Buy in Gloom

The stock market is still looking rather sickly, and Sydney property prices remain flat. So where is one to invest? In the stock market and real estate!

And an article in today's Sydney Morning Herald states that "Fewer homes were built in NSW last year than any year since records began in the mid 1980s...which is expected to put further pressure on house prices and soaring rents." Recently the Australian economy has started to slow down, suggesting that the RBA's series on interest rate hikes has had the desired effect. If inflation moderates during the rest of 2008 we could start to see interest rates drop again towards the end of the year, possibly reinforced by an easing of the global credit crunch. That would provide the perfect launching pad for rapid growth in Sydney real estate prices. While real estate is hardly cheap when measured against incomes (so-called "affordability"), Sydney prices are relatively cheap compared to other markets (such as VIC, QLD and WA). I'd expect those markets to suffer a decline in real prices over the next few years, while Sydney is more likely to show some increase in real prices once the NSW economy improves.

"Fewer than one in five of the homes built nationally were built in NSW, despite the state needing to accommodate roughly one-third of the nation's population.

Nationally, 151,631 homes were built last year, the figures show. This is significantly less than estimates by economists of the need, which put the underlying demand for new homes at about 175,000 a year."

The stock market is also looking reasonably good value at the moment. One just has to look at a plot of the stock market index vs. company profitability to see that the recent sell-off has brought the market back from slightly overpriced (although no-where near the bubble of '87) to the sort of value not seen since 2002 - which was the perfect time to invest prior to the last bull run. I was sent an updated version of the chart below by ColonialFirstState which shows that after the index got well ahead of corporate profitability in 2007, the recent drop has brought the index back below the levels that would be considered "fair value" in relation to underlying company profits.



The recent market weakness also seems to have been excessive when viewed against the 200-day moving average, assuming that we are in period of temporary loss of confidence rather than a fundamental global economic problem that could see the stock market stagnate for many, many years like the 70's.



Having said all that, I'm already fully invested already and don't have spare cash flow to support any further borrowing to invest. Also, although I'm reasonably positive regarding the outlook for the Sydney property market I already have two properties in NSW, so any further purchases in NSW would be subject to property taxes of around 1.5%pa, which would take the gloss off any further real estate investments. So for the moment I'm just going to sit pat with my current investments and use any spare income to reduce my margin loan balances (which at current interest rates is a good strategy) and invest in the Vanguard HighGrowth index fund within my tax-sheltered superannuation fund via salary sacrifice arrangements.

Copyright Enough Wealth 2008

An interesting first quarter

2008 has proven to be a very "interesting" year so far for the Australian stock market. The chart of the All Ordinaries Index below shows the massive sell-off that occurred during January, and the very bad start to March which retraced and exceeded the earlier lows before recovering almost half the losses since January 1 in just the past two weeks.



From here I expect the recovery to taper off, and the index could trade within a narrow range for the next couple of months barring any unexpected good or bad news. Hopefully the market has established a support level around 5200, and will slowly recover during the remainder of 2008 back towards 6000 or above.

Until I plotted this candlestick chart I hadn't realised that the January lows were almost as bad as the bottom reached in March. My personal net worth chart showed the March dip to be considerably worse that the low reached in January. I think this is due to the January low being very short-lived, with the market bouncing back from the lows within a day. My net worth includes several managed fund investments which often report price changes the next business day, artificially smoothing the worst of the daily ups and downs by trailing the stock market gyrations by one day (probably a good thing for my peace of mind!). In comparison the March decline was more gradual and the index stayed around the lows for several days, which allowed my net worth calculation to fully reflect the bottom.

Copyright Enough Wealth 2007

Symbion takeover offer accepted

I finally accepted Primary Healthcare's $4.10 takeover offer for my Symbion stock. The offer had become unconditional and with the Symbion board of directors unanimously recommended the revised offer and Primary's control reaching over 85% it seemed inevitable that they would reach the 90% required for a compulsory takeover of any residual hold-outs. Since that would result in receiving the offer price of $4.10 (reduced to $4.05 due to the dividend recently paid out by Symbion), there was not point in not accepting.
I had thrown out my previous offer acceptance forms, so I tried phoning the Primary Healthcare info line to order a new acceptance form last week. However, the number was on voicemail, so I didn't end up ordering a new form. One arrived in the mail on Monday anyhow, sent to all Symbion shareholders who hadn't accepted by the time the latest offer deadline extension was announced.

