Monday, 1 February 2016

Net Worth: Jan 2016

As would be expected for a high risk investment approach, my net worth dropped considerably last month, due to the global uncertainty regarding China growth, and the negative sentiment seen in stock markets around the world. My geared share portfolio was down a massive $37,302 (-26.16%), and my retirement savings (SMSF account balance) was down $19,920 (-2.79%) as it is largely invested in local and global stock markets via the Vanguard High Growth Index Fund.

On a more positive note, the estimated value for our home was fairly stable, with the 'correction' in Sydney house prices being more of a sideways move than an actual drop in average sales prices (so far).

Overall, my net worth decreased by -$57,110 to $1,788,873 (-3.09%). So far it isn't looking likely that I'll become a 'multi-millionaire' in 2016.

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Tuesday, 5 January 2016

Net Worth: December 2015

Net Worth increased slightly during December (up 0.87% or A$15,731) due mostly to an increase in the estimated market valuation for our home. My leveraged stock portfolio saw little change over the month, and my retirement savings showed a slight decrease with a bi-annual tax payment offsetting the two employer contribution payments that were processed during the month. Depending on how the stock market performs during 2016, this might be the first year my net worth touches two millions and I become a 'multi-millionaire' ;) Unfortunately these days that no longer qualifies one as being 'rich' or UHNW (ultra-high net worth) -- for that you'd need ten or twenty million dollars of 'financial assets', not just a house in Sydney.

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Thursday, 31 December 2015

2015 HSC results show how little effect the school has on student outcomes

Well, the 2015 HSC results are now out, and the usual 'school ranking' list made the front page of many Sydney newspapers, followed shortly thereafter by the usual disclaimers that the school rankings don't really mean anything. But that doesn't stop many parents thinking that getting their child into the 'right' high school from Year 7 will have a major impact on their eventual HSC results.

The actual results however, show that individual schools have very little influence on the results their students achieve -- the predominant factor influencing HSC results (in terms of % of 'Distinguished Achievement' (Band 6 or E4) subject results, and % 'All Rounder' (students with 10 units of Band 6 or E4 results in total)) is simply the ability level (as measured by the 'cut-off' selective entry test result to gain entry into the school) of the cohort of students that entered Year 7 six years earlier...

The figures below show that a school with a high 'cut-off' mark (selective schools entry test) to get into Year 7 will end up with a high percentage of Distinguished Achievement and All Rounder results when that group of students sits the HSC exam. For example, a school with a cut-off mark for entry of around 200-210 will end up with around 25%-45% "DA" and 5%-20% "AR" six years later. And a school with a higher cut-off mark (eg. 230-240) will end up with around 60%-75% "DA" and 30%-60% "AR".

The slight impact that a school can have is only apparent when a school consistently gets HSC results significantly above (or below) what you would expect based on the 'cut-off' score (ability level) that the students had when they entered Year 7. For example, NBSC Manly seems to consistently achieve slightly higher HSC results than would be expected from the 'cut-off' mark required to gain entry into Year 7 (However, even that may not be a 'real' effect - there are geographic reasons why some high ability students that might otherwise have gone to a selective high school with a higher cut-off mark decide to attend Manly. It's a long commute to get to James Ruse or Sydney Boys High from the Northern Beaches suburbs! So the correlation between 'cut-off' mark and average student ability level may sometimes be weakened by .local factors). And Sydney Technical HS seems to get a lower %DA in the HSC than one might expect from the entry cut-off scores for that cohort going into Year 7. But again, the %AR results for Sydney Technical are much closer to the expected range, so it might simply be that students choosing to attend Sydney Technical HS are not particularly strong in the compulsory English subject for the HSC, which might explain why the %DA results are depressed while their overall %AR results are more in line with the level of student ability.

[note: each school has four data points on the above charts, as the release of the 2015 results means I now how four years where I have the cut-off entry score and corresponding HSC results for that cohort]

These results also help to explain why private schools offer full and partial scholarships to attract students with high selective high school entry scores (and scholarship test score results, which are comparable) -- they are simply underwriting their future HSC results and school rankings.

It also becomes obvious why James Ruse will continue to come top of the school rankings (but might get pipped by Baulkham hills in a few years time), and which schools will continue to be at the top of such 'ranking' tables in future. You simply have to look at the current Year 7 entry cut-off scores to get a good estimate of the school's HSC results for 2021:

School (2015 cut-off mark for Year 7 entry):
Baulkham Hills (235)
James Ruse (230)
Sydney Girls (223)
Nth Sydney Boys (221)
Sydney Boys (220)
Nth Sydney Girls (219)
Hornsby Girls (216)
Fort Street (216)
Normanhurst (214)
Girraween (210)
NBSC Manly (206)
Sydney Technical HS (197)

One interesting side-effect is that selective high schools that do well in the HSC 'rankings' tend to become a more popular choice for parents choosing a school, so their 'cut-off' marks tend to increase, which in turn means a higher average ability level for the next cohort of students entering Year 7, and better HSC results five years down the track. This seems to be the trend at Baulkham Hills, and to a lesser extent at Fort Street.

