Stock Picking | Slack Investor

Is it safe to come out now … and May 2020 End of Month Update

Viktor Bulla’s photograph of the “Pioneers of Leningrad” in a defense drill, 1937, showing the well equipped youth ready for anything … taken 4 years before the horrific Siege of Leningrad– From rarehistoricalphotos.com

This striking image of Leningrad children in their gasmasks has left a haunting impression on Slack Investor. The 900-day siege of the Russian city during WW2 claimed the lives of 800000 civilians – Many of the photographed children would have been involved.

Not trying to draw any parallels, but it is true to say that we are all a bit apprehensive about how to deal with this new post-lockdown world in Australia.

The number of fatalities for COVID-19 is still shocking and it is causing great hardship in many lives. In perspective though, the “big Daddy” virus is the 1918 Influenza where nearly a 1/3 of the world’s population was infected and global deaths amounted to almost 50 million people.

Given sufficient leadership (are you listening Donald and Boris!) the world will eventually see this COVID-19 off – like it has with all previous past viral outbreaks.

Slack Investor does have a furrowed brow about the whole world economy thing. Even bevore COVID-19, China’s economy was shrinking – and has now tanked.

Although China is expected to recover later this year, things don’t seem so good for the moment. The International Monetary Fund (IMF) are describing it as the worst economic downturn since the Great Depression. It is tough to provide forecasts for this event and, as a retired meteorologist, I feel for my economy forecasting brothers and sisters. They predict both advanced and developing economies are expected to show signs of life in 2021.

World economic growth projections by the International Monetary Fund (IMF) World Economic Outlook April 2020

No country is spared in this global crisis, in particular, nations with weak health systems, and more limited funds to provide support will struggle.

Slack Investor will leave the big world predictions to others and continue tinkering in a small way with his portfolio. What is obvious is that companies reliant on tourism, travel, hospitality, and entertainment for their growth are in big trouble. Emerging market and developing economies face additional challenges as they will find it harder to find investors to fund their projects in this climate.

This is not advice, but I will sell off my shares in emerging market ETF VGE and the Malaysian property trust UOS and buy some ETF’s such as NDQ or QLTY. I have had second thoughts about selling down my overweight position on CSL . This company continues to grow – and I just love owning it. – I would have topped up my holding this week as it is currently slipping in price to below $280 – but it is already a big chunk of my Portfolio.

May 2020 – End of Month Update

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

Governments around the world have been mostly doing their job responsibly and adding stimulus to the world economies in these troubled times. In response to this, the Federal Reserve bank of Cleveland have stabilized the probability of a US recession within the next year at 19.4% (below Slack Investors threshold of 20% – so stop losses on index stocks are in hibernation). There has been some real optimism in the markets with further big monthly rises in all followed markets ASX200 +4.2%, FTSE100 +5.4% and S&P500 +7.6%.

The rise in the ASX200 has Slack Investor back into the market with a weekly change in momentum of the weekly charts signaling a BUY. It’s all a little bit crazy … but I am back to all IN! The 11-Period Directional Movement Index (ADX) change of greater than 0.6 is used as the momentum indicator for entry with the complexities of this process explained on the Resources page.

Weekly chart of the ASX200 Index showing the weekly price ranges and the three lines of the directional movement system for momentum trades below – incrediblecharts.com

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

Hail to the Geeks

In honour of the upcoming International Geek Pride Day to be celebrated on 25 May.

Being a geek is cool (Just ask Bill Gates!). They have rights … the top 5 rights of a Geek are:

1. The right to be even geekier.

2. The right to not leave your house.

3. The right to not like football or any other sport.

4. The right to associate with other nerds.

5. The right to have few friends (or none at all).

During the past month. Slack Investor has certainly lived the geek lifestyle and he has reflected on the magnificent gift that geeks gave to the world – technology!

The NASDAQ (National Association of Securities Dealers Automated Quotations) is a special US based electronic stock exchange that was created in 1971 and now lists over 3500, mostly tech, companies. The top 15 companies in the NASDAQ consist of the household names below.