The listed stock price was around $4.10-$4.11, so I thought about selling my holding on the market rather than sending in the acceptance form, but since my Symbion shares are held in my Leveraged Equities margin loan account I'd have to sell them via the registered broker - Tolhurst. Since they aren't a discount broker this would have meant brokerage fees of around $75, which would have knocked about 3c per share off the realised sale proceeds. I looked into changing my registered broker to an online broker, but the only one that Leveraged Equities has arrangements for online trades of margined stock is Morrison. Although the rates seemed competitive on first glance (similar to Comsec and other online brokers), the fine print of the account application form revealed that you have to use their IRESS trading application with a significant monthly fee, or else use their 'HTML' trading platform (similar to Comsec and others) which costs $500pa (unless you maintain an account cash balance with them of at least $5,000!). I could have investigated further to see if the CMT account linked to my Leveraged Equities account could have maintained the requisite $5,000 balance, in which case the interest rate paid on the $5,000 would have been OK, but I decided it was all too hard. I was especially put off by the Morrison application forms having a clause that, once you assigned them as your principle broker on your leveraged equities account, they had to agree in writing to any request to change brokers in future.

So, in the end I faxed the Primary Healthcare offer acceptance form to Leveraged Equities yesterday. I should receive the $11,664 payment from Primary within two weeks of the offer deadline. Now that I've accepted the offer I hope the deadline doesn't get extended yet again!

One thing I'd forgotten is that by accepting the takeover offer instead of selling the stock I'd lose the margin value of these shares from my leveraged equities account immediately the offer paperwork was processed by LE, but I wouldn't receive the payment funds for several weeks. D'Oh! - this made my margin utilisation shoot up from 81% to 88% overnight.

Hopefully there market won't drop significantly before the payment from Primary Healthcare is processed, otherwise I'll have to find some cash to reduce the LE margin loan balance.

Once the funds arrive from Primary I'll use the money to reduce the LE loan balance. I'm slowly reducing the stock holdings within my LE account due to the lack of online trading with this account. These days I make any stock fund purchases on margin using my St George margin loan account, and any direct stock investments (or the CDF ETF) using my Comsec margin loan account, which can be traded online.

Copyright Enough Wealth 2007

AGL Energy Dividend Reinvestment Plan (DRP)

AGL Energy has sweetened their DRP conditions slightly - apparently they need to raise some funding. The new DRP scheme provides for a 2.5% discount to the weighted average price prior to the record date, plus they are now going to round UP any fractional stock entitlements that result from the DRP. The latter is a boon for small shareholders, and used to be quite common with DRPs back in the 80s.

Although I generally prefer cash dividend payments to DRPs due to the extra paperwork and complications around CGT calculations for my tax return when I sell a shareholding that includes DRP stock purchases, I've decided to enrol in the AGL DRP. I have two AGL holdings - one on my LE margin loan account and another on my Comsec margin loan account. The added value of the DRP is just enough to make the extra record keeping and tax calculations worthwhile:

LE AGL holding.............510 shares
current price..............$10.31
Dividend...................26c x 510 = $132.60
Example DRP price..........97.5% x $10.31 = $10.05225
DRP shares due.............13.19 shares
rounded up to..............14 shares
DRP value..................14 x $10.31 = $144.34
DRP premium................$11.74 more than taking the cash dividend

Since I have two similar AGL holdings in separate accounts, the total benefit of participating in the DRP is around $40pa, so it's worth the small overhead in extra paperwork.

Of course in reality the DRP premium is coming out of AGL's profits, so if all shareholders participated in the DRP (and there wasn't any rounding benefit) they'd be no net benefit in participating in the DRP. However, many stockholders won't use the DRP, and large shareholders won't benefit from the rounding-up effect, so I should be slightly better off using the DRP than if there wasn't any DRP available at all. This ignores any potential gain or loss that might result from investing the cash dividend elsewhere.

Copyright Enough Wealth 2007

Increased my investment in the Colonial FirstState Geared Share Fund using margin

My Margin Loans with Leveraged Equities and Comsec are almost fully utilised (>80% MU, with margin calls if MU exceeds 105%), but I have a fairly low gearing level with my StGeorge Margin Loan, as I transferred all my miscellaneous mutual fund investments into this account several years ago and have only been using a 50% geared savings plan of $200/mo to slowly add to my investment in the Colonial FirstState Geared share plan. That particular investment has done well during the bull market, but is currently down around 50% from it's high last October. Assuming we're close to the bottom of the Australian bear market (which seems possible, given our economy is still growing around 4%pa and exports due to the commodity boom expected to rise another 30% in the next 12 months) it may be a good time to invest more into this internally geared fund.