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Saturday, 19 December 2015

Glide Pro Fishing Kayak

I recently saw a TV for kayaks on 'Christmas sale' at BFC (Boating Camping Fishing) and decided to check them out online. The inflatable kayak I'd bought from Aldi had been fun, but turned out to be too small to be usable for someone of my BMI (100+kg). I'll relegate that one for DS1 and DS2 to use.

After looking at the cheapest 'Glide Junior' kayak (on sale for $149, with a maximum capacity of 60kg) and the basic 'Glide Adult' kayak ($199, max. 110 kg) I initially decided to spend a bit more money for the more upmarket 'Glide Reflection' ($299, 2.92m long, max. 110 kg) that looked a lot more stylish. But having decided to spend $299 on a kayak I checked out the other available models and found that the 'Glide Explore Fishing' kayak (in Granite [mottled light-grey] colour) was available at the same price, but had nicer features and a maximum capacity of 160kg. So I placed an order online for that model, with pickup from my local BFC (a few km from my home) to save me the $120 delivery fee. Pickup was supposed to be ready 'within four business hours' of ordering online...

Unfortunately by the time my credit card payment was processed the next morning the last kayak of the model/colour I had ordered had just been sold at the local BFC store. I emailed a complaint to the online sales customer service and they replied very quickly that they'd arrange something to satisfy me. In the end it turned out that the 'Glide Explore Fishing kayak - Granite' wasn't in stock at any of their Sydney stores, so they offered to 'upgrade' my order to the 'Glide Pro Fishing Kayak' in Charcoal colour. This kayak has an RRP of $699 and was 'on sale' for $559.20, so I'm very happy with the 'upgrade', although it might be more 'yak than I actually need. It is quite a bit larger (3.65m long and weighing 31 kg) but has larger capacity (180kg weight) and comes with a foot-operated rudder system. A rudder probably isn't really necessary on a kayak under 4m in length, but it makes this 'yak look a bit more 'cool' (it certainly won't be 'cool' if left sitting in the sun too long -- the darker colour (almost black) makes it heat up quite fast - even after the ten minute drive home the hull was almost too hot to touch).

The extra length and weight don't seem to be an issue -- it still fitted nicely onto the roof rack of my Ford Escape (and the rear didn't stick out far enough to require a warning flag), and I had no problem lifting it onto the roof rack with another man at the BFC loading dock, or with getting it down with my 15-year-old son helping at home. At a pinch I could probably load and unload this 'yak by myself, but a mishap could easily see my straining my back or putting a ding in the car door, so it is generally a two-man operation.

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Friday, 11 December 2015

Atlassian -- Darling or Dud?

A local IT company Atlassian (founded by a couple of UNSW classmates who now find themselves in the top 20 richest Australians list) is a market darling, having seen the share price surge 32% after the IPO started trading. However, despite wishing the company well (Australia certainly could do with some more examples of successful high-tech companies), I have doubts about its success in the long term. At the current price, the company is 'valued' at around $8b, despite only having revenue of around $200m in 2014 (despite the 2014 revenue, up 44%, being trumpeted in a press release on Sep 10 2014, this years figures aren't announced yet -- not wanted to dampen the IPO party?). Also, while being in the enviable position of actually making a profit (albeit only about $7m!) for several years, it still reminds of the speculative bubble companies of the era at the start of this century, that relied on p/r rations instead of p/e ratios to justify their stock prices. While this worked out well for investors in Google, Amazon, and Apple, it certainly wasn't the case for investors in most of the '' era IT start-up companies.

I'll have to check my CityIndex CFD trading account tonight and see if Atlassian shares are available as a CFD -- I'm tempted to keep a close eye on the share price and be ready to short-sell Atlassian at the first hint that their bubble might burst. While the revenue chart for Atlassian currently has the exponential appearance of the SaaS market in general, indefinite exponential growth is next-to-impossible, and a reversion to an S-shaped curve (if not a boom-and-bust trajectory) is much more likely. If one assumes revenue merely quadrupled from 2014 levels (to $1b pa) before levelling off, and if one also assumed that all revenue beyond $200m was profit (ie. around $800m pa profit), that would justify current pricing and a market valuation of $8b with a modest (for an IT growth company) pe of 10. However, if costs (for R&D etc) continue to grow in line with revenue (as has been the case so far), it is hard to justify the current share price if profits are only ever in the tens of millions range. And if revenues plateau (or drop off)...