Name	Weight (%)
MICROSOFT CORP	12%
APPLE INC	12%
AMAZON.COM INC	10%
FACEBOOK INC	4%
ALPHABET INC	4%
ALPHABET INC	4%
INTEL CORP	3%
NETFLIX INC	2%
NVIDIA CORP	2%
PEPSICO INC	2%
CISCO SYSTEMS INC	2%
ADOBE INC	2%
PAYPAL HOLDINGS INC	2%
COMCAST CORP	2%
TESLA INC	2%

The growth of the NASDAQ composite index since 1971 – Shown on a log scale – From Macrotrends

Despite a few downturns, mostly in recessions (shaded grey columns above), being invested in technology has really delivered. Betashares, an Australian company, offers simple exposure to the top 100 companies in the NASDAQ through NDQ, their Australian listed NASDAQ ETF. Slack Investor owns some US Listed shares directly and the hassle of different currencies, maintaining a US Broking account, and filling out US taxation forms make the NDQ ETF Management Expense Ratio (MER) of 0.48% seem reasonable. Morningstar also offers a Global technology ETF TECH. Good global technology access for a 0.45% management fee.

Weekly chart of Australian listed Betashares NDQ – Incredible Charts

The use of technology to connect people and develop new businesses has been well demonstrated during the COVID-19 crisis – these tech businesses are growing. Slack Investor has a big amount of technology stocks – over 35% of his Portfolio. NDQ has grown over 50% in the 18 months since the original Slack Investor buy.

One of the things that Slack Investor has learned over the decades is that a high PE is OK, providing that there is a lot of growth involved. Stamped on the little Slack Investor brain is that technology is becoming increasingly important in our lives – this sector is definitely growing.

The NASDAQ index usually has a relatively high average PE Ratio – but as of May 13 2020 it has slipped down to a very reasonable 20.55. There is also a decent trailing dividend yield of 1.73% – the dividend is showing an increasing trend.

This is not advice, as Slack Investor has no divine guidance on what will happen in the next 12 months. – but, with a 2-3 year time frame, will Slack Investor invest more into NDQ or TECH as funds become available? You bet your geekin’ life he will!

The Wedgie is Working – January 2019 Wedgie stocks 1-yr review

Australian lifeguards are known to roll their Speedos up during surfboat races to give better contact between the buttocks and the wooden seat of the boat while rowing. The image is gratuitously included because “Wedgies” are just …just … funny! -Downloaded from http://westalai.blogspot.com/ – may be subject to copyright

Slack Investor introduced one of his favourite technical chart patterns in January 2019 … “The Wedgie”. I promised to look at the results in 12 months time.

Looking at charts of stock prices and trying to recognise useful patterns is known as Technical Analysis. Some investors do not have faith in in this dark science … and Slack Investor would not act on chart signal alone – the underlying company must be sound with established earnings and good prospects.

“The Wedgie” is Slack Investor’s name for a pattern more boringly known as the “breaking of a long-term downtrendline“. You have to admit … “the Wedgie” has a more of a ring to it.

The breakout from a Wedgie on a share price chart is discussed in detail in the original post and it is when the share price rises out of the wedge pattern. The top of the wedge downtrend line should be drawn for a period of at least 3 months and connect at least 2 (and preferably 3) descending high points.

This pattern has the potential to be a trend “reversal” – Lets see how it has performed over 12 months for the Slack Investor bought stocks. The first 3 are all still in the portfolio.

CSL – Commonwealth Serum Laboratory

This great company share price was consolidating a year ago but has recently boomed with a 71% gain.

COH – Cochlear

*Weekly Chart for COH – from* incrediblecharts.com – **40% gain.**

RHC – Ramsay Health Care

*Weekly Chart for RHC – from* incrediblecharts.com – **37% gain.**

In the January 2019 post, ALU, APX, CAR, CCP, FPH, SEK, and A2M were also mentioned as breaking the wedgie pattern. All of them have made very good gains since the breakout from “the wedgie”. Gains of 73%, 64%, 48%, 76%, 74%, 29% and 25%, respectively – from January 18, 2019 to February 10, 2020. Slack Investor thinks that, so far, the Wedgie is working in most cases! – but, it has no guarantee – vigilance is required.

The Wedgie does not always work, CGC – Costa Group –

Weekly Chart for CGC showing two distinct wedge patterns. The first one showed promise then the price quickly turned south after some earnings downgrade announcements. The second wedgie looks worthy of investigation – from incrediblecharts.com

CGC was not mentioned in the original post and clearly the first break of the downtrend in November 2018 lost a bit of steam due to drought and supply problems – Slack Investor was, sadly, an investor in this stock at the time – and it was a loser! This is an example of the wedgie pattern NOT working. However, for all of 2019, CGC has been in a long-term downtrend but the pattern is starting to get interesting again as the longer the downtrend line the more bullish it will be when the stock breaks above the trendline.