The fund invests using internal gearing and generally invests in high quality companies in the S&P/ASX 100 Accumulation Index. These companies generally have strong balance sheets and their earnings are expected to grow at a greater rate than the Australian economy as a whole. The option’s gearing effectively magnifies returns from the underlying investments, whether they are gains or losses. The option predominantly invests in Australian companies and therefore does not hedge currency risk.

I've filled in an application form to invest a further $50,000 in this fund and faxed it to StGeorge margin lending. The investment will be fully funded from the available margin in my account. This will cost around $5,000 pa in additional interest payments, which are tax deductible, but would be partially offset by any distributions from the investment. Of course, borrowing 100% to invest in a geared stock fund is very high risk, but this is only around 5% of my 5% of my net worth. The strategy will pay off if this is a "normal" bear market (followed by a period of good market performance), but won't pay off if we enter a period of extended poor stock market returns, such as occurred the last time we had an oil shock and high inflation in the 70's. Time will tell.





Copyright Enough Wealth 2007

Paper Trade ASX CFDs for free

You can now "paper trade" ASX CFDs with the ASX CFD simulator. ASX CFDs are a versatile and flexible trading tool for the experienced trader. The ASX CFD simulator allows you to experiment with trading and experience the benefits of ASX CFDs without risking any of your own capital.

The ASX CFDs simulator enables you to:

• trial your strategies and trading techniques with a hypothetical cash balance of $100,000,
  
• set up watchlists,
  
• place trades in the top 50 equity CFDs, and
  
• view your transaction history and performance positions.
  

All you need to do is set up your simulator trading account and you’ll be ready to go. You can use the simulator as a watchlist or participate in the ASX CFD Trading games that will run throughout the year.

Copyright Enough Wealth 2007

Time to buy Straw Hats?

There's an old stock market saying that one should "buy straw hats in Winter" - yet another way of saying it's better to buy low and sell high, than vice versa ;)

With the stock market off last year's highs by more than 15%, some sectors are looking especially "cheap". The banking sector in Australia is one such source of possible bargains. The table below shows that the banks are down by around 30%-40% from the highs last year, and are currently producing dividend yields between 5.2% and 7.3%.

The banking sector comprises 12.5% of the All Ordinaries stock index, but my Australian stock portfolio is relatively underweight banking stocks, at only 6.9% of my portfolio invested in bank stocks. My tax refund arrived by EFT yesterday (less than one week after filing with eTax), so I may use part of this money to increasing my existing bank investments.



Copyright Enough Wealth 2007

An interesting week in the market

Well, that was an interesting week as an equities investor. After a huge drop at the start of the week, there was a run of three exceptionally positive days, resulting in the most incredible "bounce" I've seen since I started investing in the 80's.



Looks my decisions this week worked out OK
1. Sold some IPE and shifted the funds into CDF to realise a capital loss. This will avoid having to pay any capital gains tax on the profit I made on trading Centro properties.
2. Didn't panic and sell off any of my stock portfolio, despite signs of panic in the world markets just before the US Fed announced it's rate cut.
3. Added to my existing holding of CDF on Tuesday, at what turned out to be the low for the week. It's since gone from $1.66 back up to $1.85,

I also started trading forex again this week. I'm sticking to small trades ($25,000 position), and have finally worked out how to set up stop-loss pending orders using the CMC Markets interface (it's obvious once you know which icon to click on the trading window), so I'm able to trade "properly" - letting my winning trades run and automatically closing out positions for a small loss when things don't go as expected. I'm setting stops at around 12 points from my entry price, which with the AUD around 0.8840 USD works out to be 1.35%. So far I'm up around $190 this week, but I've still got a long way to get back to my starting kitty. Having put in a total of $5,000 into my trading account, the current balance is only $1,389.


