Technical Analysis | Slack Investor

Colin Nicholson – A Great Australian Investor … and February 2021 – End of Month Update

I have a few people that have greatly influenced my investing life – One such figure is Colin Nicholson. I have never met him, but he has taught me a vast amount through his long running website “Building Wealth Through Shares” (bwts.com.au).

This great Australian investor Colin Nicholson, has been investing for over 50 years and documenting his adventures with shares since 2001 on his site. Colin has only stopped actively contributing at the end of 2019. Fortunately, this website is still running and his knowledge and experience keeps on giving. As well as education material on technical and fundamental analysis, he often discusses the psychology necessary to be a successful investor.

We tend to have an impulse to snatch profits quickly and to let losses run, hoping things will come good if we hold on. This natural impulse is the exact opposite to what a successful investor must do.
Colin Nicholson

Colin started bwts.com.au when financial blogs were in their infancy and Australian contributors were rare. Colin is a private investor, an author, and educator. He has been contributing to his site for over 20 years and answered hundreds of questions from other investors. His site is an incredibly detailed knowledge base covering all aspects of owning a share portfolio. His Investing – Twelve Key Lessons is essential reading to anyone thinking of entering this fascinating world. His results over a 20-yr period are very impressive. Colin has retired from active contributions to his website but has hinted that he would maintain his website for the education of future investors.

There are countless bits of wisdom as Colin relentlessly tackles investment according to a defined, well-tested, and logical plan. No matter what the investing subject, search his site, and Colin Nicholson will offer some useful and reasoned discussion.

The source of most frustration in investors is that they are expecting the impossible. They want to sell at the top. I repeat that it simply cannot be done except by sheer luck.
Colin Nicholson – Take Profits or Wait for the Stop-Loss?

My first introduction to his site was through his meticulous documentation on how he calculated his end of financial year performance returns. Year after year he would list his portfolio and investment returns.

This image has an empty alt attribute; its file name is ColNichReturn.png — Colin Nicholson’s documented returns over 20 years comparing his returns(red) and the ASX 200 accumulation index (green). A 12.01% Compound Annual Growth Rate (CAGR) is very impressive over a 20-yr period and has enabled Colin to have a hopefully financially carefree retirement.

… I do not wish to advise people or to manage their money. Rather, my focus is on my own investments and passing on what I have learned to others.
Colin Nicholson

In addition to his website and public speaking, Colin has also authored Building Wealth in the Stock Market and Think Like the Great Investors. Like another of Slack Investor heroes, Warren Buffet, Colin has a plan for “retirement mode” and intends to become more passive with his investments and half of his portfolio is now in LICs and index funds.

I am not retired – I am a full-time investor
Colin Nicholson

Colin Nicholson, Slack Investor salutes you for your enormous contribution to my investment life and for helping countless others with your education materials and your disciplined and methodical approach to investing in shares. Dive deep and long into bwts.com.au and you will be a better investor.

February 2021 – End of Month Update

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

When having a look at the end of month charts, I noticed that all index trackers were well above their stop losses (>16%). My Mum (and Kath and Kim) would say that she could “feel it in her waters” when she had a premonition about something. My index rules allow the end of month stock price to be up to 20% above the stop loss. However, in a tip of the hat to Mr Nicholson, who is far more disciplined than Slack Investor in the investing arts, some action this month. As “new highs” have been established, I decided that now wouldn’t be a bad time to adjust the stop loss levels upwards.

I place my stops below the low of the last trough in the uptrend and move it up to just under the next trough every time a new high is made for the trend.
Colin Nicholson

Weekly Chart of the ASX 200 Index – incrediblecharts.com

For February 2021, there were falls in the growth oriented Slack Portfolio due to rising long-term bond yields. But stock prices have always fluctuated above or below a “fair price” – for one reason or another. Slack Investor is still on the couch.

Tech stocks are susceptible to rising yields because their value rests most heavily on future earnings, which get discounted more negatively when bond yields go up.
From The Bull

Despite the end of month sell off, there were modest rises in all followed index funds (ASX 200 +1. 0%, S&P 500 +2.6%, and the FTSE 100 +1.2%). All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

SMSF is it a superpower OR Kryptonite? … and January 2021 – End of Month Update

Slack Investor hasn’t written much about Self Managed Super Funds (SMSF’s) despite his love affair with his own fund. SMSF’s are only found in Australia and represent a “hands on” way to accumulate, nurture, and eventually release your super funds as a pension or lump sum. They have the same status as a normal retail or industry super fund (e.g. Australian Super) but they are “self managed” and give the trustees (members of the fund) power over where the fund is invested. This control is a double edged sword, as it is also possible to destroy your super wealth with a SMSF by making unwise investments.

SMSF’s offer

Control
Flexibility in investments – But this can be dangerous!
Estate Planning and Taxation advantages

There are nearly 600,000 SMSFs in Australia with over a million member (March 2020). Although this represents less than 5% of Australia’s population, about 25% of the $2.7 trillion invested in superannuation is invested in SMSF’s. The average member balance for an SMSF was a whopping $678,621 (ATO Data 2018).

