Trading Method | Slack Investor

March 2019 – End of Month Update … and Revised Slack Index Method

Slack Investor remains IN for Australian index shares and IN for the US Index S&P 500. The dogs’s breakfast of Brexit still weighs heavily in my mind but I am buying back IN for UK Index shares – as the FTSE 100 has shown remarkable resilience to the fraught politics of Brexit and displayed a monthly uptrend. I will buy back IN to the FTSE at near the end of March value of 7279 (See UK Index Page).

There were rises in all Slack Investor followed markets (ASX200 +0.2%; FTSE100 +2.9%; S&P500 +1.8%). All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

The Slack Monthly Index Trading Method – Revised

Last month I mused about the diminishing returns of the Slack Monthly Index Trading Method. I am still outperforming the “Buy and Hold” investor in all followed markets – but the advantage is slim. Per annum outperformance is 2.9%, 1.2% and 1.1% for the ASX, UK and US markets respectively. Not really fantastic results when you consider that I am missing out on the “buy and hold” dividends for the times when I am out of the markets.

The Slack Index method was devised with a lot of back-testing on 30 years of market performances and does really well when sustained bear markets occur as it gets out of the market at a hopefully early stage in the price downturn. Ideally, the Slack method should stay in the market for the smaller fluctuations (corrections <~10%) and get out of stocks before it becomes a full bear market. The problem with my current strategy is that I am getting “whipsawed” out of the market in these smaller downturns.

Connection between US Bear markets and Recessions

There is a link (not a perfect link!) between US bear markets (drops of more than 20%) and US recessions. In the chart below, the bear markets are shown in thick purple lines and they mostly coincide with US recessions (grey columns).

Modified chart 1920-2019 showing (in purple) the bear markets (where the red US stock prices fall >20%) and the US recessions shown as grey columns – From Gavyn Davies Financial Times – Original source Haver Analytics

All well and good so far, but we want to be out of the markets before a recession … how can we predict recession? Should we ask economists? A recent survey found that 3/4 of those surveyed thought there would be a recession before 2021. This is good to have in the mind … but not that useful in a practical sense. Economists have a poor record in predicting recessions. I don’t mean to be mean to economists … I also have had a career in prediction (weather!) and there are many similarities. Like the atmosphere, economics is complicated, not all factors are known, and not all processes are truly understood – But we do our best!

The “Inverted Yield Curve” as a predictor of US Recession

There might be an answer to predicting recessions by using the US Treasury Bond “Yield curve” . You may have heard about the yield curve (Probably not! but read here) – where short-term US treasury bill yields are compared to long-term yields. Normally, you would expect the yields on your money to be higher the longer that you lock it away – this corresponds to the periods above the red line on the graph below. Usually, the 10-year Treasury bill yield is greater than the 1-year bill yield. However, if there is a very a gloomy US outlook and the Feds are raising rates, you can earn more in the short term. This is when the yield difference [10-yr minus 1-yr (or 2-yr)] slips into negative territory, and you have an inverted yield curve – shown with the thick purple lines below. Note that these inverted yields usually occur one to two years before a recession (grey columns).

*Chart showing where the yeild curve becomes inverted (purple lines) with the US recessions shown as grey columns. Modified from* Morningstar report – original source Gurufocus.com

I love being the owner of companies and much prefer being in the share market than not. I will adopt the brand new exciting Slack Monthly method that should keep me in shares for the smaller downturns (corrections). I will ignore any monthly downturn signals UNLESS there is a sustained period of the US Inverted Yield Curve. I can check this at the end of the month at Gurufocus.com. This should maximise my chances of staying in shares until there is a threat of recession and the expectation of a larger downturn.

Jacinda Ardern shares a hug at a Wellington Mosque – From The Guardian

This has been a tough month for this part of the world – where, in Christchurch, a hate-filled idiot with a gun can a cause so much heartache for decent families. Great respect to the people of New Zealand and their exceptional leader Jacinda Ardern for bringing gun reform and such a strong message for humanity in the wake of this tragedy.

Power to love, tolerance and humanity.

February 2019 – End of Month Update … and Challenger rethink … and Trump

Slack Investor remains IN for Australian index shares and OUT for UK Index shares. The US Index S&P500 has now shown enough sustained positive momentum on the monthly chart that I am buying back IN on the S&P500 today (1 Mar 2019).