Copyright Enough Wealth 2007

Oops, I lost $36,000.00

Another down day on the Aussie stock market - this time around 7%, taking the total decline since it's all-time-high on 1 November to about 22%. The 400+ point drop in the All Ords index translates to a "paper" loss of about $36,000.00 in one day! I try not to dwell what "might have been" if my Index Put options had expired a month later (20 Jan 08, instead of 20 Dec 07), or if I'd made the effort to find and purchase suitable replacement Index Put options before they expired... If I did still have unexpired Put options I could now sell them to recoup the decline in the physical stock market, and use that cash to increase my stock portfolio at these lower prices. Oh well, there's always next time. Note to self - spend the time required to properly compare the cost/benefit of using my CFD account to short the Index vs. buying exchange traded Index Put options vs. warrants. And then get accounts etc. organised so I'm able to make the required trades "next time" the market appears to be overheated and due for a correction.

I bought 6,000 CDF shares today at $1.66, although I probably overpaid since CDF is an ETF that approximately tracks the All Ords index, but was only down about 3% on the day. I bought it using some "spare" margin in my Comsec margin loan account, but that will probably be the last purchase I make as I don't want to gear too highly in case the market falls much further and I get close to a margin call.

Copyright Enough Wealth 2007

Shuffling deck chairs on the Titanic

The Australian stock market was down for the eighth straight day today -- the most consecutive down days for seven years. After today's 2.5% drop the market is now down around 15% from it's all time high, which was set in early November. I decided to sell 20,000 of the 127,000 ING Private Equity (IPE) shares I'd paid around $1.04 for just a couple of months ago. I sold them for $0.865, realising a capital loss of around $3,500. At least this loss can be offset against the capital gain I made dabbling in Centro Properties shares, and any gains I might make if I sold some of my long term stock holdings this financial year.

I don't really want to be selling off stocks when the market is down 15%, but the tax office takes a dim view of "bed and breakfast" trades (where you sell a stock and then immediately buy it back again in order to crystallise a tax loss), so instead I bought a listed Index Fund stock to replace the IPE shares I sold. I bought 10,000 Commonwealth Diversified Share Fund (CDF) for $1.75 each. Each trade cost $29.95 via my Comsec online broker margin loan account, so the net cost of switching from IPE to CDF was $259.90, which will be added to the balance of my margin loan. IPE and CDF are both invested in a diversified mix of stocks (although IPE consists of unlisted, micro-cap companies rather than the broader Australian stock market), so my overall allocation to the Australian stock market is largely unchanged by today's trades.

Aside from eliminating the need to pay any capital gains tax on the profits from my CNP trade, today's trades actually reduced the margin utilisation of my Comsec margin loan account. This was because IPE shares have been allocated 0% margin value by Comsec, whereas CDF shares have a margin value of 70%. This change is largely academic, but it does mean that I could borrow more to fund stock purchases, and it also means that the market would have to drop considerably more before I would get a margin call.

Copyright Enough Wealth 2007

Centro investigated by ASIC

After I sold my recently purchased Centro shares for $1.02 they started going back up. Even while the general stock market tanked in the past week, they stubbornly stayed above $1.12, so it looked like I'd got cold feet and sold out too soon. However, today came the news that the corporate watchdog, ASIC, is asking hard questions of the Centro management. Apparently they suspect that Centro is understating the severity of the trouble they're having refinancing their debts. So today the Centro stock price plunged 25c to close at $0.86.



Related Posts: Bought Centro, Sold Centro

Copyright Enough Wealth 2007

Stock Portfolio - Update: Jan 2007

Here's the latest monthly update of what stocks are in my Australian Stock Portfolio. The only changes since the last update are due to a stock split (bonus shares) from CHB (Coca-Cola Hellenic, which mainly serves Eastern European countries), and a DRP of NAB.

Current holdings:

Leveraged Equities Account (loan balance $156,805.59, value $309,135.98). CHB holding increased by 59 shares due to a bonus share issue - the price didn't drop as much as you'd expect from the dilution factor, so this ended up increasing the value of this holding. My NAB (National Bank) holding increased by 7 shares due to the DRP reinvestment.