As always, however great the pattern may look, Slack Investor is interested in the fundamentals of this stock before he will invest. Wisetech (WTC) is also breaking its Wedgie. Using marketscreener.com, CGC has a good 2021 forecast PE and yield, but the 2021 ROE is too low (<15%). WTC has good Return on Equity (ROE) but the 2021 forecast PE is too high for me (Slack Investor likes the forecast PE to be less than 40-50) … So, despite good looking technical patterns, it is no investment from Slack Investor for these two.

SI Wedgie 2020		P/E 2021	Yield % 2021	ROE % 2021
Costa Group	CGC	17	3.3	9
Wisetech	WTC	82	0.2	21

Let’s visit CGC and WTC in 12 months for the sake of curiosity. Long live the Wedgie!

2019 Calendar Review and, at last … some quality

Slack Investor’s in-depth reviews of performance are done at the end of the Australian financial year (30 June) – but a brief look at how things went in calendar year 2019 is in order. It has been a great year for the share investor. Roger Montgomery reports that the Australian All Ordinaries Accumulation Index delivered a return of 24.0% in calendar 2019 – more than double long-term average annual total return. Other World Index yearly changes for 2019 (without dividends) are listed below.

Indicies	% Change
Australian All Ordinaries	19.10%
S&P 500	28.90%
Nasdaq	35.20%
Nikkei 225	18.20%
FTSE 100	12.10%

Quality Street

Slack Investor puts a bit of time into initial stock selection. Before entry to the Slack portfolio, I comb the company universe for high Return on Equity stocks that have low debt and a proven track record of increasing dividends. Delighted to report that a couple of Australian ETF’s have recently emerged that do a similar thing, using parallel principles to the great Benjamin Graham in selecting quality stocks – automatically!

BetaShares Global Quality Leaders ETF – QLTY

QLTY provides access to the 150 highest quality global companies (ex-Australia) based on a combined ranking of four key factors – return on equity, debt-to-capital, cash flow generation ability and earnings stability.

VanEck Vectors MSCI World ex Australia Quality ETF – QUAL

QUAL has a similar objective screening process, to fill its stock register. Companies must have a high return on equity, stable annual earnings growth, and low financial leverage.

There are common elements to the top 10 holdings for each ETF. Companies like Apple, Visa, Facebook and Alphabet feature on both registers. Either of these ETF’s would be a great addition to a portfolio but Slack Investor would lean towards BetaShares QLTY because of their slightly less expensive management costs (0.35% vs 0.40%). Past results indicate there is outperformance attached to this “quality” approach.

Cumulative “Quality” index performance vs world Benchmark – net returns (30 November 1994 to 30 April 2015) – From Van Eck Whitepaper

My only criticism is that both ETF’s have quality filters that do not seem take into account how expensive the stock is. When Slack Investor researches stocks, I usually dismiss a company if the forecast earnings (+2 years) produce a PE that is over 40. With QUAL and QLTY, it is quality first, regardless of price. I am mollified slightly by the determination that, in the past,

MSCI World Quality Index traditionally has its strongest relative performance during economic downturns
From Van Eck Whitepaper

Sometimes people ask me what stocks to buy – and I seldom have a good answer for them – particularly if they are just starting out on the path of buying shares and their portfolio carries the risk of just one or two stocks. These two ETF’s have given Slack Investor an easy answer.

Instant Diversification – International exposure
Access to high growth companies with a good track record of increased earnings
Rules based stock selection – no ‘active manager’ fees -this should keep expenses low ~ 0.4% … but could be lower!

The early results are not bad either with Morningstar listing one-year performance for 2019 for QUAL and QLTY at 35.8% and 34.5%, respectively.

These sort of products might just put Slack Investor out of a job!

What’s that smell? … Banks!

With great thanks and acknowledgement to the insightful and talented Randy Glasbergen

KPMG have just reported that banks are starting to lose their shine and the big 4 banks in Australia have reached a “turning point”. Slack Investor would argue that, after a pretty good recovery post the GFC, Australian Banks have been in decline since early 2015. NAB is the last to confess this reporting season … They are all businesses that will find growth difficult.

