The Slack Way | Slack Investor

Financial Year 2023 Slack Results

“I believe in evidence. I believe in observation, measurement, and reasoning, confirmed by independent observers. I’ll believe anything, no matter how wild and ridiculous, if there is evidence for it.
Isaac Asimov – US Author and Biochemist

Good fortune has prevailed in FY 2023. After the tough investing year of FY2022, Slack Investor has stuck to his strategy of investing with growing companies that have an established earnings record and forward P/E ratios <50 (Mostly!). As always, there have been a few lapses, but that’s just part of being an investor.

I expect a bit of volatility in my (mostly “growth”) investment portfolio and I try to reassure myself that, despite the odd negative year in the Slack Investment Portfolio the Stable Income portfolio is doing its job and keeping Slack Investor with enough cash to keep things running. In the world markets, the FTSE 100 Total Return Index was up 7.8% (last FY up 5.7%). Dividends helped the Australian Accumulation Index to be up 10.6% for the financial year (last FY -7.5%). The S&P 500 Total Return Index is again full of optimism – and was up 19.7% (last FY -10.7%) for the same period. All of these Total Return Indicies include any accumulated dividends.

Slack Portfolio Results FY 2023

All Performance results are before tax. The Slack Portfolio is Slack Investor’s investment portfolio and, after the first negative year since starting this portfolio in 2010, I am delighted to be “Back in the Black” – with an annual FY 2023 performance of +17.9%. Full yearly results with benchmarks are shown in the table below.

FY2022 was another bumper year in real estate – particularly Brisbane -but there has been a welcome pause in housing prices for FY2023. For property, the actual falls in asset values is greater than that shown as Slack Investor is using the Total Return values supplied by CoreLogic. The Total Return is calculated from value change as well as the gross rental yield. I would have preferred calculations that include the net rental yield, but this will have to do. The Total Return is a more realistic figure when comparing real estate returns to stock market total returns, as it treats both asset classes as investments.

The share market was the place to be for FY 2023, with the Australian Share market Total Return Index (ASX200 Acc) up 10.6% and the Vanguard Diversified Growth ETF (VDGR), comprising mostly (68%) of International and Australian Shares, increasing by 11.2%. Inflation is again coming in big – with the CPI at +6.0% – reinforcing the need to have exposure to “growth assets” such as shares or property.

Yearly Performance (%) results since 2010

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH	CPI
2010	6.6	9.8	12.3	13.1	10.8	26.9	4.2	3.1
2011	2.5	8.7	9.1	11.7	-2.4	0.9	4.4	3.7
2012	8.3	0.4	1.3	-6.7	1.3	-0.9	4.3	1.2
2013	26.5	14.7	18.6	22.8	7.7	8.3	3.2	2.4
2014	23.6	12.7	14.5	17.4	11.5	12.8	2.6	3.0
2015	2.4	9.6	11.8	5.7	7.7	15.6	2.5	1.5
2016	14.2	3.1	4.2	0.6	8.4	9.5	2.2	1.3
2017	19.5	8.1	8.8	14.1	6.5	17.7	1.9	1.9
2018	37.6	7.2	10.0	13.0	5.2	3.9	3.9	2.1
2019	19.7	6.2	9.8	11.5	1.7	-6.0	2.0	1.3
2020	9.4	0.3	0.6	-7.7	8.4	13.8	1.1	-0.3
2021	21.7	13.0	20.3	27.8	17.9	10.7	0.2	3.8
2022	-14.3	-2.5	-13.0	-6.5	25.6	3.1	0.3	6.1
2023	17.9	6.9	11.2	10.6	-4.1	-2.6	2.6	6.0

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 Home Value (Total Return) Index in both Brisbane and Melbourne, and Cash (Australian Super Cash Fund) and Consumer Price Index (CPI)

Although I collect yearly figures, the 5 and 10-year compound annual performance gives me a much better idea about how things are going and will smooth out any dud (or remarkable!) results. The Slack Fund is still ahead of Benchmarks – but currently being challenged by Brisbane Residential real estate over a five-year period.

5-yr Average Annual Performance

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

The beauty of compounding with a succession of good performance results can be seen in the chart below showing the growth of an initial investment in June 2009 of $10000.

Growth of a $10000 Investment Since 2009

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

10-year compound annual rate of return

The Slack Fund has been around a while and, at last, I am generating some long term data (10-year compound “rolling” annual rate of return). Over this time frame, the Slack Fund has been performing very well. A 10-year annual rate of return of over 14% – Go Slack Fund!

However, the 10-yr rates of return of the Median Balanced Fund, Vanguard Growth fund, ASX200, and residential property in Brisbane and Melbourne are also great long term investments, generating a 10-year compound annual rate of return of 6-9% p.a. From the figures below, although it can add stability to a portfolio, Cash as a long term investment, is a poor choice.

Average 10-yr compound yearly return

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH
2019	15.6	8.0		10.0	5.8	8.5	2.9
2020	15.9	7.0		7.8	5.5	7.3	2.6
2021	17.9	7.4		9.3	7.5	8.3	2.2
2022	15.2	7.1	8.1	9.3	9.9	8.7	1.8
2023	14.4	6.4	7.4	8.2	8.6	7.6	1.7

The Slack Fund average 10-yr compound yearly return vs BENCHMARKS. The Median Balanced Fund (41-60% Growth Assets), Vanguard Growth Fund, ASX 200 Accumulation Index, Corelogic Residential Property Home Value (Total Return) Index in both Brisbane and Melbourne, and Cash (Australian Super Cash Fund) and Consumer Price Index (CPI)

Healthcare Haggle … and February 2023 – End of Month Update

Slack Investor’s Dental Shenanigans

Laying in the dentist’s chair recently, I was confronted with the bad news that I was up for a dental implant and this would probably set me back about $8000 – Lucky I was lying down!

After the initial shock, Slack Investor resolved to start treating his interaction with healthcare in the same way that he would treat any other professional service. I have decided to be an informed consumer and take control of the financial side of my healthcare. Lets get some quotes!