However, I won't be placing a huge bet on Atlassian either way (maybe just a few hundred dollars for fun), as my track record for making judgments about the potential of individual stocks (and IT stocks in particular) is exceptionally poor. I recall ignoring the float of Microsoft in the early 80s as it seemed overpriced already in the IPO, I bought CSL shortly after it floated and then sold it again when I'd quadrupled my investment -- only to see it increase another 25x since I sold out, and I still smart at the memory of 'investing' a couple of thousand dollars in GEN (Global Entrepreneurs Network) unlisted shares in the 1990s, only to see them go out of business before even getting to the IPO stage (if their attempt to raise even more cash from their investors had succeeded they might have hung around long enough to benefit from the madness).

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Wednesday, 2 December 2015

Net Worth: November 2015

A fairly flat month: Sydney house prices have definitely stopped rising, and auction clearance rates have apparently gone from 90% earlier this year to around 60% now. As usual the "experts" are of divided opion -- some predicting a bursting of the housing 'buble' and falls of 40%, some predicting a return to 'modest' price growth of  around 10% in 2016, and some predicting  a period of price stagnation resulting in a slight decrease in 'real' prices over the next year or two...

As a result our estimated current house valuation is $684,053 (my half share - I don't include DW figures in my personal NW calculation), a modest gain of $3,238 (0.48%) since last month's review. This, as usual, doesn't reflect any potential 'windfall' profit if the property gets rezoned next year and redeveloped into medium density housing apartments as part of the new hospital precinct. Recent residents' meetings have had real estate agents advise that things could finalized within 18-24 months, and some residents have signed 'options' to sell their property to developers for around $2.5m.

My retirement savings balance estimate dropped slightly to $715,783 (down $7,382 or 1.02%), due to weakness in the stock market. The valuation of my geared share portfolio dropped considerably (down $24,215 to $113,816) but this is likely to have been exaggerated due to my investment in IPE paying out a dividend/capital return of around $13,000 today, so the valuation at the end of November was probably 'ex dividend'.

As usual I haven't adjusted the 'cost base' valuation for the hobby farm I 'inherited' from my parents at the start of 2014.

Overall, my net worth was $1.800m, down $28,122 (1.54%) from the previous month end figure.

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Friday, 27 November 2015

Employer Health Benefits

One nice aspect of working for an 'international' company that has its HQ in the US is that their standard 'benefits' package for staff includes medical coverage (which is essential in the US, but not so much here in Australia due to universal public health coverage via Medicare). Now that the 'integration' phase has been completed, we are moving to new employment contracts from 1 Jan, and our new opt-in 'Health Plan' becomes available from 1 Jan also.

The Health Plan is a quite generous scheme offering 'top' private hospital insurance as well as a suite of 'extras' cover (such as dental, optical, physio etc.) with most basic options available from 1 Jan and some of the others (such as physio) having a 12 month 'waiting period' unless you are transferring in from another existing health plan.

The company will be fully funding the standard cost of the plan (at lesast for those within the 'base tier' of taxable income -- under $90,000pa for singles or $180,000pa for families, and in cases where there is no 'Lifetime Health Cover loading'). Unfortunately, while we are likely to be well within the 'base tier' in terms of family income (as DW only works 3 days per week), we haven't had any health insurance since 2008, so we currently have a LHC loading of 10%. That will mean our 'out of pocket' premium is estimated to be around $26 per month, which is still excellent value  -- even just by going for routine annual checkups at the dentist we should get back more in benefits than the 'out of pocket' premium cost. Of course our employer will be footing most of the premium (I guess around $200+ per month), so if we had to pay full cost for private health insurance we would probably still continue to rely on Medicare and the public hospital system.

One side benefit of having private health cover under this company plan is that our LHC loading will stay at 10% while we have private hospital insurance, and after ten years the LHC loading will revert to 0%. That could be a major benefit in the long term if we decide to continue with private health insurance after we retire (when we are more likely to need 'elective' surgery such as knee or hip replacements, dentures or hearing aids...). Of course that assumes we stay employed for the next ten years -- one downside of the completion of the 'integration' process is that we have all got new employment contracts that include a clause whereby we can have our employment terminated for 'any reason' with only 4 weeks notice. I suspect if that happens I'd be lodging an 'unfair dismissal' claim though, and might end up with the equivalent of a redundancy payment. It would still not be very nice to find myself unemployed and over 55 though...