With its full-year profit of $4.8 billion, down 13.6 per cent, it joined ANZ, Commonwealth and Westpac in announcing a big decline in earnings.
From abc news

The ASX Bank Index since 2000. Except for the GFC 2008/9, the banks have performed well – as well as paying high dividends. Things changed in March 2015 where, despite temporary recoveries, there has been a general decline in share price. From Investing.com

Self Managed Super Funds are a great place to park your super money for the hands-on investor. But, they are not for everyone. You really need to have a real interest in investing and at least $200 000 in your super savings. According to ATO Data, at 31 December 2017, the most commonly held SMSF share investments (by investment size) are below: There are a lot of banks!

Commonwealth Bank
Westpac Banking Corporation
National Australia Bank
Magellan Global Fund
BHP Billiton Limited
Platinum International Fund
ANZ Limited
Telstra Corporation
CSL
Wesfarmers

Not a bad portfolio for the past 10 years … but, the tide for the banks has already turned with low interest rates affecting margins, increased competition from the more nimble digital banks, the Hayne Royal commission “blowback” forcing the banks to separate from their profitable wealth management businesses, and recent dividend cuts announced. A closer look at the top 5 SMSF shares with financial statistics from the excellent marketscreener.com. The 1-yr returns over the past year for each stock are lifted from marketindex.com.au .

SMSF 2017 Top 5 Shares		P/E 2020	Yield %	ROE %	1-yr Ret %
Commonwealth Bank	CBA	15	5.5	13	12.4
Westpac Bank	WBC	14	5.9	11	-3.7
National Bank	NAB	12	6	12	16.7
BHP Billiton	BHP	12	5.3	22	10.9
ANZ	ANZ	12	6	12	-3.9
Average		13	5.7	14	6.5

Slack Investor can understand the lure of juicy bank dividends for SMSF funds. But, if the dividend is coming with a reducing share price due to the bank business shrinking – then this is not a good deal – and perhaps look to higher yield industrial shares or industrial/office REITs for that cherished income rather than banks.

Sing the praises for Return on Equity (ROE) and Earnings per Share (EPS) Growth

This is one of the first financial statistics that I look at when deciding on a company to buy. Return on Equity is a company’s Net Profit ÷ Average Shareholder Equity. If a company had a net worth of $10 million and made a profit of $2 million, its ROE would be 2/10 x 100 = 20%.

High ROE companies generate a lot of cash – this cash they can then use to grow their business. If they also have a good increase in their Earnings Per Share (EPS) – Slack Investor would classify them as “Growth” Companies.

CSL Earnings per Share- and projected EPS for 2022 -2024

Generally, companies with a ROE of >15% get Slack Investor’s attention but some businesses require lot of infrastructure before they can generate profit. For this reason ROE is best used to compare companies in the same industry. For contrast with the 2017 SMSF, let’s have a look at Slack Investor’s Top 5 stocks from the Portfolio page (This is not advice!). Data gathered from marketscreener.com and marketindex.com.au .

Slack Investor Top 5 Shares		P/E 2020	Yield %	ROE %	1-yr Ret %
CSL Ltd	CSL	38	1.2	35	38.3
Altium Ltd	ALU	46	1.6	31	44.9
Cochlear Ltd	COH	41	1.7	38	26
Macquarie Group Ltd	MQG	16	4.4	16	11.5
REA Group Ltd	REA	40	1.3	35	27.9
Average		36	2.0	31	29.7

The average ROE for the Slack Portfolio is much higher than for the 2017 SMSF top 5 (31% vs 14%) . They also all have a projected increasing Earnings per Share (EPS) – and this indicates the Slack preference for growth companies.

However, with growth comes volatility and the Slack Investor top 5 would not suit those who rely on their investments for income. The Slack portfolio would probably suit an investor with a longer term view and a separate income. If you are still working and want to grow your wealth through shares … then the ROE should be one of your guiding lights for company selection.

