Arkmile Sets Up Challenger Infrastructure Fund Website

Arkmile is calling for the winding up of the Challenger Infrastructure Fund (CIF.AX) - sale of the assets and the distribution of the resulting funds to shareholders. I own 3000 shares. A meeting is now scheduled for late August for shareholders to vote on the proposal and Arkmile have set up a website laying out their case. CIF trades at a massive discount to the supposed value of its assets. Recent sales of smaller assets by the managers realised prices in excess of the carrying values, so I think that Arkmile are correct that this proposed action could eb good for shareholders. Even better from my perspective, though, would be delisting the fund - turning it into an open ended fund - this would push the price up to the net asset value while allowing me to remain exposed to the infrastructure sector. All the same, in the absence of an alternative proposal, I'd vote in favour of Arkmile's proposal. This guy, though, is skeptical that other shareholders will vote Arkmile's way. Chalenger holds 32% of the shares, which makes Arkmile's task hard.

In other news, Snork Maiden got the new temporary resident visa stamp placed in her passport and Medicare membership all in the course of about an hour. Sometimes government can be pretty efficient :) She's now trying to get her private health insurers to refund her unused insurance. If she becomes a permanent resident in two years time, she'll be on track to becoming an Australian citizen four years after arriving here. This is at least twice as fast as it would take to become a U.S. citizen.

:(

61 of 84 Starbucks stores in Australia will close, including all stores in the Australian Capital Territory :( These are the only non-US stores that Starbucks is planning to close. I like to occasionally get a largish cheapish filter coffee at the Starbucks branch pictured, rather than the more expensive espresso coffees available everywhere else here, and lounge around in their nice comfy chairs. More empty retail space to add to the increasing amount of empty commercial property I'm seeing.

Snork Maiden Granted Temporary Visa

Some good news - Snork Maiden got a letter today from the Australian Immigration Department granting her a temporary spouse immigration visa for the next two years. At the end of two years they will grant a permanent residence visa, subject to more evidence. As she has a 457 work visa valid for the next two years the only practical change in the meantime is that she will now be eligble to get subsidised government healthcare through Medicare. We can stop paying $A230 a quarter in health insurance for her as soon as she has a Medicare card.

Superannuation Handbook 2007-08

I just finished reading The Superannuation Handbook 2007-8 by Koken and Smith. It is a pretty comprehensive coverage of Australia's very complex superannuation or retirement system. I think my understanding of the system improved somewhat after completing the book, though it is still hard to keep all the facts and rules organized in my head.

Australia's superannuation system is complex for a number of reasons. First and foremost, governments have continually changed the rules while trying to grandfather in existing super investors in many cases. And there have been very significant recent changes. In the US, new rules have often meant the creation of new types of retirement account such as the Roth IRA or Roth 401k. In Australia there is only one type of account and all the various rules have been applied to that same account class. So we have pre-tax and post-tax money going into the same accounts, for example. In the US defined benefit pension schemes are an entirely separate beast to defined contribution retirement accounts. Not so in Australia.

Second, while the US does not tax money in retirement accounts Australia does (the US taxes payouts from accounts that had pre-tax contributions like the 401k). This I suppose is why self-managed superannuation accounts in Australia are subject to such a bureaucratic regulatory nightmare compared to IRA accounts in the US.

Third, there are several different age thresholds (55, 60, and 65) at which investors have different rights to access their super and varying taxation obligations if they do. In the US there is a single age threshold of 59 1/2, though you can access your money before then subject to tax and penalties (unless you do a 72t or annuity).

Fourth, eligibility for social security in the US does not depend on assets whether in retirement accounts or not. Access to the age pension and other benefits in Australia does depend on income and assets tests and sometimes it matters if the source is from super or not (but less than in the past).

Fifth, in Australia, how much tax you pay depends on how you take the money out of your super account - whether as a variety of different "income stream" products or as lump sums.

