Cathie Wood is the CEO of Ark Innovation and is best known for her NASDAQ based flagship fund ETF (ARKK). She has been concentrating her bets on the “disruptive technologies,” such as artificial intelligence, genomics, blockchain and cryptocurrency, and clean energy. She is a big fan of Tesla and has made the prediction
Slack Investor is no seer … but at the October 14, 2022 price of 16240 USD, Bitcoin has quite a way to go to reach that mark. In the words of the great BBC TV character Sir Humphrey, this looks like a “very courageous” prediction Cathie!
The ARK Innovation ETF (Nasdaq: ARKK)
Wood, is a devout Christian, and has named her company after the sacred Ark of the Covenent. Cathie Wood is a household name in the US and has a huge number of loyal fans. Her funds had 60 billion USD under management at their peak. She was named by Bloomberg as Stock Picker of the Year in 2020 . The flagship ARKK fund gained a remarkable 152% in 2020, but since then, the performance has not been so stellar – ARKK is down 65% so far this year. In interviews, she often refers to her past success, and insists, over and over again, her performance should be judged over a five-year time horizon.
The Price chart of the ARKK ETF since 2017 –
Wood is nothing but confident. She hosts a monthly finance video – delightfully called “In the Know” and is a great defender of her fund. She sees “spectacular returns” for Ark Invest over the next five years. According to a recent article by New York magazine, her initial predictions for ARK Invest were annualized returns of 15 percent, “Now we think 50 percent.”
Slack Investor would agree that a 5-yr holding period is a good minimum to judge how a fund is performing – to allow for volatility and to allow growth stocks to grow. She might be right that tech stocks are undervalued at the moment. But let’s have a look at her results as a fund manager over the last 5 years. The total return of ARKK expressed as a compound annual growth rate (CAGR) since November 2017 was a not so impressive 3.5% when compared with other “no stock picking” index funds.
Instrument
Value Nov 2017
Value Nov 2022
5-yrCAGR
ARKK
36.44
43.31
3.5%
NASDAQ 100 TR
7159
13881
14.2%
S&P 500 TR
5212
8407
10.0%
FTSE 100 TR
6510
7564
3.1%
ASX 200 TR
56486
81102
7.5%
Based upon the 5 years preceding November 2022, the compound annual growth rate (CAGR) of various Total Return (TR) index values compared with the ARKK ETF (including dividends since Nov 2017 of $2.91 USD). These TR calculations include dividends. Data from Yahoo Finance and CAGR calculations from CAGRCalulator
Cathie Wood conducted a recent session at a Morgan Stanley event in Sydney. where she maintained her bullish outlook. According to the Financial Review, the fund manager essentially argued it’s the market that’s got it wrong, not her!
Slack Investor is far more humble … he “takes his licks” when times are bad – doesn’t “crow” when times are good – and is mostly wary when a new “stock guru” emerges.
In the stock market, volatility is the price he has to pay for being involved with long-term asset growth.
November 2022 – Mid-Month Update
My small-scale, and often very frustrating, market timing experiment continues until its projected end in 2024. On a weekly signal for the FTSE 100 from the momentum following Directional Movement system. I have bought back into the UK index. I am back now to fully invested in the ASX Index, UK Index, US Index.
The buy signal can show itself as a downward dip in the trend strength indicator ADX (grey line) of the lower panel below. There are many ways of setting up this Directional Movement system. Slack Investor likes the “smoothing” that is enabled by a system that looks back over the previous 11 periods – but the complexities are best left for the Resources page.
In amongst the general carnage of the market, Slack Investor has been doing a little buying. An opportunity came up with an existing holding. Dicker Data (DDR). DDR is an Australian-based technology hardware, software and cloud distributor.
From time to time, a company will go to institutions and shareholders to raise a bit of working capital using a Share Purchase Plan (SPP). Dicker Data (DDR) needed to expand its warehouse facilities. Fair enough – but does Slack Investor want to part with more cash to invest in this company? Lets take a fresh look using the excellent Market Screener Financials Page. The Slack “basics” of a high return on equity (38.7% in 2022) and projected growth – on top of an established period of growth – are still intact – Tick
DDR – Historical (Black)and analyst projected income growth (grey) till 2024 – Market Screener
The price of DDR has been generally “beaten up” in the last 6 months as interest rates have risen and growth stocks have suffered. There are probably some more tough times ahead … but Slack Investor likes to take the “long view”. This business has a long term growth strategy and will probably persevere despite current headwinds – Tick.
DDR – Analyst projected PE ratio till 2024 – Market Screener
The current DDR Price/Earnings ratio is 22.9 – below recent values and projected to reduce further as income increases. – Tick.
Although analyst predictions can be wrong, on balance, the miserly Slack Investor was happy to part with a few dollars in this Share Purchase Plan as he could find some value in this business. There is every prospect that the DDR share price will increase in the next few years.