It is possible to structure an SMSF so that the investment fees are very low. A surprising finding from a SuperConcepts study was that the average annual expense ratio for SMSF’s was 2.8% for the over 20000 funds surveyed. This seems particularly high when compared to the Slack Investor SMSF portfolio expense ratio of 0.12% through a “no advice” online SMSF services provider like e-superfund. This suggests that most of the funds surveyed used the relatively high cost route of engaging an accountant to administer the fund. There are many SMSF providers – Slack Investor uses e-superfund which provides the legal structure and web-based audits and education. The yearly operating expenses are an amazingly low $999. The SMSF is so integral to Slack Investor’s strategy that I have set aside an SMSF page on the Slack Investor site – Alas, there is not much on there yet … but it will come!

Rainmaker are producing monthly comparisons of SMSF’s with the larger low cost My Super products offered by Industry and Retail Super Funds. The analysis can be found on their Superguard360 site.

SG360Jun17_2 — A comparison of the Asset mix of SMSF funds (left column) with MySuper funds – From Superguard360

SMSF funds (above left) traditionally hold more cash, property and less international shares than the larger Industry/Retail funds (My Super – above right). SMSF’s have outperformed MySuper since the GFC (see below, SMSF’s Blue line, My Super Red block). However, with the recovery of equities, the MySuper funds have been catching up and as at June 2017, 10-year returns from both types of funds are near identical at 4.2%. Under current asset allocations, the more diversified Industry and retail funds should overtake SMSF performance – on average.

SG360Jun17_1 — Comparison of how SMSF’s (Blue Line) have done , on average, against the default My Super Fund Index (Red Block) – From Superguard360

Self Managed Super is NOT for Everyone

“… That a little knowledge is apt to puff up, and make men giddy, but a greater share of it will set them right, and bring them to low and humble thoughts of themselves.”
From an anonymous author, published in 1698 as “The Mystery of Phanaticism”

Running a SMSF takes time and I wouldn’t recommend it to anyone that doesn’t want to be fully engaged with their financial future. Luckily, Slack Investor finds the whole finance and ATO compliance scene most interesting. Trustees of SMSF’s are held responsible for compliance with super and tax laws and there are many other risks in running a SMSF fund. A long term study of SMSF data by SuperConcepts, “When Size Matters” found that that SMSF’s below $200000 in total funds generally underperformed. However, the larger SMSF’s were comparable in performance with industry funds.

Over 10 years, there’s hardly any difference between the performance of not-for-profit funds, such as industry funds, and DIY (SMSF) funds.
SMH article (2017) summarising Rainmaker data from the ATO

Despite how well an SMSF style really suits Slack Investor – The large majority of people should not get into an SMSF – but stick with a good performing Industry Fund. Unless you are justifiably confident in your investing abilities, most people will be better of with a well diversified industry fund for long-term Super performance. It is always better to “have low and humble thoughts of ourselves” – it is too easy to destroy the value of your hard earned super.

January 2021 – End of Month Update

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

Some tested COVID-19 vaccinations have started to be rolled out internationally – but uncertainty prevails. Slack Investor followed markets all fluctuated but, overall, remained pretty flat this month. For January 2021, the Australian ASX 200 rose 0.3%, the S&P 500 fell 1.1%, and the FTSE 100 down 0.8%.

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

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

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

Mayfair 101 bites the dust

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

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

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

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

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

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

Bitcoin again

Bitcoin chart (USD) since 2014 – From Coindesk

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

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

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

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

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

November 2020 – End of Month Update

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

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

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

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

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

The US economy entered a recession in February 2020 and still in uncertain times, Slack Investor has his stop losses live for all Index funds.

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

Know when to Fold’em … and October 2020 – End of Month Update

“He said, “If you’re gonna play the game, boy
You gotta learn to play it right …
You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run
Excerpt from “The Gambler” written by Don Schlitz and recorded by Kenny Rogers.

Kenny makes this sound easy, but selling shares is tricky and Slack Investor does not always get this decision right – and I’m OK with that. The Slack Investor art is just to attempt to get things “mostly right”. There are some stocks that I will hold for the long run, and their weekly and monthly charts are not of a big concern to me. However, about half of my portfolio is on a weekly or monthly watch – I review the Incredible Charts output for each of these stocks on the weekend or at the end of the month.

I pay particular attention when the stock price falls below my stop loss on the monthly chart. In hindsight, I should have been more alert back in August. A2M is a good company with a unique product and has shown excellent growth in the last 5 years. However, earnings season is always a bit volatile for the growth sector.

The FY20 results showed a record profit but there were some question marks about FY21. The real catalyst for a downward price move was the later release of an acquisition and that members of the board and senior executive team had sold over 1.8 million shares. Selling by insiders is not always bad, as the executives might just be diversifying their portfolios – However, in this case, the market took a dim view. Overall, the A2 Milk Company Ltd (ASX: A2M) share price has slumped more than 15% since the release of its FY21 outlook.

