Whether it has been a good investing year – or a bad one, August is the time when the Vanguard long-term (30 yr) investing chart lands. It is a timely reminder that whatever is happening in the short term, investing for the long term (> 5-10 yr) in International and Australian shares will compound your wealth. Anyone with a steady income that exceeds their living expenses can do this – so, what a young Slack Investor would do, is Automate his investments, through platforms such as Stockspot, Pearler, Vanguard Personal, or Raiz) … and “Get Cracking!”
Extract from the 2023 Vanguard Index chart (Just the 2007-2023 portion) – the dollar values on the right are the results of investing $10000 in index funds in each asset class for 30 years (since July 1993) – Check out the full glory of the Vanguard 2023 chart in PDF format – Click image 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 demonstrates the powerful compounding that happens when the appreciating asset classes of Shares and Property are held for a long time (30 years). Although this Vanguard collection of data shows the volatility of asset values in the short term – it also 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 1993 would have compounded to $138 778 in 2023, US Shares would have compounded to $176 155. Staying in Cash would have yielded $34 737.
Slack Investor says download and study this chart … and work towards getting a mix of some appreciating assets … accumulate, then hang on!
Financial year total returns (%) for the major asset classes
In the Vanguard 2023 table below, for each asset class the total annual returns are given and the best performing class for each year is shaded in blue/green … and the worst in pink. What stands out to Slack Investor is that is rare for and asset class to lead in annual returns (blue/green) for two years in a row – and there are years where the leading asset class (blue/green) becomes the worst performer (pink) in the next year. This drives home the need to spread your investments over different asset classes (diversification) and stay the course – 30 years of data talks loudly to Slack Investor.
Total returns for each asset class for the 30 years since 1993 – Check out the full glory of the Vanguard 2023 Brochure in PDF format– Click table image for better resolution.
This table highlights the benefits of diversification across asset classes for the long-term investor. Each asset class might be the best performing (Blue/Green shading), or the worst performing (Pink shading) for the year – and might dominate (or languish) for up to two years in a row. However, often a worst performing asset will show up as the best performing asset in the very next year – or vice versa.
Slack Investor is accepting of the occasional negative returns on a yearly basis for the appreciating asset classes- and concentrates on the 30-yr average long-term annual returns for holding shares and property of over 9% p.a.
When averaged over 30 years, the asset class and annual returns are : For AUST. SHARES 10.0%; INT’L SHARES 8.7%; U.S. SHARES 11.6%; AUST. LISTED PROPERTY 9.0%; and INT’L LISTED PROPERTY 9.7%; This compares with the average cash return of 4.3% p.a.
Slack Investor knows where he wants to be … over the long term, it isn’t cash.
August 2023 – 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 overseas followed markets had a negative month (S&P 500 -1.8 %, and the FTSE 100 -3.4% and the Australian stock market did the same (ASX 200 -1.4%).
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
“I believe in evidence. I believe in observation, measurement, and reasoning, confirmed by independent observers. I’ll believe anything, no matter how wild and ridiculous, if there is evidence for it.
Isaac Asimov – US Author and Biochemist
Good fortune has prevailed in FY 2023. After the tough investing year of FY2022, Slack Investor has stuck to his strategy of investing with growing companies that have an established earnings record and forward P/E ratios <50 (Mostly!). As always, there have been a few lapses, but that’s just part of being an investor.
I expect a bit of volatility in my (mostly “growth”) investment portfolio and I try to reassure myself that, despite the odd negative year in the Slack Investment Portfolio the Stable Income portfolio is doing its job and keeping Slack Investor with enough cash to keep things running. In the world markets, the FTSE 100 Total Return Index was up 7.8% (last FY up 5.7%). Dividends helped the Australian Accumulation Index to be up 10.6% for the financial year (last FY -7.5%). The S&P 500 Total Return Index is again full of optimism – and was up 19.7% (last FY -10.7%) for the same period. All of these Total Return Indicies include any accumulated dividends.