Finding Index value using CAPE
As with individual companies, the whole share market will oscillate between overvalued and undervalued. Slack Investor has written about the Cyclically Adjusted Price to Earnings ratios (CAPE) which use ten-year average inflation-adjusted earnings to take out some of some of the volatility of annual earnings. By plotting this CAPE over a period of time, we can look at how the whole sharemarket is currently valued in terms of historical data.
Using monthly CAPE data from Barclays, the 40-yr mean is calculated and plotted together with the CAPE values. A “fair value” zone is created in green where the CAPE is within one standard deviation of the mean.
Historic CAPE ratios for ASX 200 – From 1982 to September 2022Historic CAPE ratios for FTSE 100 – From 1982 to September 2022Historic CAPE ratios for S&P 500 – From 1982 to September 2022
From the above, The ASX 200 (7% below av.) and the FTSE 100 (13% below av.) are “On Special” at the moment as their CAPE values are below their long-term averages. Even the S&P500, after a long 2-yr period of being “Over valued”, is now getting close to being “Fair valued”.
October 2022 – End of Month Update
Slack Investor remains IN for Australian index shares though it is still on watch after breaching its stop loss at the end of September 2022.
My last post described how I had left the UK and US Index in the middle of October 2022. I am now back IN to the US Index – and, for the moment, OUT of the UK Index. Although, I am keeping a weekly watch on the FTSE 100 in case there is a signal to return to the market.
This month illustrates why I feel glad that my 20-yr index timing experiment is coming to an end in 2024. After exiting the US and UK markets only 2 weeks ago, there has been a rally in both the US Index S&P 500 and (to a lesser extent) the FTSE 100. The momentum has been sufficient for Slack Investor to be “whip-sawed” back into the US Index on a weekly buy signal – I am starting to get “really over” this timing the market experiment.
For the experiment, Slack Investor uses a trend following (or momentum) system called the Directional Movement Index. The buy signal shows itself as a downward dip in the ADX (grey line) of the lower panel below. There are many ways of setting up this system. Slack Investor likes the “smoothing” that is enabled by a system that looks back over the previous 11 periods – but the complexities are best left for the Resources page.
“So the last shall be first, and the first last: for many be called, but few chosen“
Matthew 20:16 – King James Version of the Christian Bible
Slack Investor is not a very religious person – but he is a numbers man and 84% of the global population identifies with a religious group – so I have to go with the flow here. This sort of majority demands respect. The Christian disciple Matthew was reporting on one of Jesus’s teachings. Biblical scholars think that Jesus was trying to point out that Heaven’s value system is far different from earth’s value system.
The “Last first and First last” might also be applied to how some of the Slack Portfolio stocks have been going over consecutive years. There seems to by a cycle of last years Nuggets … might end on the Stinker pile the year after – and vice-versa. Growth stocks have many virtues … but they are not immune to the cycles of price – bouts of overvaluation followed by a period of undervaluation.
The percentage yearly returns quoted in this post include costs (brokerage) but, the returns are before tax. This raw figure can then be compared with other investment returns. I use Market Screener to analyze the financial data from each company and extract the predicted 2024/2o25 Return on Equity (ROE), Dividend Yield and Price/Earnings (PE) Ratio on the companies below. This excellent site allows free access (up to a daily limit) to their analysts data once you register with an email address.
Slack Investor Stinkers – FY 2022
Financial year 2022 was the Pepé Le Pew of all of Stinktown for Slack Investor.I hold mostly growth shares in the technology and healthcare sectors. These sectors have been heavily punished across the world so far in 2022.
This is the first time I have had a negative result for my investments over a financial year since 2009. Slack Investor is a great believer in long term investing returns – usually evaluated over a 5-year period – so this year’s result, while painful, does not change my overall strategy.
Three of my “stinkers” this year were actually “nuggets” from last year. For FY 2020, Codan +161%, REA +59% and IDX +37%. Such is the cyclic nature of some growth stocks.
Codan (CDA) -58% (Still held)
(CDA – 2025: PE 14, Yield 3.8%, ROE 25%) Codan is a technology company that specializes in communications and metal detecting. This company was one of my big nuggets last year (+161%) – so I should not have been really surprised that there could have a bit of a pullback. The decline hurt, but the fundamentals of the company remain sound. Holding on.
Xero (XRO) -41% (Sold)
(XRO– 2025: PE 81, Yield 0.3%, ROE 15%) Xero is an innovative cloud -based accounting provider for small business. Every business owner that Slack Investor talks to say that Xero is a boon to their business. This sort of “word of mouth” got me over-excited this year and I just held my nose and jumped in – against all my rules of avoiding the excessively high forward PE ratios of over 50! It is these high PE companies that are usually punished first in a downturn – and that’s exactly what happened. I still look at it and think its a decent growing business – but I can feel the recent bite!