Well, there are probably more reasons that don't immediately come to my confused mind that result in the Australian system seeming more complex to me.

The book does an admirable good job of covering this very confusing topic. There are three points though which are somewhat weak. Not all terms are clearly defined. For example, the entry in the glossary just says that a "complying pension" complies with certain regulations. It'd be nice to spell out some of these more clearly.

Second, the authors often gloss over details and technicalities. Footnotes or appendices to chapters could cover these if they don't want to complicate the text further. For example, there is a rule that a low-income self-employed person cannot get a government co-contribution if their "business income" is less than 10% of their total income. In other words the rest of their income is from investments or superannuation etc. This is the kind of point that was glossed over that I wanted to get a straight picture on.

Third, there are plenty of worked examples in the text, but most of these only cover the first year of any investment program. In some cases they comment that the difference between investing in superannuation or outside superannuation isn't that big. But that's the result after only one year. The results of investing in superannuation or outside superannuation could look quite different in the long-term than in the short-term.

Bottom line, I'd recommend this book as a very solid background to the topic though you might need to consult the ATO website and other resources along the way.

Thinking Things Through

I'm continuing to think things I discussed in recent posts. I clearly can't handle the medium term (from more than a day to month) type of trades very well. Even though there are periods when I've done OK with them, there are plenty of other periods when I've gone off the rails. Bruce Hong listed some of the character traits that make people less suited to trading. I clearly have some of these to some degree. Brett Steenbarger, of course, has written extensively on this. The key personality traits that can lead to poor trading outcomes are: neuroticism, extroversion, and openess to experience. In the Myers-Briggs test I come out as an ENTP - Extrovert, intuitive, thinking, perceiving - which means I am analytical which could be good for trading but am extroverted (though not so strongly) and open to experience and changing plans (very strongly). I also do seem to have a degree of neuroticism - moodiness - tendencies to emotional extremes - particularly negative extremes - I have been treated for depression in the past. I thought that was due to an undiagnosed thyroid condition which is now being treated, but maybe only partly so.

If I could stick to strict daytrading I could eliminate the worst emotional aspects of trading - by controlling the amount of time that I am trading. But sticking to strict daytrades is hard - you need a lot of patience and not be open to changing the plan. Also as the US stockmarkets are the most important drivers of global stockmarkets, so that trying to trade the Australian market on a purely daytrading basis, misses much or most of the opportunity as overnight moves account for at least half the movement in the market and a lot of the other action is close to the open. Most days it's not much of a market for daytrading with any reasonable level of risk.

So probably, I need to go back to my previous career or find something new to do. And I'm going to be increasingly thinking about what that is.

Tonight, I'm going to have to trade to get out of the short options position I'm in. I don't have enough margin available to be putted the stock. Things were going well and it looked like we were in a new uptrend until Merill Lynch and Google released supposedly disappointing results after the US market close and the market lost more than its gain for the day on Thursday.

By the way, today is twenty five years to the day that I first travelled out of my home country (Britain). I went to work on a Qibbutz in Israel for the summer I finished high school (you don't "graduate" it in Britain). It's amazing it's a quarter century. I can remember so much in so much detail.

How Much Will It Cost to Visit China?

More than I was expecting... We decided to fly via Hong Kong as Snork Maiden doesn't need a visa to visit there (she's a PRC citizen) and it was cheaper than either a direct flight or a trip via Bangkok, our other favored destination. We'll be in Tianjin and Beijing for a week each roughly and three days in Hong Kong on the way back. In the end each of our airfares is coming to $A1,888.00 - paying by credit card costs an extra 1.9%. I made a deposit of $A300 using a credit card but plan on paying the rest via BPay (an Australian online electronic payment system) - we can pay BPay from our credit card account - not sure if that results in avoiding the fee or not... The basic flight cost is $A1,240 and then there are $A397 in taxes and fees and $A251 to fly between Sydney and Canberra roundtrip...

