Career Decision-Making

My university has a big deficit currently and one money-saving move has been to ask people who are eligible to take long-service leave. Every pay period money is put into a long-service leave account. The university can't access this money unless the employee takes long-service leave. When they take long-service leave, the university stops paying their regular salary thus reducing the current deficit. I haven't yet been eligible as you need to have 10 years of service, and I started in 2011 in my current position. But I was thinking of taking long service leave in the first half of next year. I was vaguely thinking about retiring by the end of next year.

According to standard criteria we are financially independent. 3% of our net worth is AUD 150k and our annual expenditure is around AUD 120k. However, I expect our expenses to rise faster than the rate of inflation. We have two young children who my wife is determined to send to private schools (I tend to think that public schools are fine). We are spending on one private school and daycare right now. We don't get much childcare subsidy from the government because our income is high. But high school is more expensive than this.

My wife (Moominmama) is working (2 days a week), though I told her she doesn't need to if she doesn't want to. She said that holding on to the job has option value. Which I kind of agree with. Things feel very uncertain.

Now I was asked whether I could again take on a leadership position in my school (school = very large academic department in US terms - our school has 4 departments within it - think something like a business school of a university). This is probably the best of the leadership positions. I think it is kind of unfair because I spent five of the last ten years holding such positions, which are a lot of extra work, and some full professors have never done even one. The argument is that I am good at it and they're not... 

So if I started this in January, I couldn't take long service leave and it would be for two years probably. Usually, you get AUD 10-20k a year extra pay. After tax, that is half that, of course. After discussing with Moominmama she said that I should ask instead to reduce my teaching. This has happened in the past and the incoming director might be more open to this than the current school director. Moominmama also think I should hold onto my job for the "option value" and not retire. So, I suggested to her that after doing the leadership position for two years maybe I would switch to half time, which means I could keep the low teaching load. The truth is that without leadership duties my job is a very easy way to earn AUD 200k a year (including the superannuation contibutions). AUD 100k a year is also good money. So, I think I will tell the incoming director that I will do it, but only if I can teach less. I would still earn the AUD 200k a year for the next two years. I won't tell her about dropping to half time after that. Or should I just say no, because others haven't done their fair share of the work?

Argo Investments Again

  

Back in 2012 I invested in Argo Investments for a while. I don't know why I sold it. There were no new investments that month and I didn't comment on it on this blog. Maybe I put the money towards our house buying fund.

Anyway, I just reinvested in the fund in a regular brokerage account. After selling some things which we were buying in the SMSF we now need to reinvest in those accounts. The target allocation says that we are underweight large cap Australian stocks and so that is what I bought. This is a managed fund with a tilt towards value and a very low expense ratio of 0.15%. It has performed pretty well I think. 

By the way, I recently tweaked the target portfolio slightly to give the US and rest of the world equities equal weights instead of a slightly smaller weight for the US. Each is now allocated 6% of assets. This doesn't include hedge funds and private equity, just long-only investments. Australian large cap is supposed to be 9% of the total.

Bond Investments and Overall SMSF Allocation

I made three bond investments and have completed the initial investments for the SMSF. I bought two US baby bonds - Scorpio Tankers (SBBA) and Star Bulk Carriers (SBLKZ). These are both companies that make money, pay dividends and whose stock has good analyst opinions. They also mature soon or are subject to potential call, which means their price doesn't deviate too far from the redemption price usually. I also invested in the MCP Income Opportunities Trust (MOT.AX). This is a listed private credit fund, which has a high yield and performed better than other listed credit funds in Australia through 2020's market crash.

Here is the overall allocation of investments in the SMSF at this point:

The cash and bonds are to take advantage of shorter and longer term future opportunities.

I plan to benchmark the SMSF against Unisuper and PSS(AP) in future performance reports. After all, if it doesn't perform better than our employer superannuation funds, there isn't much point in doing this. As these are both strong performers, it will be a tough hurdle to beat.

Second New Property Investment: Domacom

I made a second property investment application today. This one is to Domacom which is a fractional property investment or crowdfunding platform. I have been an investor in the company itself for a while.  It is now looking quite a bit more stable than it did when I wrote about it before. It's still one of my most speculative investments. The way it works is that you put cash into an interest paying account and then bid on various crowd-funded projects. You can also get a syndicate together to invest in a property using their platform. They have a variety of other products like housing equity release for seniors – selling part of your house, rather than doing a reverse mortgage – Islamic financing for buying houses etc. Their model is supposed to allow SMSFs to invest with leverage because you buy units in a fund rather than buying a property directly. 

The focus is on residential property, but there are also more unusual opportunities like solar power and rural farmland.

New Investment: Australian Unity Diversified Property Fund

This is the first new investment in our SMSF. Real estate is the area where we are most underinvested relative to our target allocation. The SMSF already has an investment in US residential real estate via URF.AX. I sold our existing investment for a capital loss and bought a larger holding in the SMSF. So, this investment covers Australian commercial property. This fund has a very good track record (better than Charter Hall in my opinion) and is diversified across industrial, retail, and office properties. Coles and Woolworths are the biggest tenants. We are investing AUD 50k in this fund.

I have a definite preference for direct investments in property rather than listed investments. REITS tend to move up and down with the stock-market and so don't provide as much diversification as direct investments. On the other hand, actually buying property myself is not something I want to do as the required size of investment is too large. Well, we could easily buy an apartment to rent but we couldn't access commercial property easily. So pooling investments with others makes sense. 