Slack Portfolio Results FY 2023
All Performance results are before tax. The Slack Portfolio is Slack Investor’s investment portfolio and, after the first negative year since starting this portfolio in 2010, I am delighted to be “Back in the Black” – with an annual FY 2023 performance of +17.9%. Full yearly results with benchmarks are shown in the table below.
FY2022 was another bumper year in real estate – particularly Brisbane -but there has been a welcome pause in housing prices for FY2023. For property, the actual falls in asset values is greater than that shown as Slack Investor is using the Total Return values supplied by CoreLogic. The Total Return is calculated from value change as well as the gross rental yield. I would have preferred calculations that include the net rental yield, but this will have to do. The Total Return is a more realistic figure when comparing real estate returns to stock market total returns, as it treats both asset classes as investments.
The share market was the place to be for FY 2023, with the Australian Share market Total Return Index (ASX200 Acc) up 10.6% and the Vanguard Diversified Growth ETF (VDGR), comprising mostly (68%) of International and Australian Shares, increasing by 11.2%. Inflation is again coming in big – with the CPI at +6.0% – reinforcing the need to have exposure to “growth assets” such as shares or property.
Although I collect yearly figures, the 5 and 10-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 Slack Fund is still ahead of Benchmarks – but currently being challenged by Brisbane Residential real estate over a five-year period.
5-yr Average Annual Performance
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.
Growth of a $10000 Investment Since 2009
The rate of growth of $10000 invested by Slack Investor in FY 2009 – compared to benchmarks – Click for better resolution.
10-year compound annual rate of return
The Slack Fund has been around a while and, at last, I am generating some long term data (10-year compound “rolling” annual rate of return). Over this time frame, the Slack Fund has been performing very well. A 10-year annual rate of return of over 14% – Go Slack Fund!
However, the 10-yr rates of return of the Median Balanced Fund, Vanguard Growth fund, ASX200, and residential property in Brisbane and Melbourne are also great long term investments, generating a 10-year compound annual rate of return of 6-9% p.a. From the figures below, although it can add stability to a portfolio, Cash as a long term investment, is a poor choice.
“Life is not a bowl full of cherries, there’s good and bad stuff“
Fuzzy Zoeller (American professional golfer)
Fuzzy Zoeller does not always say wise things, but his quote above is on the money. Slack Investor takes the good with the bad.
The trampoline effect of stinkers becoming nuggets in consecutive years reared again, with REA making the transition this year. Also, Nuggets … might end on the Stinker pile the year after. Slack Investor puts more emphasis on growth over a multi-year period, but compiles the yearly Nuggets and Stinkers list …. because its fun!
Growth stocks (usually high Return on Equity (ROE >15%), as with other stocks, often have cycles of price – bouts of overvaluation followed by a period of undervaluation.
The percentage yearly returns quoted in this post include costs (brokerage) but, the returns are before tax. This raw figure can then be compared with other investment returns. I use the incredibly useful Market Screener to analyze the financial data from each company and extract the predicted 2o25 Price/Earnings (PE) Ratio, Dividend Yield, and Return on Equity (ROE), on the companies below. This excellent site allows free access (up to a daily limit) to their analyst’s data, on the financials tab for each stock, once you register with an email address.
Slack Investor Stinkers – FY 2023
Financial year 2023 was a welcome recovery in the technology sectors. All of Slack Investors followed markets Australia, the UK and the US having gains over the financial year 2023. However, Slack Investor is always ready for lessons in humility and still managed to pick up a few stinkers along the way.
Integral Diagnostics (IDX) -19% (Sold Oct 2022)
(IDX – 2025: PE 18, Yield 3.8%, ROE 10%) Integral Diagnostics provides medical imaging services at a number of urban and regional locations in Australia and New Zealand. This company was also one of my stinkers last year (FY2022 -39%) The sinking feeling that I got during my monthly chart reviews was just too much … and I finally gave into that negative energy in October 2022 – and sold. This, unfortunately, turned out to be the bottom of the market – and IDX has made a modest recovery since.