An internet trawl and a few phone calls later, I had a quote for around $4000 – dependent on an inspection and a dental scan. After the initial consultation, I asked for a written quotation. The quote was emailed to me and, subject to some caveats about extra costs if any bone grafts were necessary, came in at $4050 – Bewdy, lets go with this. In a classic piece of “anchoring bias”, if someone mentions $8K … and you end up with a price of $4K, this new price feels like an absolute bargain.

In retrospect, I was satisfied with the whole experience and enjoyed the empowering feeling of having some knowledge of the range in costs for a particular treatment. Because I am lucky to be amongst the privileged 55.2% of Australians (June 2022) who have private health insurance extras cover (45.2% of Australians have private hospital cover only), I also claimed a rebate of $1400 through my insurance provider.

Private Health Insurance

The funding of the Australian Healthcare system has evolved into a complex beast – with Medicare being at its foundation since 1984 – but there is also a private system. The arguments for and against taking out private health insurance are well covered by the consumer advocates CHOICE.

Medicare and the public hospital system provide free or low-cost access for all Australians to most of these health care services. Private health insurance gives you choice outside the public system.
The Australian Health System

As well as the Medicare Levy, 2% of your taxable income for most people, there is also the Medical Levy Surcharge which is an additional charge to encourage high earners to get private health insurance. Again, this is a bit complex, but if you are single with a taxable income (plus fringe benefits, super, etc) of greater than $90K, you are better off with private health insurance hospital cover.

The consumer body CHOICE has a calculator to answer if it financially makes sense to get private health insurance – but this is not just a financial issue, it depends on your circumstances and philosophy.

It is also important to know that there are a few areas that private medical insurance does not cover.

GP visits
Consultations with specialists in their rooms
Out-of-hospital diagnostic imaging and tests.

These services are under the umbrella of Medicare and their list of approved services and government subsidies available, the Medicare Benefits Schedule (MBS). If Medicare doesn’t cover the full cost of your treatment you will have to pay the difference, known as ‘the gap’ or “out of pocket expenses”.

Engaging with Medical Specialists

Again, I recognize my fortune in having private extras insurance cover and being in a large city (Melbourne) where there is choice in medical specialists.

Rather than getting a “big surprise” bill, I have resolved to be pro-active and informed when dealing with specialists.

It’s your right to get an estimate of costs from your doctor or hospital before you agree to have treatment. This helps you understand what you might have to pay.
Department of Health and Aged Care

If I think that I am in need of specialist’s attention, before I arrive at my GP asking for a referral, I get into research mode OR, if I haven’t had the chance to do any research, I will ask my GP for an open referral.

The reason for this is that my private health insurance provider has arrangements with some specialists to charge either a “No Gap” or a “Known Gap” arrangement. My insurance provider HCF have, on their member pages, a place where you can search for their preferred specialists in your area. They also have a good guide on questions to ask your doctor/specialist at your first consultation.

Medicare contributes a set amount for each treatment or procedure, as laid out in the Australian Government’s Medicare Benefits Schedule (MBS). For in-hospital treatment, Medicare pays 75% of the MBS fee; your insurer pays the other 25% (provided you’re covered for the service).
Department of Health and Aged Care

For in-hospital services, the Medical Cost Finder is an Australian Government site for estimating your out of pocket expenses for an operation. For example, the results below are for a Knee Replacement in a private hospital that indicate a typical $1600 out of pocket cost.

Output from Medical Cost Finder for Knee replacement in Melbourne

For “out of hospital” consultations with specialists in their rooms, where no private insurance claims can be made, get on the phone and ask the receptionist at a few places for typical “out of pocket” costs before you make an appointment. When you decide on a specialist and feel comfortable with him/her, ask for a written quote with any gap fees for any further work.

For a deeper dive, CHOICE have a number of tips on how to avoid out-of-pocket healthcare costs.

February 2023 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. It was a mixed month for the Slack Investor followed markets. The FTSE 100 is powering on, but both the ASX 200 an S&P 500 drifting south (FTSE100 +1.4%; ASX 200 -2.9%; S&P500 -2.6%).

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

In full financial empowerment mode, Slack Investor set aside an hour and 10 minutes of his valuable time this month to get a better deal on some of his fixed costs. Good Results.

Task	Internet Research Time	Phone Time	Result
Home Loan	15 min	5 min	0.65% reduction in Interest rate – now 4.95%
Car Insurance (comprehensive)	40 min	10 min	Reduced annual payment from $1204 to $1031 ($173 saving p.a.)

Keep On Course … and September 2022 – End of Month Update

Randall Reeves encounters a storm in the Indian Ocean in 2017 – Is this what the current stock market turmoil feels like?

Slack Investor loves finding out about remarkable achievements. He came across the inspiring story of Randall Reeves who set himself the task of doing a solo “figure of 8” circumnavigation around the Americas and the Antarctic. This 64 400 km trip encompassed both polar regions and was achieved solo, in the 14m boat “Moli”, in 384 days.

… he (Randall) hit a severe storm in the Indian Ocean. Waves were breaking 200’ (61m) to 300’ (91m) in each direction, and his boat got knocked down so intensely his mast was fully submerged, breaking a window in the pilot house and flooding his electronics.
Extract from The Figure 8 Voyage – Randall Reeves

Randall Reeves during his adventure, after his circuit of the Antarctic and back to Cape Horn for the second time!.

I mention Randall Reeves achievements as he set himself a difficult challenge, that no one had achieved before, and succeeded on his second attempt. All we investors have to do, is pick a course to financial independence – and just keep going. Our boat might suffer a few perils along the way …. but we trust that it is a sound vessel – and it will get us home.

Bear Markets

Downturns aren’t rare events: Typical investors, in all markets, will endure many of them during their lifetime.
Vanguard, 2022

Slack Investor can speak with some experience here, as I have been an investor through all of the above bear markets … and they are never any fun! But, I have learned that … they all pass – and the stock market recovers, and always reaches new highs. The sometimes frustration of just “holding on” to your shares in a falling market must be weighed against the stresses of trying to time the market.

Keep on Course

Slack Investor has had mixed success in his timing the market experiment. The experiment is limited to index funds (Less than 3% of my Portfolio) and will run for another 2 years to make it a 20-year trial.

