Thursday, 21 August 2014

Macro Timing the Stock Market

Many years of stock market investing have proven to me that I am unable to 'pick' individual stocks that will out-perform, and I also can't 'pick' individual funds or fund managers that will consistently out-perform the general stock market (assuming that such funds or fund managers actually exist - there is a body of evidence that suggests that hardly any funds or fund managers 'beat' the relevant index after taking fees into account, and that the few that do are probably the result of random chance rather than intrinsic skill). However, having decided to (mostly) stick with investing in 'the index' (or in the case of our retirement savings, investing in a mix of indexes via the Vanguard 'High Growth' index fund that provides some automatic, low cost, rebalancing  between the various 'growth' indices - Australian shares, International shares, property, bonds etc.) I'm still left wondering if there is some way to 'time' alterations to our investment portfolio. Such as deciding when to be 'fully invested' (or even 'geared' into investments) and when it might be prudent to eliminate gearing or even move partially into 'risk free' investment in fixed interest.

As the stock market is, broadly speaking, a measure of a nation's private wealth-creation, it would seem plausible that the total stock market (eg. the 'all ordinaries' stock market index, XAO) would be correlated to the nations per capita GDP. And, indeed, a plot of this data (obtained from by selecting the 'Australian Nominal GDP per capita' and 'Australian Stock Index' options for the period 1950 to current) on a logarithmic scale, show that the XAO generally moves in line with the per capita GDP.

What is most interesting is that from this chart it seems quite obvious when the stock market was 'fundamentally' over-valued in the post-WWII period (such as in the late 1960s, in 1987 and in 1999-2001 and again in 2005-2008). The plot suggests that it was a very good idea to reduce leverage/gearing or even to short the market during 2007 to protect against a major correction (my biggest investing cock-up was failing to roll-over my index put options in late 2007), and that at present the Australian stock market isn't particularly over-valued. Indeed 2009 and 2012 look as if the were probably good times to be investing in the Australian stock market.

As I'm already fully invested (and with a bit of gearing into Australian stocks outside of our superannuation investments) the graph doesn't really provide me with much immediately useful information. But such a plot may help 'ring the bell' the next time the stock market is 'expensive' and it is a good time to move my asset allocation towards cash and fixed interest investments. It may also be a good tool for my sons to use when managing their investment asset allocation over the coming decades....

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Saturday, 9 August 2014

Earn 30% return with no risk!

Well, of course its not quite as good as it sounds, but, if you open a new ANZ Acess Advantage account before the end of this month (31 August 2014) AND deposit at least $2000 into the account by the end of next month (30 September 2014) AND log in to ANZ goMoney or online banking before the end of next month (30 Sep) THEN you will receive $100 from ANZ. Which, assuming the $100 is deposited soon after the end of September, means you could earn $100 on your $2000 deposit within two months and then close the account^ you would achieve an annualised return of more than 30% pa on that $2000 deposit!

To apply online you can visit

Not too shabby considering the online application process only takes a couple of minutes to complete, and, presumably, you can deposit the $2000 into the new account via EFT. The process was relatively painless because I am already an ANZ customer (via our SMSF bank account), so I probably don't need to visit a branch to satisfy the 100-point ID check that would be needed if you don't have an existing relationship with ANZ bank.

The account is available to persons over 12 years old, so I may also let DS1 know about this offer - a much easier way to earn $100 than spending two hours busking or a week of early morning newspaper round.

^ to avoid the usual $5 monthly account-keeping fee -- unless you want to keep the account open, in which case you can avoid the account-keeping fee if you have $2000 deposited into the account each month eg. have your salary paid into that account.

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Sunday, 3 August 2014

An 'interim' pay rise - hip, hip, huzzah!

After being told late last month the our company's annual pay review (that was normally conducted every June under the previous ownership) would be deferred until Dec/Jan to bring it in line with the US parent company procedure, it was announced last week that we would all be getting a 'cpi' increase of 3% back-date to 1 July, and that there will be also be an official round of 'pay and promotions' reviews done in December. While the amount of money involved isn't large, its a relief to see that the change in annual performance and salary review scheduling isn't being used to implement a 'de facto' pay freeze.