Computershare (CPU) -18% (Sold May 2023)
(CPU– 2025: PE 16, Yield 3.8%, ROE 29%) Computershare is well known to owners of some Australian shares as they run the registry for many Australian companies. It started as an Australian technology business in 1978 and since has become a major global player in financial services. Slack Investor just bought at a bad time … and I sold in May 2023 to make another share purchase. CPU seems to be a solid global business though – Will look at buying this one again.
Dicker Data (DDR) -18% (Still held)
(DDR – 2025: PE 14, Yield 6.8%, ROE 42%) Dicker Data is the only Australian owned and ASX-listed major IT provider. It is a hardware, software and cloud distributor for most of the well known US IT companies (Microsoft, Cisco, HP, etc). The business is projected to continue to grow and, as the share price seems to have “bottomed out”, Slack Investor will continue to hold on because of the companies excellent projected PE, Yield, and ROE.
BetaShares Asia Technology Tigers ETF -7% (Sold Sep 2022)
(ASIA – 2023: PE 17, Yield 2.6%,) Growth in Asia … What could go wrong! Plenty it seems. These “technology tigers” that make up this ETF have been part of a global selloff of tech-related shares in Asia since 2021 as many US investors take flight from the China market due to US/China tensions.
This company was also one of my stinkers last year (FY2022 -33%) and was “on watch” during my monthly chart reviews. Sadly, the pain became too much and I unloaded near the bottom of the market again … and, it has since made a modest recovery. I have maintained at least some exposure to the Asian tech sector with with Vanguard FTSE Asia ex Japan ETF (VGE.ASX).
Slack Investor Nuggets – FY 2023
Nuggets made a comeback this Financial Year. Slack Investor continues to invest in high Return on Equity (ROE) companies with a track record of increasing earnings, Companies with these qualities sometimes behave as “golden nuggets”.
Technology One (TNE) +48%
(TNE – 2025: PE 37, Yield 1.5%, ROE 34%) This Software as a Service (SaaS) and consulting company continues to be profitable. This great business was also a nugget last year (+17%). A high 2025 PE of 37 (Expensive) is a little scary but, if the high Returns on Equity (34%) remain, on balance, this is OK. I found this company through the writings of Rudi Filapek-Vandyck – a great Australian Investor and writer, when he talks, Slack Investor listens.
Altium (ALU) +40%
(ALU – 2025: PE 34, Yield 2.3%, ROE 32%) Altium is an Australian based developer and seller of computer software for the design of electronic products worldwide. It focuses on electronics design systems for 3D printed circuit board (PCB) design. Slack Investor has part-owned this business since 2009 and has enjoyed the increasing value that ALU has created. This sector is very now … and remains a favourite of Slack Investor.
CarSales.com (CAR) +37%
(CAR – 2025: PE 28, Yield 3.0%, ROE 10%) CarSales.com is the go to for selling cars, boats and other vehicles. It does, in an efficient way, what the classified ads used to do. I have noticed that the Return on Equity is dropping (Now 10%) and will keep this company on watch – but I cant argue with the recent price rises.
BetaShare NASDAQ 100 ETF (NDQ) +36%
(NDQ – 2023:PE 26, Yield 1.0%) Exposure to the powerhouse of US Tech companies with the simplicity of an ASX ETF. Management fees are reasonable at 0.48% – Slack Investor remains a fan.
Pro Medicus (PME) +36%
(PME – 2025: PE 78, Yield 0.6%, ROE 46%) Pro Medicus is a developer and supplier of healthcare imaging software and services to hospitals and diagnostic imaging groups. Slack Investor actually met the CEO and co-founder of Pro Medicus, Dr Sam Hupert, at an investment seminar last year. His modesty, US foothold, and debt-free approach to expanding his business impressed me – I’m obviously glad I bought in – but the very high PE ratio (+78) is worrying – expensive.
REA Group (REA) +30%
(REA – 2025: PE 39, Yield 1.5%, ROE 29%) Like Carsales.com, REA has dominated the space left by the old newspaper classifieds in selling real estate in Australia. REA has expanded into India and other global locations. A high PE ratio (39) but while projected Return on Equity (ROE) remains high (29%), this is OK.