At the end of September 2022, my Index Timing strategy has outperformed the Australian Index (+1.4% p.a.) and the UK Index(+1.9% p.a.), but underperformed the US Index (-0.3% p.a.). My current feeling is that when considering that “time out of the market” means a loss of dividends, it is not worth the stress and effort and I will probably abandon the experiment in 2024 – after a 20-yr trial. The bulk (97%) of my Investments portfolio is run with the strategy of trying to buy good companies that are growing, tinkering a little, but generally just holding on!

The world MCSI AC Index is dominated by US companies (61.3%). The current 2022 World MCSI ACWI bear market is not shown in the above chart. Also, there is some argument whether the 2020 “Covid Crash” qualifies under the generally accepted definition of a Bear Market – a decline of 20%, or over, that lasts at least 2 months.

We humans naturally feel the need to do something when we see our investments fall in value. Slack Investor does not know if the worst is over, probably not! Slack Investor does know that, if you can avoid it, it is generally not a good idea to get rid of your risk-exposed assets during times of downturns – you are selling your assets cheaply in these times.

Vanguard have (below) kindly extracted the Bull markets (shaded in green) from the Bear markets (shaded in brown) for the MSCI All Country World Index since 1980 prior to January 2022. The Bull’s prevail and these pesky Bear markets will eventually pass – This chart is reassuring.

The Bull (shaded in green) and the Bear markets (shaded in brown) for the MSCI AC World Index since 1980. The gains/losses are expressed in percentage terms. – Vanguard

The World Index (MSCI AC), the S&P 500, the Dow Jones Industrial Average, and the Nasdaq are now in a bear market, and the S&P 500 has closed at a new 2022 low.

We might not be on a solo circumnavigation through dangerous waters … but the lesson here is to prevail. Tighten the belt if you have to, you have a plan! Endure the situation and try to distract yourself from the stock market with life’s enjoyable things.

The stock markets will do what they always have done, oscillate between over-priced to under-priced. The long-term gains provided by holding shares are well established. If you are still working, your regular saving and investing will be buying lots of shares through dollar-cost-averaging.

If you are retired, in these tough times, you have your stable income pile to help with your living expenses. There will be better times.

September 2022 – End of Month Update

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Despite the above discussion, my small scale market timing experiment continues. Slack Investor is on SELL ALERT for Australian index shares (ASX 200), the US Index (S&P 500) and the UK Index (FTSE 100).

I have a “soft sell” approach when I gauge that the market is not too overvalued. I will not sell against the overall trend but monitor my index funds on a weekly basis once the monthly stop loss has been triggered.

All my followed Index funds have fallen below their stop loss values. Big monthly falls for the ASX 200 (-7.3%), S&P 500 (-9.4%), and the FTSE 100 (-4.1)%. Time for some distraction from the market carnage. There will be better times.

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.

Retirement Income

I am hoping that your retirement does not upset as many people as in this James Gillray (1756-1815) painting of “Integrity Retiring From Office”. You can hopefully avoid this by leading a good life and providing yourself with income for this wonderful stage of your life.

There are lots of ways to do this – Slack Investor likes to separate his non-house assets into a Stable Pile and an Investment Pile in his Self Managed Super Fund (SMSF). Most of the commentary on this website has been about the Investment pile as this is the most exciting – and produces the most gains – and lately, the most losses. My Investment pile is volatile as there is greater risk (and opportunity for growth) in this part of the portfolio.

The Stable Pile is mostly to supply me with guaranteed income during the market downturns. Slack Investor’s Stable pile consists of Cash, Term Deposits, An Annuity, Fixed Interest, Real Estate and Bond ETF’s, and some dividend-producing consumer-staple shares.

If the previous financial year has been a good year for investments, my next years annual income requirements can be withdrawn from the investments pile. If you get a bad year for investments, then, I dip into the stable income pile. I try to keep my ratio of Investment Pile to Stable Pile at about 70%:30% and I roughly rebalance at about this time of year (July/August/September).

Using this method, you are always selling from your investments pile when the market is high and buying when the market is low
Slack Investor – A Further look at three pile theory

This method suits Slack Investor, but there are other ways to provide yourself with income in retirement.

Dividends

The well known Australian investor Peter Thornhill, is a great proponent of using dividends to provide retirement income. His MySay articles are well worth a read. Peter maintains that dividends supply an inflation-protected, income that doesn’t vary as much as stock prices do. He supports this strategy by keeping sufficient cash in his superannuation account to fund the next 3 years minimum pension withdrawals (For the Australian superannuation system) – this helps avoid forced selling. The rest of his fund is in Industrials and Listed Investment Companies (e.g. Argo (ARG), Whitefield (WHF)). He has tested his strategy through market cycles and his strategy has been vindicated through the Covid-19 downturn with even some LIC’s using maintained profits to keep dividends going.

Whitefield Ltd is a Listed Investment Company (LIC) that has generally maintained its dividend Per Share (DPS – blue columns) for the past 50 years – even during periods of downturns where the Earnings Per Share (EPS – Red line) of its contributing companies were declining. From Peter Thornhill

Lifetime Annuity Payments

There are many different types of annuity. Annuities have not been very popular in Australia due to their pricing, relative complexity and inflexibility. Challenger has a few of these products available in Australia with rates at September 2022 for a lifetime inflation-protected annuity of $5104 for a 65-yr-old male for every $100000 invested. There are other options for payments that can be either deferred or market linked. Although you can access these annuities directly through their website, the current model that Challenger prefers is access through a financial advisor.

Retirement Income Stream products

Way back in the Australian 2016/17 government budget, Treasury proposed a series of reforms that included removing barriers to innovation in retirement income stream products. This tinkering was brought about by the realisation that the Australian Super model was mostly fit for purpose in the “accumulation” stage – but was lacking in retirement income stream products that address Longevity Risk – the risk of outliving your savings.

Hopefully, with the benefit of compulsory superannuation, most people would have a pile of superannuation money when they retire – and a desire to turn that pile into income (after paying off any debts). Everybody wants to maintain their standard of living in retirement and would prefer something to invest in that would give them the peace of mind of having a guaranteed income stream for life.