Integral Diagnostics (IDX) – 39% (Still held)
(IDX – 2024: PE 16, Yield 4.5%, ROE 12%) This medical image company provides diagnostic image services to GP’s and specialists. IDX was another of my nuggets from last year (+37%) that has just shed all of last years gains. The Return on Equity of this company is starting to get a bit low (<15%) – But the PE and yield seem OK. Will keep this company on watch for the moment.
BetaShares Asia Technology Tigers ETF -33% (Still held)
(ASIA – 2022: PE 14, Yield 0.7%,) Growth in Asia … What could go wrong! Plenty it seems.
These “technology tigers” that make up this ETF have been part of a global selloff of tech-related shares this year.
A lot of the Chinese companies (such as Alibaba) have been marked down because the Chinese government imposed its will on a few industries. Also the US government has hinted at action on Chinese companies that have listed on American market. However, the ASIA ETF has large holdings in such monsters as Taiwan Semiconductors, Samsung and Tencent Holdings – so I will accept the current pain and stick with this as a long-term holding
REA Group (REA) -33% (Still held)
(REA – 2024: PE 29, Yield 1.8%, ROE 32%) The owners of RealEstate.com.au. which is the go to portal for house selling and buying. 65% of Australia’s adult population are checking the site every month looking at property listings and home prices. Another long-term holding.
I have only listed the stinkers that lost over 30% this year … sadly, there were many more rogues that lost over 15% for the Slack Fund. They include PPK Group (PPK) -28%; Altium (ALU) -25%; Nick Scali (NCK)-20%; Pushpay Holdings (PPH)-16%; and A2 Milk (A2M)-15%.
Slack Investor Nuggets – FY 2021
Nuggets were few and far between this year. A great benefit of investing in companies that have a high Return on Equity (ROE), and with a track record of increasing earnings, is that they sometimes behave as “golden nuggets”.
Technology One(TNE) +17%
(TNE – 2025: PE 34, Yield 1.7%, ROE 36%) This Software as a Service (SaaS) and consulting company continues to be profitable. This year is the 13th year in a row of record half-yearly profits. A high 2025 PE of 34 (Expensive) is a little scary but, if the high Returns on Equity (36%) remain, on balance, this is OK.
Macquarie Group (MQG) +10%
(MQG – 2025: PE 25, Yield 4.0%, ROE 13%) Macquarie is a complex business with a range of banking and financial services, and plays in global markets and asset management. Once again, the management seem to know what they are doing – Slack Investor remains a fan.
Honourable mention to the only other company that ended in the black – Coles (COL) a decent +8% in these troubled times.
Slack Investor Total SMSF performance – FY 2022 and July 2022 end of Month Update
In a year that Chant West describes as “a rough year for markets”. Following FY2021, which was one of the strongest years for Super funds (+18% for FY21), things have now lurched south with the median growth fund (61 to 80% in growth assets) returning -3.3% for FY22.
The FY 2022 Slack Investor preliminary total SMSF performance looks like coming in at around -14%. However, the 5-yr performance is a more useful benchmark to me – as it takes out the bouncing around of yearly returns. At the end of FY 2022, the Slack Portfolio has a compounding 5-yr annual return of over 13%.
Despite a breach of the stop loss for the ASX 200 last month, Slack Investor remains tentatively IN for Australian index shares on a dramatic rise of 5.7% this month. The FTSE 100 also had a good month (+3.5%)and I remain IN. The US Index S&P 500 eclipsed them all with a remarkable 9.1% gain – and I am now a BUY back IN.
Last month the ASX 200 price went below its stop loss. Slack Investor tries not to exit a stock against the momentum of the market, so I have been off the couch and closely watching the ASX 200. It has remained above the rising trend line and emerged above the monthly stop loss. I am tentatively still IN.
After a sell, it is important to have a notion when to get back IN to an Index or a stock. When trend trading, my main tool for finding a buy signal is a trend following (or momentum) system called the Directional Movement Index. There are many ways of setting up this system. Slack Investor likes the “smoothing” that is enabled by a system that looks back over the previous 11 periods – but the complexities are best left for the Resources page.
In addition to the BUY signal from the Directional Movement Index for the S&P 500, the charts show a triggering of the “Wedgie” pattern where the stock price breaks through a long term down-trend. This reinforces the BUY.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
An “enhanced” satellite view of eastern Australia incorporating an “exaggerated relief” technique to emphasize the topography. The mountains of PNG and Indonesia are on the horizon.
It serves an investor well to occasionally lift themselves away from the day to day stresses of the world – and the trials of owning a share portfolio!
ASX 200 – The Australian Index
My previous post outlined a few of the difficulties of market timing and my decision to be tentatively out of the Australian Index according to my “market timing rules”. I also try not to trade against the market trend … and I would not sell while the weekly chart was looking positive.
So far this has been the case, with the weekly chart just above the rising trend line. I will sell if the ASX200 is below the trend line and still below the stop loss at the end of the week. This gets to one of the problems of market timing – you can set up the most definitive strategy that will give you an objective selling point – but my heart is not in it as Slack Investor believes that the ASX 200 represents reasonable value at the moment. I am actually looking forward to the end of my 20-year market timing experiment – even though it does have the useful purpose of giving Slack Investor something to do in a market downturn.