Monthly Price chart of The A2 Milk Company (A2M) showing a buy in at $11.66 in January 2019 and a sell at $15.40 at the end of September 2020. I took the opportunities to gradually creep up my stop loss from the original value of $11.11 to $17.08 – From incrediblecharts.com

I am not known for my fast work and have tended to take the couch rather than make a decision in the past. However, in the spirit of incremental improvement, I didn’t wait till the end of the month and pounced on the sell button on the day that the A2M fell more than 10%, 28th September 2020.

*Daily Price chart of The A2 Milk Company (A2M)*. Slack investor sold on the day news leaked out about insider selling on September 28 *– From* incrediblecharts.com

I am not put off A2M forever. The end of month share price was $13.67. There is now a reasonable case for re-investing given the growth pathway beyond 2021 and the Market Screener , relatively low, 2023 predicted PE of 19. There has now been a downward trend of 3 months and Slack Investor’s favourite pattern has started to emerge … “The Wedgie”. If there is a break above “the Wedgie”, I will reinvest and hope the share price resumes an uptrend.

” … the secret to survivin’
is knowing what to throw away,
and knowing what to keep …”
Further … from The Gambler

Ooooh Kenny … the secret to investing is simple to describe, but harder to do … but you knew how to tell a good story!

October 2020 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. However, the US and UK charts are hovering close to their monthly stop losses.

The state of recent COVID-19 surges in Europe and the US seems to be worrying punters and monthly falls were recorded in these markets (S&P 500 -2.8%; FTSE 100 -4.9%). In Australia, the governments are handling the response to the virus in a constructive fashion and the ASX 200 rose 1.9%.

On the ASX 200 Index monthly chart, a new “Higher Low” was established and this gave me the opportunity to move up my monthly stop loss to 5763.

The US economy entered a recession in February 2020 and Slack Investor has his stop losses live for all Index funds.

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

ESPORTS For Me Sport

Image from Sydney Esports Open – dailyesports. The Melbourne Esports Open is now postponed to 21-22 AUGUST 2021

A month ago, if you asked Slack Investor what these people are doing, I would have scratched my head. However, in the spirit of trying to know a little bit about a few things, I have been researching the Esport phenomena. I would have guessed that Esport has something to do with multiplayer video gaming … but I have found that Esports are much much more than this – a jumble of entertainment, video gaming, sports, and media. For a brief insight into this strange world of competitive gaming, check out even a few seconds of this Youtube video of an Esports gathering in Paris.

Esports have evolved from the recreational to the competitive and, putting aside arguments of what constitutes a sport, in the world where Chess is considered an Olympic Sport, Esport is the world’s fastest-growing “sport”. There are now more than 2.7 billion active gamers worldwide. Incredibly, the video game business is now larger than both the movie and music industries combined. The top Esports tournaments are transmitted live and are where fans meet and socialise with friends. They draw crowds rivaling the World Cup football and the Olympic Games.

From Newzoo – 2020 Global Esports Market Report

Once you drill down to the specifics of Fortnite or League of Legends, I am lost – but when it comes to growth prospects, Slack Investor pays attention. China is the largest market by revenues, followed by North America. It is not just PC-based games, Esports on smartphones are showing strong growth in Southeast Asia, India, and Brazil.

Although the big stadium Esports events are suffering due to COVID-19 separation rules

The upward trajectory for gaming brought on by the pandemic has accelerated what was already a growth industry, with Australian estimates suggesting demand for esports has at least tripled since the coronavirus outbreak.
From The Guardian

How to invest in Esports

Slack Investor has been generally ignorant on the details of this new phenomena, but I can recognize growth. In October 2018, the fund manager and ETF provider VanEck started an Esports ETF in the US (also called) ESPO . They aimed to replicate the Global Video Gaming and Esports Index by investing in the whole industry. I have watched this ETF from afar and, after a shaky start, the chart below shows that they have been doing OK.

Performance of the VanEck Vectors Video Gaming and eSports ETF (ESPO) against the eSport index (MVESPOTR) since ESPO inception in October 2018.

In September 2020, VanEck have introduced an Australian-listed Video Gaming and ESports ETF (ASX:ESPO) offering exposure to the larger global Esports connected companies. The fund’s top holdings include Nintendo, AMD, Tencent and Nvidia. The management expense ratio is higher than I would like (MER 0.55%), but it is a convenient way to get involved.

Usually Slack investor makes his decisions on weekly or monthly charts. The ESPO ETF was listed on the ASX less than a month ago (at an initial price around $10) and there is not enough information on the larger time scales. The Daily chart is presented below.

The Daily chart (*Click to get a higher resolution)* of the newly established Australian listed ESPO ETF established by Van Eck – From incrediblecharts.com

This is not advice, but Slack Investor bought in at $10.39 and set a stop loss at $9.85 at a previous minimum point (“Higher low“). I try to keep initial stop losses at less than 10% of purchase price at a point on the chart that “makes sense” to me. I will check this stock on a weekly basis … and, if ESPO is below the stop loss at close of business on Friday, I will try to sell it on the next Monday – unless it is rebounding strongly!