Then we need to pay for a hotel in Hong Kong and thinking about travel insurance. I always make sure I have health coverage when visiting the US, but otherwise have usually not taken out travel insurance. Not sure if it is worthwhile for China/HK. The only thing I think it is worth paying insurance for are health issues where expenses can become astronomical if you are unlucky. Three nights at a decent hotel in HK seems likely to be around $A600 in the period we are visiting in. I already rejected one of the cheaper options the travel agent suggested as people much shorter than me were complaining about the length of the beds on Trip Advisor. I also need to pay $A70 for a PRC visa - the first time I will ever need to get a visa for a short term trip... (I'm a UK and Australian citizen).

The good news is that Snork Maiden's airfare will be paid for by the organizer of the conference she is going to and so will our hotel (except the final night) in Beijing. In Tianjin we will stay with her family.

So bottom line before incidental costs will be $A2,560. But we have to wait till after the trip for reimbursement of Snork Maiden's costs.

June 2008 Report

This was the worst month since the 2000-02 bear market performancewise and in terms of absolute dollar loss of net worth the worst ever.



The MSCI index matched its January performance (-8.18%), but this time we underperformed the market on a risk-adjusted basis. In the chart, month's above the red line have risk adjusted excess returns, while those above the blue line have above average risk adjusted returns:



And July is not shaping up very well either yet. (Lack of) progress on meeting our annual goals is assessed in the first part of this report. Other statistics appear towards the end of the report. All amounts are in U.S. Dollars unless otherwise stated.

1. Net Worth Goal: Reaching $505k In US Dollars we fell back $48,878 to $433,409, while in Australian Dollars we lost $A51,751 to decline to $A453,262. We are down on the year so progress on this goal is very negative. I'm lowering the goal again to $500,000.

2. Alpha Goal: Alpha of 8.5% The point of this goal is to earn at least an average wage from risk-adjusted excess returns. Using my preferred time-series method our returns had a beta of 1.12 and an alpha of 7.02% with respect to the MSCI World index, which lags our annual goal. The risk adjusted excess return for June based on this analysis was -1.05%. Multiplying this by net worth gives a loss of $4,814. For the year so far the risk-adjusted excess return in dollar terms has been $21,508. Using the estimate of alpha the smoothed annual income is $32,129. In Australian Dollars terms returns are somewhat lower, while they are higher using the S&P 500 as a benchmark.

3. Increasing Non-Retirement Net Worth by More than the MSCI Index The point of this goal is to make sure that we only spend out of non-investment income and excess returns and don't use the normal market return on investments to fund spending. In other words, this makes sure we have positive saving. So far this year these accounts have grown by 1.97% in excess of the MSCI return.

4. Achieving Break-Even on U.S. Taxable Accounts After reaching this goal in May we fell back steeply this month. At the end of the month we were $8,861 below the breakeven point with a loss of $9,613 for the month. The rate of return on these accounts was -11.39%.

5. Make at Least $15,000 from Trading Realised gains this month were $231 and so far this year $3,873. I've now had five positive months in a row, which is a record. I doubt July will be positive. I'm lowering the goal to $10,000.

Background Statistics

Income and Expenditure



Investment Performance

Investment return in US Dollars was -10.24% vs. a 8.18% loss in the MSCI (Gross) All Country World Index, which I use as my overall benchmark and a 8.43% loss in the S&P 500 total return index. Returns in Australian Dollars and currency neutral terms were almost identical as the AUD hardly moved over the month. So far this year we have lost 5.43%, while the MSCI and S&P 500 have lost 10.41% and 11.91%, respectively. Over the last 12 months we lost 5.18% while the MSCI lost 8.79% and the SPX 13.12%.

Asset Allocation

Allocation was 43% in "passive alpha", 69% in "beta", 4% allocated to trading, 10% to industrial stocks, 6% to liquidity, 3% to other assets and we were borrowing 35%. Our currency exposures were roughly 57% Australian Dollar, 20% US Dollar, and 23% Other and Global. In terms of asset classes, the distribution was:




Due to the use of leveraged funds, our actual exposure to stocks was 119% of net worth.

