, particularly in the periods that include a share crash. The 5-yr period includes the 2020 ‘Covid Crash’ and, the 20-yr frame includes the  2007–2008 financial crisis (GFC). But these are just index values – without fees. When you factor in the GARP management fee of 0.3% compared to the iShares S&P 500 ETF (IVV.ASX) fees of 0.04%, the outperformance of GARP does not look as good.

Top 15 Holdings GARP

GlobalX GARP ETF top 15 holdings

There are a lot of tech companies in here but also some consumer discretionary stocks. Some of the more expensive (high P/E ratios) tech companies must have been filtered out by the GARP process. It is only when Slack Investor takes a closer look at these companies that he starts to get ‘cold feet’. Overall, Slack Investor thinks this is a good package to get exposure to reasonably priced growth companies. Two things that hinder Slack Investor from investing are :

  1. The overlap in holdings to some of the ETF’s that he already owns. e.g. Betashares Nasdaq 100 ETF (NDQ.ASX) and Betashares Global Quality Leaders ETF (QLTY.ASX) – a purchase of this ETF would not really add to the diversity of his share ownership
  2. In the the top 15 holdings, there are 3 Petrochemical companies – Exxon, Chevron and Shell.

Slack Investor will admit to some hypocrisy here. He owns a 15-yr old petrol driven car and regularly uses jet fuel to get to far away places. On the plus side, his roof is making renewable energy. However, the world is getting hotter and he’s aware that we must continue to work toward phasing out the use of fossil fuels. Are you listening Donald?

Slack Investor is a part owner of all types of companies through index and broad market ETF’s (e.g. VGS, STW, S&P 500 Index, etc). However, he has a ‘piddly’ moral stance of trying not to bundle into the Slack Portfolio any ETF’s that actively select higher proportions of Tobacco, Gambling or Fossil Fuel companies.

Is this making a better world? Probably not. But, leave Slack Investor alone to pursue his token activism – no harm done. Besides, it’s likely to be better than doing nothing. This is a personal thing and, Slack Investor encourages all investors to take on any sort of investment stance that feels right for them – providing it is profitable in the long term.

Auto-Diversification … and September 2024 – End of Month Update

Slack Investor tries to be a little diversified in his investing with his Three Pile Theory. Although my Investment Pile (The Slack Fund) consists mostly of Australian and International Shares, my Stable Pile (about 30% of retirement funds) consists of annuities, Real Estate ETFs, Fixed Interest products, some high dividend paying shares and some Cash. I own no bonds, Gold or Cryptocurrency. I am not very strict about rebalancing … but, that’s because I am slack! Deep down however, I’m convinced that diversification makes good financial sense.

A quick look at the yearly Vanguard diversification table below shows the percentage annual total returns for 9 different asset classes. I have only shown the last 17 years, but the 30-yr table can be found here in .pdf form.

Total returns for each asset class for the 30 years since 1992 – Check out the full 30-yr glory of the Vanguard 2024 – Importance of Diversification.pdf – Click this chart for better resolution.

For financial year 2024, the best performers were: Australian listed property returned 24.6%, US shares 24.1% and hedged ($AU) International shares 21.5%. The point of the Vanguard table is to highlight that it is very hard to try and predict the yearly winner. Slack Investor notes that International shares (particularly the US) have featured in the top 3 for a lot of these last 17 years. He also notes that Cash is a rare top performer – but, well done for 2022! It is always useful to have a look at the Vanguard Long Term Investing chart for a reminder of the compounding power of share investing.

Auto-Diversification

Superannuation

All of your Super contributions end up in a fund that is diversified to some extent. You usually can decide on how diversified you want it to be. For example, Australian Super offers, in their pre-mixed options: High Growth, Balanced, Socially Aware, Indexed Diversified, Conservative Balanced and Stable offerings. Even their High Growth option is split into a number of different asset classes – though their ranges seem a little ‘loose’ for full disclosure to their clients.

Australian Super ‘High Growth’ Pre-Mixed asset allocation by weight – June 2024

Slack Investor’s instincts has always been to be invested with the highest growth option … though I did reassess this a few years before retirement!

Other Investments

OK then, super is taken care of … but what if you want a diversified option for other investments that could be assured long-term growth without constant input. This is where robo advice might shine. Robo advisors usually package a mixture of low cost ETF’s into a diversified portfolio with automatic re-balancing.

Slack Investor is aware of many robo advisers that operate in Australia. ValueWalk has prepared an excellent summary article. Valuewalk compares and reviews: CommSec Pocket, Spaceship Voyager, Betashares Direct, Raiz, Sharesies, Pearler, Stockspot and InvestSMART.