Portfolio Trim and Fitcats

From House Beautiful – May be subject to copyright

On the theme of a trim … who doesn’t like a bit of topiary. My portfolio has had a little haircut in the past 3 months as I have been thinking about the potential of a recession and the effect it might have on my investments. Lacking the skills of Nostradamus, Slack Investor has chosen the “middle path” for his individual stocks i.e . Between doing nothing and “selling everything”, I have chosen to fiddle with about 20% of the portfolio. Some of the things I have bought are expanded on below, in order of investment commitment. This is not advice, just a random walk through stock selection. To make room for the new purchases I sold a few high PE stocks and a few underperformers. The sold stocks include APX, CGC, PMC, AGL and CTD.

Alphabet -Google ( GOOGL)

This is new ground for Slack Investor as GOOGL is US based company and the investment has the additional complexity that I have to use an international broker (Saxo) to purchase shares on the NASDAQ exchange. But, I feel the extra effort is worth it as I can’t think of a better company to ride with through the next 10 years.

Google search has 92% global market share. Chrome is the world’s most widely used web browser. Android is the world’s most popular mobile operating system with 2 billion-plus active users. YouTube is watched for more than 1 billion hours a day. Alphabet has about US$100 billion in cash which, for a sense of scope, is larger than the combined market values of Telstra, Woolworths, and Macquarie.
Joe Magyer from Motley Fool on the dominance of Google’s Alphabet

I use Google products countless times a day and with a Return on Equity of 21 % and a reasonable Price Earnings ratio (for the growth tech sector!) of 24. I would like to own more of this and will seek to add to my position over time. The international shares thing is a bit of a hassle and has some extra expenses. A far easier, way to get a slice of Google (and other great tech growth companies) is by buying the Australian-listed NASDAQ ETF (NDQ). Alphabet represents 8.6% of the NASDAQ Index.

Vanguard Australian Fixed Interest ETF (VAF)

For ETF’s, I naturally lean towards Vanguard due to their relatively low fees and a commitment to keep them low (Thanks Jack Bogle!) I bought this ETF to try and derisk my shares portfolio by getting some exposure to the Australian Government Bond and Fixed Interest Market. I have also bought some Vanguard Emerging Markets ETF (VGE) and Vanguard Global Infrastructure (VBLD).

Centuria Industrial REIT (CIP)

The lure of property rentals during tough times and a bit of exposure to Industrial Real Estate has brought me to this area. I was tossing up buying Goodman (GMG) or Centuria. Both have a similar Weighted Average Lease Expiry (WALE) and occupancy rate. GMG has a relatively high 2020 PE of 26.1 compared with a CIP 2020 PE of 14.8. CIP also has a more fruity yield of 5.7%. Case Closed.

United Overseas Australia (UOS)

A Malaysian real estate developer … Steady on, this sounds a bit wacky! – UOS is a bit of a speculator for Slack Investor. Real estate is a place where I am underdone and I am alway convinced by good arguments. A respected investor (by me), Tony Hansen, from EGP Capital has this stock as his highest portfolio allocation. UOS has a solid cash position, a decent yield and the discount to net worth got me over the line. What is life without a little bit of risk!

Fitcats – Get your super runnin’

With apologies to the legendary Steppenwolf, Slack Investor has the news from Chris Brycki (the tireless CEO of Stockspot and author of the Fatcat/Fitcat report). He has produced his yearly assessment of the best super funds (Fit Cats) and the worst (Fat Cats). Fat Cat Super Funds on average charge 2% a year in fees, while, in comparison Fit Cat Super Funds charge less than 1% a year in fees.

“One of our golden rules of superannuation is; the less you pay, the more you get. Always pay less than 1% p.a. in fees so your super isn’t eroded by high fees. I know 1% doesn’t sound like a lot, but for the Aussies stuck in these Fat Cat Funds they’ll be worse off by $200,000 or more compared to their friends who are in a low-fee fund,”
Chris Brycki, Stockspot

So, if you haven’t already done so … get financially fit, grab yourself an account number in one of these top performers. Most will allow new customers. Then continue to get some Fit Cat action by asking your employer to make any future contributions to your new account. Then rollover your super to the new fund and your sweet.

Innovation Boom

Tim Berners-Lee (in the white shirt) demonstrating the world wide web to nerdy enthusiasts at a 1991 conference in Texas. – From theguardian.com

I have been lucky enough to live through one revolutionary innovative idea that has changed the world. The magnificent Internet – a global system of connected computer networks which has been developing since 1983 – but it was Tim Berners-Lee who introduced the publicly available World Wide Web in 1991 – This was a way of connecting the vast resources and documents on the internet through hypertext and URL’s.