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Saturday, 2 August 2014

Net Worth: July 2014

This month's net worth calculation is slightly less accurate than usual as the stocks figure was negatively impacted by a significant capital return (of around $10,000) from IPE (I don't include my cash account balances or current credit card balances in my monthly calculation as they generally have little net effect). In addition, the estimated market valuation for our home was not updated as the average sales price data for our postcode was not available this month, so I used the same figure as last month. In reality there is likely to have been an increase in the estimated valuation of around $15,000 based on the RPData average sales price index for our city.

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Sunday, 6 July 2014

Tiny fish in a massive pond

The sale of the private marketing company I work(ed) for to a large Multinational Company was finalized on 30 June (end of the Australian financial year), and we were treated to a bit of a motivational session/corporate ethics intro by the incoming management team one afternoon last week, followed by a hello/goodbye social event (drinks and finger food) hosted by the outgoing owner and the new management on the following afternoon/evening. I was pleasantly surprised to get a thank you card and a cheque for a gift of $5,000 from the departing owner, a nice gesture since the sale had been finalized a few days previously and she could have just ridden off into the sunset without a backward glance. DW also received a thank you card, but her cheque was for $2,000 - presumably because she works part-time (3 days/week), given that she's worked for the company a few months longer than I have (more than 15 years).

So, I now officially work for a regional specialist branch office of a large multinational 'Fortune 500' company, that has around 10,000 staff globally. I expect there will be some major changes not too far down the track - they are planning to spend the next 2-3 months with an interim management structure in place while they go through the 'integration' process and work out what changes to implement by the end of this year. I don't think the 'integration' will be a particularly pleasant experience for the 400 or so staff that are the 'integratees', given that the parent company generated about $300K profit per existing employee. The figures for the private company weren't public, so I don't know exactly how much profit per capita it made, but I'd guess it was only around $100K per headcount, or less. So I'm sure 'head office' will be expecting to implement major 'efficiency gains' during the first year. Although there is apparently a sizable budget earmarked for growing this regional business, the initial signs don't suggest that they are going the spend very much of that budget on staff remuneration. It was quite amusing to hear during the introduction session that the new owners were 'surprised' to learn that our company routinely does that annual performance review/remuneration review cycle in June - we normally get our annual salary letters in the first week of July. The parent company follows the US practice of doing its compensation reviews in Dec/Jan - so it looks like we are getting an 'accidental' pay freeze for the next six months!

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Net Worth: June 2014

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Wednesday, 4 June 2014

Beware "low" fees on Superannuation accounts

While the Australian Superannuation system has a lot of good features (practically universal coverage, tax advantages in exchange for preservation until retirement age, providing some mitigation of the impact of the aging population on the cost of the aged pension system, encouraging workers to plan for their retirement, and a reasonable rate of enforced savings of current salary income towards retirement) it also has some bad features (such as complex tax rules, changes to rules over time eroding confidence in the system, the tax benefits being negligible for below AWOTE workers, and the biggest tax benefits being available to those who probably wouldn't get the aged pension in any case and don't need any encouragement to save for their retirement - for example the ability to make a $150K pa 'after tax' contribution into superannuation provides a 15% tax rate environment to high income earners who would otherwise be exposed to the top marginal tax rate on investment income if it was invested outside of the superannuation system). And one of the worst features is the often excessive fees charged by superannuation fund administrators (especially the 'retail' funds).

A side effect of the generally outrageous fees charged by superannuation funds is the growth of so-called "low fee" funds that many retail funds have set up to stem the flow of superannuation savings away from retail funds and towards Industry (trade union) superannuation funds and self-managed superannuation funds (SMSFs). However, not all "low fee" funds are particularly good value! As a random example I had a look at the Suncorp Everyday Super Fund that is advertised as being a "low fee" superannuation fund.

Suncorp Everyday Super charges an administration fee of $1.50 per week plus 0.65% of your balance. And for the Suncorp Lifestage Fund investment option there is an 'Investment Fee' of 0.2%.

While 0.65% admin fee is certainly a lot lower than many retail funds (some charge around 1.50% administration fee), it still can excessive for anyone with a signficant amount accumulated in their superannuation savings. For example, with my current superannuation balance of around $600K, a 0.65% 'admin' fee would cost me $3,900 every year! By comparison, our SMSF administrator charges $699 pa for admin (including audit report costs), and even with the extra SMSF 'supervisory levy' charged by the ATO (a ridiculous $259 from 2014), the total 'admin' cost of $958 for our SMSF is less than 0.15%.