In many ways, Slack investor has an “actions per minute” at the opposite end to Esports gamers … but, when it comes to smelling growth, Game On!

Tales from the Bizarrro World and September 2020 – End of Month Update

Bizarro World

Back in the last century when I was a big fan of Superman, DC Comics released a specialty series called “Tales from the Bizarro World”. Bizarro World was a square planet inhabited by imperfect copies of earth dwellers and they do the opposite of all earthly things. Little did I know that I would be living in Bizarro World in 2020.

As of last month, every advanced economy and all emerging economies are in a recession. Unemployment rates have increased rapidly and, due to COVID-19, over a third of the world has been in lockdown. Yet, in the worlds largest economy, on the day the US fell into recession in February, the S&P 500 overcame the COVID crash and rose above where it began the year!

Some governments are going through heroic efforts to inject cash into these flailing economies with some unforeseen results.

In this Bizarro Universe, with empty CBD’s and flourishing suburban strips, Australian retailer Harvey Norman reports its sales for July to September were up 30.6% on the previous year.

“People can’t spend their money on other things anymore, so they are spending time upgrading their home,” he said. “And that’s happening right across the world.”
“There’s also been so much money thrown into these economies, and because they can’t spend it [elsewhere], we’re getting the advantage of that. We’re in a very fortunate position.”
Gerry Harvey, founder of Harvey Norman – from the Sydney Morning Herald

It is not only furniture, but food expenditure has also increased in the 12 months to June 2020. Naturally, there has been reduced spending in lockdown crushed areas like health, transport, restaurants and accommodation.

Quarterly changes in Household Spending for the 12 months to June 2020 – From Auscap Asset Management – Click to Enlarge

It is probably due to fear about the future, but these troubled times have also modified the savings behaviour of Australians. In June 2020, credit card debt has been reduced by 20% (still $22.4bn though!). Savings as a percentage of income have increased from the paltry long term average of 5% to 20%.

Australian quarterly savings have rocketed up *From* Auscap Asset Management – Click to Enlarge

But there is also evidence of increased spending. Australians were recently given the chance to access up to $20000 of their retirement savings. In an illion survey of 10000 people, almost two-thirds (64%) of this additional spending was on discretionary items such as clothing, furniture, restaurants and alcohol.

In July 2020, the 2nd tranche of government stimulus and early access super caused big changes in household weekly expenditure. Although the actual dollar amounts were not reported, looking at bank data from 250 000 Australian consumers, the biggest spending changes were found in the allocation to Online Gambling (+95%) and Food Delivery (+342%)!

“Financial comfort levels are up for now, but many households
are on the cliff’s edge. They’ve lost income, their jobs and entire
livelihoods, … and government support is the main action stopping them from falling over.”
ME Bank Household financial comfort report 2020

Slack Investor feels that things are precarious in Bizarro World – government spending is just holding things together. As of July 2020, according to the AFR, the Australian government has spent 10.6% of GDP on COVID-19 stimulus (+1.6% Loans). In the UK it is 3.1% (+15.7% Loans) and the US 6.9% (+4.2% Loans). This spending will not go on for ever and the Bizarro World party may end badly for households that, through the lottery of occupation, are stressed.

September 2020 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. All Slack Investor followed overseas markets this month slumped (ASX 200 -4.0%; FTSE 100 -1.6%; S&P 500 -3.9%).

I am very nervous about the US market with its high valuations, forthcoming election and, what pushed me over the edge, was the beautifully described “S*%tshow” of a debate. Slack Investor has had to act and adjust his Stop loss for the S&P 500.

When pushing up stop loss levels, it is always about finding a sensible place to leave the level at a “higher low”. I couldn’t really find one on the monthly or weekly chart. The Daily chart below revealed a higher low of 3200 in July 2020 that wasn’t breached in late September. So this is my new stop loss.

Daily chart for the S&P 500 – From Incrediblecharts.com

In the real world, the US economy entered a recession in February 2020 and Slack Investor has his stop losses live for all Index funds.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been attended to.

Stocks for the “Long Run” and August 2020 – End of Month Update

This image has an empty alt attribute; its file name is virgin-ground.jpg

… It’s going to rain and it’s going to blow
But it’ll be all right, it’ll be all right, it’ll be all right in the long run …
Excerpt from the “Long Run” lyrics by Redgum (John Schuman) released in 1980.

Slack Investor looks at the shares that he owns occasionally and has a bit of a tinker. Earlier this year I had a portfolio review that saw a dumping of managed funds and high fee ETF’s. I also made an attempt to exit shares that I thought might be severely affected by gloomy economic times. However, sometimes it is good to lift the sights to the horizon and forget about the short term pricing of the market.

“Over the 210 years I have examined stock returns, the real return on a broadly diversified portfolio of stocks has averaged 6.6 percent per year.”
Jeremy J. Siegel, Stocks for the Long Run

Although the last financial year was a bit bleak for the median of super growth funds (-0.5%), Slack Investor has been around long enough to know that the gloomy times are periodic, and that, “In the Long Run” shares are a very good investment – as can be seen on the 28-year performance chart below.