Recovery continues with rises in all Slack Investor followed markets (ASX200 +5.2%; FTSE100 +1.5%; S&P500 +3.0%).

A Reprieve for Challenger

Last post I was looking to get out of Challenger … a stock that I have fallen out of love with … due to months of disappointing declining share price. On the day of intended disposal, I noticed that it had gone up 2%. Slack Investor doesn’t like to swim against the tide … and I delayed … it went up again the next day on increased volume – the sign that someone is buying the stock in some numbers. The daily chart started to look like an uptrend was being established. Higher Highs and Higher lows … so, I am still an owner of the stock until this uptrend pattern breaks. This takes a bit more vigilance than Slack Investor really likes as it takes a daily look at the chart pattern … The reasoning is that it is annoying when a stock bounces back immediately after I sell (this has happened a few times!) and I will ride this (could be temporary) upswing as long as it lasts.

Challenger (CGF) Daily chart -From Incrediblecharts.com

Trump

The Donald is never far away in the news. Never boring … frequently appalling. A question in #Quora asked “Why do some British people not like Donald Trump?” An English writer, Nate White, penned this magnificent response in full here – but you can get the jist from the opening paragraph .

Trump lacks certain qualities which the British traditionally esteem.
For instance, he has no class, no charm, no coolness, no credibility, no compassion, no wit, no warmth, no wisdom, no subtlety, no sensitivity, no self-awareness, no humility, no honour and no grace – all qualities, funnily enough, with which his predecessor Mr. Obama was generously blessed.
From an article by Nate White

Further education on the quality of Donald Trump’s character can be found on the Donald Trump sexism tracker. It is a great article that is almost impossible to finish without feeling a little ill – and an uneasy feeling about how we got to this point.

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

Terrible Things

Yes, … there are some images that stick in Slack Investor’s head … and this is one of them! The average ceramic toilet should last 50 years. The relentless view from a toilet’s perspective must be pretty confronting – and the cumulative exposure must be horrific! Apart from now treating each toilet that I encounter with great respect … and giving acknowledgement for past suffering – this image has made me think of the terrible things I’ve seen.

Residents of Idalia, Townsville survey the damage. Picture: Michael Chambers – Courier Mail

Firstly, a shout out to those in Townsville (Where Slack Investor has a house). A massive flood event has occurred on the Ross River and affected many homes. The mud, the silt, the mould, the smell, and the destruction as water has invaded homes is horrific … and definitely qualifies as a terrible thing. As one who has had flood water in his home, fortunately not in the main living areas, my thoughts are with those badly affected as the town moves toward recovery.

Terrible things of a far lesser order

We are now in the “confession season” where Australian companies must report to the market. Slack Investor is predominantly invested in “growth” companies – and there is inevitably always some bad news with some of these stocks where the companies sales do not meet expectations – for whatever reason. As news breaks there is usually a rapid sell-off and the price drops dramatically.

Daily chart for Costa Group (CGC) *– From* incrediblecharts.com

Daily chart for Challenger (CGF) – From incrediblecharts.com

Now the nature of Slack Investors slackness is that he doesn’t get involved in the daily ructions of a stock price – but he is confronted with these sorry charts at the end of each week (and month) when he does his portfolio reviews – He must decide what to do next! A good start is to read the press for any information on why these stocks have fallen – Is it a panic sell … or is there something fundamentally wrong with the prospects for this company at this time.

The top chart is of Costa Group (CGC), a food producer with interests in mushrooms, blueberries, raspberries, tomatoes and avocados. A profit downgrade led to the big price drop, but consensus seems to be that the sell-off was overdone due to the seasonal nature of fresh food supply. The long term prospects for sustainable growth in Australia and internationally look good and Slack Investor is a remainer in CGC. More useful advice to millenials (But this actually makes sense!)– as well as eating the odd “smashed avacodo“, aspire to owning a company that produces them!

I originally liked the story behind Challenger (CGF), an annuity provider that should be able to tap into the retiring “baby boomer ” market. There are a few articles on Challenger that discuss the recent 8% profit downgrade that led to this slump – blame is apportioned to the Hayne Enquiry, recent poor investment returns and politics. CGF was one of my defensive big picture stocks (on a good dividend 4.7%) that I was sure would come right – but the downward trend on the chart would suggest that I have hung on for too long. The stock price might bounce back – but it seems that there are enough headwinds to inhibit growth in the near term. I will be looking for a chance to rotate out of CGF and into another company such as Treasury Wine Estates (TWE) over the next few weeks. TWE had some cash flow problems this reporting season, but is projected to grow sales and revenue with a good return on equity in the next few years (14.1% in 2020).