The 'sticker' cost of 0.2% Investment Fee for the Suncorp Lifestage Fund may appear to offset some of the higher admin costs, given that in our SMSF the Investment Management Fee charged by Vanguard for the LifeStrategy HighGrowth (Index) Fund is around 0.4%. However, drilling down into the Suncorp Lifestage Fund 'Profile' reveals that there is a 0.85% 'Management Fee' embedded in the Lifestage Fund.

So, overall, putting $600,000 into a SMSF and investing in a 'growth' index fund investment option would cost around $3,458 pa, whereas having the same amount in the 'low fee' Suncorp Everyday Super Fund and invested in the Lifestage Fund would cost you $1200 'up front' as an Investment Fee, and then an annual cost of around $9,000. A difference of over $5,500...

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Net Worth: May 2014

The net value of my geared stock portfolio, retirement account (SMSF) and home all increased during the past month, resulting in a solid gain in overall net worth estimation. The retirement account gain was largely due to 5 months of employer contributions (Jan to May) all being deposited into our SMSF bank account during May.

Normally employer contributions for each quarter (eg. Jan, Feb and Mar) and due by the end of the month following the quarter (eg. Apr), and take a week or more to be processed by the Company Superannuation administrator (BT Super) and arrive in our bank account (eg. early May). The HR department had been talking about making the superannuation payments monthly, which accounts for the Apr and May payments being processed in May as well. Fortunately my age and current superannuation rules regarding concessionally tax contributions mean that even with 2-3 months extra payments being processed in the current financial year I wouldn't exceed the contribution cap.

Recent Sydney real estate index figures from RP Data are showing a slight decline in house prices, so the estimated valuation for my half of our home is likely to decrease slightly over coming months (my estimation used a moving 12-month average price guide for our postcode, rather than the daily Sydney Index value). As usual, I don't include assets or liabilities belonging to DW, DS1 or DS2 in my personal net worth figures.

Assets$ Amount$ Diff% Diff
Stocks *$245,086$9,583n/a
Debts ^$ Amount $ Diff% Diff
Home Mortgage(s)$102,358-$7-0.01%
Net Worth$1,566,571$29,9571.95%
* the Stocks figure is portfolio value - margin loans. The LVR is around 80% overall.
^ doesn't include the ~$675,000 of investment loans, as these are already deducted when calculating the value of my geared stock portfolio.

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Friday, 9 May 2014

Net Worth: April 2014

A fairly quiet month, aside from a good increase in my retirement account value (which was partly due to January employer contributions being deposited during April). The Feb and Mar superannuation contributions were paid by my emplyer on 28/4 and should be hitting our SMSF bank account "any day now" according to the payroll department. Still not sure why it takes BT super (that handles the company superannuation payments) more than two weeks to deposit funds into the member accounts! But as our annual SMSF tax bill was paid in early May there won't be much impact overall this month.

The contribution payment delays can really be a pain at the end of the financial year, as having one or two of the Apr/May/Jun payments appear in our SMSF bank account before the end of FY can push me over the concessionally tax contributions (Salary Sacrifice plus SGL) limit if all three payments arrived late the previous year. With all the payments being processed electronically (from employer to BT Super, and then from BT Super to ANZ bank) there is no reason for the payments to take more than two business days to arrive in our SMSF bank account.

I've continued to report the 'hobby farm' valuation as the nominal "purchase" cost ($325,000) which was used to calculate the stamp duty, but I'll make a separate note of it's monthly valuation estimate (the valuation is based on house price sales in the nearby township, which may not be a very good guide to changes in values for a nearby 25 acre rural property). This month my estimation increased from $354,900 to $357,000 (+0.86%).

Assets$ Amount$ Diff% Diff
Stocks *$235,503-$951n/a
Debts ^$ Amount $ Diff% Diff
Home Mortgage(s)$102,365$90.01%
Net Worth$1,536,614$13,1020.86%
* the Stocks figure is portfolio value - margin loans. The LVR is around 80% overall.
^ doesn't include the ~$675,000 of investment loans, as these are already deducted when calculating the value of my geared stock portfolio.

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Sunday, 20 April 2014

How to Live forever (or die trying)...

