Trading Method | Slack Investor

Is Market Timing Just Too Hard?

Slack Investor has not too many attributes … but one of his few features is self-awareness and the constant need to review techniques on the way to financial independence.

I have been trying to run a timing strategy with my index funds since 2004. With some success, but I would only give a “try harder” sticker to the results.

The average yearly gain for the Slack Monthly “market timing” method over the alternate strategy of “buy and hold” (leaving funds in the ASX Index, UK Index, and the US Index), is respectively is 2.7%, 2.3% and 0.3% (At March 2020). Check out the charts, trades and the gains at the page links for each index.

Although these figures show outperformance for the Slack “market timing” method. These gains might have been outweighed by share dividends if I had held the shares instead of trading out to cash. At the moment cash returns are very low (0.5 – 1.5%) and, at the current average ASX 200 yield of 5.2%, shares make a lot of sense – But being in stocks is not for the faint-hearted.

The bear market of March of 2020 — Chart showing the historical number of days to reach a Dow Jones market fall of 30% – From a Beth Kindig article in Forbes

2020 has been the financial equivalent of the “Battered Sav” with wild swings in the stock market – and the fastest fall in stock market prices in history. The ASX fell 20.5% in 14 days to enter “Bear Market” territory on March 11. It was down 30% from its peak by March 16. It is the speed of the market falls that is making Slack Investor starting to question his monthly timing strategy. For the US Dow Jones index, the rapid fall of 30% in just 18 days during March 2020 has set new records.

Things are getting freaky!

A visualization of the daily moves for the US Market 2010-2019 shows that usually most daily movements are less than 1% either way – This is Slack Investors comfort zone. But, occasionally, the market moves much more in a day. I think these large moves are getting much more common with the increased prominence of high frequency trading.

A great visualization from 2019 showing the daily percentage movements of the US stock market since 2009. **Most** of the daily moves are between -1% band +1% – but higher fluctuations do occur. – from www.chartr.co

Compare the size of daily movements on the US market in January 2020 with March 2020 – where most days had changes more than 3%.

A comparison of daily percentage change on the US Dow Jones Index in January 2020 with March 2020. From Bloomberg ofdollarsand data.com

Large share brokers and investment firms use trading systems that automatically buy into rising markets and sell into falling markets. These trades are executed by computers that use a defined set of instructions known as an algorithm to place a trade. If the market is moving up or down then these trading systems inflate the movements of the market as they try to get in or out of a trade. These computer trades make it hard for individual investors as their trades happen in microseconds. Algorithmic trading is growing rapidly at 11% per year.

“fundamental discretionary traders” accounted for only 10 percent of stock trading volume
JP Morgan quote from 2017

That means that we individual traders are up against the machines for 9 out of every 10 trades.

“Investors may have to get used to big, sudden moves in the stock market due to fewer institutions pushing equities to attractive valuations while hedge funds reach unprecedented levels of employing computerized momentum-based strategies. The result will be “faster and deeper” corrections.”
JP Morgan

I will keep my market-timing experiment for index funds (Less than 3% of my Portfolio) going for another 4 years (to make it a 20-year trial). My feeling is that by waiting till the end of the month, sometimes the market has corrected too far. However, for the bulk of my stocks, my message is to embrace the volatility of the stock market … it is what it is! The share market is still one of the most convenient way to build wealth for the investor.

Slack Investor cannot beat the computers in a momentum trade. But I do have some advantages over the the machines. I can try to judge what a business is worth. Does it have barriers to entry for other companies? Is it growing? Does it have too much debt? Find yourself some good growing companies with a track record of increasing earnings. Do a little “tweaking” to suit the times … and stay safe in these troubled times.

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

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

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

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

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

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

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

CSL – Commonwealth Serum Laboratory

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

COH – Cochlear

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

RHC – Ramsay Health Care

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

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

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

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

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

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

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

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

The Real October 2019 – End of Month Update … and Australia’s debt binge

Apologies to my faithful email subscribers, two days ago an unfinished version of this post was released into the ether. Slack Investor has rudimentary skills in the blogging arts and didn’t know how to recall the post. Anyway … this is what it was supposed to look like – with all information updated!