This image has an empty alt attribute; its file name is 2020GrothFundsChart-4-MR-Jul20.png — *The Performance of the median Australian Superannuation Growth Fund over the past 28 years. A “Growth Fund” is defined to have between 60 – 80% of Growth Assets – From* Chant West

During my portfolio review I realised that over half my portfolio is in several companies that I would never sell – unless circumstances changed greatly! These companies usually have great management, a plan for growth, and an established track record in increasing Earnings per Share (EPS). Prices may go up and down, but great companies ride though all this and figure out a way to keep growing.

Coles (COL)

COL (2022 ROE 36%, 2022 PE 23) – With around 30% of all supermarket sales, Coles is one of the lucky retailers classified as essential and is getting a boost from COVID-19. This boost wont last forever, and, I cant see any big growth ahead. But, I can’t see myself selling this company as I visit it twice a week to “kick the tyres” and they are doing a good job. There is also the perverse satisfaction of knowing that if I am waiting at the checkout for a time … that it must be good for the bottom line!

Altium (ALU)

ALU (2022 ROE 32%, 2022 PE 56). The PE ratio of Altium has it priced for big future growth and it would be a stretch to buy it now. But this printed circuit board designer is a company for the times and it has a well defined, and so far achievable, global growth strategy.

Although relatively expensive (Forecast PE 56), Altium has no debt, a decent cash balance and keeps growing its profit margin and market share. In 2019, Altium spend 14% of its revenue on Research and Development – This is a commitment to growth in a changing industry.

Commonwealth Serum Laboratory (CSL)

CSL (2022 ROE 29%, 2022 PE 38) – Slack investor first bought into this company 10 years ago at around $30 and I have had the good fortune to add to my holding (at much higher prices!) along the way. CSL is expensive at a forecast PE of 38, but I can remember at my initial purchase in 2010, I thought it was expensive then! With great companies, sometimes you just have to hold your nose and jump in – they are rarely cheap! If it wasn’t already such a large part of my portfolio, Slack Investor would buy more CSL if I could get it below $300. The price chart below is reassuring.

Weekly chart of CSL over 5 years – From Incredible charts.com

Alphabet – (GOOGL)

(GOOGL – 2022 ROE 18%, 2022 PE 24). Alphabet is listed on the US-based NASDAQ exchange and needs an International Broker to invest directly (Commsec will set you up for a cost of 0.31% for trades above USD $10,000). For a growth company, Alphabet is not outrageously expensive with a forecast Price to Earnings Ratio of 24.

One of the first charts I look at before buying a stock is how its income has evolved – Thank you Market Screener. The GOOGL income chart below is typical of how I like to see them. A steady track record of 3 years growth of sales/income, and then a plan to grow income over the next 3 years.

Income and Forecast Income for Alphabet (GOOGL) – from marketscreener.com

A common theme amongst companies that I am reluctant to sell is their willingness to invest in new projects that might feed back into the earnings of the company. Alphabet spent a staggering US$ 16.2 Billion on research and development – 14.6 % of its revenue in 2018

BetaShares NASDAQ 100 ETF – (NDQ)

(NASDAQ Index – Current ROE 14%, Current PE 23) – Australian exposure to this index comes at a cost (MER of 0.48%) through the NDQ Betashares ETF, but Slack Investor thinks this is well worth it – my costs in owning GOOGL directly are around 0.43%. This ETF is Slack Investors favourite way to own International Tech stocks. With NDQ, you get exposure to 100 of the world’s best tech companies. The NASDAQ Index is a collection of growing household tech names e.g. Apple 13.9%, Microsoft 11.2%, Amazon 10.9%, Alphabet 7.2%, Facebook 4.5%. With a forecast PE of around 23, it still looks reasonably priced if tech world keeps growing.

August 2020 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. Rises all round for Slack Investor followed overseas markets this month ( ASX 200 +2.2%; FTSE 100 +1.1%) In Crazy Brave USA, the S&P 500 had a monthly rise of an astonishing 7.0%.

At the end of August, the US S&P 500 had a 12-month trailing PE Ratio of 30.09 . The mean and median values are 15.81 and 14.83.

In the real world, the US economy entered a recession in February 2020 and Slack Investor has his stop losses live for all Index funds.

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

Financial Year 2020 Slack Results

“If you can follow only one bit of data, follow the earnings — assuming the company in question has earnings. … What the stock price does today, tomorrow, or next week is only a distraction.”
Peter Lynch, One Up On Wall Street:

The great investor Peter Lynch had plenty of “solid gold” insights that Slack Investor has tried to incorporate into his investing. I have long extolled the virtues of growing companies with high Return on Equity (ROE). But, before I invest, I look at the earnings and projected earnings of each company at an aggregate site such as the most excellent Market Screener – Registration is free!