Lifting the gaze
My absolute favourite way of lifting the gaze is to look at the Vanguard Asset Index chart over a long period. However, a later version than 2021 isn’t due out till mid August 2022 – so I have just shown last years version. The Long term asset class returns chart shown below – in a logarithmic scale, show that the asset classes of Residential Property and Australian shares – are the only really worthwhile games in town. When things just get too much in the day to day trading world – just sit on the couch and gaze in wonder at these two charts … and then perhaps doze off.
Long term Asset returns 1926-2020 – From Stockspot
Extract from the 2021 Vanguard Index chart (Just the 2008-2021 portion) – the dollar values on the right are the results of investing $10000 in index funds in each asset class for 30 years (since July 1991). – Check out the full glory of the Vanguard 2021 PDF chart – Click for better resolution.
Slack Investor is a lover … of cheese. He follows all cheese related literature and was shocked by the revelation that “Death by Bedsheet Entanglement” is highly correlated (0.95 Pearson R correlation) with cheese consumption. The thought that over 800 people died in the US in 2008 at the hand of their sleeping equipment is terrifying.
A quick explainer on the correlation coefficient, it is just a way to measure how strong the relationship is between two variables. The correlation coefficient ranges between +1.00 (perfect positive correlation) through zero (no correlation) to -1.00 (negative corrrelation)
Slack Investor salutes Tyler Vigen here – a bloke who wrote a program that crawls through unrelated government data sets to find spurious correlations. The above chart is one of these random pairs of data that were thrown together by his program. Almost 50 000 of these graphs that show unlikely correlations have been found so far – and one more is produce every minute! Hats Off Tyler.
Correlation does not mean causation
First lecture in Statistics 101
In the cheese consumption case, it is hard to think that eating cheese actually causes bedsheet entanglement. The first step when trying to establish a link between two variables is correlation. Then, most importantly, experiments must be done to show that A actually causes B – Is there a reason that makes sense? Some people link cheese to nightmares, but there is no scientific evidence linking cheese to death by bedsheet … so, this high correlation is probably just due to chance and a limited data set (10-yr). There is likely to be a missing other variable that’s the true driver that causes the correlation. I would speculate that both variables might be linked to general population trends – but this would have to be tested.
Using Sector Correlations in Investing
Slack Investor has been banging on a bit about “Sectors” lately. and despite not feeling the need to match his portfolio with the sectors of the S&P 500 (Or ASX 200), sector analysis can be useful.
My Investments portfolio consists mostly of “growth stocks” in the Technology and Healthcare sectors. The table below shows a high correlation of these sectors with the total market – they will tend to move with the general market during an occasional downturn. The Nasdaq Composite is down about 23% from its November 2021 high – the Slack growth portfolio is down about 7 % so far this financial year – Not fun, but I do expect the occasional down year.
Sector correlations with the US stock Market – A Sector that would exactly move up and down with the US stocks would have a correlation of 1.00. Low scores ie Utilities do not move up and down the same way as stocks. – From Morningstar 2000-2018 data
However, I want my Stable Income pile, 30% of non-house wealth, to be much more conservative. It holds annuities, fixed interest products and some shares. The shares in the Stable pile need to have a low correlation with the general stock market – as, when the stock market does poorly, I want this pile to be OK.
For my Stable pile, I choose stock sectors that are not highly correlated with stock market fluctuations (circled in red below). I already have some REITS (Listed Real Estate – Correlation 0.59), and some Consumer Staples (Correlation 0.57) which Perhaps I should buy some more Utilities and REITS (real estate). When I get an opportunity, I would like to buy some Utilities (Correlation 0.40) for the Stable pile.
I am always on the lookout for spurious correlations and the 19-year data set, in the above table seems sufficient (would like longer!). Do the correlations make sense? For example, it seems reasonable that Utilities would have a low correlation with the general market. It is a sector that would be able to keep its earnings and maintain its stock price – even during a market downturn.
An asset that has an even lower correlation to the S&P 500 is Gold – and is often seen as a “hedge” to to the stock market. Over a 20-yr period (2000-2020), Gold has a correlation of -0.28 with Australian Equities and -0.12 with Global Equities
Gold has a low (and at times, negative) correlation to other assets
Smarter people than Slack Investor provide compelling reasons for including Gold in your portfolio – to improve long term returns. But the pig-headed Slack Investor has not yet overcome his old fashioned view that Gold is a speculative investment that does not earn a dividend or interest.
April 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 – back in January 2022.
Despite some big daily fluctuations, the FTSE 100 (+0.4%) and The ASX 200 (-0.9%) ended relatively flat this month. All is not well in the USA where inflation fears and some mixed results from the Tech sector allowed the S&P 500 to fall -8.8%.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
It is worth revisiting corrections, these annoying dips in the market are testing – even for experienced investors.