Treasury Wine Estates (TWE) – Projected sales growth to 2021 – from marketscreener.com

January 2019 – End of Month Update … and vale Jack Bogle

What another wild month for shareholders! … Rises in all Slack Investor followed markets (ASX200 +3.9%; FTSE100 +3.6%). The volatility is best illustrated by the US Index S&P500, down 9.2% last month, and this month, up 7.9%!

Slack Investor has sold his US and UK Index Funds and remains out until a positive trend on the monthly charts can become established. He remains tentatively IN for Australian index shares – ASX 200.

Actively trading the index funds on a monthly basis has been profitable for Slack Investor since 2004 but this recent high volatility is causing a rethink on my index trading strategy as my trading advantage statistics are starting to shrink. So far, my advantage over the ‘Buy and Hold” Index investor for the ASX200, FTSE100 and S&P500 is 43%, 23% and 8% – but this does not account for any missed dividends while I have been on the sideline. Since 2004 this represents outperfermance of 2.9%, 1.5% and 0.5% per year, respectively. For now, I am sticking with the strategy – but imagine how slack I could be if I just bought and held these index funds.

Farewell John C. (Jack) Bogle … and great thanks

Jack Bogle (in 2012) – founder of mutual fund company Vanguard – from source

An established Slack Investor hero, Jack Bogle died this month aged 89. The founder of Vanguard, he was a great friend to all investors. Warren Buffet was asked to comment on his passing
“Jack did more for American investors as a whole than any individual I’ve known”

A fitting tribute to his achievements can be found on the Vanguard site.

The finance industry has for a long time gouged the ordinary folk with fees and layers of complication. Before Jack Bogle, mutual funds were setup to manage other peoples money for a profit. In 1975, it was common to charge the punter 1-2% for the privilege of managing their money – This is $100-$200 for each $10000 invested for yearly management! There was also a range of other investment fees which could amount to 4% of your initial sum. Investments would be have to be arranged through “brokers” who would also take a slice. The “Vanguard Experiment” set up an independent mutual fund that operated “at cost”. He introduced the first low-cost index fund that followed the top 500 US stocks. Vanguard now has 20 million investors and manage over $5 trillion in assets.

“If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds … In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.”
Warren Buffet – from his February 2017 Letter to Shareholders

Vanguard have managed funds (where you apply to Vanguard directly) and exchange traded funds (ETF’s) where you buy the funds as a share on the stock exchange through your low-cost broker. Both are good ways to expose yourself to the stock market. For my investing style, where brokerage costs are not a big consideration – I prefer the simplicity of ETF’s.

A Vanguard Australian listed ETF that provides exposure to all of the world’s companies (Ex-Australia) is VGS. Slack Investor bought VGS last month on the technical signal “break of a long-term downtrend” and it has a reasonable yearly management fee of 0.18% – That is $18 for every $10000 invested … not Bad! But because Vanguard have set the cost benchmark, many other funds and ETF issuers are trying harder to keep costs down. The Australian listed SPY (State Street) which I use to track the US index has a management cost of $9.45 per $10000. A shout out to the Australian owned BetaShares which provide an ASX200 ETF A200 for a remarkably low $7 per $10000.

Jack Bogle repeatedly pointed out that it was extremely difficult for an active fund manager to outperform index funds over the long term.

Over a 15-year period prior to June 30, 2018, only one in 13 large-cap managers, only one in 21 mid-cap managers, and one in 43 small-cap managers were able to outperform their benchmark index .
SPIVA US Report Mid-Year 2018

My new year’s resolution is to start rotating out of the few high cost active funds that I own (e.g. Platinum Capital (PMC) and the Montgomery fund – where the management fees are over 1%) – to focus more on the passive index funds – where costs are low. I will try to do the active trading myself in individual shares while I comfortably outperform index funds on a 5-yr basis. Slack Investor will eventually phase out his active trading for a more passive portfolio .