For example, the current market darling Afterpay (APT) is an excellent business idea and has performed extremely well for those who own it (Up 163% FY2020). APT may be a very successful company – but it is not expected to have positive earnings till 2022. From the earnings table below, both Slack Investor and Peter Lynch would be reluctant to stump up $66 to earn $0.28 in 2022.

June FY
EPS

2017
–

2018
-$0.04

2019
-$0.18

2020
-$0.16

2021
-$0.01

2022
$0.28

Annual Earnings per Share (EPS) for ASX listed Afterpay (APT) from MarketScreener

Slack Investor tries to get things “mostly right” and fills his portfolio with companies that Peter Lynch would hopefully approve of – There are no Afterpay’s, but many other growing companies that have an established earnings record – There will probably be some temporary downgrades to earnings in the Slack Portfolio this year due to the virus. I could never match Peter Lynch’s legendary performance, where he grew his Magellan Investment Fund from 1977 until 1990, at an average 29.2% annual return – roughly twice the gains of the S&P 500 at the time.

Things were going along swimmingly for FY 2020 till mid-February and the rapid spread of COVID 19 around the world. For FY 2020, the worst performing followed index was the UK, with the FTSE 100 Total Return Index down 13.8%. Dividends helped the Australian Accumulation Index to be down 3.7% for the financial year. These Americans really believe in their stock’s ability to keep earning during this recession (maybe Slack Investor has a twinge of doubt here) … the S&P 500 Total Return Index was UP 12.0% for the same period. All of these Total Return Indexes include any accumulated dividends, wheras the chart below of the ASX 200, just shows stock prices.

ASX 2oo Weekly chart for FY 2020 – started at 6618 and finished at 5897 (30 June 2019 – 30 June 2020) – Incredible Charts

Slack Portfolio Results FY 2020

Slack Investor has three financial pillars to keep himself steady. I will expand on these in a later post.

House – Home ownership gives me great security and pleasure. The bank owned most of this 30 years ago – but now I have the upper hand! (~30% of Net Worth)
Income – This used to be my job, but in retirement I have some stable income annuity style investment (~20% of Net Worth) that would pay my bills and maintain a basic Slack Lifestyle should Armageddon befall the stock markets for a few years. This income is supplemented by income from the Slack Portfolio.
Slack Portfolio Investments – (~50% of Net Worth) – Now currently in my Self Managed Super fund (SMSF) which is almost exclusively invested in growth companies. These are great businesses to be invested in if you have a long time horizon – as stock prices can be volatile in high Return on Equity (ROE) shares. I am currently retired and would not rely on the Slack Portfolio for stable income. Because of the stability of my other two pillars, I can be quite aggressive in the allocation of my investments in the Slack Portfolio – as I know I will not have to panic sell (for income) during any downturn.

All Performance results are before tax, given the circumstances, the Slack Portfolio annual FY 2020 performance of +9.4% was a pretty good result. Full yearly results with benchmarks are shown in the table below. A mediocre year for all benchmarks exposed to Australian and UK share markets (Median Balance Fund +0.3%, Vanguard Growth Fund +0.6%, ASX 200 Accumulation -2.7%). Real Estate was a good investment in the Brisbane and Melbourne markets for FY 2020 (+8.4% and +13.8%) – but the winds for these investments are blowing the wrong way now.

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH	CPI
2010	6.6	9.8	12.3	13.1	10.8	26.9	4.2	3.1
2011	2.5	8.7	9.1	11.7	-2.4	0.9	4.4	3.7
2012	8.3	0.4	1.3	-6.7	1.3	-0.9	4.3	1.2
2013	26.5	14.7	18.6	22.8	7.7	8.3	3.2	2.4
2014	23.6	12.7	14.5	17.4	11.5	12.8	2.6	3.0
2015	2.4	9.6	11.8	5.7	7.7	15.6	2.5	1.5
2016	14.2	2.8	4.2	0.6	8.4	9.5	2.2	1.3
2017	19.5	10.4	8.8	14.1	6.5	17.7	1.9	1.9
2018	37.6	9.2	10.0	13.0	1.1	5.2	3.9	2.1
2019	19.7	7.2	9.8	11.2	1.7	-6.0	2.0	1.3
2020	9.4	0.3	0.6	-2.7	8.4	13.8	1.1	-0.3

The Slack Fund yearly progress vs BENCHMARKS. The Median Balanced Fund (41-60% Growth Assets), Vanguard Growth Fund, ASX 200 Accumulation Index, Corelogic Residential Property total return in both Brisbane and Melbourne, and Cash (Australian Super Cash Fund) and Consumer Price Index (CPI)

The Five-year compound annual performance gives me a much better idea about how things are going and will smooth out any dud (or remarkable!) results.

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.

FY 2021 Resolutions

Image from the perceptive Gary Markstein.

The delusional President Trump provides many lessons to Slack Investor. The absence of these traits in Trump reminds me that humility and compassion are such worthwhile qualities. I will continue to work on these personal attributes this coming financial year and always be grateful for good fortune. I made plenty of mistakes this year and in hindsight sold some shares just before a decent price rise (e.g, IRI, CIP, VGE) – but Slack Investor accepts this as just the “normal path” of investing.