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets are a mixed bag with a flat ASX200 (-0.4%), and a dropping Brexit plagued FTSE100 (-2.2%). The good old US has shrugged off chants of “Lock him up” for their president and the S&P500 has had a monthly increase of 2.4%.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 31.0%, this has been gradually dropping since a peak at 41% two months ago. However, the current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are definitely “switched ON”

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

Household debt – the couch is getting a little uncomfortable

According to 55,000 respondents to the ABC’s Australia Talks National Survey, debt is a major problem for the nation.

On an individual level, 37 per cent are struggling to pay off their own debts, with almost half of millennials reporting that debt is a problem for them personally …
Australia Talks National Survey

Australia may not be in the top four countries for Rugby these days but we are one of the world leaders in terms of household debt. In fact, we are second only to Switzerland. I am ashamed to say Australia’s Household Debt is world class and edging towards 200% of income. With such a big chunk of our disposable income leaking to debt, it is no wonder that recent interest rate cuts are not having much effect on the economy as Australian consumers try to tighten the belts. According to the Reserve Bank, it seems that, with stagnant wages growth, most are coping with their debt by reducing their consumption.

Basically, the Australian economy is facing a long period of sluggish demand growth as our record high household debt becomes a giant millstone around the economy’s neck.
From macrobusiness.com.au

Debt can be multi-headed with mortgage, credit card, personal loans and education components. The ME Bank survey has found that there is stress in some parts of the community. If your employment income is steady, in these reducing interest rate times, the fortunate have been able to keep up existing monthly payments to reduce overall debt. This is a good strategy. Most Australian homeowners are ahead of their payments – so there is a bit of a buffer. RBA statistics show that the average borrower is almost 36 months ahead of their required payments. Though, there are worrying signs in some households.

Of households with debt, there was an increase in the
number expecting they ‘will not be able to meet their
required minimum payments on their debt’ and ‘can just
manage to make minimum payments on their debt’ in
the next 6–12 months – 43% combined compared to
38% in December 2017.
ME Bank survey

With the number of mature-age Australians carrying mortgage debt into retirement increasing rapidly, many are intending to use a portion of their super (which was supposed to fund retirement!) to try to extinguish their debts when they retire. The ME Bank Survey found that even with compulsory superannuation, only around 18% of households expect to ‘fund retirement with their own super’ (down four points in the past six months). The proportion of households expecting to ‘use both private savings and the government pension’ increased two points to 42%.

I hope that our politicians have a plan for all of this – although, as this involves a bit of thinking beyond the next election, I doubt it!

September 2019 – End of Month Update … and Portfolio Trim

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets have had a bit of a recovery this month ( ASX 200 +1.3%; FTSE100 +2.8%; S&P500 +1.7%).

The Federal Reserve bank of Cleveland have the probability of recession within the next year at 37.9%. This exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are definitely “switched ON”

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). As it is the end of the quarter, the Slack Portfolio has been updated with some readjustment of the portfolio and a solid whack of cash (5.1%).

Trim the Sails … things might get rough

Trimming the Sails by Anton Otto Fischer – from Artnet

The economists at the Cleveland Fed are rating the chances of recession as significant. This is enough for Slack Investor to do a little portfolio trimming and try to dampen the effect on my capital if a recession does happen. I am a long way from going “all the way” and converting my entire share portfolio to cash-like products – though some pundits already have. There are a few reasons for this Slack approach

I am not a very good predictor of exactly when things might go bad
The returns for the safety of cash are not good at the moment, under 2%
I have a buffer of cash income that will help me weather through any economic downturn without having to sell any stocks at downtrodden prices – Those without a cash buffer or subject to sequencing risk should take a more prudent approach than Slack Investor.
Most of my stocks are producing reasonable dividends

Sequencing risk peaks in the seven or so years before and after retirement. Investors at this stage have a higher retirement balance and typically more of it invested in shares, meaning they have more to lose if sharemarkets tumble …
From an AFR article by Tony Featherstone

Sequencing risk refers to the possibility that a retiree that depends on his savings for income may have his capital (and future income) greatly reduced by a sequence of poor returning years (such as a recession!). The retiree would be in danger of having to draw down on capital at depressed prices.