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

Workin’ the Wedgie – Breaking Downtrends

The “Wedgie” is a classic Australian image that brings delight to the Slack Investor. Last post, I referred to a breakout from a “falling wedge” in the ASX 200 weekly chart. There are all sorts of patterns that technical (using charts) investors use. Slack Investor concedes that, as the pattern was longer than 3 months – he should have referred to the pattern as “breaking a long-term downtrendline“. However, this term is not as engaging to the eye, or as dead set funny, as the “Wedgie”.

The breakout from a long-term downtrend on a share price chart is one of the classics and the technical signal has more validity on a weekly chart than a daily one. Slack Investor loves this pattern and has been patient over the last few months as stocks have been sinking worldwide. He has trimmed his portfolio and has some cash and feels now is the right time to test the waters. This breakout from a long downtrend has the potential to be a trend “reversal”.

There comes a time when stock prices fall to a price that buyers start coming back into the market and the share price comes back up. If it is sustained, this is called a “reversal”. In “Technical Speak”, a new trend is only established when a new “higher low” is established – so, this is an early call – supported by the establishment of a stop loss on all buy orders.

Trading the long term downtrend breakout

Admittedly, these trades just make the definition of a long term downtrend – but it has been a steep fall!

To be considered a long term trendline, the trendline should be at least 3 months. The longer the trendline the more bullish it will be when the stock breaks above the trendline.
From Dstockmarket.com

CSL Weekly chart – *from* incrediblecharts.com

The wedge pattern can be seen on the CSL chart. The critical part of this shape is the upper line of the wedge on your chart software. I highly recommend the free (if using day-old data) Incredible Charts to do this type of stuff. This upper line connects at least 2(and preferably 3) descending high points (that establish the downtrend) on your weekly chart. To get into this trade early, buy whenever the closing price breaks above the top downtrend line. Technically, a new uptrend has not been established yet. Confirmation of a new trend comes when a new “higher high” and “higher low” has been established. A more conservative entry point is when the new trend becomes obvious. An established trend trading rule is

Buy the Higher Low and Sell the Lower High
A full explanation of this confusing set of words can be found in the Tyler Yell article at dailyfx.com or, shown schematically below

Image demonstrating the trend trading zones for the “Buy the Higher Low and Sell the Lower High” strategy. It boils down to selling when a downtrend is established (Lower High) and buying when a new uptrend is established (Higher Low). More trend stuff in a previous post The Trend is Your Friend.

Cochlear weekly chart – from incrediblecharts.com

But, enough of the theory.
Normally, I would wait until the new uptrend is a bit more entrenched, but the companies below have been on Slack Investors watch list for some time and they have a track record of increasing dividends. They have high P/E ratios as they are growth companies (and their projected growth is factored into their price). But what really impresses me is the way they use their capital. From Marketscreener.com, COH has a forecast 2020 Return on Equity (ROE) of 44%; RHC 23% and CSL 38%. If I put money into a bank deposit, I might get a paltry 3%. These companies are very good at getting returns on their investment (equity) – and I want to be involved!

Ramsay Health Care Weekly chart – *from* incrediblecharts.com

There are other Australian stocks on my Growth Stocks watchlist that show this downtrend breakout pattern. They include ALU, APX, CAR, CCP, FPH, SEK, and A2M. Unfortunately, my investment funds are not limitless. Not all of them will be winners, this is not advice, but I’d rather invest in companies like them – than get a “wedgie”.

I will report back on all of these “buy signals” in a year.

December 2018 – End of Month Update … and Moving Day

What a month! … In amongst the Christmas and New Year Celebrations, Slack Investor has been forced to get OFF the couch!

Slack Investor is on the SELL and is leaving the US, UK Index Funds – for now. He remains tentatively IN for Australian index shares – ASX 200.

Trumpishness and Brexit, future US rate rises, and stock valuations in the US add to the uncertainty and wild fluctuations. The FTSE 100 is down 3.6% and S&P 500 is down a whopping 9.2% for the month. Time to sit things out and wait for the next uptrend in the markets. It is always sad to see the end of a long successful trade and the run in the US S&P 500 has yielded 153.8% over 9 1/2 years. In Australia … we would call this a great innings and clap the US Index off the field … A fantastic Bull Run!

My efforts with the FTSE 100 are far less spectacular with an overall loss of 7.4% – However, I am glad to be out of that market with all of the Brexit confusion.

The Australian ASX 200 had a reprieve after passing through its stop loss last month, but it is still hanging in there. As the share price is still below its stop loss, I was ready to let it go this month. However, a “Bullish” pattern emerged on the weekly chart.