It was 26 years ago, in 1993, when things really started to take-off with the first graphical web browser. Imagine how different the world was without the internet innovations such as Search Engines, Web Browsers, Real time streaming, emails, e-banking, online shopping, wi-fi and, my favourite, GPS linked to an internet map.

My portfolio is filled with companies that have made growing businesses based upon this innovative technology. Altium (ALU), Appen (APX), RealEstate.com (REA), Rhipe (RPH), and Seek (SEK) are all companies that make extensive use of the Internet.

The science man in me (Nerdy part) doesn’t really trust a graph without a vertical scale but I came across this image below from an Ark Investment report that really made me think. It puts other great innovations into some historical context and points to a series of new innovations that are predicted to have a large effect on economic activity in the future – One thing I don’t agree with on the image is the author’s notion of tapering off the impact of internet as we go towards 2020. But I can see that at least some of the innovations mentioned on the right will have a big impact on our future.

*Impact of innovations on the economy – ARK Investment Management LLC, 2018 from Ark Invest*

Part of being Slack is not wanting to research all of these head-hurting new ideas myself (but they do sound interesting!) and I think I should outsource this to someone else. Luckily there are a few research boffins at BetaShares that have come up with the BetaShares Global Robotics and Artificial Intelligence ETF – (RBTZ).

The ETF covers two of the emerging innovative sectors, Robotics and AI. This fund invests in an index of companies involved in Industrial Robotics and Automation, Non-Industrial Robots, Artificial Intelligence and Autonomous Vehicles and Drones. There is a cost – a management expense ratio of 0.57% ($57 per $10000 invested p.a.). Costs of investment are really important for the total returns on your investments. In this case, this is a cost that I am willing to pay and am looking for an opportunity to invest in the RBTZ ETF soon as I have finally unloaded my Challenger (CGF) shares and have a bit of cash to invest. I will wait till this chart shows some upward price momentum and breaks through the orange line “double top resistance” on the CGF daily chart at $9.15.

Daily RBTZ chart BetaShares Global Robotics and Artificial Intelligence ETF – from incrediblecharts.com

Oh … and in passing, thanks to Sir Timothy John Berners-Lee for that world wide web thing … it was a pretty good idea!

After a relationship breakup – When is the right time to start dating again?

Coco Chanel in 1920 ( ) – From bestlifeonline.com

Lets just get this out there … Slack Investor knows just the bare minimum on human relationships and isn’t qualified to give advice on matters of the heart. The only piece of useful knowledge that I can pass on is from, designer and business woman, Coco Chanel.

“As long as you know most men are like children, you know everything.” — Coco Chanel (1883-1971) from source

It has been a torrid last couple of months in the share market and Slack Investor has had to say goodbye to some of his old friends (Stocks that I have had a relationship with!) Last post I briefly looked at when its time to break up with individual stocks – this is something Slack Investor always finds a hard thing to do as I have to overcome the “confirmation bias” that tells me that I did the right thing in picking them in the first place – and, taking a loss sometimes is never pleasant. However, I steel myself with the conviction that it is the overall result that counts and to do that, you must associate with some winners

Let’s have a look at the overall Australian market. The economy is running along fine and the All Ordinaries is close to its long-term average value PE Ratio of 15 (15.6 Australian Financial Review 16/11/18). The US pundits are starting to talk about a possible recession in couple of years time – but this is now – and Slack Investor still whiffs (but does not know!) that the current downturn is an ordinary correction in the charts due to a change in sentiment. In the UK, things look a bit of a Brexit mess – so expect more bad news there.

I start with a watchlist of 15-20 companies that I like – or have been recommended in the press or internet. I then go to the most excellent site marketscreener.com where you can access a variety of analyst data on world stocks by free registration – entering your stock symbol and then going to the financials tab. The thing I love about this site is the predictive data for the next couple of years. These figures are just forecasts as they are based upon the companies sales predictions for itself … but a good company won’t try to “gild the lily” too much on its predictions of earnings.

For each company, I write down their future PE’s, yield and Return on Equity (ROE). ROE is really important and should be 15 or more. A company must have increasing sales, an increasing history of dividends and manageable debt. I setup a group of companies that have reasonable numbers and put them in a table (… like below!)