Just for example, I will expand on the offerings of Stockspot as they have been going the longest and have the most assets under management ($800m). I have no financial interest in the company – though I am impressed with their results – outperforming 98% of similar funds over a 5-yr period. Depending on the risk profile that you want, Stockspot uses various combinations of just 5 low-cost ETF’s – one of which is gold.

There is a sliding scale management fee for which all admin and rebalancing is taken care of. For example, for account balances of $200,000+, there is an annual fee of 0.528% per year.

When Slack Investor loses the ability to stock pick growth stocks effectively (or, perish the thought … shuffles off this mortal coil!), I will set up some succession plans that will move our investments onto a secure ‘minimal involvement’ platform such as robo advice.

Slack Investor is old fashioned when it comes to ETF ownership. I much prefer the robo advisers that run under the HIN system (Holder Identification Number) – where the ETF’s are registered in your own name. This makes things simple if the robo adviser should cease operations e.g. Six Park (Aust).

The alternative is the ‘custodial’ system – where the investments are held on your behalf. Although custodial models can have lower costs – I like to see my name on the ownership documents. Stockspot is one of the advisers that run under the HIN system.

Although Slack Investor is a great believer in finding out about financial things for yourself with the magic of the internet. This way is not for everyone. Let’s just be clear, for most people, if you want specific advice on wealth management, tax advice, estate planning or a multitude of other finance problems, you are best counselled to seek a qualified financial adviser.

However, if you have a lump of money that you want invested in a diversified way that suits your risk profile, then robo advice seem a relatively cost-efficient way to ensure your investments are spread across asset classes. Naturally, Slack Investor would like the fees charged by robo advisors to come down a little before he parts with his Slack funds.

September 2024 – End of Month Update

Another month with a big range of daily closing values. The ASX 200 (+2.2%) and the S&P 500 (+2.0%) are in all time high territory. The FTSE 100 languishing and down 1.7% for the month.

Slack Investor remains IN for all markets.

The recent strength of the US market has pushed the closing monthly value to more than 15% above my old stop loss. I adjusted the stop loss upwards to a new ‘higher low’ of 5119.

Weekly chart for the S&P 500 Index showing the stop loss revised upwards to the new “higher low” of 5119.

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

The quarterly updates showing the shares in the Slack Portfolio have also been completed.

Slack Investor Report Card Part 1 … and June 2024 – End of Month Update

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.

01/09/2021 – The Slack Buying Process 

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).

TickerPrice 01/09/21Price 30/06/24% Growth
GOOGL$143.74 USD$182.15 USD+26.7%
NDQ$33.58$45.51+35.5%
COL$17.74$17.03-4.0%
Average Growth+19.4%
Slack Investor “Buys” in October 2021

Coles Group (COL) turned out to be the only dud. Slack Investor fell into the trap of only considering the high Return on Equity (ROE) of COL at 31%, in isolation. I did not factor in its very low growth rate over the past 5 years. A 5-yr CAGR of only 0.7%. A better way of looking for growth is to make sure the business is good at making profits (high ROE) and has a history of growth (a high Compound Annual Growth rate (CAGR). Sporadic performance Slack Investor – 7/10

15/10/2021 – The Times They Are A-Changin’

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

15/12/2021 – Innovation

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.

ETFPrice 30/06/23Price 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

15/01/2022 – CSL Goes to the Well

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

01/11/2022 – Finding Value

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

15/11/2022 – The Hubris Ark

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

Chart from MarketWatch of the ETF ARKK

June 2024 – End of Month Update

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.

Market Value – End of May 2024 … and Travel Navigation

The Jeweller’s Bounty (1918) – Daniel Cortes

A few times a year, Slack Investor likes to take a snapshot of the markets using the Cyclically Adjusted Price to Earnings ratios (CAPE) which use ten-year average inflation-adjusted earnings. I first started using CAPE as a “value” tool in September 2021 and, my most recent look was for the end of January 2024. I have decided to do this CAPE market value analysis every few months.

Jeremy Grantham is a well known and astute investor and he argues that recent globalization has benefited the profitability of US companies and that their is good reason for an increasing CAPE trend in the US markets. However, there is some good research that links CAPE to future returns.

The CAPE (cyclically adjusted PE) ratio is not a useful timing signal for market turning points, but is a powerful predictor of long-term market returns

Research Affiliates

By plotting this CAPE over a period of time, we can look at how the whole sharemarket is currently valued in terms of historical data – this way we can track the whole share market as it oscillates between overvalued and undervalued. According to Research Affiliates, CAPE offers a negative correlation with subsequent 10-year and 20-year stock market returns – the higher the current CAPE, the lower are the expected future returns.