Outrageous Superannuation Grab!

I just read about this in the Australian Financial Review today. The government plans to grab the superannuation contributions of temporary residents and only let them have it back if they become permanent residents or leave the country. In the meantime the contributions will earn no interest! At least they could pay interest! The superannuation industry is saying that it might be unconstitutional. It hasn't been implemented yet, but Nick Sherry, the minister responsible, says they are going to go ahead with it. Snork Maiden will likely be a temporary resident for another two years at least before she gets permanent residence. This would be extremely annoying. Hopefully, Snork Maiden's employer will not notice this... or the super industry and universities will sue the government.

P.S.

I sent an e-mail to my member of parliament (a Labor member) about this issue.

Most Frustrating Market in Seventy Years

At least it's not just me having a hard time trading. And Bespoke provides evidence that it is the most frustrating market in 70 years. Someone should run this for the entire history of the Dow Jones Industrials...

At a Crossroads?

I feel today like I'm getting close to giving up on trading. There are periods when I trade well, but this isn't one of them. I'm trading terribly. It's very possible, that I am just not mentally and emotionally suited to being a trader. The market is going relentlessly down - no crash and no bounces. Like the slowly boiling proverbial frog. Eventually, of course, it will turn around. If the market doesn't turnaround substantially in the next couple of days, I may well just call a halt there and then before I lose too much money. If the market does turn, then once the immediate crisis is over, I'll likely take a break from trading for a little while and get more organized in the other areas of my life. If I decide to give up, then there is the question of what I will do next. I don't want to go back to the kind of academic job I had before, in the unlikely event that one was available here in Canberra. One reason I decided to make the move here is because I was not happy with my career path in academia. After a couple of decades I had gotten bored with the material and was not keeping up with changes in the field to the degree I would have liked. But I don't know what else I might do apart from academia and trading. Unless I come up with a radical idea soon, I guess it's going to be in the area of energy, environmental, and resource economics, which is of course becoming more and more prominent. I guess I'd be in a research oriented position, but I don't want to be in a position where I need to provide leadership at this stage. Given my apparent seniority, that might be a hard sell, though I've had suggestions a few months ago for positions that might fit that description and so similar jobs might be likely to be forthcoming.

Of course, whatever I do, I will still try to manage our finances in a reasonably sophisticated manner including monitoring performance and reporting in this blog.

On the other hand, maybe I am just exhausted by these market conditions.

One Conclusion and an Update

I really came to this conclusion before but when I started making money in the last few months before June I drifted away from it: I'm not emotionally equipped to hold large trading positions overnight, I really need to focus on daytrading. I can't be awake 24/5. If I can't make sufficient money doing that, then I need to find a different line of work. My first priority now is extricating myself from the positions I got into. After that I'll focus on daytrading.

If you're wondering where June's report is, I need to get the distribution data from our Australian funds for the end of the 2007-8 financial year, before I can do it (THe Australian tax year ends on 30th June). Hopefully, we'll have the actual distributions next week together with an estimate of the associated tax credits. Towards the end of the month we should get an actual tax statement and be able to start on our Australian tax returns. In the meantime we're in a bit of a cash crunch with our Australian credit card maxed out due to covering Snork Maiden's immigration fee and available cash needing to be directed towards paying the rent next week. The next big expense after that will be buying tickets to go to China. Snork Maiden will be paid on Wednesday too. So from some point next week things should get easier cash wise. Of course in a real emergency we could borrow more or sell investments. But I don't want to do the former and the latter is a bad idea at this point in the market.

With losing so much money in the last month I really haven't felt like doing too much blogging among other things. The number of posts is probably a good indicator of my mood.

June Finally Over

Trading realised gains were $223. Everything else looks horrible. The only other positive spots were: NNDS, TFSMX, LUV, and LGDI. A few other investments were breakeven ish.