Slack Investor has no form in trying to predict the future … In the last 6 months I have tinkered with the Slack Portfolio and tried to get rid of any companies that would suffer severe setbacks in this COVID-19 led global recession. I have no great faith in my ability to time the exit and entry of exposure to sharemarkets, and I remain fully invested. Slack Investor is prepared to “ride this one out” with cash in the Portfolio at less than 1%.

In the wise words of Peter Lynch …

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”
Peter Lynch, One Up On Wall Street:

FY2020 Nuggets and Stinkers and July 2020 – End of Month Update

“Just get things mostly right“
Slack Investor 2020 –

Not that I think Slack Investor is worth quoting – but I searched high and low for a quote that expressed the Slack aim. The great Warren Buffet got closest to the sentiment with “You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – but I used this quote last year!

It is good for me to have a yearly display of my failures. It reminds me of the bumbling path of Slack Investor in the pursuit of financial independence. As for the nuggets, just get the foundations right … and luck might intervene.

“You can never be a first class human being, until you have learnt to have some regard for human frailty.”
Abhijit Naskar, Conscience over Nonsense

The percentage yearly returns quoted in this post include costs (brokerage) but are before tax. This raw figure can then be compared with other investment returns.

Slack Investor Stinkers – FY 2020

The Slack Investor Portfolio comprises of (mostly) high Return on Equity (ROE>15%) and high Price to Earnings (PE) ratio stocks. Historically, these companies are quite volatile as they are priced to account for future growth. If there is an earnings revision … or a change that would affect future earnings, then the price of the share usually plummets. Slack investor accepts that stinkers are just part of life when dealing with growth stocks.

Slack Investor has a look at his stocks on a chart (Thanks Incredible Charts!) every weekend – and, I eventually get the message if a stock price is moving lower and take the exit.

Rhipe (RHP) -22%

After being a star performer last year … this software technology company took a dive in share price this time last year. Slack investor bailed out in February 2020 – but not before taking a few licks.

Treasury Wine Estate (TWE) -13%

In Wine is Truth .. and this became evident at the start of this year as the global wine oversupply made it difficult for Treasury to raise prices. Their attempts to break into the US market were floundering and the stock price took a tumble. Slack investor “cleared the decks” in February 2020.

Centuria Industrial REIT (CIP) -11%

Centuria invests in industrial properties and was a victim of my COVID-19 portfolio trim. I sold out in April 2020 on my fears that the virus would affect tenancies. It seems that I took flight a little early as the stock price has rebounded 17% since I sold – Ah well … that’s investing!

Costa Group (CGC) -11%

Costa is agricultural company that grows and distributes mushrooms, berries, tomatoes, citrus, avocados and heaps more. My involvement with this company unfortunately coincided with a 2-year price slide due to a series of farming misfortunes. I parted ways with Costa in October 2019. Slack Investor held this stock for far too long. However, owning this stock taught me a lesson – avoid business that are “price takers” – where the cost of goods is set by seasonal factors or competitors. The best businesses have an exclusive product that people want and there are barriers to entry for other competitors.

Slack Investor Gold Nuggets – FY 2020

The other side of investing in companies that have a high Return on Equity, and with a track record of increasing earnings, is that you can sometimes expose yourself to some pleasant surprises. The Return on Equity (ROE) and forward Price Earnings (PE) ratio values quoted below are “forward looking” and are analyst predictions for the year 2022. They were extracted from the excellent Market Screener site. These ratios are just predictions, but Slack Investor finds them very useful.

Appen (APX) +58%

APX (2022 ROE 19%, 2022 PE 32) remains a company that I don’t really understand but after taking profits and selling last year, I bought back in during November 2019 after a price fall and then a breakout from a “falling wedge”. Another excellent year for this machine learning and artificial intelligence company – Ignorance can be bliss!

Commonwealth Serum Laboratory (CSL) +31%

CSL (2022 ROE 31%, 2022 PE 32) is now the largest company on the ASX. Their blood products and expertise in gene therapy and vaccinations are used worldwide and there are projected increasing sales. Driving this fabulous company is a commitment to innovation. Spending on Research and Development is in the target range of 10 to 11 per cent of turnover – in an environment where a typical manufacturer will spend 2%. It is no coincidence that this company is doing well.

Alphabet (GOOGL) +30%

The Alphabet list of products is large … and getting larger. Everyday I use Google, GoogleMaps, gmail, android devices and YouTube. Alphabet (GOOGL – 2022 ROE 19%, 2022 PE 32) has just announced a quarterly rise in profits of 22% as it moves deeper into peoples lives. Alphabet and the other FAANG Stocks have been acting a bit like pirates in the multinational tax world. There are some regulatory risks on the horizon though. Nations are rightfully demanding a share of these tech giants revenue as taxation. There is also a bit of “pushback” by governments and media companies who want a fair share of revenue generated by their content. However, on the plus side, profits should continue to grow as advertisers are spending more to reach an expanding number of customers that are engrossed with their smartphones and YouTube.