stock   qty   price   mkt value  margin
AEO   1,405   $2.38   $3,343.90   65%
AGK     510  $13.37   $6,818.70   70%
AMP     750   $9.89   $7,417.50   75%
ANN     480  $11.90   $5,712.00   70%
ANZ   1,107  $27.41  $30,342.87   75%
APA      88   $3.60     $316.80   70%
BBI     222   $1.545    $342.99   70%
BBP     197   $2.58     $508.26   60%
BBW   1,241   $1.705  $2,115.91   60%
BEPPA   472   $0.845    $398.84   70%
BHP     748  $40.85  $30,555.80   75%
BSL     781   $9.79   $7,645.99   70%
CDF   7,650   $1.859 $14,221.35   70%
CHB     177  $46.22   $8,180.94   70%
DJS   2,000   $5.43  $10,860.00   70%
FGL   3,751   $6.50  $24,381.50   80%
LLC     481  $16.83   $8,095.23   75%
NAB     330  $37.33  $12,318.90   75%
QBE   1,000  $32.15  $32,150.00   75%
SGM     830  $25.91  $21,505.30   70%
SUN     963  $16.62  $16,005.06   75%
SYB   2,880   $3.97  $11,433.60   70%
TLS   5,000   $4.69  $23,450.00   80%
TLSCA 3,000   $3.15   $9,450.00   80%
VRL   1,500   $3.13   $4,695.00   60%
WDC     851  $19.81  $16,858.31   80%

The drop in value of this account was mainly due to sharp falls in the banks stocks and in property developer companies (due to the problems Centro experienced).

Comsec Account (loan balance $110,888.89, value $345,974.81). The loan balance dropped slightly due to the profit realised by my trade in Centro Properties during December. Tbere were no changes to my overall stock holding during the month.

stock   qty   price   mkt value  margin
AGK     240  $13.37   $3,208.80   70%
APA   4,685   $3.60  $16,866.00   70%
ASX     200  $59.00  $11,800.00   70%
BBI     105   $1.545    $162.23   70%
BBP      93   $2.58     $239.94   70%
BBW   1,782   $1.705  $3,038.31   60%
BEPPA   222   $0.845    $187.59   70%
CBA     130  $58.04   $7,545.20   75%
CDF  43,997   $1.859 $81,790.42   70%
IPE 132,000   $0.905$119,460.00   60% 
IFL   1,300   $8.52  $11,076.00   60%
LDW   1,350   $6.23   $8,410.50    0%
NCM     300  $37.01  $11,103.00   60%
OST   2,000   $6.20  $12,400.00   70%
QBE     607  $32.15  $19,515.05   75%
RIO      60 $132.07   $7,924.20   75%
THG   4,000  $1.045   $4,180.00   50%
WBC     300  $27.64   $8,292.00   75%
WPL     220  $52.17  $11,477.40   75%

Copyright Enough Wealth 2007

2007 Stock Market Wrap

The last trading day of 2007 saw the Australian stock market end with the ASX 200 index up 11.8% to 6339.80 points. That was a lot less than the previous three years (19.0% in 2006, 17.6% in 2005 and 22.8% in 2004) but still above the long-term average. The continued boost from the mining boom was offset in the second half of 2007 by concerns about a US recession being caused by the sub-prime loan problems flowing into a general credit squeeze, and hence leading to lower global growth. As there are question marks over whether the recent growth of the China economy is sustainable without a pause to get inflation under control, the outlook for the Australian stock market in 2008 is uncertain. Then again, with China hosting the 2008 Olympics and the US only a 30% chance of going into recession according to some prognosticators, it isn't certain that 2008 won't end up with a better result than 2007.

The broader All Ordinaries index was up 13.8% to 6421 points during 2007 (compared to 19.9% in 2006, 16.2% in 2005 and 22.6% in 2004), but if one includes dividends the accumulation index was up a very satisfactory 16.1%.

Copyright Enough Wealth 2007

Sold Centro Properties

I bought 3.000 shares in Centro last week at $0.66 after news of it's refinancing woes had caused it's share price to plummet to under $0.50 before rebounding. I missed a couple of chances to sell out at around $1.50 over the next two days, and was thinking of holding on for the longer term in case it eventually recovers to the alleged book value of around $2.40 per share. However, in the past couple of days it has drifted lower - $1.30, $1.20, $1.10... even though the general market has been recovering. So when it continued to drop today I decided to sell out at $1.02 and pocket a gain of around 50%. Although it will be annoying if the stock moves higher from this price level, it won't be as bad as if I'd held on until the stock dropped below the price I'd paid for it - a small gain is better than a loss any day.