A correction is a 10% or greater decline in the stock market in a short period of time. The average rally period without a correction is 357 trading days, according to a Deutsche Bank analysis of stock market moves since the 1950’s.
As there are about 250 trading days in a year and Slack Investor is hoping for a 50-year investing career (50 x 250 / 357 )= 35 . That’s a lot of corrections … so I had better have a plan on how to handle them.
Despite recent rallies in the last few trading days – In January 2022, there was a technical “correction” in both the US and Australian markets.
The S&P 500 index dipped into “correction” territory on Monday for the first time since March 2020. The benchmark fell 10% or more from its recent high in early January, before a late-day rally.
Most corrections solve themselves. A 2018 Goldman Sachs report found that the average correction for the S&P 500 lasted only four months. In the 40 years prior to 2020, the S&P 500 experienced 17 corrections – only a third of them resulted in the larger falls associated with bear markets.
This is not an exact science – but when a correction occurs, I try to think about the scenario where a correction will turn into something worse.
As most bear markets are associated with a recession – Are the economic conditions are such that a recession is likely? – Is this current correction likely to lead to a “bear market”?
The Omicron COVID-19 variant has showed that it is difficult to project into the future. However, even though some industries are suffering, while interest rates remain low and there seems to be some signs of economic recovery. I will try to shut out the “noise” this time.
Index stocks – S&P 500, ASX 200, FTSE 100
I am running a personal 20-yr experiment using “stop losses” to try to time the market for index funds, rather than “buy and hold”. The results so far can be found on the index pages of this blog (ASX Index, UK Index, US Index). The annual gains using this timing method have been modest so far with outperformance of +1.5%, +1.9% and -0.3% , respectively. The jury is still out on this experiment and a full report will be given in 2024.
For the bulk of my holdings – do nothing
For most of my stocks, I take no action during these corrections. Most of my portfolio contains individual companies that I have built up a history with, and I am mostly convinced of their viability and growth outlook for the next 5-10 years. For these companies, I am comfortable to ride the stock price up … and down – this is something I accept about owning stocks. For example, although getting out of the US Index last week, I am happy to keep my holding of US Alphabet stock (GOOGL) – for many reasons.
Tinker with the stocks that you are not so sure about
There is a second-tier in my stock portfolio that includes my theme ETF’s and other companies that I am not so totally convinced about – or, I have changed my mind about their growth prospects. A correction is a good time to review these stocks.
With shares, the market decides what “it thinks” that your stock is worth on a minute by minute basis. This stock price can vary a lot on a daily basis – but over a longer period, the stock price should be decided by more fundamental levers such as earnings, amount of debt, quality of management, and growth potential.
January 2022 – End of Month Update
Slack Investor is off the couch and sold his US Index shares. He remains IN for Australian index shares (only just!) and the FTSE 100.
A bit of turbulence in the markets this month. The ASX 200 and S&P 500 dipped into correction territory briefly. At the end of the month, the Australian Index had a monthly fall of 6.4% and the US Index, down 5.3%. The FTSE 100 was a relative star +1.1%. Slack Investor remains watchful.
On Monday 24 January, (New York time) I sold my US Index shares at the S&P equivalent of 4332. This was below the previous days closing price (4397) … but I have to accept the possibility of a bit of “sell shrinkage” on the next day – in this case 1.5%. However, for consistency. I have used the closing price on the previous week for my calculations.
Despite the end of month rally in S&P 500 price (Jan 31 4515) – I am glad to out of the US Index as I have been troubled by the high valuations for some time. Slack Investor would not have the foresight to get out right at the top of the market. In the spirit of “trying to get things mostly right” I am happy with the US Index trade – a gain of 55.4% over 19 months.
As a way of “zooming out” to get an idea of how current prices are in relation to long term trends – I have updated my Cyclically Adjusted Price to Earnings ratios (CAPE) to include December 2021 data for the S&P 500. Despite it’s limitations, CAPE is still Slack Investor’s best way of assessing quickly whether a market index is under or over-valued compared to its long term average.
At the end of 2021, the S&P 500 was still 61% above its 40-yr average! This is in contrast to the ASX 200 (14% above average) and the FTSE 100 (about average). When valuations get this far out of kilter, for the US Index, my assessment is that there is much more downside risk than upside. The recent breach of the stop loss on a weekly basis gave me an excuse to get out of this broad index.
CAPE ratios for the S&P 500 from January 1982 till December 2021
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).
Slack Investor has long been appalled at the prevalence of gaming machines “pokies” in pubs in Australia. These “pokie rooms” are full of sad faces. With a machine “return-to-player percentage” of 85 -90%each gambler is methodically destroying any chance of achieving financial independence.
Australia is actually home to 20 per cent of the world’s pokie machines, because it is one of the few countries that allows machines outside of casinos.