VanEck Wide Moat ETF (MOAT) +30%
(MOAT – 2023: PE 19, Yield 2.6%,) The Wide Moat ETF run by VanEck is a rules-based selection of “attractively priced US companies with sustainable competitive advantages” Sounds good doesn’t it. The management expense ratio of 0.49% is OK for such curated US exposure.
Slack Investor Total SMSF performance – FY 2023 and July 2023 end of Month Update
After a difficult 2022, FY 2023 is described by J. P. Morgan as being “kinder to balanced portfolios”. True That! The growth stocks that were punished last year bounced back strongly. In the Australian superannuation scene, the median growth fund (61 to 80% in growth assets) returned +9.2%for FY 2023. The ASX 200 chart shows a gradual climb for the financial year.
After a tough FY 2022, the FY 2023 Slack Investor preliminary total SMSF performance looks like returning to form and coming in at around +18%. The 5-yr performance is a more useful benchmark to me – as it takes out the bouncing around of yearly returns. At the end of FY 2023, the Slack Portfolio has a compounding 5-yr annual return of around 10%.
The new financial year started of positively for Slack Investor markets. The ASX 200 + 2.9%; FTSE 100 +2.2%; and S&P 500 +3.1%. He remains IN for all index positions.
All Index pages (ASX Index, UK Index, US Index) and charts have been updated to reflect the monthly changes.
I was recently delighted when my 14-yr old nephew asked me what I thought he should invest in with his earnings from his part-time jobs.
Firstly, it is a compliment to an old bloke to be asked anything, and secondly, it is testament to the financial maturity of this fine young man that he would be thinking about the world of the share market while still at school.
If he was older and in a steady full-time job I would advise he automate his savings as much as possible and lash into index funds via a platform such as Stockspot, Pearler, Vanguard Personal, or Raiz)
His first investment would be in the order of a few thousand hard-earned dollars from part-time jobs. It is vital that the investment has good prospects and unlikely to lose money over a 5-yr period (no guarantees though!). Given that he would not feel the need to access the money for 5 years (hopefully longer!)
For a first investment, I would add the criteria that it should be a well-known Australian company that might appear in the news occasionally and remind him that he is a part-owner … and an investor!
If he was already 18, it would be “off to the races” and we would immediately set up a broker account in his own name and he would begin to experience the magic of being a shareholder. Being under 18 complicates things a little as minors are not allowed to directly own shares- we need to enlist his parent’s help.
If the parent already has a broker account the best way to start is for the parent to buy the shares on his behalf. When he turns 18, my nephew can start his own account with a broker (e.g. Self Wealth, Commsec, Pearler) and the parent can use an off-market transfer (get the form from the broker) to get the shares into my nephew’s hands as a “gift” including any dividends earned. During this brief holding period, any dividends and any capital gain will count as taxable income in the parents name – but this is a small price to pay to tap my nephew’s enthusiasm.
Alternatively, you could open a broker account in their name (as the trustee for “Nephews name”). The process is a little more complicated and is explained in detail by SelfWealth.
The Nuts and Bolts of Stock Selection
Naturally, I would address this problem in a methodical way and set up a list of Slack owned companies – I couldn’t recommend a company that I didn’t own myself. Some of my favourite stock metrics are gathered from the excellent Market Screener site on the financials page for each stock.
My number one metric for looking at companies is their Return on Equity (ROE), estimated for the year 2024 – Slack Investor is looking forward. This gives me an idea about whether a company is making an investment dollar grow. Higher the better, I start getting curious about a company when ROE is above 15%.
The projected Price Earnings ratio in 2024 is next – I don’t like the P/E Ratio to get above 40, as this indicates the current price of the company is 40 times its earnings (expensive) – but some exceptions are made if the company is growing fast (High ROE). The yield (dividend) is not that important to a young investor, it is the total growth that counts.