Company	Symbol	Future PE	Future Yield %	Future ROE	Sales Inc	Divdnd Inc	Debt	Chart Momtm
		2019/2020	2019/2020	2019/2020	EPS	History		Chge(Wk)
Costa Group	CGC	23/20	2.4/2.7	18/19	YES	YES	OK	YES
Macquarie Group	MQG	14/14	4.7/4.9	17/17	YES	YES	OK	YES
Service Stream	SSM	13/11	5.1/5.7	23/24	YES	YES	OK	YES
Amcor	AMC	15/12	5.0/5.3	67/71	YES	YES	OK	YES
Reece	REH	20/19	2.2/2.3	15/14	YES	YES	OK	YES

That is the” fundamental” part of my analysis … and then I wait patiently, watching the weekly charts until there is a change in momentum on a stock – this is the “technical” part of the analysis. I will try to buy the company as soon as I can after this momentum change … but set a stop loss just In case I am wrong!

There are many chart indicators that show a change in momentum. I like using the 11-week Directional Movement Index (ADX) on a weekly chart – or a breakthrough of a downward trend line. Examples of changes in momentum are shown below on the weekly charts of Amcor (AMC) and Costa Group (CGC)

This is not advice … But I have recently bought these companies and will report back in a year as to how things have worked out.

I have also admired the US Technology Index (NASDAQ) from afar for a long time – but never had a chance to buy it. It is available in Australia as a Beta Shares ETF (NDQ). However, NDQ is still moving south and has yet to break out of its downward trend.

Technically speaking, maybe it nearly is time to start dating again!

Financial Year 2018 – Slack Portfolio Review

As Slack Investor is a student of the financial arts and a lover of measurement, the end of the financial year is a great time to review and see how the Slack Investments performed. The Index funds were reviewed last post. Index funds are a great way to start investing in shares – as you are spreading your risk over at least a hundred companies.

The next step, as you become more familiar with investing and can start running a critical eye over individual companies, is to invest in individual stocks.

Over 75% of Slack Investor’s share investments are in individual stocks. See Portfolio

Most of my holdings are in growth stocks. These stocks usually have a high Return on Equity (ROE>15%) – with a track record of increasing dividends. By their nature, they have a relatively high PE ratio and are usually punished in the markets during reporting season if there is any bad news affecting future earnings. This I accept.

Slack Investor Stinkers – FY 2018

Each year I expect a few stinkers and dont beat myself up about them when they occur. If they breach the monthly stop loss – I usually sell at the start of the next month.

-24%

A special mention for IPH. Although some investors have done well with this stock. this company has a prawn heads in the bin on a hot day type of stink for me. Slack Investor likes the idea of the company -and it seems to be making a bit of a recovery since I sold it! However, I have had difficulty trading it successfully as it would go into long periods of declining price immediately after my buys. I should have learned my lesson years ago with Slater and Gordon – Never trust Lawyers!

-22%

HSO has got caught up with a tightening on government health spending and a decline in private health care admissions.

-21%
RHC is also in the healthcare sector and has the same challenges as HSO. But, it is a well managed company and Slack Investor will look for an opportunity to get back in this stock.

Slack Investor Gold Nuggets – FY 2018

The wonderful thing about owning growth companies is that sometimes they surprise on the upside and grow faster than expected. Altium is the “Welcome Stranger” of gold nuggets.

+166% ALU makes software for the designing of integrated circuit boards that are used widely in a range of technology products. Some analysts fear that the stock is overpriced. Its PE ratio is currently an eye-watering 74 – but this is rapidly reducing with projected earnings over the next few years. I am still holding as we go into the reporting season – the optimist in me thinks that there may be more good news on future earnings. There are even rumours of a takeover by larger company. But if not, my end of month stop loss is $19.61.

+71% A2M’s brand relies on a patented process that makes milk with only the A2 protein. A2M has been the subject of a previous post, and it is true that I’m yet to be convinced of the health benefits attributed to A2 Milk – But their marketing is very good and the trend is more powerful than logic in my book! Slack Investor was stop-lossed out of this stock earlier this year, but has bought in again -and hope for good news this reporting season.

Honourable mentions for Slack Investor portfolio stocks that increased more than 30% in this remarkable financial year. These nuggets include APX, CSL, MQG, NCK (no longer held), PMC, REA, SEK and WOR.