At last some new products are staring to emerge from the super funds. Slack Investor was excited to come across the MyPension income stream from Equipsuper. It is a “set-and-forget” investment strategy that nicely mixes a bit of risk assets (to keep your pension fund growing) with more conservative elements (to maintain a more steady income). This fund uses a similar method to the Slack Investor strategy of using “piles” or “buckets”.

To use the Equip MyPension, you would have to roll your existing super into their fund on retirement. Your super is separated into three distinct investment ‘buckets’. The automatic rebalancing of this product would suit those who want to be a bit more “hands off”.

Equip MyPension option for maintaining a retirement income stream.

Cash – For regular income payments, usually comprised of three years income – about 20% of investment.
Conservative – Investments in low risk categories including cash and bonds – about 40% of investment.
Growth – Investments to grow your savings, subject to short term fluctuations – about 40% of investment.

The clever thing is how these buckets work together over time. When investment markets are good, any earnings in the conservative and growth buckets go into the cash bucket, locking in your gains (Automatically). If markets experience a downturn, we’ll leave any buckets that lose value untouched at the end of year, to allow them to recoup losses in future years.
EquipSuper MyPension

Slack investor has just two piles for his retirement – the Stable Income pile (Cash and Conservative) option and an Investments pile- and I do my own annual rebalancing. My investment pile is a bit more aggressive than the EquipSuper offering – more volatile, but Slack Investor likes to meddle and, is developing a “strong stomach”.

Financial Year 2022 Slack Results

“When you can measure what you are speaking about, and express it in numbers, you know something about it. ”
Lord Kelvin (William Thomson, Mathematician and Physicist, 1824-1907)

Slack Investor reflects on a tough investing year. I have mostly “stuck to my guns” investing with growing companies that have an established earnings record and forward P/E ratios <50. There have been a few lapses (e.g. XRO) which had a forward PE ratio of about 100 when I bought it last financial year … and, I paid the price when the higher interest rates and threats of inflation caused a rapid change in valuation of most tech stocks.

I expect a bit of volatility in my mostly “growth” investment portfolio and I try to reassure myself that, despite the odd negative year in the Slack Investment Portfolio the Stable Income portfolio is doing its job and keeping Slack Investor with enough cash to keep things running. In the world markets, the FTSE 100 Total Return Index was up 5.7% (last FY down 13.8%). Dividends helped the Australian Accumulation Index to be down 7.5% for the financial year (last FY +27.8%). The S&P 500 Total Return Index took a breather at last – and was down 10.7% (last FY up 36.4%) for the same period. All of these Total Return Indexes include any accumulated dividends, wheras the chart below of the ASX 200 for FY 2022, just shows stock prices.

The ASX 2oo Weekly chart for FY 2022- Dividends helped stem the losses for FY2022, but the ASX Accumulation Index is still down 7.5% for the FY – Incredible Charts – Click for better resolution.

Slack Portfolio Results FY 2022

All Performance results are before tax. The Slack Portfolio is Slack Investor’s investment portfolio and it had its first negative year since its establishment in 2010 – with an annual FY 2022 performance of -14.3%. Full yearly results with benchmarks are shown in the table below. It was a challenging year for all of my benchmarks that were exposed to sharemarkets (Median Balance Fund -2.5%, Vanguard Growth Fund -13.0%, ASX 200 Accumulation -6.5%).

Slack Investor seems to be clueless in real estate predictions … I have thought for some years that there must be a sizable correction soon – as the prices are still stratospheric in Melbourne and Sydney compared to incomes. The correction may still yet happen as interest rate rises are yet to take their toll.

The Brisbane real estate market was the place to be for FY 2022 (+25.6%) on top of a big year last year!) – Inflation was also a suprise for the challenged Slack Investor – with the CPI at +6.1%.

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH	CPI
2010	6.6	9.8	12.3	13.1	10.8	26.9	4.2	3.1
2011	2.5	8.7	9.1	11.7	-2.4	0.9	4.4	3.7
2012	8.3	0.4	1.3	-6.7	1.3	-0.9	4.3	1.2
2013	26.5	14.7	18.6	22.8	7.7	8.3	3.2	2.4
2014	23.6	12.7	14.5	17.4	11.5	12.8	2.6	3.0
2015	2.4	9.6	11.8	5.7	7.7	15.6	2.5	1.5
2016	14.2	3.1	4.2	0.6	8.4	9.5	2.2	1.3
2017	19.5	8.1	8.8	14.1	6.5	17.7	1.9	1.9
2018	37.6	7.2	10.0	13.0	5.2	3.9	3.9	2.1
2019	19.7	6.2	9.8	11.5	1.7	-6.0	2.0	1.3
2020	9.4	0.3	0.6	-7.7	8.4	13.8	1.1	-0.3
2021	21.7	13.0	20.3	27.8	17.9	10.7	0.2	3.8
2022	-14.3	-2.5	-13.0	-6.5	25.6	3.1	0.3	6.1

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 Home Value Index in both Brisbane and Melbourne, and Cash (Australian Super Cash Fund) and Consumer Price Index (CPI)

However, 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 Slack Fund is still ahead of Benchmarks – but currently being challenged by Brisbane Residential real estate.

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.

10-year compound annual rate of return

The Slack Fund has been around a while and, at last, I am generating some long term data (10-year compound “rolling” annual rate of return). Over this time frame, the Slack Fund has been performing very well. A long-term annual rate of return of over 15% – Go Slack Fund!

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH
2019	15.6	8.0		10.0	5.8	8.5	2.9
2020	15.9	7.0		7.8	5.5	7.3	2.6
2021	17.9	7.4		9.3	7.5	8.3	2.2
2022	15.2	7.1	8.1	9.3	9.9	8.7	1.8

The Slack Fund 10-year compound annual “rolling” rate of return – compared to benchmarks- The Median Balanced Fund (41-60% Growth Assets), Vanguard Growth Fund, ASX 200 Accumulation Index, Corelogic Residential Property Home Value Index in both Brisbane and Melbourne, and Cash (Australian Super Cash Fund). The Vanguard Growth Fund was established in 2012 and has only just been able to generate a 10-yr rate of return.