Copyright Enough Wealth 2007

Kids Stock Portfolio Update - Dec 2007

The boys are only seven (DS1) and one (DS2), so their portfolios are truly "long term". They are also very static - once I buy a stock for them it probably won't be sold unless there is a massive and unexpected change in the company's prospects for the long term. There also won't be any additions to the portfolios after the initial stock purchases, apart from small additions due to dividend reinvestment plans (DRPs) or bonus share plans (BSPs). The main difference between these two plans is that DRPs buy additional shares at current market price (sometimes sans a small discount eg. 5%) using the taxable dividend income, whereas BSPs issue "bonus" shares at no cost in lieu of any dividend. The value of the issues bonus shares is the same as the dividend would have been, but isn't taxable as income. However, as the bonus share had a zero cost base for CGT purposes, there will be a bigger capital gains tax hit when the bonus shares are eventually sold. However, over the very long term the cost base will most likely be a small fraction of the total sale price, so this will not have much effect on the amount of CGT paid. Another way to look at it is that the while the starting value of the shares will be eventually be taxable for bonus share issues, the tax isn't due until the shares are sold - by which time the real cost of the tax will be much reduced due to inflation. There's also the benefit of only paying CGT at half your normal marginal tax rate for long term capital gains (assets held more than 12 months before being sold).

Anyhow, here is the current valuation of the boys' stock holdings:



When I bought QBE for DS1 they were undervalued due to the temporary concerns around their exposure to claims arising from the twin towers destruction on 9/11. ANZ bank was also reasonably cheap at that time, with the outlook for bank stocks being rosy. Five year's later, when it was time to buy some stocks for DS2, the banks were still highly profitable in Australia, but, with the current credit concerns resulting from the US sub-prime loans problem and rising inflation and interest rates in Australia, they don't currently appear to be such a bargain. So, for DS2 I've gone with CSL which is likely to benefit from continued growth in the medical products field in the future, and CPU which as a provider of stock administration services globally is well placed to benefit from economic growth in developing countries and the increased investments of the baby boomers and subsequent generations to provide for their own retirement plans. That's the theory -- we'll see how they perform over the next 10-20 years.

Copyright Enough Wealth 2007

The Tax Planning Benefits of Investing in Stocks

Over time I've come to the conclusion that I'm not the next Warren Buffet, and given the amount of time I spend "researching" my stock picks I'd probably get better returns over time from my investments in low-fee index funds rather than my portfolio of individual stock picks. However, one significant benefit of investing directly in a diversified collections of stock remains -- tax planning. For example, this year my wife is working part-time and is entitled to some Family Tax Benefit payments from the government, provided our overall taxable income isn't too high. I'm salary sacrificing a large amount of pre-tax salary into my superannuation account this year, so our combined taxable income will be below the threshold provided I don't realise too much capital gains from selling some of my stock holdings this financial year.

At the same time, the Australian stock market is looking a bit choppy, so I would like to sell off some of my stock holdings and use the proceeds to reduce the level of gearing I have via my margin loans. By being able to pick and choose which stocks I sell I can control how much capital gain I realise this year. For example, I recently took up my entitlement to 124,000 IPE options at $1.00. Since then they have paid out a dividend of around 5c per share, and, combined with the overall market correction, they are now down to around $0.91. If I sell off these shares I realise a capital loss of around $11,000 which I can use to offset capital gains realised from selling off some other shares that I have owned for a longer period and have gone up considerably in price since I bought them. That way I can realise some cash to reduce my overall margin loan gearing levels without increasing my taxable income this financial year.

If I later decide that I want to reinvest in IPE for the long term, I can always buy back in to IPE at a later date. Given the global credit concerns I may even be able to buy them in a few months time for less than I've sold them for - they currently appear to be in a bit of a down-trend compared to the overall market:



Copyright Enough Wealth 2007

Centro Properties Bonanza

My dabble in Centro Properties stock (CNP) continued to pay off today, rising to around $1.50 before dropping back to close around $1.20 -- an 82% gain on my purchase price of $0.66 in one day! Centro made reassuring noises today (that "Centro is comfortable about the ongoing viability of the business and would not allow its securities to trade if this were not the case"). At this stage I just have to decide whether to realise a short-term capital gain (I don't really want to realise any capital gains until after 30 June), or whether to hold on and hope that the company remains liquid - in which case the shares may return above their supposed "book value" of around $2.30 per share.

Copyright Enough Wealth 2007

A beautiful dive off the cliff...