A solution for retirees to the problem of sequencing risk is to set aside 2-3 years of income in cash assets that can be used for income while the underlying assets are waiting to recover. This strategy avoids a “fire sale of assets” during a recession.

Those younger folk still in the accumulation stage can hope that any future economic downturn does not affect the employment market too much – Jobs and income are a key to survival in tough times. As far as investments are concerned, the effects of a recession are only temporary and things will recover (see chart below). Downturns are a good time to start buying if you have any spare funds.

I am happy with my minimal trim approach as I generally invest in solid money earning companies that may suffer in earnings during a recession … but wont go broke and disappear.

For stock owners, recessions and economic downturns are only bad if you have to sell your stock before the inevitable recovery. In these trying times I am often comforted by long term share charts. Please note that any downturn is always followed by a recovery- though in some cases, it may take a few years.

This Long-term S&P chart for US stocks over 120 years (On a log scale). Periodic recessions are shown as grey columns – and the ability of stock prices to recover after any major world crisis is illustrated by the general increase in stock prices as you go forward in time. -From Business Insider Australia

My Slack trimming strategy has several components

Sell some of my stocks that have increased in price and now have extremely high PE Ratios – Although some, like Altium, are hard to let go. They are “old friends” and I am very sentimental to consistent company performance over many years.
Increase the weighting of my portfolio towards cash or bonds or fixed interest.
Try to be invested in companies may not suffer too much during an economic downturn i.e. Healthcare, Essential products.
Re-focus on dividends – the dividends might reduce a little in a downturn but the income is important. Dividends have in the past been much less volatile than share prices.

I have not changed the core of my portfolio, just fiddled around with 20% of it. Some more detail on the portfolio trimming in the next post.

August 2019 – End of Month Update … and “I’ll Give you a Yield Curve!”

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets have taken a bit of a savage beating this month ( ASX 200 -3.1%; FTSE100 -5.0%; S&P500 -1.8%). Thanks Boris and Mr Trump!

As well as this turmoil (kind of normal), my monthly looking at the charts this month has revealed that I have forgotten to adjust the stop loss upwards – I should have done this last month. My rule is that when the monthly index chart forms a new “minimum” and the monthly range drops below the black 10-month average line, a new minimum is formed and I should adjust upwards the stop loss. I have done this for the UK index (shown above in the green circle) and also the US Index (see the index pages for details).

I still remain nervous about the current situation. However, checking out the US Yield Curve indicator at GuruFocus , this indicator has oscillated to negative again. Because of its fluctuations, I have decided to switch to a “Probability of Recession” Indicator (see below). My monthly stop losses for Index funds are now “switched ON”(see below).

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

Inverted Yield Curve … Probability of Recession … Yeah Baby!

Tributes to the great Mike Myers for creating the most excellent character Austin Powers … I could see Austin becoming obsessed with the yield curve… Maybe not … Credit to Austin Powers: International Man of Mystery (1997)

The Inverted Yield Curve has been all over the financial and even mainstream press lately – as a possible predictor of recessions. There is some contrary evidence of an imminent recession due to continued good employment in the US, but most economists have some faith in the predictive power of the yield curve. Slack Investor will admit to not knowing much about this till recently … and is still learning. I wanted to develop a way for me to know when a slip of my index funds below a stop loss was Really Serious! – and not just a temporary downturn that would shake me out of a position … and then recover. This is the battle that a trend trading investor often has.

Trend-following systems either suffer from a large number of shake-outs or are slow to exit when the trend reverses; and often both. You can’t have your cake and eat it.
Colin Twiggs, founder of the excellent Incredible Charts and The Patient Investor

Slack Investor typically wants his cake and to eat it! – and is always on the lookout for a way for this impossible thing to happen.

Slack Investor has often made a virtue of using other peoples work in areas that require a lot of effort and research. I am happy to outsource my Inverted Yield Curve study to the boffins at the Federal Reserve Bank of Cleveland who supply a monthly prediction of the likelihood of a recession using the slope of the yield curve and GDP growth to provide predictions of future GDP growth. Like all good researchers, they caution not to take their predictions too literally but a glance at the chart below show that when the Reserve Bank of Cleveland Fed predicts a probability above say 20%, a recession (the grey columns) usually (not always) follows. As I am feeling my way on this one … I will use the predictions above 20% barrier to make my stop losses live! They currently have the likelihood of recession within one year at 44.1% … so all my stop losses are “live” at the moment.