Know your worth – but keep it smooth … and May 2022 – End of Month Update

“…the worth of that is that which it contains, and that is this, and this with thee remains.”
William Shakespeare (1564-1616) – Sonnet 74

Slack investor is accepting that Bill had quite a way with words, and that he may have been making an assessment of how a character’s worth will live on with his own writings. He wasn’t talking about financial worth here – but Slack Investor has often drawn a long bow. It is fair to say that Shakespeare wasn’t a dill with money, as a result of his works, he was well off, but not super-rich. I am not sure if the Bard took his financial independence skills seriously – but he was an investor in land.

Tracking your net worth – particularly your investing net worth – is so important to your financial well being these days. Your investments net worth is a vital number that will be used to fund your retirement income. Using the 4% rule, if you divide your investment net worth by 25, you will get an idea of your annual income that this net worth will generate in retirement.

“When you understand that your self-worth is not determined by your net-worth, then you’ll have financial freedom.”
Suze Orman – American financial advisor and TV and podcast host. She is a prolific finance author – A noble statement, however, not sure I agree with you here Suze. Self worth is so very important – but it’s a long way from financial freedom! Lets work on both.

Measurement of Net Worth

It is a trait of Slack Investor that he likes to measure things and put them on charts. Net worth is no exception. My mother would dismiss such things as crass – but tracking your Net Worth is quite a thing amongst the financial independence set. It is a simple matter of listing your assets and then subtracting your liabilities. Slack Investor likes to keep his house (that I live in) separate from other assets – It is your non-house assets that will fund your retirement.

“Know your worth. People always act like they’re doing more for you than you’re doing for them.”
Kanye West (Slack Investor is impressed with Kanye’s self worth!)

Let’s Smooth things out

The One … the only – Kenny G. Smooth Jazz – Why are people so unkind?

I learned an important investing lesson long ago – about not treating your temporary investment gains/losses as real things. They represent a transitory moment in the great oscillation between the times when the market price for your stocks is unreasonably high – to moments when they are unreasonably low. Such is the pattern of stock volatility.

Slack Investments Net worth tracked on a monthly basis for the past 5-years. The blue columns represent the Slack Net Worth. The red line is the “lagging” average of the previous 12-mth net worth totals. This is close to the “real” Slack net worth.

Although I monitor the price of my investments on most days, and collect monthly investment net worth totals, I have taken a lead from Kipling on how I treat these totals.

“If you can meet with Triumph and Disaster. And treat those two impostors just the same.”
Rudyard Kipling – from the poem “If”

Because I grudgingly accept volatility as a price to pay for involvement in the wealth creating aspects of share ownership, I don’t accept the daily or monthly figures as real valuations of the Slack Net Worth.

I put my monthly totals in a spreadsheet and then take the average of the previous 12 months. By smoothing things out, the (red line) gives me an a figure that is close to what I think is my actual investment net worth. The reassuring thing is, that despite some serious monthly investment net worth declines in the past 5 years – December 2018 (-10%), March 2020 (-17%), and May 2022 (-12% so far!) – the red 12-mth “lagging” average line of Slack Net Worth has gone reassuringly upwards. This as been the case since I started tracking 12-mth average net worth back in 1991. An example of the excel spreadsheet that calculates the trailing 12-month Slack net worth can be found in the link below.

NetWorthWeb Download

Believe me … this helps a lot in the testing times of a falling market.

May 2022 – End of Month Update

Slack Investor remains IN for Australian index shares and the FTSE 100 – but OUT for the US Index S&P 500 due to a sell in January 2022.

Another volatile month, with the S&P 500 ending up flat +0.0%. The FTSE 100 drifting upwards +0.8% and the ASX 200 down -3.0%.

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

Diversification … It’s a good thing … up to a point

This collection of herbs and spices makes me hungry – From Systematic Risk Systematic Value

Slack Investor tries to diversify his investment risk by keep a 70% growth oriented investments portfolio with a 30% stable income portion. So far this financial year, my Investments portfolio performance has been a bit lacklustre – so I have gone to the “hall of mirrors” and had a long, hard look at myself. I decided to do a sector analysis of my investments portfolio. The biggest revelation is the large proportion of Investments in the Information Technology (INFT) and Healthcare (HLTH) sectors.

A breakup of the Slack investments portfolio by sector. Dominated by Information Technology (INFT) and Healthcare (HLTH) – but a scattering of Financials (FINL), Broad Index-type funds (INDX), Consumer Discretionary (COND), Communication Services (COMS/TELS), and Consumer Staples (CONS)

Both of my main sectors have had a rough time these last few months – as can be seen by the monthly sector performance chart below. Materials (Resources) and Energy have done well – But these are sectors that I do not own.

Monthly Sectors heatmap for S&P 500 Sectors – Click on Image for better resolution – From Livewire

Slack Investor is not too old to learn new tricks … or, at least, evolve a little. so I was interested to see how my sector analysis compared with the US S&P 500 (below). I chose the S&P 500 f0r comparison as it not dominated by Financials and Resources like the ASX 200. My weightings are very different to the S&P 500.

Dow Jones 30,000: Here's Why It's Still Underperforming the S&P 500 and the Nasdaq | The Motley Fool — S&P 500 Sector analysis – From The Motley Fool

Annual performance for each sector in the S&P 500

I came across a great graphic showing how each sector of the S&P 500 performs annually

10 yr excerpt from the annual S&P 500 Sector Performance ranking – Click on the Chart to get the full interactive experience – From Novel Investor

Some explanation of this beautifully coloured quilt is in order. The vertical columns represent each of the last 10 years performance of each sector of the S&P 500 in ranked order. The right hand column is for 2021. The 2021 sector leader was Energy (ENRS) after a long period in the doldrums. Next is Real Estate (REAL), Financials (FINL), Information Technology (INFT), S&P 500 (S&P), Materials (MATR), Health (HLTH), Consumer Discretionary (COND), Communication Services (TELS), Industrials (INDU), Consumer Staples (CONS) and Utilities (UTIL). The full glory of this graphic is found on the Novel Investor website with a bit of interactivity.