The Falling Wedge

The “Falling Wedge” is a classic part of Technical analysis … it can be “Bullish” (Reversing the downtrend) or “Bearish” (Continuing the downtrend)- depending on what happens with a breakout of this pattern.

Weekly chart of ASX 200 – A Falling Wedge pattern is formed by drawing a trend line along the top of 2-3 of the descending high points and a support line connecting 2-3 of the low points.

The weekly chart above shows a distinct breakout from the “falling wedge” pattern (Labelled 5646). This MAY indicate a reversal of the downtrend. The ASX 200 Index is now on a weekly watch and if the share price falls back into the “wedge” at the end of the week, I will put out a post and exit the stock.

The recent price plunges have made for a dismal calendar year 2018 for stocks. Without including dividends, ASX 200 -6.9%; FTSE 100 -12.5%; and the S&P 500 -6.2%.

I naturally hope for a change in trends and wish a prosperous New Year to you all.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). I will update my portfolio holdings page in the next few days.

November 2018 – End of Month Update … and Hayne … You my Man!

Slack Investor remains IN for US, UK Index Funds. The jury is still out for Australian index shares.

Nervousness has crept into all markets as uncertainty on world trade (Thanks Donald!), Brexit, future US rate rises, and stock valuations prevail. The FTSE 100 is down 2.1% and S&P 500 is up 1.8% for the month.

The Australian ASX 200 is down a further 2.8% to 5667 and has slipped below its designated monthly stop loss of 5724. This is usually an automatic sell for the ASX 200 index. However, Slack Investor is hesitant to trade against momentum and the orange buffoon (President Trump) and President Xi from China have just come to a “Partial Truce” on their trade war for 90 days at the G20 summit. This “temporary certainty” will be good for world stocks and a bounce in most stock markets will probably happen on Monday 3 December – ASX 200 you have had a temporary reprieve!

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

Hayne Train Eases into the Station

Slack Investor Hero Royal Commisioner Kenneth Hayne – modified from SMH

Established Slack Investor Hero Royal Commissioner Kenneth Hayne wraps up his enquiry into the finance sector after 8 grueling months and 770 000 documents. and concludes his epic and momentous gathering of evidence. His interim report has suggested big changes to a flabby and rorting finance industry.

Through persistent effort, a new Slack Investor rolled gold Hero has also emerged. Senior counsel assisting the commission, Rowena Orr QC has covered herself with glory from the Royal Commission fray (With a special mention to her alternate senior counsel Michael Hodge, QC).

Through persistent effort and an understated forensic style , Ms Orr has been responsible for grilling a parade of witnesses to reveal a shabby record of commissions, bribery, unfair payments, improper board oversight and rorts that have brought shame to the Australian Finance Industry.

… marshalling her facts patiently, leaving people in the witness box with nowhere to run from her logic, where they don’t know they’ve been filleted until they leave the room – from The Guardian

For example, When Ms Orr cross interviewed the Chief risk officer of ANZ’s digital and wealth arms, Kylie Rixon, about the raft of bad advice given to customers by bank financial advisors.

“One in every 20 pieces of advice given to customers failed to meet the requirement that the advice was likely to be in the best interest of the client?” Ms Orr asked.

“For the sample selected, yes that’s correct,” Ms Rixon said.

Later, Ms Orr asked: “What’s sampled in an audit is meant to be representative of what’s happening across the business?”

“Yes, that’s true,” Ms Rixon replied. – from abc News

Power to your Ms Orr. With hearings finalized, Commissioner Hayne and his team withdraw temporarily from the limelight to write their report. Slack Investor looks forward to their recommendations.

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

Coco Chanel in 1920 ( ) – From bestlifeonline.com

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

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

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

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

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

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

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

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

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

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

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

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

October 2018 – End of Month Update … and corrections

Slack Investor remains IN for US, UK and Australian index shares.

What a splash in the face this month was – with many rushing for the exits. All Slack Investor watched markets took the cold bath with big price drops all round. The ASX 200 index down 6.1%, the FTSE 100 -5.1% and S&P 500 -6.9%. However, this sudden downturn didn’t breach any of Slack Investor stop losses and he remains idle for another month on his index stocks.

It is a different story on his individual stocks though, as many took a sharp price dive and the portfolio needs a bit of re-assessment. I trade individual stocks in a different way to the index stocks and it isn’t as rules-based.