The Fed Reserve Bank of Cleveland are predicting a 44.1% chance of recession within one year based upon end of August data. The Grey columns are the recessions, the blue line are the Cleveland Fed’s past predictions and the red line “gazes” into the future.

July 2019 – End of Month Update … and FY2019 Nuggets and Stinkers

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets are all in positive territory this month ( ASX 200 +2.9%; FTSE100 +2.2%; S&P500 +1.3%). All markets are still “exuberent”. However, checking out the US Yield Curve indicator at GuruFocus , the indicator again shows a weak positive result (Near zero, Just … +0.09%) so my monthly stop losses for Index funds are temporarily “switched off”.

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

Slack Investor Stinkers – FY 2019

Stinkers are part of investing in growth stocks. Growth stocks usually have a high Return on Equity (ROE>15%). By their nature, they have a relatively high PE ratio and are usually punished in the markets during reporting season if there is any bad news – and I am not too worried when this occurs – It is the total performance of the portfolio that counts. If they breach their monthly stop loss – I will review the stocks and ask myself the question – Factoring in what I know now about this company, would I still buy this stock at its current price? – If not, out it goes!

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

Costa Group (CGC) -34%

This should be a lesson to Slack Investor … try to avoid growth companies that do not set the price of its products i.e. are “price takers”. This agricultural company had some earnings revisions during January and May due to weather and some difficulties in their Morocco operations. I have hung in and still own the company as it looks cheap on projected price earnings … but another downgrade would test my good humour.

Costa Group (CGC) Daily Chart with some bad news in January and May 2019

Challenger (CGF) -30%

I have been listening to the story of this company for ages. Its income products (annuities) should really appeal to the retiring baby boomers. However, there has been a long slide in price of its shares. In a bit of “hands on” research, I had a look at their CarePlus product for a relative moving into Aged Care – Their package was difficult to sign up to, and the web examples used were underwhelming. Perhaps they market more to financial advisors than for retail investors. The good thing about reviewing the chart of a stock every week is that eventually you “wake up”. I sold the shares in March.

Dishonourable mentions to Corporate Travel (CTD), Platinum Capital (PMC) and Worley Parsons (WOR), which all lost more than 10% this financial year.

Slack Investor Gold Nuggets – FY 2019

By investing in companies with high return on Equity with a track record of increasing earnings, you can expose yourself to some pleasant surprises. The Return on Equity (ROE) and forward Price Earnings (PE) ratio values for each stock are found on the excellent Market Screener site.

ProMedicus (PME) +148%

Pro Medicus is an Australian company that produces medical imaging software for hospitals and medical specialists. Their products are used worldwide and there are e projected increasing sales. Their ROE 2020 is an excellent 41%,however, their projected PE ratio for 2020 is over 100. This is dangerous over value territory – and I am watching this stock closely for any price declines. But until then, I am riding this horse home.

Appen (APX) +101%

Appen supplies data services to global tech companies and their language division provides machine-learning technologies for devices. Perhaps because I don’t really understand what they do and because of their high estimated 2020 PE ratio of 61. I said thanks very much and then I got out of this stock last month. However, the price of this stock is still climbing! Ouch!

Rhipe (RHP) +79%

Rhipe is another tech company that I had a speculative interest in. It provides software licences that help their clients transition into a “cloud” environment. Rhipe has a working relationship with Microsoft in Australia but their high 2020 projected PE of 39 makes it another stock that may be overvalued and I am watching it closely.

Altium (ALU) +53%

Another fantastic year for ALU The designing of integrated circuit boards for technology products is proving to be a lucrative business. A high 2020 projected PE of 39 is a concern -but I really am smitten with this company – as they have been great growers of their business.

Service Stream (SSM) +52%

Service stream provides network services to Utility companies. This is the sort of company that Slack Investor loves. A high ROE of 20% and a reasonable 2020 projected PE of 19 with anticipated earnings growth.

