It is approaching that time of year where I am looking forward to some lazy time having a beer or two whilst watching the Boxing Day Test Match on TV. I thought it was also worth discussing how a lazier way of investing can work.
I personally get enjoyment out of making a big effort in trying to discover the odd cheap small cap stock. Yet I can still appreciate the benefits of a lazy portfolio. Clearly if you can find stocks you don’t need to sell then there is a significant tax advantage from all the compounding. I write this at a time when we may well see CGT changes in the future. In the past I have written about the importance of having a strategy that is not too wedded to certain tax structures – diversify your portfolio from political / taxation risk.
I often read about some investors being all out actively trading, then others wanting to find a portfolio where there is no need to sell for decades! Both extremes I find difficult. From a political / taxation risk point of view I don’t mind sitting a bit on the fence in this respect. Having plenty of my investments in companies I can hold for longer periods also has the benefit of making me patient in searching for other stocks to purchase. I feel I can take my time being more selective and be more thorough in “turning over a lot of rocks” to uncover new opportunities. Having a higher turnover of your portfolio increases the regularity you need to find a new stock to buy. That can potentially rush you into decisions you later regret.
I felt this blog tended to create an impression that I turnover my portfolio more than I actually do so that was another reason for this article. My turnover was higher than normal in the first year or two of blogging for a few reasons. My tax rate was suddenly lower meaning that CGT on many previous positions would be less of a burden than if I sold in the years prior. Then when quitting working in the investment management industry full time it freed up plenty of time. That enabled me to read more about individual stocks so that I could develop the conviction to be slightly more concentrated, and hold for longer periods.
Although I enjoy spending a lot of time investigating some more complex potential investments, there may well be a time where that may change. I also may not enjoy spending so much time on my investments if I discover that a lazy investment approach does far better than my more active efforts! Hence the tracking of a lazy portfolio.
When starting this blog in early 2016 I never thought I would keep it up to this point. Therefore I was a bit lazy in the first year about the format of the blog. I did try to track how the stocks I had mentioned I was holding were going. I shall include a link towards the bottom of this post which discusses how I got to this point in time in terms of tracking some stocks.
At this stage I now want to bring up a fictional portfolio I set up in Sharesight early this year. When I say fictional I refer to the dollar amounts and allocations etc. I did still own every one of the stocks at the time. In fact the point was that these were holdings I discussed on the blog before but had never sold. I glanced at them thinking that they were a diverse enough bunch that could be held longer term. An all-weather style portfolio perhaps that spun off some decent dividends, and didn’t require much attention. If this does heaps better than my own actual portfolio over the next 5 years maybe that is my catalyst to spend all my time lying around at a beach somewhere. That would require better years than experienced in 2018 though!
I also wanted to be lazy in terms of how much blogging I wished to do going forward (yes the number of blog posts did slow down a bit this year), so tracking this in Sharesight sounded perfect. The idea was to only potentially fiddle with this fictional portfolio once a year. This portfolio right now is about ten months old. Since every man and his dog likes to put forward outlooks and various picks for 2019 though, I figure I will join the bandwagon to some extent and address it again right now.
Here is how the portfolio looks now and how it fared thus far as at December 14th.
Note that I chose the ETF reflecting the Australian market as a benchmark. The portfolio at least did better than this during the period above, returning 6.11% compared with the benchmark return of 0.92%. (Note this commenced 12 Feb, not Jan 1). I feel like this flatters the relative returns, in that some of my stocks benefit from a declining AUD. Also the Australian market was an easier benchmark to beat for most of this year. If I chose something like VGS though then that is completely unhedged for currency, so that may be slightly unfair given the weakness in the AUD since February. For what it is worth though VGS produced about 5% gross.
These figures whether it be the above portfolio or the benchmarks are applying the income received on a grossed up basis, so a like for like comparison.
I won’t debate too much whether I judge this portfolio has done particularly well or not, it simply is what it is!
To make myself feel a bit better though, and my readers with how they may have gone this year, I shall copy a quick chart from Deutsche that I felt was interesting. It was from mid-November when markets were quite low and not too far away from current levels. It basically shows that in 2017 it was one the easiest years in over a century in terms of the likelihood of picking an investment type that would produce a positive gain. This year has proved the opposite, well in mid-November anyway it was looking like the most difficult year on record. (Tallest bar on the right of the chart). Let’s not judge ourselves too harshly! Here is the chart from Deutsche below.
Or alternatively when I get a bit frustrated with my portfolio I like to check on the unofficial David Einhorn index.
Not having a go here just think it is good not to lose sight that investing can be a long term game. As the bull market cycle is unusually long it is more difficult to pass judgement on investors. The media thinks of 10 year records as extremely long term for a fund manager. Yet in this cycle sometimes I wonder if even that long necessarily tells much about manager skill. Here I am discussing a 10 month period!
So now then the idea is to try and leave this fictional portfolio untouched. Perhaps spend less than an hour thinking time, maybe a couple of decisions at most as more of a rebalance only if necessary. What were some of the major themes then in 2018 that may require a rebalance?
Equity markets have had a bit of a reality check, but the correction in US markets of late is hardly a blip at all in the context of the last decade. With Asian markets on the other hand that is not the case. Clearly I got a bit carried away with how EAI & PAI performed well for me in 2017. I will take the lazy approach here and not do anything though because there is a risk they could fall further if US equities keep trending down. It may be an area to examine lifting exposure when I revisit this in a year’s time. Regarding PAI I did discuss on the blog in June this year about lightening up there. The premium looked excessive and I felt a SPP was quite possible. This fictional portfolio has some cash still so this could potentially be deployed in a SPP if it were to occur and was attractive through the year.