Stock
Symbol
2024 ROE
2024 P/E
2024 Yield
Price 30/06/23
% Price below consensus
CSL Ltd
CSL
18%
30
1.5%
$277.38
-18%
Wesfarmers
WES
30%
22
3.9%
$49.34
Fair Value
Coles
COL
31%
22
3.9%
$18.42
Fair Value
Altium
ALU
32%
41
1.9%
$36.92
-6%
Macquarie Bank
MQG
13%
14
4.2%
$177.62
-10%
Car Sales
CAR
10%
28
2.8%
$23.82
-3%
RealEstate.com
REA
29%
41
1.3%
$143.03
-7%
Analysis of some Slack Investor owned stocks using the projected Return on Equity (2024 ROE); price earnings ratio in 2024 (2024 P/E); 2024 Yield; and the current price (30 June 2023); and current discount from the average analyst perceived value – marketscreener.com – Financials Tab
Looking at the figures, even though the stock price of CSL hasn’t really gone anywhere in the last 3 years, it would be my first pick as it is currently 18% below its fair value price (by a consensus of analysts). It is such a strong Australian company that really thinks of the future by continuing to increase its spend on research and development each year.
Wesfarmers (Bunnings, K-Mart, Officeworks, etc) and Coles look OK too because of their high Return on Equity (ROE) – they also have the benefit that you can continually pop in to see how your business is going. Altium has languished in price this last few years but remains a great company for the future – if my nephew was interested in the “tech” space.
This isn’t advice, Unless, of course, you are my nephew!
June 2023 – End of Month Update
The financial year closes and looking at the 12-month charts for FY 2023 – Slack Investor concludes … “It was better than last year”!
Slack Investor remains IN far all followed markets. The ASX 200 (+1.6%) and FTSE 100 (+1.1%) drifted slightly upward for the month. It is boom-time in the US with the S&P 500 rising 6.5%. The US index had moved more than 15% above its stop loss, so I have moved the stop loss upward to 4048.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been completed.
What exactly these angelic cherubs are up to in this etching will remain a mystery to Slack Investor, but he would say that looking at things from a distance is a worthwhile trait in the stock market world. Slack Investor is currently in Europe on holiday and the geographical distance and time zone shift have helped him take more of a holiday from the markets … and just let them get on with it – without interference!
Take the long view
There are some scary headlines and plenty of volatility on the stock markets with worries about inflation and international bank collapses. Slack Investor will just pass on some sage advice. Here is the secret to being a good investor …
Don’t get caught up in what happens in three months, six months, or 12 months. It’s about the next five to seven years.
Paul Taylor is no mug … his Australian Equities Fund is of the managed fund variety and, despite a slug of 0.85% p.a. in management fees, his fund has kept pace or slightly bettered the performance of the ASX 200 Accumulation index over the 5 and 10-yr periods. Even though the managers of the fund appear to know what they are doing, the difficulty of beating index funds over every time period is shown by the negative relative performance over 1 and 7-yrs.
Now, Slack Investor completely agrees with Mr Taylor, when investing in equities (shares), you should be locking them up for at least 5 years so that any volatility will be swamped by the beautiful long-term march of increasing value for Australian and International Shares. See the latest Vanguard Long Term Chart to see what I mean.
Slack Investor is still “pretend hurting” from his own last year’s (FY22) annual Slack performance (-14.3%). However, he realises his 5-yr and 10-yr performance is the critical measure for his Slack Fund. As these returns p.a. (13.5% (5-yr) and 15.2% (10-yr), are comfortably above benchmarks, I have reconciled the poor one year figures as just part of the volatility of owning mostly growth shares.
Contribute regularly to your savings
Whether adding to your super, or investment savings, the best way to do this is to add regularly, without even thinking about it. Set up an automatic personal deduction from your salary to your super – or automatically contribute to your savings through a vehicle that is in sync with your risk tolerances (e.g. Stockspot, Pearler).
As my super was accumulating, it was mostly in broad-based index funds (Australian and International). My other investments were mostly in individual companies.
While it’s possible to beat index funds, it’s not easy to do over the long run … and as it isn’t worthwhile for most of us to try.