If a REIT is trading a lot below NAV, like URF is, then I am interested in buying. URF is a pretty risky investment, though US residential property seems to have turned the corner. Financial Samurai even said he wanted to buy Manhattan Real Estate.

We already have exposures to US and Australian commercial real estate through our employer superannuation funds, the Wilson Alternative Assets Fund (WMA.AX) and the TIAA Real Estate Fund.

Stopping Systematic Trading Again...

Of course, bitcoin went straight down after I got in and I have now closed that trade. There was no real basis to that trade. I just went in because Oscar Carboni was getting bullish on bitcoin again. But I have also decided to stop my attempts at systematic trading. I thought I could come up with something which my personality could handle. But it's not the case. I just can't get detached when there is an order out there that may or may not trigger, needs attention to close etc. My anxiety and lack of sleep has been getting worse again this week, despite not actually trading and last night I decided to pull the plug. I still have a soybean calendar spread trade open, which maybe I was most anxious about. But it is actually making money now. I had increased the size of the trade. That was a bad idea. I have now gone back down to two contracts instead of three. These moves should reduce the overall cognitive load. If this still doesn't work, I'll have to close that trade too.

This seems to have happened every time I really get into trading, but each time I think it will be different. Moominmama was concerned when I said I was trading again, saying that I always end up stressed as a result. She was right.

P.S. 9 April

I still had difficulty sleeping, so I closed the soybean calendar spread too. At least that one made some money.

Bitcoin

 I'm finally back into Bitcoin. The position I could get was tiny. Margin requirements are crazy. On IB they are something like twice the actual BTC position. I took a small position on Plus500.

March 2021 Report

This month we took some big steps towards fully setting up our self-managed super fund. Trading didn't go well, but I persisted, following the rules exactly. We also reached a big round net worth number in  Australian Dollar terms. 

The Australian Dollar fell from USD 0.7737 to USD 0.7612. The MSCI World Index rose 2.72%, the S&P 500 by 4.38%, and the ASX 200 rose 2.74%. All these are total returns including dividends. We gained 1.46% in Australian Dollar terms but lost 0.17% in US Dollar terms. The target portfolio is expected to have gained 2.00% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 1.30% in US Dollar terms. So, we strongly underperformed all our benchmarks. Here is a report on the performance of investments by asset class (currency neutral terms): 

Hedge funds added the most to performance and gold detracted the most. Things that worked well this month:

• Three hedge funds: Cadence Capital (AUD 20k), Regal Funds, and Platinum had the largest gains this month in absolute terms. Cadence benefited from its investment in Deepgreen metals. Domacom gained 21% or AUD 7.5k.
  

What really didn't work:

• Gold lost the most in dollar terms (AUD 11k) with Hearts and Minds (HM1.AX) and the China Fund (CHN) following up. Trading the ASX200 lost the fourth largest amount AUD 6k.
  

I thought it'd be interesting to look at the twelve month performance since the end of March 2020 when the stock market bottomed:

Portfolio shares are as at the end of March and gains are the dollar gain since March divided by the value at the end of March. Hedge funds are again the star performer, but Aussie small caps did surprisingly well.

The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices. We show the desired asymmetric capture and positive alpha against the ASX200 index.

We moved sharply away from our desired long-run asset allocation. Rolling over my retail superannuation funds to the SMSF resulted in a big rise in cash. Cash is the asset class that is furthest from its target allocation (12% of total assets too much) followed by real assets (7% too little):

 

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Other moves this month:

• Our SMSF received all approvals, and I rolled over my Colonial First State super funds to the SMSF, made an AUD 15k contribution to the fund, and applied for a brokerage account.
• Ready Capital called their baby bonds early, reducing our bond exposure by another USD 25k.
  
• I continued systematically daytrading ASX200 CFDs and futures.... Daytrading experienced a strong drawdown. I lost as much (including slippage) as the algorithm did (not including slippage) despite using a smaller position size, mainly because of one bad trade where Plus500 got me into the opposite direction trade than I should have been in. The trade in the wrong direction triggered near the open, when in the futures market you would have got into a trade in the right direction later in the day.
  
• I started a calendar spread in soybeans futures. Soybeans are very strongly backwardated when usually they should be in contango. I am betting that the November and May prices will converge. They went the wrong way in March but on 1st April moved very sharply in my favor.
  
• I invested USD 10k in another painting at Masterworks. I now have USD 70k invested in 7 paintings.
• I bought 15,000 Cadence Capital shares (CDM.AX) @ $1.045 per share when they announced that their pre-IPO investment in DeepGreen Metals was being acquired by a SPAC and would list on the NYSE. The current share price of Cadence gives you this investment for free.
• I sold 10,000 shares of Hearts and Minds (HM1.AX) @ $4.78 a share. The shares are trading at a large premium to the NAV and I felt that some of their recent picks of growth and tech stocks perhaps peaked. I still hold 25k shares.
• I sold half our Treasury Wine (TWE.AX) position @ $11.15 a share. Now it is down to 1% of the portfolio again, which is the default allocation for an investment in a single company.
• I bought 2000 shares of Perth Mint Gold (PMGOLD.AX) @ $22.44 and 22.56 per share. Our allocation to gold fell below the long-term weight. It is now almost exactly at 10% of gross assets.