Like a cartoon figure running off a cliff, the market suddenly realised that it was walking in mid-air, and took a dive. Although everyone has been aware of the "sub-prime loans" issue since mid-year, it appears that the concerted action by several countries central banks, coupled with Greenspan's comments about possible stagflation (economic stagnation (read recession) coupled with oil-price induced inflation), has finally made investors risk-averse. The Australian market is suddenly no longer "uncoupled" from the US-market, and has dropped around 10% in three days trading. The worst hit large local stock is Centro Properties, which had geared up massively to invest in US shopping centre and other property investments over the past year. After sliding from a all-time high around $10 to $6 over the past few months, last week they went into a trading halt and yesterday announced that they had been unable to refinance short term debt as they had planned. It now looks as if they'll have to try to reduce their debt rations in order to obtain further financing, which will mean selling off assets they had only recently purchased, probably at a huge mark-down, considering the state of the US property market and poor retail sales prospects.

My portfolio has dropped around $40,000 over the past week, and unfortunately the Index Put options I had bought as "insurance" against such falls isn't working any more (the options expire on 20 Dec. The Index is still around 6200 and the options aren't "in the money unless the index drops below 5500). To divert myself from this depressing state of affairs I've dabbled in buying some Centro Property Stapled Securities (CNP). As shown below, the share price had dropped to $1.60 yesterday, and today it plunged further to a low around $0.44 before rebounding. I bought a small parcel of 3,000 CNP at $0.66. This is probably another $2,000 down the toilet, but if Centro does manage to offload some of their assets at a reasonable price and obtain refinancing the stock price could recover substantially by the end of next year. I did a similar purchase of QBE shares when they plunged after "9-11", as the hit due to their exposure to the twin towers re-insurance seemed likely to be temporary. Centro is probably more of a gamble, put the amount invested is not significant.



Update: By close of trading CNP had recovered to $0.85, so it looks like my hunch that CNP was oversold might have been correct (at least for today). Only time will tell if they can manage to refinance their debts and retain value over the longer term.

Copyright Enough Wealth 2007

Tracking Stock Trades with Covestor

Some of you may have noticed the new Covestor widget in my sidebar - it's tracking the performance of my "Little Book That Beats The Market" portfolio of US stocks vs. the S&P500 index. I came across this widget when I was reading Timothy Sykes' blog. He is using it to provide an independently verified record of his stock trades while he attempts to replicate his original claim to fame - building up $12,415 of Bar Mitzvah Gift money into $1.65 million from 1999 to 2002 through small stock trading (mainly short selling).

I'm not an active trader - even my US stock portfolio is based on buying a stock and holding it for at least 12 months before selling it and buying a replacement from the current short-list of prospects. So tracking my trades through Covestor is a bit of overkill. However, it does provide interesting information about trading performance, risk adjusted return and so on.

I may also track my Australian stock portfolios using Covestor as they seem to be setup to handle data from various stock brokers around the world. I setup my account to track the US stocks I trade via Comsec-Pershing. You can choose to enter your initial portfolio and track future trades either automatically (by providing your account login details) or 'manually' by sending a file of your latest brokerage statment and then sending in updates for future trading activity. Since Pershing didn't seem to be included on the list of brokers I'm updating this account manually. When I setup another account to track one of my Australian brokerage accounts I may try the automated method and see how well it works.

Unfortunately you have to setup a new account (using a different email address for verification) for each individual brokerage account - it would be a lot easier if you were able to setup "sub accounts" instead. Covestor also provides ranking tables showing how well the Covestor members are performing, and you can track your favourite traders, get updates of when they make new trades, and read what comments that have made about each trade. In the longer term Covestor hopes to charge membership fees for people to be able to track successdul investors, and will pass on a percentage of these fees to the members being tracked. I doubt anyone would pay to see details of my investing activities, but active traders like Timothy may attract a day-trading fan club over time.

Copyright Enough Wealth 2007

Children's Stock Investments

Since the market was down again today I decided to go ahead and buy some stocks for DS2. I bought 80 CSL at $32.08 and 250 CPU at $9.95. Total cost was $5,113.80 ($5,053.90 + $59.90 brokerage). While the investment is long term, it was nice to see the market recover a bit after I placed the order, so that by the close DS2's "portfolio" was worth $5,125.80, a rise of 1.4% above the purchase price.

DS1's portfolio consists of 246 ANZ shares and 438 QBE shares. The initial purchase cost $4,134.01 and is now worth $20,292.06.

Hopefully these four stocks continue to perform well over the next 10-20 years and will form the core of a stock portfolio they can add to as they grow up. If nothing else buying stocks for the kids provides a good opportunity to explain the concepts of share ownership, dividends, and compound interest. Because the accounts list their names (as trustors) they take an interest dividend statements and so on arrive in the mail.

Copyright Enough Wealth 2007