In 2019, NSW and Victorian poker machine gamblers lose an average of about $3500 a year in pubs and clubs – three times the average $1245 spent annually on electricity and gas. There are countless stories of the tragic consequences of poker machine addiction. Poker machines are concentrated in Australia’s poorest suburbs. The state governments are, in turn, addicted to the revenue from these gaming machines. However, this situation can’t be good for the community and it can be turned around. Western Australia has banned poker machines in Pubs and Clubs. If you want to ban these machines or reduce their harm in your state – Let your state representative know.
Gambling Losses in $USD – Australia are the biggest gambling losers, per capita, in the world! Not anything to be proud of- From savings.com.au
Since March 2020, the stock markets have been quietly accumulating and Slack Investor has spent some quality time on the couch – Sometimes watching sport. Hitting me in the face have been an avalanche of betting advertisements enticing me to get an app, to lay down some hard-earned cash on a match outcome, identify a “first try scorer” or a “multi” (???). Always, I am advised to “gamble responsibly” but this guidance is always accompanied with a wry grin as they collect my credit card details.
Commercial TV networks all seem to have an overlay of gambling ads as they cling to this growing industry – as their other advertisers are looking elsewhere. One of Australia’s largest advertisers is Sportsbet, they spent $AUD 139 million on ads in 2020. It is all about “Brand awareness”. In 2021, US Sports betting companies have spent a staggering $USD 1.2 billion on acquiring new customers. This will only increase as more US states legalize sports betting. With brand awareness comes a desire to download an app, promotional codes are given for gambling credits, you give your own bank details, place a bet … and suddenly you are a customer, and subject to further online conversion.
Slack Investor can see that gambling can introduce a bit of excitement to a life, but I would always take the long view. What are the chances that I would succeed in any form of gambling with repeated trials – where the odds are set by hardened professional compilers. Rather than gambling, I would much rather invest in a growing companies that produces useful things. That’s enough excitement for me.
Three-quarters of 8 to 16-year-olds interviewed could name at least one gambling brand, and one-quarter could name four or more.
Based on a 2016 survey of Australian children in NSW and Victoria
If you would like tougher rules to stop the saturation of prime-time television with gambling ads in Australia, you can put the commercial TV Networks on Notice and register a complaint with the Free TV umbrella organization. It seems to be that the language they understand is the threat to move your viewing to the streaming services that don’t show harmful and repetitive gambling ads (Netflix, ABC iview etc.). Slack Investor is not sure how effective this is – but it made me feel better.
December 2021 – 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 markets this month had substantial rises (ASX 200 +2.6%; FTSE 100 +4.6%; S&P 500 +4.4%).
Well, Santa did come to most index holders. The theory is that, in the US market, there is a lot of spending at this time of year (good for retail) and pay bonuses are also awarded at this time. The “Santa Claus Rally” has occurred 76% of the time between 1950 to 2019. Although this seems to be a regular calendar event, Slack Investor would not bet on it – as there also have been some sharp declines in December – particularly in the last ten years. Long-term accumulation for me – but it is a delight to see Santa when he comes.
Slack Investor has been busy with adjusting stop losses upwards again for the US Index. In these over-valued times for the US Index, and to a much lesser extent the Australian Index, I am keeping my stop loss within 10% of the end of month price. See the US Index page for details.
Monthly chart for the US Index (S&P 500) showing upward movement of the Slack stop loss from 4278 to 4495 – from Incredible charts
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been completed.
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).
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.“
George Soros
Now George knows how to make a dollar and, to his great credit, is a generous philanthropist. I am sure, like any successful investor, that George looks back at times on his investment decisions. Slack Investor looks forward to this time of year when I can reflectively analyse my greatest investing failures. Fortunately, my stinker to nugget ratio was good this year.
The percentage yearly returns quoted in this post include costs (brokerage) but, the returns are before tax. This raw figure can then be compared with other investment returns. I use Market Screener to analyse the financial data from each company and extract the predicted 2023 Return on Equity and 2023 Price/Earnings Ratio on the companies below. This excellent site allows free access (up to a daily limit) to their analysts data once you register with an email address.
Slack Investor Stinkers – FY 2021
Growth stocks (High Return on Equity >15% and increasing sales) are fantastic companies to associate with as they are growing and hopefully, their earnings per share, are growing also. The downside to this is that these companies are usually sought after in the stock market and command high prices in relation to their current earnings because the “future earnings” of the company are priced into the current price. This gives them a high PE Ratio. Whenever there is a future earnings revision, or a stutter in growth, there is usually a dramatic drop in price.
Slack Investor has a look at his stocks every weekend on a free chart program (Thanks Incredible Charts!). I actually pay a small amount to get the chart data early in the morning. Both of my “stinkers” this year were actually “nuggets” from last year. For FY 2020, Appen +58% and A2M +26%. Such is the cyclic nature of some growth stocks.