Although (with a BMI currently hovering around 32 and having only just resumed regular gym sessions) I'm hardly a poster-boy for healthy living, I've always been intrigued by the possibility of extending natural lifespan in humans via Calorie Restriction (CR). This is often termed CRAN (Calorie Restriction with Adequate Nutrition), CRON (Calorie Restriction with Optimal Nutrition), or CRL (Calorie Restriction for Longevity) in order to clearly differentiate it from eating disorders such as anorexia nervosa, where food intake is restricted, but in an unhealthy manner.

While there's no doubt that obesity can lead to numerous health issues and premature death, in practice it is often difficult to lose weight (and keep it off) and achieve the recommended BMI of around 22. Otherwise the developed countries wouldn't be experiencing an 'obesity epidemic'. Then, once you achieve a healthy BMI and take regular aerobic and strength training exercise, is the any further benefit to be achieved via CRAN?

While CRAN had been proven in multiple independent experiments to extend lifespan in simpler species (such as worms and mice), there was little hard data on the effects (for good or bad) that CRAN could have on humans. Most historical examples of calorie restriction were simply cases of starvation, where the adverse effects of malnutrition were the dominant factor. Given the ethical issues surrounding doing CRAN studies on randomly selected groups of human test subjects, the best scientific data applicable to humans is likely to come from primate studies (although there are a number of people voluntarily adopting CRAN to some degree as a lifestyle choice, such isolated cases are not a controlled study).

A study published a few years ago (by the NIA) had seemed to show that in rhesus monkeys CRAN had no significant beneficial effect. And yet a new study published only a few weeks ago (ref: Colman, R.J. et al. "Caloric restriction reduces age-related and all-cause mortality in rhesus monkeys." Nat. Commin. 5:3557 doi: 10.1038/ncomms4556 (2014).) has found that CRAN did indeed have a significant effect on rhesus monkey survival rates. The apparent disparity in results is (according to the authors of the new study) due to the 'control' monkeys in the NIA study having not actually been fed 'ad libitum', but instead had, unintentionally, been fed on a slightly calorie-restricted diet (as shown by the fact that this 'control' group had lower average weights than is typical for Rhesus monkeys in captivity). The 'control' group had therefore already been getting some of the benefits available from CRAN (as shown by the unusually high survival rate to 40 years - the equivalent of around 116 years old for a human!).

As a very rough approximation of how effective CRAN 'might' be when applied to humans (from young adulthood - so this will be more relevant to DS1 and DS2 than myself!), I've scaled the age of Rhesus monkeys (by a factor of 2.9) to bring the survival rate curve of the monkey 'control' group (red squares) in line with that of UK humans in 2010 (blue diamonds). The scaled plot of the CRAN group of Rhesus monkeys (green triangles) should therefore be roughly in line with what one might expect to happen in the case of humans adopting a CRAN diet from young adulthood onwards.

Hopefully this could mean that instead of around 50% of humans in developed countries surviving to age 80, and very few making it past 100, by adopting a CRAN diet for their adult life, around 50% of people could live past 100, although the maximal natural lifespan could probably not stretch much past 130. The main benefit would be a significant reduction in the many disabling age-related illnesses that often reduce quality of life past 70.

It will be very interesting what happens to the surviving Rhesus monkeys over the next 5 or so years, but which time the survivors will be achieving the normal 'maximal lifespan'.

All in all, there seems to be sufficient evidence to warrant not only my getting down to my 'healthy weight' BMI of around 21-23 (and going to the gym 2-3 times a week), but for me (and later on my sons), adopting a modest level of CR (say 80% of 'normal' maintenance calorie intake) while ensuring our diet has no nutritional deficits. In practice this can be as simple as cutting out all 'empty calories' from snacks and junk foods, and avoiding (or at least minimising) processed foods that all generally high in fats, salt, and/or sugar.

The biggest hurdle is the self-control/psychological one associated with most forms of dietary restriction. If it was easy I would have stuck with CRAN since I first learned about it (and got down to my healthy BMI) back when I was in my mid thirties. I'm due to get my annual blood test done next week, and I'll post some selected biomarkers (BMI, cholesterol etc.) for the past couple of years and update them annually. Hopefully I'll be able to get down to a healthy weight again over the coming year, and transition into a more healthy CRAN-based dietary lifestyle. After all, there's not much point being wealthy if you're in poor health and die young!

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