For the following charts, I use monthly CAPE data from Barclays, the 40-yr mean is calculated and plotted together with the latest CAPE values – up till the end of May 2024. A “fair value” zone is created in green where the CAPE is within one standard deviation of the mean (average) – click images for better resolution.

The US market remains the outlier here at 37% above its long-term value. Slack Investor is no guru, but, it doesn’t make sense to him to invest new money into a “frothy” whole-market index like the S&P 500 – at the moment!

ASX 200 Value (4% above long-term value)

FTSE 100 Value (4% below long-term value)

S&P 500 Value (37% above long-term value)

Slack Greetings from Provence – plus Navigational Tips

Evening view of the Luberon Valley, from Bonnieux, Provence. France

Slack Investor is in Europe at the moment (Boo … Hiss!), I have just finished a walking holiday in Provence, France. All I can say is that – it is a beautiful part of the world.

Steeped in history and preserved in that remarkable French way that respects the past. We moved around the intricate roads and paths using a fantastic bit of Android/IOS/Windows software called Komoot. The software is free to download on your phone with one local region – and, I added world maps for a one-time lifetime fee of $30 USD about 10 years ago – It was the best money I have ever spent, as I use the app daily. You can plot “tours” that are based upon the comprehensive “Open Street Maps” network which lists all the tiny paths and tracks that rarely appear in Google Maps. The output is best used on your phone – but the app is easier to plan using the desktop version of your Komoot account. I have no financial interest in any of the products that Slack Investor sometimes rambles on about.

Google Maps output for the area 5km east of Gordes, Provence, France – great for roads and business locations
Komoot output for the area 5km east of Gordes, Provence, France – Great for smaller roads and footpaths (tracks). The footpaths are shown as black lines and the blue line is our journey out from Gordes on the way to Roussillon.

Alphabet … Google It

Sundar Pichai, the CEO of Google and its parent company Alphabet looks ready to play the “evil genius”.

At around 15% of my investments, Alphabet (US:GOOGL) is a major holding in my portfolio. It is my biggest international holding. I first dipped into the stock back in 2019 and have been trying to top up (in small amounts) each year since.

From pcriver.com

Since Larry Page and Sergey Brin launched Google in 2004 with a killer search engine, the many tentacles of Google/Alphabet have spread into the everyday life of billions. Youtube alone had 2.6 bn annual users in 2022.

(Google’s search and advertising) is Alphabet’s best business, accounting for 80% of Google’s total revenue in 2022 including Google Search and other properties like Google Network ads and YouTube. The remaining 20% comes from Google Cloud (9.4%) and its apps, hardware and content businesses (10.4%).

From Intelligent Investor

Why keep investing in Alphabet?

Before any investment decision, Slack Investor will do a bit of research. Market Screener has a Financial page on each stock.

From Market Screener

When the income chart looks like the above showing a track record of growth (prior to 2023) – and projected further growth up to 2025 – I’m interested. A look now at Slack Investors favourite finance indicators. A projected Return on Assets (ROE) of 24.5 in 2025 (well above 15%), a 2025 predicted PE ratio of 17.5 (very low for a growth stock), and plenty of cash on hand for further aquisitions – it all looks good.

Nitpicking

Despite admiring the skill of Alphabet management in aquisition and company growth, Slack Investor is not enamoured with everything this company does. There are some things that I find annoying. Back in 2017, they sudddenly dropped their popular Google Finance Portfolio feature. Slack Investor then migrated to Yahoo Finance to keep track of his portfolio. I note that Google Finance has recently reinstated its porfolio feature – but I have already moved.

To keep growing revenue, many of their channels are being further monetized. I love using Youtube for music, entertainment, and the millions of helpful “how to” guides. However, the ads at the start of the clips are tedious. This is an attempt to get people into Youtube (no ad) Premium at $13.99 per month.

I also had a recent battle to reduce the amount of data in my google account (Photos, Google Drive, gmail) to below the 15 Gb free limit. This is deliberatly not a simple process and seems to be designed to push people into more storage through a subscription starting at $2.49 per month.

These are relatively small quibbles though – and Slack Investor really doesn’t expect “something for nothing”. I continue to hold and a happy buyer of this company using an international e-broking account with CMC Markets – Alphabet, I hope, will be a very long-term holding.

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 $69,691Couple $45,106
Single $49,462Single $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.