Honourable mentions for Slack Investor portfolio stocks AMC and RHC that increased more than 20% in this financial year.

Slack Investor Total SMSF performance – FY 2019

In another good year for shares where Chant West reports median growth super funds made 7%, the FY 19 Slack Investor preliminary Total SMSF performance looks like coming in around 20%. Anyone can fluke one good year so 5-yr performance is a more useful benchmark to me and the Slack Portfolio now has a compounding annual 5-yr return of over 18%.

Not bad Slack Investor … now get back on the couch … with full FY 2019 results and benchmarks next post.

June 2019 – End of Month Update … and “nudging” to good financial habits

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. If last month was a “Risk Off” then for the month of June they have slapped on the crazy pants and become definitely “Risk On”. The Slack Investor followed overseas markets have bounced back from a shocker last month (FTSE100 +3.7%; S&P500 +6.9%) and the ASX 200 powered on with +3.5%. All markets are above the monthly stop losses – but feeling a bit “frothy”. However, checking out the US Yield Curve indicator at GuruFocus shows a weak positive result (Near zero, Just … +0.09%) so my monthly stop losses for Index funds are temporarily “switched off”.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). – As it is the end of the Financial year and quarter, the Slack Portfolio has been updated with some stock exits and a gradual build up of cash. Now over 8% – A slack record!

Give us a Nudge

The classic Monty Python “Nudge Nudge” sketch – the full delights of this 3-minute romp can be found on youtube

We frail human beings do not behave rationally. It is easy to project a path to a well funded retirement on paper – yet so few really achieve it. A couple of clever cognitive psychologists , Danny Kahneman and Amos Tversky put some effort into studying human behaviour.

Mr Kahneman, an Israeli-American psychologist and Nobel economics laureate, has delivered a full catalogue of the biases, shortcuts and cognitive illusions to which our species regularly succumbs. In doing so he makes it plain that Homo economicus—the rational model of human behaviour beloved of economists—is as fantastical as a unicorn.
From The Economist – Not So Smart Now

To account for our lack of rational behaviour -it is sometimes necessary to give ourselves a nudge in the right direction by tricking our feeble brains into good habits.

Compulsory Saving

The best way to save money is to convince yourself that you didn’t really have it in the first place – and, as the new financial year starts, this is the time … seize the day and quarantine some of your hard earned cash.

There are lots of ways to do this

Direct debit funds to your Savings account from your transaction account – After every payday, set up a regular direct debit instruction with your bank to divert funds to your online savings account
Add to your Super – Set up with your paymaster to add to your superannuation through salary sacrifice – the first $25000 is taxed at only 15%. Or, you can make a contribution straight from your bank account directly to your super fund but there is a bit of ATO paperwork to claim its tax-free status.
Use a bit of robo technology to set up periodic payments and rounding up of your daily transactions – Use Raiz to set up a savings account that invests your savings in shares and bonds or Longevity to add to your super account – More on these robo bits next post.

May 2019 – End of Month Update … and, that recession vibe

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. In what the cool investor analyst types call a “Risk Off” month there were big falls in Slack Investor followed overseas markets (FTSE100 -3.5%; S&P500 -6.6%) – but for the moment, still above the monthly stop losses. Checking out the US Yield Curve indicator at GuruFocus shows a negative result (Just … -0.05% though!) so my monthly stop losses for Index funds are definitely “live”.

The Australian ASX200 had a positive month (+1.1%) – but this was due mainly to the election of a “business-friendly” government on May 18. General nervousness prevails though.

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

That Recession Vibe

Trump and Xi are shaping up for a trade war and I don’t like the smell of it … especially with news reports such as “If you want to talk, the door is open; if you want to fight, we’ll fight to the end,” said a Chinese TV anchor, capturing the mood in Beijing. – Image from Business Insider

Slack Investor is no great predictor of trends – But, whenever things are going well in the stock market, experienced investors naturally get skittish – Particularly when two belligerent world leaders are at loggerheads. There is a chance that all of this will get solved at the next G-20 in June. But Bloomberg analysts think it is more likely that the trade war will be long, messy—and expensive. Thanks Donald!