Slack Investor has some exposure to index-type ETF’s but continues to dabble in individual companies. Despite the above warning, Slack Investor will continue to “have a crack” at stock selection and portfolio management – but only while his long-term performance still stands up.
Slack Investor has blogged about financial advice before – and although an advocate of trying to do as much as you can by researching finance world yourself, it can be a very difficult journey to be across all the fields of saving, mortgages, investment loans, insurance, superannuation, taxation, and investment.
Most people want financial advice but the problem is that it is so expensive. MoneySmart.gov.au outline a case study where “Rhett” has $400 000 to invest – He might be hit with fees of $13 600 in his first year of advice . These fees include a Statement of Advice and Insurance premiums and layers of platform and investment advice fees.
Where to invest your money is the easiest thing to sort out for yourself – with the key words being diversification and low fees. There are cost-effective ways of investing in a diversified way that will suit your risk tolerance without involving a financial advisor (e.g. Stockspot, Pearler). But some people (Not Slack Investor Readers!) need a trigger to just start investing. Finance world is much more complex than just investing your money. Slack Investor can see the need for finance professionals
Things a Financial Advisor might tell you
Firstlinks have trawled the data to determine the most recommended strategy used by financial advisers – the most common of these are listed below.
Let’s just have a look at some of these in more detail.
Rollover Your Super – “Rolling Over” your superannuation is just a way of describing the transfer of your “protected” super into another protected super fund. Slack Investor readers will be all over this one – Of course it makes sense to put all of your super with one provider to avoid multiple administration fees. Combine your super into one fund – preferably an industry fund (lowest fees) with a good 5-10 yr performance record.
Retain Your Super – This is again good advice for the long-term accumulators of wealth. Unless under extreme hardship, resist all attempts for early access to your super. During the COVID-19 outbreak, $4 billion was paid out to 456,000 people under the early super access scheme. This would have helped distressed businesses and individuals in the short-term but may not have been a great idea in the longer term.
Super Contributions – This is a more complicated area and, it might be good to have advice on when, and by how much ,you should boost your super contributions above those which are compulsory. This is tricky when you have competing loads on your take-home pay (Family, Mortgage, etc). Slack Investor was big on maximizing his super contributions once he had a firm grip on his home mortgage.
Apply for Insurance – When you have a family or debts (home loan?) to cover, life and disability insurance is a good idea. You don’t need an advisor to tell you this. Insurance through your super fund is usually the most cost effective way to do this.
Estate and Aged Care Planning – This area is really complicated for the layman. Professional Advice, or much research, needed.
Commence, Rollover, Retain Pension – You may need advice here if planning to mix aged-pension and super to fund retirement. If there are no aged-pension issues, Slack Investor believes that it is best to start an account pension (from your super) as soon as possible and re-contribute any surplus funds as non-concessional contributions.
Commence, Rebalance Investment – An old truth – Best time to start investing? 20 years ago. Next best time to start investing? Now! Rebalancing can be done automatically with cost-effective platforms e.g., Vanguard Super, Stockspot.
What Types of advice Do You Really Need?
The current financial advice system is complicated by well-meaning regulations that are in dire need of reform. In 2022, the Australian Treasury provided a consultation paper seeking feedback on changes to the regulatory regime that would allow financial advice on specific matters without the obligation that the advisor should know everything about your financial situation – No need for the expensive Statement of Advice (SOA).
Ideally, in a future world, you could get advice at various stages in your life from finance professionals at an hourly rate – perhaps in the same way you would consult a medical specialist about a problem. For Instance
Early/Mid-Career Advice: Am I on track with my savings, super contributions and retirement plan? What strategies should I employ to achieve my goals?
Pre-Retirement: Am I ready? Taxation Issues? Aged-pension/Super mix?
Estate and Aged Care Planning: Complicated – Many issues to discuss here.
Alternatively, you could just turn your financial future into a hobby (Like Slack Investor did), and use the internet and books to educate yourself.
May 2023 – End of Month Update
Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. It was a dreary month for the Slack Investor followed markets. The ASX 200 performed poorly this month – down 3.0%, and the FTSE 100 even worse – down 5.4%. The S&P 500 was flat (+0.2%) for the month.