Whilst the AUD has been weak since this portfolio commenced I don’t feel it is yet of the magnitude the requires any rebalancing from that perspective.
Bond yields rose in 2018 (despite falls in recent weeks) and you could argue that holdings like ALI, APW & UOS are a little sensitive to this theme. There is of course a possibility that APW is slowly wound up though so once again I will take a lazy approach here and leave as is. If not wound up in 2019, hopefully in my lifetime! APW certainly hasn’t been a lazy sort of investment for Samuel Terry Asset Management & Sandon Capital so am appreciative of their efforts there. The fact that these 3 performed well in a rising yield environment means that these were sound enough picks I feel.
Should markets decline in 2019 I feel there may be an opportunity for some rebalancing a year from now if necessary. Aside from some possibility that APW sells its assets, the same theme exists for the now small position in REF. Apart from the cash we also have holdings like ALF, ALI & GOLD that you would think would behave somewhat defensively.
Who knows though 2019 may once again be another good year for the bulls. In that scenario I would concede this portfolio could well underperform. I would hope though in that environment there is some conversion in valuations between markets in Asia & the U.S. that would assist EAI & PAI. These were big drags on returns in 2018.
This portfolio received an unusually high level of dividends in 2018. This was mainly from a special payment from REF, and we also saw TGG declare a special dividend. PAI & JYC were high dividend payers and I suspect those two will remain so in 2019. It probably leaves now however a portfolio with a lower yield than I would like. This is partially from the high yielding SVWPA being converted to cash from a corporate action. I don’t think the lack of high yield requires much action though. In theory one could say that the high income generated in 2018 can sit on the side and allow me to address this at a later time.
From a stock specific level I am comfortable still with this bunch and have often commented on these stocks in the past, so won’t write too much more on this occasion. ALF has been one of the weaker performers and likely to leave readers scratching their heads why I would keep holding this dog! In short my theory is if performance doesn’t improve then I don’t see obstacles in the way of someone accumulating 5% and proposing a huge off market buyback. Many disgruntled shareholders would happily vote for this. In recent months they have delivered an outcome that is very difficult to do, being market neutral and losing capital whether the market goes up or down!
Lastly the news regarding Labor’s plans to make changes to the treatment of franking credits probably deserves a comment. Stocks that are favourites amongst SMSF investors for their high fully franked yields will likely experience some resultant volatility next year. The portfolio listed above does have plenty of LICs, but not so many that I feel are that popular with those hungry for fully franked yields.
So there you have it, not much thinking time involved there. A year’s investing strategy done within the lunch break of the cricket perhaps.
As I noted earlier, here is a link to my previous disorganised way of trying to have some accountability for the stocks I wrote about. It shows how I got to this point. As you can see it wasn’t easy to read or track so Sharesight is much more valuable from that point of view.
UPDATE 21st DECEMBER
Because this blog post discussed a Sharesight portfolio I was tracking, I figured why not see if they can offer any discount for the readers of this blog. They have come to the party in terms of anyone wishing to join up to their paid services and pay the year upfront. With my limited views I don’t expect a large take-up, but for what it’s worth I want to make it clear though this site has an affiliate relationship with Sharesight. You can still get a very good deal though, read further down to see the discount offer details.
HOW TO SUBSCRIBE TO SHARESIGHT’S PAID SERVICES AND GET THE 17% DISCOUNT?
Sharesight have offered the readers here two months free for the first year of their subscription, which is effectively about a 17% discount. This offer is for those who are not currently subscribing to their paid services, but are now thinking about doing so. This is the discount you get if you are prepared to pay for the yearly subscription upfront. There are options for monthly payment although that will not qualify for this particular discount I refer to. The way the market has been trending down of late may make paying upfront even more worthwhile rather than leaving the funds invested!
The key though is you must use this particular link to join.
I may not have done a great job explaining the features of Sharesight so before I finish this post I shall just leave a short video here from Sharesight themselves. If you are not aware, it is completely free to sign up with them and start tracking a portfolio up to a maximum of 10 securities. The paid services I refer to enable more than 10 stocks and other features.
That, and in more videos on their YouTube page should give you a good start on their services if you haven’t already tried them.
Once again, make sure you use the specific link I mentioned above to qualify for the discount, here it is again just below.
If you have any questions or comments specifically about taking up this discount offer, feel free to email me at firstname.lastname@example.org. Questions regarding the technical aspects of the Sharesight product it will be better to reach out to Sharesight themselves.
I shall just add my 2 cents worth in that I have been a happy paid up customer with Sharesight for a number of years now. It may even help with a better understanding of performance reporting from LICs. I have written about the confusing performance reporting of LICs before! Speaking of the lazy way of investing, surely it will save you some headaches and time when it comes to tax reporting.
Since that is probably my last post for this year I wish the readers here all the best for 2019!
Please do not go out and copy the portfolio (sure I hear you it hardly shot the lights out anyway but just in case!). I may trade out of the stocks mentioned at any time and not make that clear on this blog. My circumstances and financial goals are likely very different to that of readers. Please seek the relevant personal financial advice from the appropriate qualified professionals before making decisions on your portfolio. Sharesight has nothing to do with the stocks I chose to put in this fictional portfolio! I am not licensed as a financial advisor.