Some things that I have gleaned from this graphic

Every dog has its day – Depending on the year, each sector can have it’s day in the sunshine.
If you want neither the best of returns or the worst sector returns – buy the S&P 500 Index.
Often … if a sector tops the rankings in one year, it usually performs much worse in the next year.
The Information Technology (INFT) sector, to which Slack Investor is heavily exposed, is in the top four rankings for performance for 7 of the last 10 years. This year is not one of them.

Should I change my sector allocation?

There are good arguments for passive investing and, if I did not enjoy investing in individual companies, and my 5-yr results were not OK), then that is what I would do. To completely diversify my investment portfolio to match the S&P 500 would mean that I would be investing solely in an S&P 500 Index fund. This has been an excellent idea for the past 50 years.

Berkshire Hathaway has tracked S&P 500 data back to 1965. According to the company’s data, the compounded annual gain in the S&P 500 between 1965 and 2020 was 10.2%
From businessinsider.com

However, Slack Investor still thinks that the S&P 500 is over valued. Regardless of the current cycle, to invest in the whole index would be lumbering my portfolio with some cyclical and low growth companies.

I will continue to skew my investments portfolio with growing businesses – regardless of which sector they are in. I will not always get the company selection right – and will suffer the occasional whack. That’s fine, as long as I get it “mostly right”.

At the moment, many of the high P/E, growing businesses that Slack Investor owns are being sold down as analysts adjust down future earnings because of anticipated inflation. But the companies I own were usually selected for their ability to set their own prices and increase their earnings … these are the qualities of businesses that will prevail – regardless of short-term fluctuations.

Greed and Fear – Battling the human condition

Sick Bacchus - Caravaggio Self Portrait — “Sick young Bacchus” a self portrait by Caravaggio (circa 1593) showing himself as the Greek God Bacchus, the god of wine. It is thought that Caravaggio painted this portrait when he was not well – probably suffering from malaria. From the Borghese Gallery, Rome.

Fear and greed are part of the human condition, these traits have evolved over time.

Without the right dose of fear, we would expose ourselves to unreasonable threats and, without the right dose of greed, we would forego opportunities to secure the resources that we need to live.
Fear and Greed: a Returns-Based Trading Strategy around Earnings
Announcements

The fluctuations of the stock markets are just a symptom of these traits. There is a lot of general panic and selling when the stock market starts consistently falling. Stock owners become fearful of further losses and press the sell button. This sets up a chain reaction and the markets fall even further.

A “Herd Effect” exists in the financial markets when a group of investors ignore their own information and, instead, only follow the decisions of other investors.
The herd effect in financial markets – Quantdare.com

It is easy to see how herd behaviour evolved as copying what other individuals are doing can be useful in many situations. For example, if there is an immediate threat, that you haven’t noticed and the herd has – it might save your skin to follow the herd.

Then, of course, there are the good times when the stock market is pumping – the buyers start piling in regardless of the fundamental foundations of the stocks. Asset bubbles often result and a good example of this greed was the “dotcom” bubble in the late 1990’s when big prices were paid for any company that mentioned the internet in its prospectus. Nobody wanted to miss out on, what looked like, easy money.

But these herd behaviours are the opposite of what the astute investor should be doing. We must fight these evolved traits and develop our own behaviours that keep us on the right path.

Savings Automation and Dollar Cost Averaging

Slack Investor has written before about automating your savings. There are also huge advantages to automating your investing – particularly when you are just starting out in the investing world. The first stumbling block that new investors face is to start investing. Then they must develop the habit to keep on investing. There is always a reason to use the money somewhere else or, you might think that right now is not a good time to invest. This “paralysis” must be over come and the best way to do it is through automation.

With auto investing, you don’t have to make the decision when to invest, it just happens automatically when your savings reach a pre-determined point. This opens up the delights of “Dollar Cost Averaging” where, if the market is relatively expensive, you will buy few shares – and if the market is undervalued at the time, your set amount of dollars will buy more shares.

You are buying in the good times and bad . This doesn’t matter – the important thing is that you are buying into companies and accumulating your wealth. Your purchasing is relentless, no decisions, no procrastination – Warren Buffet would be proud!

By investing regularly, in this case, $417 per month, you accumulate shares regardless of the share price. Dollar Cost Averaging buys you more shares when the share price is cheap and less when they are more expensive. – From SeekingAlpha.com

Pearler and Auto Investing

A new kid on the block in the broking business for Australian and US shares is Pearler with distinguishing points of a flat $9.50 brokerage charge and the use of the Chess system for attributing shares to individuals. This means that you are issued with a Holder Identification Number (HIN) and you have direct ownership of your shares. Slack Investor likes this model rather than the custodial model of many other new broking players. Pearler also offers free brokerage on the purchase of selected ETF’s (provided that you hold them for a year).

However, Slack Investor thinks the absolute best feature of the Pearler platform is that it encourages Auto Investing and makes the process simple. If you are serious about your investing journey, you need a broker and why not make it Pearler.

There are some well researched and comprehensive reviews of Pearler and its many features by Captain FI and AussieDocFreedom.

Auto Invest through Pearler is an excellent way to combat the cycles of fear and greed and take the emotion out of your investing decisions.

Other than just opening an account with them, Slack Investor has no affiliation with Pearler.

ASX Paper … I’m Drowning!

Slack Investor is drowning in paper. Owning shares is a lot of fun but the unnecessary postage and paper is a waste and a frustration. In particular, the posted CHESS Holding Statements from the Australian Securities Exchange (ASX) and useless bits of paper from the share registries are annoying.

(The) ASX sent out 19.2 million paper statements over the year to June (2020), a rise of 34 per cent, as trading surged during COVID-19. The statements used 103 tonnes of paper in the past year.
James Eyers – Australian Financial Review

Australian Investors will be familiar with CHESS, the computerised Clearing House Electronic Sub-register System of the ASX. It was introduced in 1994 and has been around for most of my investing life. All my share holdings are settled through CHESS, through a Holders Identification Number (HIN) and managed by a broker.