Each individual stock has the advantage that it can be assessed as a business. A breach of the monthly stop loss for individual stocks means that I have to look at each company and make a decision on whether to keep – or to ditch! The first thing I do is take a close look at the business (current price, PE, yield, future earnings, return on equity). I then ask myself ” would I buy the share at this price? If so, I then look at the current momentum of the stock and, if it is still heading south, then I think that there is something going on that I don’t understand – and try to sell at the next opportunity.

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

Department of Corrections – Part 2

The Trumpkin might like to lay off blame for the latest slump in US Stocks to the Federal Bank – but, in the same way that his tax cuts were good for the US economy, his talking up of a trade war and tariffs with China is causing concern in the US market – From News.com.au

The newspapers are full of scary stories about the stock market when prices take a sharp dip. Corrections are normal and just part of share trading – the market ramps up a little fast due to “excitement” and then quickly falls as people “panic sell”. Slack Investor discussed corrections earlier this year and doesn’t like to get involved with these short term trends. However, I will act if I must.

It is reassuring to listen to experienced investors such as Colin Twiggs, of Incredible Charts fame, who reflects on this most recent correction.

Truth is, there is no single reason that could justify the dramatic market falls. … Market sentiment has simply shifted. The scale has tipped and more investors are taking profits than new money coming into the market. When that happens, prices fall. And falling prices become a self-fulfilling prophecy, scaring off new investors and panicking investors with a short-term outlook. – The wisdom of Colin Twiggs

Chart showing the regular dips in stock market price over the past 5 years – ASX 200 and MSCI Wolrld index – Despite corrections, the trend is up. This is still a bull market! – from Shane Oliver, Switzer Daily

Slack Investor does not have a short term outlook. The share trading art is to stay invested in a stock when there is a relatively short-term correction – and to get out when there are more serious issues with the economy. Shane Oliver again

Corrections in the order of 5-15% are normal; in the absence of recession, a deep bear market is unlikely – From Shane Oliver AMP Capital

OK then … I’m heading back to the couch … but not before taking the opportunity to do a full review of my individual portfolio stocks this month. It might free up some capital to get into some bargains that the correction has revealed.

September 2018 – End of Month Update … and 2018 SPIVA Results

Slack Investor remains IN for US, UK and Australian index shares.

Justice Kenneth Madison Hayne reflects on the “Inexcusable greed and dishonesty” shown by segments of the finance industry – Image modified from the Brisbane Times

September heralds a change of season and there is some nervousness creeping into the Australian market (ASX 200 index -1.8%) as the Banking sector continues reeling from the interim report on the finance sector by Royal Commissioner and Slack Investor Hero – Kenneth Hayne . Wall St is steady (S&P 500 +0.4%) and the FTSE 100 has bounced back a little (+1.0%). However, the Slack Investor stop losses are not breached and decisions are put away till the end of October.

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

SPIVA … What’s the score?

Image result for roy and hg festival of the boot — Peerless sporting commentators Roy and HG – from The Roar

It is the end of season for winter football codes in Australia. Slack Investor welcomes back Roy Slaven and HG Nelson for brightening up his weekend and helping him keep score with their commentary on the “Festival of the Boot” – This is a distraction, but you can get a taste of the genius of Roy and HG here, here or, for a great Australian Bradbury moment here. For the “Festival of the Boot” here. It might be a sign of my perpetual immaturity, but I just don’t tire of these gentlemen.

One of the scorekeepers in the financial world are a group of boffins known as SPIVA (S&P Indices Versus Active). For 16 years they have been collecting world financial data and comparing actively managed funds to passive (Index) Funds – Slack Investor has looked at their findings before.

Their 2018 June report continues on the theme where (for a 5-yr period), almost 69% of Australian active funds failed to perform better than index funds. In the US, actively managed funds perform even worse with 84.23% of funds under performing the index over 5 years.

Over 5-years, 68.69% of AUSTRALIAN EQUITY FUNDS UNDER PERFORMED THE S&P/ASX 200 (Index ASX 200) – as of Jun 30, 2018 – From SPIVA Report 2018

The data reveals that there are some funds that beat the index, but they tend to invest in small to medium sized companies. As Roy and HG would say … You would have to be in the “Dream Room” to ignore the power of the SPIVA message.