Appen (APX) -24%
APX (2023 ROE 14%, 2023 PE 19) remains a company that puzzles me “the development of human-annotated datasets for machine learning and artificial intelligence”. The company has had a few problems due to COVID-19 and a hit to its underlying profit and increased competition. Slack Investor got out late last year at $25.87 as the weekly chart moved below the stop loss at $28.11. However, this represented a loss of 24% for the financial year.
The downward trend marked by the thick blue line is setting up niciely for one of Slack Investors favourite chart trading patterns – “The Wedgie”. When the share price punches through a downward trend line of at least 6 months … and the fundamentals are right, Slack Investor is interested. Given the forward PE for 2023 is a relatively low 19 – I might have another crack at this once the price has poked above the blue wedge line.
A2 Milk (A2M) -21%
A2M (2023 ROE 17%, 2023 PE 23) sells A2 protein milk products to the world. The actual benefits of the A2 only protein seem to be limited to easier digestion. Long term independent studies with large data sets are still in the works … but the marketing skill of this company is undisputed. COVID-19 brought big changes to sales with the collapse of the “daigou” market and worries about China trade sanctions. Slack Investor sold about half way through the downtrend – but not before taking a hit for the team.
Slack Investor Nuggets – FY 2021
A great benefit of investing in companies that have a high Return on Equity, and with a track record of increasing earnings, is that they sometimes behave as “golden nuggets”.
Codan (CDA) +161%
What a company! Codan is a technology company that specializes in communications and metal detecting. It has made a major US acquisition this year and paid with cash. Sales are up and predicted to keep increasing. The high 2023 ROE 32%, and relatively low 2023 PE 24 (for a growth company) makes me think there will be more price growth over the next few years – I will try and top up my position this year on any price weakness.
Alphabet (GOOGL) +61%
(GOOGL – 2023 ROE 23%, 2023 PE 23) The Alphabet list of products continues to grow. I use a ton of Alphabet products every day and the company is growing fast into the cloud with cloud computing revenue jumping 46% in the March quarter. There are a few regulatory problems coming up with the US Justice department claiming that Google’s actions harmed consumers and competition. There is also the ongoing work of G7 nations trying to make international tech companies pay their rightful share of tax on revenues in each country.
Despite this, if there is one company that Slack Investor could invest in and then pay no attention to for 10 years, and still sleep well, … it would be Alphabet.
REA Group (REA) +59%
The owners of RealEstate.com.au. which is the go to portal for house selling and buying (REA – 2023 ROE 38%, 2023 PE 44). The group has just completed an acquisition of Mortgage Choice and picked up a big chunk of a Mortgage software company. This expanding of the business must be good. 65% of Australia’s adult population are checking the site every month looking at property listings and home prices. However, the 2023 projected PE is very high (44). Using the Slack Investor bench marks, suggests the stock is expensive at the moment.
Integral Diagnostics (IDX) +37%
This medical image company (2023 ROE 16%, 2023 PE 24) provides diagnostic image services to GP’s and specialists. IDX seems to be getting a few tail winds with an ageing population and more demand for their MRI, CT and PET scans.
Macquarie Group (MQG) +36%
Macquarie is a complex business(2023 ROE 14%, 2023 PE 17) with a range of banking and financial services, and plays in global markets and asset management. The latter division looks for undervalued companies. Despite COVID-19, profits are increasing. The management seem to know what they are doing – Slack Investor remains a fan.
Betashares Global Robotics And Artificial Intelligence ETF (RBTZ) +36%
This ETF tracks the megatrend of robotics and artificial intelligence. Although the PE ratio is a bit high (2021 PE Ratio 37), this is a disruptive sector that should make gains against existing industries with the advantage of technology against rising labour costs.
Most honourable mentions to those other companies that returned over 20% for the tax year. Cochlear (COH) +34%, BetaShares Nasdaq ETF (NDQ) +33%, VanEyk MOAT ETF (MOAT) +32%, Vanguard International ETF (VGE) +29%, BetaShares HACK ETF (HACK) +31%, Vanguard Asia ETF (VAE) +28%, BetaShares QLTY ETF (QLTY) +25%. To these companies, I am grateful for your service.
Slack Investor Total SMSF performance – FY 2021 and July 2021 end of Month Update
A great year for shares, Chant West reports Super funds have delivered their strongest financial year result in 24 years, with the median growth fund (61 to 80% in growth assets) returning 18% for FY21. The FY 2021 Slack Investor preliminary total SMSF performance looks like coming in at around 22%. The 5-yr performance is a more useful benchmark to me – as it takes out the bouncing around of yearly returns. At the end of FY 2021, the Slack Portfolio has a compounding annual 5-yr return of over 21%.
Slack Investor remains IN for Australian index shares The FTSE 100 had a flat month (-0.1%) but rises in the US Index S&P 500 (+2.3%) and the ASX 200 (+1.1%).