There is no doubt that the introduction of this system 27 years ago was a bit of a revolution as it simplified share trading from the cumbersome system of share ownership certificates. It was a world leading technology at the time. However, things have moved on and Slack Investor issues a plea to the ASX, enough is enough with the useless paperwork.

ASX charges companies $1.25 for every “CHESS holding statement” sent out to investors, who receive them even if they quickly sell shares bought. Many investors put them straight in the bin.
James Eyers – Australian Financial Review

I am by no means a frequent trader … but the constant statements that I get mailed to me for every small change in my share balances are a continuing source of frustration.

A Sample of the 10 Chess Holding Statements that washed up into my post box last week. These statements are issued by the ASX and are currently **unavailable online** – they are only issued in hardcopy via post

Although these are mailed out to me at the end of every month – I have never used these statements. The definitive holding record of what shares I own at any given time is held by my CHESS sponsor, my broker (Commsec or SelfWealth).

In the same way I trust my superannuation fund or Bank (i.e not much!), I trust my broker with the record of share ownership – and, I also trust them to work out any dispute if I disagree with their tally. If there ever was a dispute … I would go back to the PDF contract notes and certainly not the paper CHESS Holding Statements to try to resolve it.

How to cope with share record keeping now

At the moment the only way that you can get your Chess Holding Statement is through the post. For 27 years, I have dutifully filed these statements but now, like many of my fellow traders, I have decided to shred them and put them straight in the recycling bin. Shredding is important as these notices contain your name, address and personal HIN.

However, there ARE other very important bits of record keeping that you should try to handle in digital form.

Share Registry Stuff

Share Registries are another intriguing layer in the ownership of shares – and another source of paper and postage. When a company lists on ASX, most companies appoint a share registry to manage the book of shareholders. For we share buyers, the registries manage our share holdings, dividend payments, and the voting at the annual general meeting.

Confusingly, there are three main share registry companies in Australia, Computershare, BoardRoom and Link Market Services and, it is a bit of a raffle which registry manages each company. On purchase, I always label each share with its associated registry. You can look them up at ASX Share Info. For instance CSL is always CSL (C) in my records (Computershare) and Macquarie Group is signified as MQG (L) as it uses the Link registry. I find this cross-linking very handy when chasing down any company payments (dividends) or tax statements and I can’t remember which registry manages the company shareholders.

Whenever you make a share purchase in a new company, through your broker, even though it is using your personal identifier (HIN), at the moment it is necessary to contact the registry and do three things. You will probably be prompted by a paper mail delivery asking you to contact the registry.

Register your bank account details for dividend payments with each company (even though they may already have them)
Register your Tax File or ABN number (even though they may already have them).
Tell the registry how you want to handle all communications – (electronically/email) suits Slack Investor

Every registry change that you make usually generates a letter in the post. They charge the company (we shareholders) for this, though some registries seem to be letting me know by email if they already have my communication preferences.

Keeping track of your finances

These days most share transaction and income finance details are now pre-filled on your tax return. However, it is your responsibility to check on these things and, at a bare minimum, you should download a summary report from your share broker at the end of the tax year. This report contains your buys, sells and income and is usually sufficient evidence for your annual tax return.

A more complete share portfolio solution is using third party financial software such as Sharesight. This is amazing software and is free to use if you have 10 holdings or less. They supply end of tax year reports that even include a capital gains analysis.

Slack Investor is a bit “old school” here and uses the free Microsoft Money Sunset International Edition for portfolio management- But this is dated software now and not recommended for new users.

Because I like to keep track of everything without paper – Slack Investor also sets up folders on his computer for each tax year. There are subfolders for 1. Dividends and Distributions and Tax Statements (From the registries) 2. Broker Transactions.

Dividends and Distributions and Tax Statements: There is no excitement like dividend season as the dividends and distributions roll in via each company registry. I download PDF copies of all payments. I file them on my computer in the format: Tax Year_Investor_Company_Type_Date e.g., 2021_SMSF_CSL_DIV_2021-04-01. Or 2021_SMSF_RBTZ_TaxStatement_20210630.

Broker Transactions/ Contract notes: When you buy or sell a share through a broker, a contract note is issued. These should be emailed to you and your broker will keep a copy of them. I also download each contract note for a buy or sell from my broker in the format: Tax Year_Investor_Company_Type_Date e.g., 2022_SMSF_COL_BUY_20210809

Capital Gains: When you sell shares for a profit or loss , you need to declare it on your tax return. Capital gains calculations can sometimes be tricky. A simple example is described in this ABC Overview here and Slack Investor will plan a later article on how to handle more complex cases.

Of course some paper documents still sneak through the Slack Investor fortress and I keep them in a tray in my office and bag them in envelopes labelled with the tax year and keep them for five years, as required by the ATO.

The Future

I am hoping that the share registries can ask the ASX for an email only option for share owners. All registries should have an automatic default instruction to use the same Bank account, tax file # and communication preference – whenever a share purchase is made with your Holder Identification Number (HIN). No announcements from the registries yet – I lie on the couch and dream.

In late 2017, the ASX sent a ripple of excitement through the market, announcing that CHESS would be replaced with distributed ledger technology
Nicola Field, Money Magazine

… but not until 2023. In the meantime, if these holding statements are necessary – can we at least have an e-statement option.

The ASX has had many delays to the starting date of this new technology. Distributed Ledger Technology (DLT) is similar to Blockchain. The full difference between Blockchain and DLT made my head hurt … so I hope they know what they are doing.

Unlike the CHESS system, Mr Squiggle never gets old – even after a 40-yr career starting in 1959 – With thanks to Norman Hetherington, Mr Squiggle, and ABC TV

But, please hurry up with these reforms ASX … after decades of complaints. Streamline the share registry process, ask us for our email details and give us the option for email delivery of statements. In its current form, the CHESS clearing system and paper mail trails just seems a little bit … of another time.

The Slack Buying Process … and August 2021 – End of Month Update

*The moneychanger and his wife, b*y Marinus van Reymerswaele, 1538, Public Domain, via Wikimedia Commons

As much as Slack Investor hates retail shopping – he loves to have the opportunity to buy into companies. Like any new relationship, when you buy a stock, you are not really sure about how its going to work out – but its exciting!