Persistence is hard … and March 2023 – End of Month Update

Salvador Dalí, The Persistence of Memory (1931) – MoMA

Dali’s painting “The Persistence of Memory” has been described as a “surrealist meditation on the collapse of our notions of a fixed cosmic order“. Slack Investor is not gifted in the interpretation of artworks but would “have a crack” and say the work was indicating a lack of permanence, or persistency, that we often associate with everyday things. What Dali called “the camembert of time”.

“The sole difference between myself and a madman … is the fact that I am not mad!”

Salvador Dali

Persistence : (Noun) the act of persisting or persevering; continuing or repeating behaviour – vocabulary.com

Persistency is a great investing quality that impresses Slack Investor – but I acknowledge the difficulty. Standard & Poor’s collect data from the US market on how consistently recent top performing share funds are able to keep producing winning records in subsequent years. The following graphic tracks the funds that were in the top 25% of performers in 2018 – and who stayed in the top quartile in successive years.

The percentage of US funds that remain in the top 25% of funds after a 1, 2, 3 and 4 year period – S&P Research – Not many! – Ifa.com

Over a five-year horizon “it was statistically near impossible to find consistent outperformance.”

S&P Research – Ifa.com

Just because a fund, or portfolio, did well in one year does not mean it will continue to perform well the next year. Slack Investor has found this himself with his best performing stocks often becoming the worst performing in the next year – such is the nature of stocks. The stock market often moves between being overvalued and undervalued – and it is the same for individual companies.

Most active (stock picking) funds do not exceed their long-term benchmarks

Not only do active managed funds struggle to maintain consistency, most of them underperform index funds. We are lucky that there are a group of economic boffins that keep an eye on things in the funds department. They are the known as SPIVA (S&P Indices Versus Active). Since 2002, they have been collecting world financial data and comparing actively managed funds to passive (Index) Funds. The 2022 data is now in and the disappointing theme continues. For Australian Equity (Share) funds, for the 5 and 10-yr horizons, respectively, 81.2% and 78.2% of funds underperformed the S&P/ASX 200.

For International equities, the performance of active funds was worse – Over the 5 and 10-year periods, more than 86% and 95% of funds underperformed, respectively.

The percentage of underperforming Australian funds in various categories over a 1-yr, 3-yr, 5-yr, 10-yr and 15-yr period – SPIVA 2022 Report

How to cope with inflation

To keep pace with inflation you must be invested somewhere – so that your investments can grow faster than inflation (cpi) over time (at least 5 years). I will explain in a future article why I prefer shares and ETF’s as the vehicle to do this over other appreciating assets. So, on this path, to be exposed to equities (or stocks) you can either buy

  1. Active managed funds – Roll the dice here as most of these underperform Index funds after fees, but the minority showed some skill over benchmarks over a 5-yr period – but there is no guarantee that they will keep ahead of their benchmarks.
  2. Individual stocks – this is what Slack Investor does – but some experience is helpful here!
  3. Low-Cost Index Exchange Traded Funds (ETF’s) – this is the easiest path, and Stockspot have made the process even simpler by researching the best Index ETF’s in each class.

Exchange Traded Index Funds (ETF’s) for a Portfolio

Stockspot diligently analysed 640 of the largest managed funds available in Australia.

Australian Shares Index ETF

For Australian share exposure, Stockspot recommends the ETF ASX:VAS – as it has outperformed 74.3% of large cap Australian shares managed funds over 5 years with an Indirect Cost Ratio (Management Fee) of 0.1% and an annual return (over 5 years) 0f 9.0%.

From Stockspot

Australian Small Companies Index ETF

Here, Stockspot recommends the ETF ASX: VSO – as it has outperformed 63.5% of small cap Australian shares managed funds over 5 years with an Indirect Cost Ratio (Management Fee) of 0.3% and an annual return (over 5 years) 0f 11.7%

From Stockspot

International Shares Index ETF

For a swing at the world markets, Stockspot recommends the ETF ASX: IOO – as it has outperformed 97.5% of the large cap global managed funds, available in Australia, over 5 years with an Indirect Cost Ratio (Management Fee) of 0.4% and an annual return (over 5 years) 0f 14.2%.

From Stockspot

March 2023 – End of Month Update

After a sparkling January, the calendar year has crawled along in share market gains. But, it’s “dividend season” now – and this cheers Slack Investor up greatly.

Declines this month for the Australian and UK markets (ASX 200 – 1.1%, FTSE 100 -3.1%). Those irrepressible optimists in the US keep powering on, with the S&P 500 up 3.5% – even though this is the most overvalued of Slack-followed markets.

Slack Investor remains IN for the FTSE 100, the ASX 200, and the US Index S&P 500.

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