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Wednesday, 25 November 2015

Employer Superannuation benefits

The takeover of the company I work for has finally concluded the 'integration' phase -- some people have left, some people have been transferred overseas, and some people have transferred in from the US 'head office' to our office in Australia, either permanently, or for a short period to help us 'locals' transition to new systems, processes and policies that are the new standard. The final stage was to dump all our old job titles and get new ones selected from the standard set, and to switch our superannuation from the old Employer Fund to a new preferred Fund.

DW and I currently have our super in a SMSF, so we won't be 'rolling over' our current balance into the new Employer Fund, however I will nominate the new fund to receive our contributions from 1 Jan as the new fund has very low management fees (only 0.2% after a hefty rebate by our company) and has default amounts of Life/TPD insurance and Salary Continuance (Income Protection) insurance provided with the premiums rebated by the company.

Overall the new Employer Fund will provide around $150,000 worth of life/TPD insurance and 21 months of 75% salary continuance insurance (paid for up to two years after 90 days waiting period in cases of temporary disablement eg. a heart attack/stroke/accident etc.). Looking at some quotes from an online insurance broker, these two covers would otherwise cost me around $2,000 per annum in premiums, so it is definitely worthwhile to nominate to join this new Employer Fund for our ongoing superannuation contributions (SGL and salary sacrifice).

Ideally I'd like to have the 9.5% SGL contributions paid into this new fund, and keep my salary sacrifice contributions paid into our SMSF, but unfortunately we aren't allowed to have our employer superannuation contributions paid into two difference funds. However, I can always do an ad hoc 'rollover' into our SMSF if I want to (I'll have to check if there are any exit or rollover fees in the new fund).

Since our SMSF will no longer be receiving employer contributions after Jan 1 I'll cancel the monthly transfer of $5,000 from our SMSF bank account into our Vanguard HighGrowth Index Fund investment, and leave the remaining cash balance to provide for future SMSF tax and annual fee payments. There should also be sufficient cash available to fund the first 'pension' payout once we switch our SMSF into 'transition to retirement pension' (TRP or TRAP) mode once we hit the preservation age (57 for DW and myself). As we intend to 'recontribute' the pension amounts as an undeducted (nonconcessional) personal contribution every six months there only needs to be around 2% of the SMSF balance available in the bank account to avoid having to liquidate any of our Vanguard investment to fund the TRP payments.

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Tuesday, 3 November 2015

Net Worth: October 2015

The CFC ('chinese financial crisis') seems to have fizzled out, with global markets apparently deciding that the sky isn't falling (again) after all. The GFC was 'the big one', then the EFC had less impact, with the PIGS not collapsing after all, and now the imminent 'CFC' appears to morphed into just a transition to a more sustainable rate of economic growth. Ah well, I'm sure they'll be another 'crisis' soon enough.

Overall the market recovery during October and the continued rise in the 'estimated valuation' for our home pushed my net worth back above A$1.8m, which is new 'all time high' -- although if you adjust for inflation and debit the value of the hobby farm/weekender I 'inherited' last year I still have a way to go before I'm as well off as I was in late 2007.

My geared stock portfolio gained $32,650 but is still well below the levels of 2007, or even where it had recovered to in 2010 before the end of the 'mining boom'. My retirement account was boosted by the share market gains and also by one monthly employer contribution being deposited during the month. Our estimated house price gained $36,794. Overall my net worth improved $102,586 during the month, which recovered the losses suffered in the previous two months. I make no predictions as to where my net worth might be at the end of this year or next...

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Thursday, 1 October 2015

Net Worth: September 2015

A rather poor monthly performance with the stock market dip at the end of the month capping off a period of weakness. My geared stock portfolio lost $20,141 (-16.05%), and the market weakness also adversely affected my retirement savings, with my SMSF account balance dropping $8,286 (-1.19%) despite two months worth of Employer Contributions (including my hefty amount of salary sacrifice) being deposited during September.

Sydney real estate has also come off the boil, with a relatively small monthly gain being reported in most available sales price data. The data previously used to estimate our house valuation (six months average sales price for our postcode) is no longer available, and the switch to a difference source of monthly average sales price resulted in a 'paper' loss of $3,757 (-0.58%). The local council has delayed the release of planning report regarding housing densities in our suburb until at least April 2016, with any 'rezoning' happening after that. So we aren't likely to make any windfall profit from selling our home to a developer until at least 2017. In the meantime I'll continue to use the conservative valuation based on house sales across the entire suburb.

The $336,000 valuation used for my rural 25-acre 'hobby farm' property is still based on the valuation at the time I 'inherited' the property, plus subsequent capital improvement expenses. A rough current price estimate (based on movement in the house sale prices in the nearest country town) suggests it might currently be worth around $440,000 in the current market.

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