In this month of turmoil for stock indexes, the Slack Portfolio did quite well. This is because it is heavy with technology stocks that are having a moment in the sunshine. The Nasdaq 100 index was up 7.7% for the month of May.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
Four of the planets that are visible to the naked eye – Saturn, Mars, Venus and Jupiter were aligned on April 24, 2022 at 4.40am visible from Southbank, Melbourne – SBS Australia
Planetary Alignment is a special thing, depending on which planets are involved – and their order. Sadly, Slack Investor wasn’t paying attention when 4 of the 5 planets visible to the naked eye (Mercury, Venus, Mars, Jupiter and Saturn) appeared in a line around the world on April 24 2022.
The bright string of lights in the morning sky (in April 2022) is thought to be a one-in-1000-year event.
Slack Investor is coming to the planetary alignment party very late and is now setting his sights on September 8, 2040, when five naked-eye planets (Mercury, Venus, Mars, Jupiter, and Saturn) will be within a circle of 9 degrees in the sky.
Investing alignment
Slack Investor may be a poor astronomer but one of his skills is noticing when two of the most important attributes in the stock market have an alignment – Value and Momentum.
Value investing involves looking at stocks that appear to be trading for less than what they are worth using a value screener like “book value” or the Price/Earnings ratio. Slack Investor likes to use the Cyclic Adjusted Price Earnings Ratio (CAPE) as a broad indicator of value – the lower the CAPE, the better the value.
Momentum investing just uses charts and indicators to pick out the current movement of a stock. Based upon the theory that – If the trend is upwards … it is likely to continue upwards. This is tricky though … the trend is your friend … until it isn’t!
Because trend trading is difficult, I always like a bit of assurance or alignment with value. Ideally, I like valueand momentum in a stock before parting with Slack cash.
Value
It has been 6 months since I produced a set of index value charts based upon CAPE to look at how the markets are travelling.
As with individual companies, the whole share market will oscillate between overvalued and undervalued. Slack Investor has written about the Cyclically Adjusted Price to Earnings ratios (CAPE) which use ten-year average inflation-adjusted earnings. 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.
Using monthly CAPE data from Barclays, the 40-yr mean is calculated and plotted together with the CAPE values. A “fair value” zone is created in green where the CAPE is within one standard deviation of the mean.
Historic CAPE ratios for the ASX 200 – From 1982 to April 2023– Click the chart for better resolution. Historic CAPE ratios for the FTSE 100 – From 1982 to April 2023– Click the chart for better resolution.Historic CAPE ratios for the S&P 500– From 1982 to April 2023 – Click the chart for better resolution.
From the above, The ASX 200 is right on fair value (1% above av.) and the FTSE 100 is cheap (5% below av.). Both are worth looking at for the moment as their CAPE values are at, or below their long-term averages. The S&P500, is still in the “Fair value” range, but at 20% above the long term average – so, no bargain here.
Momentum
There are lots of stock indicators that track momentum. Slack Investor has blogged about The Coppock Indicator before. It has had an incredible track record in signalling the end of a “bear market”. The signal (Green Arrow) is triggered when the indicator (shown in the lower screens below as a white line) bottoms from under the zero line and then slopes upwards.
Monthly charts of the ASX 200, FTSE100 and S&P500 together with the Coppock Indicator (White Line) in the lower section of each chart. The green arrows show the “bottom of the market” predictions using the Coppock Indicator. The red arrows show a possible time to sell – Click the chart for better resolution – Incrediblecharts.com
The ASX 200 (Since 31 Jan 2023) and the S&P 500 (Since 31 Mar 2023) are showing signs of recovery from the bear market with the is well into the Coppock recovery cycle. The FTSE 100 is also showing signs of recovery, but as the Coppock indicator did not get below the zero line, this is not a proper Coppock reversal.
However, the Coppock Indicator has been reliable so far in predicting stock gains. This is not advice, but the ASX 200 currently has the alignment of both value and momentum indicators. Alignment is good … If I wasn’t already fully invested, I would have a crack!