(The US economy is going OK) but … other countries remain sluggish or are slowing. Diminishing global growth could drag down the U.S. also. … although the Federal Reserve is now signaling a halt in its rate hiking, it has raised interest rates nine times since December 2015. At some point, those higher rates become the gravitational force that pulls down stock prices.
From Ray Martin at CBS News

All of this uncertainty is talked about constantly in the media and with trade war stuff thrown in as well, as all fans of The Castle know … ” It’s the Vibe!”, When all of this negative stuff gets too much. for a quick recession-busting refresher, try this Youtube highlights clip from the film.

Slack Investor has mentioned one of the pre-indicators of a recession, the US Bond Yield Curve, which has just gone into the “Red Zone”. The economist boffins have been very diligent at Citibank and have tracked a range of 18 economic statistics up to the end of April. The US Yield curve is just one of these and is #6 on the list. They compare current statistics with those from previous “proper” recessions.

The Citibank Global Bear Market Checklist

Citi’s Bear Market Checklist (BMC) shows only 4 out of 18 red flags, and suggests that it is too early to call the end of this ten year bull market. In previous cycles, the BMC red flags have accumulated gradually before rising exponentially in the last year of the bull market. Citi analysts would be more concerned when 7-8 factors are flagging caution.
From Citi Insights

So Slack Investor does what he does best … and leaves the economics research to those who can do it well … business as usual. There are a couple of my individual stocks (CTD, CGC, PMC) that are on the slide and may need attention. I will look at their numbers and outlooks (and charts) again this week on Market Screener . But other than that, I will ease, ever so slowly, into the couch.

April 2019 – End of Month Update … and, Lets Get Concessional

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

There were rises in all Slack Investor followed markets (ASX200 +2.9%; FTSE100 +1.3%; S&P500 +3.9%). All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Concessional Contributions – Lets Get Concessional!

Thanks Jane … You are inspirational to our financial independence – From deskgram.net

If you are just starting your savings program or getting your house deposit together, then this is another higher order issue to leave alone. If you have got the basics organized and have a good chunk of equity in your house, and looking to boost your super in a tax-effective way – then tune in to this super boost before the end of tax year.

Concessional contributions include your employer’s compulsory super guarantee contribution of 9.5% and any salary sacrifice contributions that you make. They are called “concessional” contributions because they go into your super account from your before-tax income and are taxed at the “concessional” rate of 15% rather than your “marginal” rate. You are not allowed to exceed the $25,000 cap on concessional contributions, so it is important to get your sums right.

For a gross salary of $90,000, your employer pays the 9.5% super guarantee of $8,550 to your nominated super fund. That means you have up to $16,450 ($25,000 -$8,550) left on your cap to concessionally contribute to super before June 30 – to save on tax and boost super.

Salaried workers can concessionally contribute by using salary sacrifice, but this involves prior employer agreement and using a salary packaging company to do the administration. Some of the contribution rules have relaxed since July 2017 and you can now contribute by Personal Contribution. There are pros and cons of each contribution method, but as personal contributions don’t need the agreement of a third-party, I find this much easier to do.

You will have to let your super fund know that you are claiming a tax deduction for this contribution. Use a standard ATO personal contribution form or, it is simpler with some super funds where an online application is all that is needed. You must get your contribution to land in your super fund before the June 30 deadline.

Benefits of salary sacrifice and additional concessional contributions

If your marginal tax rate is higher than 15%, making extra super contributions can reduce your tax. For the $90,000 a year example, your marginal tax rate is 32.5% + Medicare levy. Concessional super is taxed at just 15%. If your marginal tax is higher, you can save more. Industry super has a calculator where you can enter your own figures. For the case above, a 45-year-old will have a tax saving of $3222 this year and an extra $405,000 at retirement by maximizing concessional contribution.

From the Industry Super Funds Calculator for a 45-year-old on $90,000 who maximizes their concessional contributions and save $3222 this year – and ends up with an extra $405,000 at retirement with these assumptions.