A2 Milk (A2M) +26%

A2M (2022 ROE 28%, 2022 PE 29) sells A2 protein type branded milk, infant formula and other related products to the world. The actual benefits of the A2 only protein have been indicated in small studies but longer-term studies with larger sample sizes are needed. However, in the mean time, sales are increasing and the share price is still going north.

Honourable mentions for Slack Investor Portfolio stocks BetaShares NASDAQ Index NDQ, Integral Diagnostics IDX and BetaShares RBTZ that increased more than 15% in this financial year.

Slack Investor Total SMSF performance – FY 2020 and July 2020 end of Month Update

A tough financial year for shares through the COVID-19 financial crisis. Chant West reports the median of “growth” super funds struggled to a small loss of 0.5%. The FY 2020 Slack Investor preliminary total SMSF performance looks like coming in around 9%. The 5-yr performance is a more useful benchmark to me. At the end of FY 2020, the Slack Portfolio has a compounding annual 5-yr return of over 19%.

My wise mother used to say to me that “Self praise is no recommendation” So Slack Investor will meekly slink back to the couch and get prepared for what might be a tough time ahead in the share market. The full FY 2020 results and benchmarks will be expanded on next post.

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. A mixed bag for Slack Investor followed overseas markets this month ( ASX 200 +0.5%; FTSE100 -4.4%; S&P500 +5.5%).

The US S&P 500 has shown more resistance to gravity than the Trump hairstyle – but all parties must end some time. As the S&P 500 has moved more than 20% higher than its stop loss, I have adjusted the stop loss to 2965 from 2721.

The US economy entered a recession in February 2020 and Slack Investor has his stop losses live for all Index funds.

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

My House … and June 2020 End of Month Update

… Welcome to my house, Baby take control now, We can’t even slow down, We don’t like to go out, Welcome to my house …
Flo Rida “My House”

Slack Investor’s taste may not be quite as “gangsta” as Flo Rida – check out his full video to get a flavour of what I mean – But, both Flo Rida and I share a genuine passion for the joys of household ownership.

In my last post, I had a bit of a rant about the exorbitant transaction costs of buying a house. Despite the costs, I hope that I didn’t mislead about the absolute joy that Slack Investor feels about house ownership. A Slack Investor pillar for financial independence is to own your own place before you retire – as the cost of housing keeps rising for retired renters. The typical homeowner aged over 65 spends just 5% of their income on housing, this compares to nearly 30% for renters.

Flo Rida and I are enamoured with owning our surroundings:

The Serenity – Ownership gives stability and control – You can do what you like in your own house and are immune from sudden evictions.
Access to aged pension and taxation benefits – the home is treated differently than other assets. However, Slack Investor thinks that these concessions are too generous and will probably be capped in the future – Currently in Australia, $6 billion in pension payments go to people with homes worth more than $1 million.
Flexibility – No need to ask the landlord to make changes – If you go on an extended adventure, then why not rent your house out for the dates that you are away – to help pay for the holiday – Or, House swap to an exotic location!

Slack Investor understands that owning a home may seem an impossible dream to some – and, sadly, ownership rates are decreasing . But do not give up hope – Many real estate pundits are expecting prices to fall from their current eye-watering levels. This fall should be accelerated by COVID-19 factors.

Home Ownership rates are on the decline for all age groups. – Grattan Institute

A home does not have to be large and, it could be out of a capital city. There seems to be a trend already for millennials (and older folk 60-69) to be moving from cities to the regions according to the Regional Australia Institute. They suggest that equitable access to housing is one of the pull factors for this move to the regions. Slack Investor has spent most of his working career outside of big cities and can highly recommend the simplicity of life away from the capitals.

More than 400,000 Australians moved from capital cities to regional destinations between 2011 and 2016
Regional Australia Institute report – February 2019

June 2020 – End of Month Update

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Slack Investor admits to being only an amateur economist and finds the current situation in the US confusing – Stock market up, economy down! These are wild times … but I am back to all IN for my Index funds!

US Data keepers, the National Bureau of Economic Research (NBER) have now determined that the US economy entered a recession in February 2020 “with different characteristics and dynamics than prior recessions”. The Federal Reserve bank of Cleveland strangely have their forecast of a recession in the next year at 19.2% (below Slack Investors threshold of 20%). However, reality always beats forecasts and Slack Investor has his stop losses live again for all Index funds.

Monthly rises in all followed markets ASX200 +2.5%, FTSE100 +1.5% and S&P500 +1.8%.

COVID-19 problems go up … stock markets go up? I know stock markets are usually forward thinking and obviously see an end to COVID problems soon. Slack Investor is not so sure … but the charts have him invested in all markets. My portfolio is trimmed to industries that should be OK( I Hope?)

All Index pages and charts have been updated to reflect the monthly changes – ASX Index, UK Index, US Index. The quarterly updates to the Slack Portfolio have also been recalculated.