Slack Investor SMSF performance – FY 2018

I have written extensively on calculating Portfolio returns. I run a few separate portfolios but only quote the SMSF annual returns as this portfolio is externally audited. All percentage earnings quoted include brokerage and portfolio costs. Both raw and franked dividends are included as income. So essentially, the percentage returns include costs but are before tax. This raw figure can then be compared with other investment returns.

In what can only be described as a high-water mark for Slack Investor’s SMSF portfolio investing prowess. (and the luck of holding ALU inside it), Portfolio return FY18 was 37.6%.

One-year high returns are welcome but Slack Investor puts more weight on multi-year performance. The past 5-yr progress of the Slack Portfolio is 23.6%, 2.6%(whoops!), 14.2%, 19.5%, and 37.6%. This gives a compounding annual 5-yr return for the Slack Investor SMSF portfolio of 18.9%. The benchmark ASX 200 Accumulation Index (Including dividends) 1-yr and 5-yr compounding annual returns are 12.7% and 9.9% , respectively.

“Good luck is a residue of preparation.”

– Jack Youngblood – Hall of Fame American Footballer

Slack Investor readily acknowledges the luck factor in the stock selection process and realises that this FY18 as an extraordinary year for the portfolio (I expect more moderate returns!). I have found that a disciplined stop loss process, a bit of effort and research on stock selection, and following of trends on share charts (technical analysis) can yield very good results.

Over the next year I will post on how to start investing and the specific techniques that Slack Investor uses – It is not difficult … Empower Yourself!

Chance would be a fine thing

One of the great things about England is the turn of phrase that the locals enjoy. “Chance would be a fine thing” is a good example of language that is perplexing to the new arrivals. It is the sort of saying that sometimes crops up in the UK that has a meaning that is not entirely obvious.

In context, someone in England would utter this phrase in response to a comment from another that sets up a desirable scenario – but the retort “Chance would be a fine thing” is said to indicate that it is not likely to happen! Further context can be found in the great tribute by David Mitchell to insecure managers in the short but very fine Peep Show “Chance” sketch at this link. Youtube Autoplay will reward the brave with another great character from the show -“Alan Johnson”, the crude and aggressive management guru in the following Youtube clip – But Language Warning with Alan – I Digress! (… but still giggling!)

I like the “chance” phrase, it reminds me of the enormous part that luck plays in the building of a share portfolio – but it is the very opposite of how I think when I buy a stock! I do not buy stocks often and a buy is usually at the end of some good research where I have convinced myself that the stock is growing and is just about to take off when the rest of the market catches up to my brilliant thinking. Bitter experience and keeping good records over 25 years has shown my abilities in picking winners at around the 55 -60 % mark.

At first glance this looks a pretty poor record of stock judgement – However, by keeping my losses relatively small (through monthly stop losses), owning a diverse range of companies (see Portfolio Page), and letting my rising shares rise, and luck, the Slack Investor has done alright – Five year compounded average growth rate (CAGR) for my audited SMSF portfolio of 16.9% p.a..

The luck of stock selection has always been acknowledged by Slack Investor, but it was brought home to me when my son asked, in December 2017, for advice on where to put $5000 in the share market. You would think that this would be an easy thing for Slack Investor who has spent almost 30 years studying the vagaries of the market. 15 months ago I went into a lather and researched very hard and came up with two growth stocks that I thought were not overpriced and had reasonable growth prospects – but I still had a bit of trepidation as, he is my son, and this was his hard earned savings from a part time job -and, I wanted him to continue with the allusion that his Dad knew what he was talking about!

With the usual combination of research and luck, the two stocks that I presented him with were stocks that I already owned – Fisher and Paykel Healthcare (FPH) and Altium (ALU). I gave him the choice after a brief overview of each company (… spread the risk … give him ownership!). The former are world leaders in surgical instrumentation and pumps. and Altium has something to do with printed circuit board design and the “internet of things”. With the wisdom of youth, he picked Altium to put his savings into. I am relieved to say that both stocks have done extremely well in the past 15 months but the weekly charts tell a story – with my son’s choice, ALU, the clear winner (+177%).

Fisher and Paykel Healthcare (FPH) Weekly Chart – From Incredible Charts

Altium (ALU) Weekly Chart – From Incredible Charts

Do you think Slack Investor could come up with another Altium as a choice for share investment the next time my son asks me for advice?

Chance would be a fine thing!