I have never been good at predicting when the stock market will have a correction … and the current high valuations (PE Ratios well above the long term average) do make me nervous. However, Slack Investor would much rather be in the game than out of it and I have been looking for a few companies that would hopefully not suffer too greatly if a correction occurred in the stock market.

This is not advice … just an insight to the Slack Investor bumbling buying process. My rate of converting bought shares into winners of 55% is not that impressive – but my overall performance results are good.

I get heaps of buying ideas from investment sites such as Motley Fool, Livewire, ShareCafe. But I will always, always, check things out for myself before parting with any Slack Dollars. This involves a rigorous screening of the fundamental financial metrics PLUS a look at how the stock chart is going on Incredible Charts. This technical analysis consists of a quick scan to see if the chart is in a continual growth trend … or has just had a “breakout”, or broken out of a downtrend.

Let’s put on the buying boots. As well as the companies below, Slack Investor has also recently added to some small positions in PPK.ASX and TNE.ASX.

Slack Investor Buys Alphabet (GOOGL.NASDAQ)

Half of my buying cash went into an existing holding – Alphabet (GOOGL), This money making juggernaut is part of the new economy and I could buy this company all day. The first step is to go to the phenomenal MarketScreener.com. Registration is free on this site and they allow you to look at analyst data for up to 5 stocks a day.

Search for your stock and then finding the Financials Tab for that company. Firstly, I look at the chart Income/Sales and Earnings per Share. An increasing trend is good and, if the estimated earnings (2021 – 2023) are also increasing, I’m acutely interested. I do a quick check on debt levels. Alphabet is a cash king – has more cash than debt – solid tick.

Income statement for Alphabet (GOOGL on the US NASDAQ exchange) – from MarketScreener

I continue with MarketScreener to extract the Return on Equity (ROE), both past and forecast. I hope that it is above 15% – Big Tick. The final bit of vital information is the Price Earnings (PE) Ratio and it is here that I gauge whether the stock price is too high for Slack Investor. For a good growth stock, I try not to buy into companies that have a projected PE of more than 40-(50 at a pinch). The analyst estimates for GOOGL is a forecast PE of 23.0 in 2023 – Tick

YEAR	2018	2019	2020	2021(e)	2022(e)	2023(e)
ROE	18.6	19.3	19.0	27.2	25.8	25.2
PE Ratio	23.9	27.2	29.9	28.0	26.6	23.0

Table of fundamental financial metrics for Alphabet. The documented Return on Equity (ROE) and Price Earnings (PE) Ratio are shown for 2018-2020. Analyst estimates are shown for later years – MarketScreener.com

Slack Investor Buys NASDAQ 100 ETF (NDQ.ASX)

Not everyone has access to direct access to US shares – if you only have an ASX broker, then to get exposure to Alphabet, a good substitute is to buy the BetaShares NASDAQ ETF (NDQ) – Alphabet represents 8.1% of this ETF – and you get profit machines like Apple, Amazon, Microsoft and Facebook thrown in. I topped up my holding here as well.

The ROE for the NASDAQ Index is 17.7 and increasing (30 June 21) – Above 15, Tick. The projected 2023 estimate for the Price/Earnings Ratio for the NASDAQ Index is 22.47 – Below 40, Tick – Very reasonable for growth sector companies.

NASDAQ 100 Index 2020 PE Ratios and Forward Estimates of PE for 2021, 2022. 2023 – From nasdaq.com

Slack Investor Buys Coles Group (COL.ASX)

YEAR	2019	2020	2021(e)	2022(e)	2023(e)	2024(e)
ROE	29.8	32.8	37.0	34.9	33.3	34.3
PE Ratio	12.4	22.9	22.4	23.4	22.8	21.4

Table of Fundamental metrics for Coles Group . The documented Return on Equity (ROE) and Price Earnings (PE) Ratio are shown for 2019-2020. Analyst estimates are shown for later years – MarketScreener.com

The Return on Equity (ROE) for this retail business is pretty impressive and, the PE Ratio would be pretty good for a growth company – but the Income Chart below reveals that Coles is not really a “growth” company – so the expectation is that the PE Ratios should be much lower, in the early 20’s or below would be the Slack Limits for slow growth companies.

*Income statement for Coles Group (COL.ASX) showing a very gradual increase in projected income – Compare this with the Alphabet chart above – from* MarketScreener

The income chart shows some pretty shallow growth and the slow earnings per share (EPS) growth makes the Coles Group something that Slack Investor would not usually be interested in. But, I go to Coles Supermarket at least twice a week and I actually like going there as a company part owner. Coles is in the “stable income” section of the Slack Portfolio rather than “Growth”. Even if the worst of times was thrust upon us and there was a recession in the next few years, a business like Coles will keep on performing. I would much rather put up with the price fluctuation of shares and have my money in a business like this at a projected yield of 3.5 – 4% p.a. than have Slack Dollars tied up in cash for 2 years in a Big 4 bank term deposit at 0.3%.

August 2021 – End of Month Update

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

There were significant rises in all followed markets (S&P 500 +2.9%, and the FTSE 100 +1.2%). The Australian stock market is also in record territory (ASX 200 +1. 9%). This is all happening during extensive COVID-19 related lockdowns in the populous South Eastern part of Australia.

Slack Investor is normally relaxed about most things, but I am moving to the edge of my couch and starting to get ready for action. Looking at the monthly charts for all the indexes, in these boom times, the index prices have been getting too far ahead of my stop losses for comfort. I have tightened up my rules for adjusting stop losses upwards.

All Stop Losses are live and are being moved upwards every month if the index price exceeds the stop loss by 10% or more. All Indexes have got this treatment this month – It is sometimes difficult to work out where to put the stop losses on the monthly chart. I usually go to the weekly charts and find a minimum on the weekly price range that is within 10% of the current price (see below). If the stock price is below the stop loss at the end of the week – I will usually sell at the next opportunity.

The weekly US S&P 500 Index chart showing an upward adjustment of the stop loss from 4056 to 4233 – Thanks Incredible Charts

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