Slack Investor is a great believer in writing about experience and a few (fortunately) minor health matters has had him recently exploring Australia’s health system. In Australia, the General Practitioner (GP) is usually the first port of call if you have a health problem and of Medicare will fund a portion of your costs for a consultation. Your relationship with your GP is an important one and it is vital that you feel comfortable with your GP’s manner, knowledge and skills. There are two tiers of GP pricing in Australia.
Bulk Billed – where there is no extra consumer payment required if you have a valid Medicare card.
Mixed Billing – where patients will pay a a bit extra in addition to the Medicare allowance
Bulk billing doctors are becoming harder to find as the rate of bulk billing has fallen to its lowest level in 13 years . According to government figures, it was 80.5% in the 2022 December quarter. Though this figures is likely to be “grossly inflated” as many practices have charged a separate eftpos transaction at the desk and this does not appear in Medicare figures.
What should happen is that either the patient is bulk-billed and pays no money – or they are charged a private fee, a portion of which is rebated by Medicare directly into the patient’s bank account.
Levels of bulk-billing are probably closer to 40% as shown in the recent survey by The Age. In answer to the question “Does your GP Bulk-bill or charge you a gap fee?”
Survey results from the Resolve Political Monitor conducted by The Age
This Age poll is in line with results by an excellent organisation called Cleanbill that are driven by a mantra that Slack Investor wholly agrees with …
” … healthcare is at its most accessible when you can see all of your options and their costs before you’ve made a booking.”
The Cleanbill site is easy to use for locating GP’s in your area and transparently gives their total fees for a standard, or a long consultation. Once you have narrowed your search, you can usually make a booking straight from the site.
Only 42.7% of GP clinics serving nearly 18 million Australians bulk bill (charge no out-of-pocket fee to) all patients.
At the 57.3% of GP clinics that charge an out-of-pocket fee the average extra cost for a standard, 15-minute consultation is $40.25 (out of a total cost of $80).
The decline in bulk billing is not the GP’s fault as practice costs have continued to rise and the Medicare rebate has not kept pace with the rise in these costs. In 2013, the rebate was frozen for 6 years – and, even last year, though inflation was 6.1%, the Medicare rebate was only increased by 1.6%. The chart below shows how the rebate has failed to keep pace with inflation (CPI) and average weekly earnings (AWE).
The Medicare GP rebate has failed to keep pace with inflation (CPI) and average weekly earnings (AWE) – From ochrehealth.com.au
… more than half of GP practices (55%) plan to reduce bulk-billing and increase gap fees this year
Are we heading down the track to a US – style system?
Slack Investor has lived in the US – and hopes not! … and, is pleased that the new Australian government is putting a bit of thought and money into this problem with an announced $2.2b injection of funds into Medicare – no detail yet.
Now Slack Investor does not want a completely “free ride” as he realises that healthcare must be paid for. Even in the much admired Scandinavian health systems there is usually a co-payment associated with a visit to a doctor of $20-25 AUD.
In Australia, many patients pay hundreds of dollars for non-GP specialist consultations, and $40–$50 out of pocket for GPs.
So perhaps it is just a matter of nudging the co-payment down a bit by increasing the Medicare rebate, and some other reforms – all will be revealed on the Australian government budget night – 9 May 2023.
Slack Investor is hoping for some progress as the Australian Healthcare system is generally good … but could be better. In the meantime, if you are looking for a GP, use Cleanbill to help you find one.
April 2023 – End of Month Update
Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. It was a positive month for the Slack Investor followed markets. The ASX 200 up 1.8%, the S&P 500 up 1.5%, and the FTSE 100 powering on, and up 3.1% for the month.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
“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.”
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.
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
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.
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%.
Here, Stockspot recommends the ETF ASX: VSO– as it has outperformed 63.5% of small cap Australian shares managed fundsover 5 years with an Indirect Cost Ratio (Management Fee) of 0.3% and an annual return (over 5 years) 0f 11.7%
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%.
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
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.
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.
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.
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.