Let’s get concessional, concessional,
I want to get concessional,
Let’s get into concessional,
Let me hear your body talk, your body talk …
Many apologies to Olivia Newton John … for real inspiration, check out the Olivia on youtube

Slack Performance … Not So Slack

Last post I described a change to the Slack Method for managing Index funds. Index “whole market” funds are just a small part of my share portfolio – about 3%. The bulk of my share market exposure is in individual growth companies.

Slack Investor is a great believer in measurement and is most un-Slack when it comes to record keeping and recording his investment results.

If you can not measure it, you can not improve it
Attributed to Lord Kelvin … his more verbose quote is here

My main cycle of measurement is at the end of the tax year in Australia, June 30. Because the results of one-year performance can be a bit misleading. I am much more focused on results over 5 years as these longer term measures are more meaningful to the investor. The benchmarks I have used have been mainly sourced from the excellent NetActuary site. A shout out to the low cost Vanguard Growth Index Fund. When I tire of investing in individual companies, this (or Vanguard ETF’s) is the type of vehicle that would be a good resting place for funds that require minimal supervision.

The SLACK FUND 5-yr average compound return vs BENCHMARKS. The Median Balanced Fund, Vanguard Growth Fund, ASX 200 Accumulation Index, Residential Property median in both Brisbane and Melbourne, and Cash (Online bank Interest)

A good way of measuring growth is comparing $10000 invested in the Slack Fund in the 9 years since 2009 against benchmarks.

*The SLACK FUND growth of $10000 invested October 2009 vs BENCHMARKS. The* Median Balanced Fund, Vanguard Growth Fund, ASX 200 Accumulation Index, Residential Property median in both Brisbane and Melbourne, and Cash (Online bank Interest) and Consumer Price Index (CPI)

Year by year results are presented in table form below. I will add results at the end of each financial year and put them on The Slack Way page.

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH	CPI
2010	6.6	9.8	12.3	13.1	8.5	24.3	4.2	3.1
2011	2.5	8.7	9.1	11.7	-3.6	-2.0	4.4	3.7
2012	8.3	0.4	1.3	-6.7	-2.7	-4.8	4.3	1.2
2013	26.5	14.7	18.6	22.8	3.7	3.3	3.2	2.4
2014	23.6	12.7	14.5	17.4	6.8	9.3	2.6	3.0
2015	2.4	9.6	11.8	5.7	3.4	7.8	2.5	1.5
2016	14.2	2.8	4.2	0.6	4.9	8.2	2.2	1.3
2017	19.5	10.4	8.8	14.1	3.0	13.8	1.9	1.9
2018	37.6	9.2	10.0	13.0	1.1	2.3	1.8	2.1

For this site I have only presented my share trading results since 2009. Any cherry-picking of data to avoid the terrible investing years of 2008 and 2009 is coincidental. Out of the ashes of the Global Financial Crisis (Great Recession), 2009 is the year that I started my Self Managed Super Fund (SMSF Slack Fund) and from which I have independently audited results. For the record, prior to 2012, I was not what I regard as a very successful investor. My investments for the 2003-2011 period performed worse than the Median Balanced fund on 6 out of 9 occasions.

What changed? I started to go to a local investment class which made me re-evaluate my investment method (Thanks Robbie Fuller!)

Took a more disciplined approach to investing by documenting everything and having weekly and monthly and yearly chart reviews of my investments
Tried to reduce confirmation bias from my portfolio – i.e. I bought this stock for a good reason … I am smart … the price has gone down … the market must be wrong! – I would score myself 5/10 on this goal!
Started using charts and stop losses extensively.
Started investing mostly in growth companies that have some barriers to entry for competitors (moats) – Companies with manageable debt, with future PE less than 25 -30, and with a return on equity (ROE) of >15%
Before investing in an individual company use both fundamental analysis (Thanks Market Screener) and technical (chart) analysis (Thanks Incredible Charts) before I make a buy order.
Tried to follow the Peter Lynch approach to my portfolio. Selling the bad performers (weeds) and trying to add to my position on stocks that are doing well (flowers).

You won’t improve results by pulling out the flowers and watering the weeds.
Legendary Investor Peter Lynch from quoteswise.com

Investing in growth companies can have its despairing moments and I cannot guarantee that the Slack Fund will continue to outperform the benchmarks … but, the results, so far, are good.