The party with the US S&P 500 just keeps on going. As the S&P 500 has moved more than 20% higher than its stop loss on the monthly chart, I have adjusted the stop loss upward to 4056 from 3622. It is difficult to decide where to put the stop loss on the monthly US Index chart. In these cases, I go to the weekly chart and look for a “sensible place” to put the stop loss coinciding with a minimum value (dip) on the chart. The current stop loss is 8% below the end of month price.
US Index (S&P 500) weekly chart showing a moving up of the stop loss this month.
Slack Investor is not known for his fast work … and have often taken the couch when action was probably needed. There are some stocks that I will hold for the long run, and their weekly charts are not of big concern to me. However, about half of my portfolio is on a weekly watch – I review the charts on a weekend and cast the Slack Investor jaundiced gaze over each stock that I own (Thanks Incredible Charts!)
This is the least satisfying timescale and, if I could successfully train myself to ignore this daily oscillation of my investments – I would. The reason to avoid daily swings of the share price is that I have absolutely no idea about whether the price of a stock or index will go up or down on the next day – the share price is determined by others! In the chart below, in the first 7 days shown, the daily index went down, down, up, down, down, up, up, etc – monitoring daily prices can be frustrating!
ASX 200 Daily “Candlestick Chart” showing 6 months of index values since January 1 ,2021. The Red candles show a day when the value went down, and the Blue candles indicate a day when the index price went up.
I am happy to say that, when on holiday, or busy, I have no need to monitor on the daily timescale. Regardless, no decisions are made on this daily basis.
Weekly
Weekly is where the “rubber hits the road” for Slack Investor – and I look forward to my weekly sessions with my portfolio. I set aside an hour on the weekend to make sure my portfolio prices are updated and the charts are reviewed. The weekly time scale smooths out a bit of the volatility and I then open up Incredible Charts to scroll through my portfolio.
Incredible charts offer a free month sign up and then $9.95 per month for access to worldwide updated delayed charts daily from 6pm Australian time. This package is not in “real time” and does not suit a day trader. But for an investor on my slower time scale, it is very good value. These charts open up the whole world of technical analysis as it allows you to monitor trends in your stocks and mark in trend lines and stop losses.
I have always used the weekly charts to make decisions on buying a company – looking for a momentum shift in the trading using the Directional Movement System. I also like to trade a “breakout”, or a “wedgie”
Monthly
This is the timescale when I am most happiest and would like to make decisions just every month. After a life of work where decisions were a constant grind – It is a gift not to make decisions!
It is still my aim to make selling decisions monthly – but things seem a little precarious lately and, for now, I am on a weekly decisions cycle for selling. The sell happens when a stock price finishes below my stop loss at the end of the week/month (see Technical Sell below).
Yearly
This is the “Look at yourself in the mirror” period where Slack Investor does the evaluation of his portfolio performance against benchmarks at the end of each financial year. Although the financial year ends at June 30, it usually takes until the middle of August for me to get my final results and benchmarks together. I present my results at the annual Financial Year Results post.
Special Occasions Selling
Slack Investor is in one of those right now and he has to free up some cash to by selling some shares. I like to do things a bit methodically and here is my process for a sell.
Technical Sell
This is my first port of call. Technical Analysis uses charts and trends and I have been watching the charts for the past 4 weeks for a technical sell signal in my portfolio. For me, this happens when the stock price falls below the pre-determined stop loss that I have set. I will then try to sell at the start of the next week/month. My rules are not rigid here, if the stock starts to rebound after I have made my sell decision, I might stick with it for a little while longer.
Another technical signal is when a stock loses its momentum – but this is a more subjective signal than when a stock simply moves below a line.
Slack Investor bought into ESPO in October 2020 at $10.39 and sold this week at a small loss $10.19. The stock didn’t grow like I thought it would – but that’s fine. I like the concept of this ETF but I am happy to be out for now and look forward to be getting back in when a strong upward trend establishes itself.
I was also able to exit on a technical sell for the Betashares ASIA ETF and I am not sure what is going on here as I thought the tailwinds for this sector were good. Small profit this time and will get back in if the trend changes.
Weekly chart for the VanEck ESPO ETF showing a breach of the stop loss – Incredible Charts.
Fundamental Sell
Fundamental Analysis revolves around trying to determine the real value of a stock by looking at its financial data (e.g, Price/Earnings ratio, Return on Equity, Debt, etc) over time and, in reference to its competitors. This is a much more complicated process.
If Slack Investor can’t find a technical sell, I look for a fundamental sign. I will list all of my sellable stocks (Shares that I don’t hold for “the long run“). The first step is to get some financial data on each company from the very good Market Screener then put them in a table and hope that something stands out as a sell. A sell signal might be a trend of falling earnings, increasing debt, or decreasing Return on Equity (ROE). I also get nervous about a stock if its predicted (+ 2 years) Price Earnings (PE) ratio goes over 50. Fortunately, I didn’t have to resort to any fundamental analysis this this time … and this approach probably needs a post in itself.
In the meantime, like my pumpkin friend … always watching …
