Gold just overtook Unisuper to become our most profitable (in absolute dollar terms) investment ever.
Chart shows price of gold in Australian Dollars for roughly 1/100 of a ounce. I say roughly, because actually this is the PMGOLD ETF that now has some small management fee. In earlier years they withdrew units from each holder to pay the management fee so it exactly tracked the gold price.
Also sold out of The China Fund (CHN) at a huge loss for this account (SMSF) though we only lost a little (USD -1.7k) in the long-term as we previously had positions in other accounts that did well. Should have gotten out a long time ago, of course. Internal rate of return to date was -0.75%.
I sold my 100 shares of BRK/B. The last earnings report raised questions about the performance of several major Berkshire businesses. My target asset allocation said I could reduce my exposure to US shares and I wanted to do something else with the money. Yeah, I bought more bitcoin. Munger would have been horrified.
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Total profit on Berkshire to date was USD 18k and the internal rate of return was 11.09%.
This was a very good month investment-wise. Not all numbers are in, we still might get updates from more illiquid investments. But based on what we have, we had our best investment result ever in terms of absolute Australian Dollars (rather than percentage return) at AUD 228k. It's beginning to feel like 2021 again:
In March, the Australian Dollar rose slightly from USD 0.6504 to USD 0.6514. Stock indices and other benchmarks performed as follows (total returns including dividends):
US Dollar Indices
MSCI World Index (gross): 3.20%
S&P 500: 3.22%
HFRI Hedge Fund Index: 1.53% (forecast)
Australian Dollar Indices
ASX 200: 3.57%
Target Portfolio: 2.76% (forecast)
Australian 60/40 benchmark: 2.41%.
We gained 4.44% in Australian Dollar terms or 4.60% in US Dollar terms. So, we beat all benchmarks. Shocking 😀.
Here is a report on the performance of investments by asset class:
The asset class returns are in currency neutral returns as the rate of return on gross assets and so are lower than the Australian Dollar returns on net assets mentioned above. Returns were positive for all asset classes. Gold had the highest rate of return and made the largest contribution to returns followed by futures in terms of contribution and Australian small caps in terms of rate of return.
Things that worked well this month:
What really didn't work:
Here are the investment performance statistics for the last five years:
The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Compared to the ASX200 we have a lower average return but also lower volatility, resulting in a higher Sharpe ratio of 0.97 vs. 0.72. But as we optimise for Australian Dollar performance, our USD statistics are much worse and worse than either the MSCI world index or the HFRI hedge fund index. Well, we do beat the HFRI in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 of 3.3% with a beta of only 0.45.
The SMSF continued to outperform both its benchmark funds after under-performing for a few months:
We are fairly close to our target allocation. We are underweight private equity and hedge funds and overweight real assets and futures. Our actual allocation currently looks like this:
We receive employer contributions to superannuation every two weeks. We are now contributing USD 10k each quarter to Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. It was quite a busy month:
As Ramit's Conscious Spending Plan says that we aren't doing enough "guilt-free spending", I booked a trip to Queensland for when the weather will be colder here 😀. Took under 2 hours to decide on location, book an apartment, book flights, and book a car. Pretty efficient I think. Total bill for a family of four: AUD 5,350. I think those are all the additional costs compared to doing similar activities based at home on a staycation. Not sure I am "guilt-free", though! Now we could have picked cheaper options throughout. But we got an apartment on the beachfront with a sea view and a swimming pool, a car that will definitely fit our luggage and extra legroom on the flight (front row) at convenient times. We got the cheapest available price on Jetstar on the way back.
One interesting thing is that I thought about using my Qantas Frequent Flyer points, but my 160k points were only worth about AUD 1,000. Apparently, they are worth more for international flights, so I kept them for now. Will probably find I'm not allowed to use them when I next try to book an international flight.
Today I received three cheques in the mail from the Reserve Bank. Here is one:
They are my payout from the collapse of HIH back in 2001. It's about a third of the value of the shares I had bought. I computed the internal rate of return on this investment: -9.44%.
After a couple of failed attempts at merging the Diversified Property Fund with other funds, Australian Unity has decided to rid itself of managing the fund by selling the management rights to ASA Real Estate Partners. I don't have any objections to this. The previous mergers would have reduced the diversification of the fund and also financially disadvantageous to existing unit holders. This sounds like an experienced team.
So, as soon as I had increased the cash buffer in our offset account, I got AUD 40k of capital calls, so back to square one again. The capital call from Unpopular Ventures was expected. We have completed our first 2 year subscription period and are renewing for another two years. We need to make quarterly contributions of USD 10k. This is an act of faith that our investments will eventually be as good as their earlier investments. Ten years of fees come out of the investments up front, so we are underwater on our investment so far.
The other call is from Aura Venture Fund II for AUD 25k. These don't come on any schedule. When they need more money they make a call with about two weeks of notice. We have now contributed 55% of the total capital we pledged. There is no choice about this one. It's also losing at the moment.
I am expecting my rate of return over the last 20 years to look bad this year because 2004 was such a good year. In 2004 I gained 42.4% compared to a 13.7% gain for the MSCI World Index (in AUD terms). It was my best year ever in terms of investment performance. The ASX 200 gained 30.3%. You can already see this in this chart:
In 2023 my performance over the last 20 years almost matched the MSCI World Index's performance over the previous 20 years. But this year I am lagging a lot. Why did I do so well in 2004? It was mainly due to leveraging Australian shares. This table shows the AUD gains in 2004 for each investment:
The CFS Geared Share Fund is a levered Australian share fund. It provided the majority of gains. Nowadays I feel that I can't handle that much volatility. The fund is still available. Of these investments I am currently, 20 years later, invested in CFS Developing Companies, Platinum Capital, CREF Social Choice, and TIAA Real Estate.
I started 2004 with a net worth of AUD 170k and ended with AUD 298k.
In February, the Australian Dollar fell from USD 0.6595 to USD 0.6504. Stock indices and benchmarks performed as follows (total returns including dividends):
US Dollar Indices
MSCI World Index (gross): 4.33%
S&P 500: 5.34%
HFRI hedge fund index: 1.92% (forecast)
Australian Dollar Indices
ASX 200: 1.03%
Target Portfolio: 3.08% (forecast)
Australian 60/40 benchmark: 1.65%.
We gained 1.78% in Australian Dollar terms or 0.37% in US Dollar terms. So, we beat the ASX200 and the 60/40 benchmark but underperformed the other four. The main reason we underperformed the target portfolio is because it gained 1.15% from venture capital and buyout whereas we had a negative return from private equity.
Here is a report on the performance of investments by asset class:
The asset class returns are in currency neutral returns as the rate of return on gross assets and so are lower than the Australian Dollar returns on net assets mentioned above. Futures experienced the highest rate of return and made the largest contribution to returns followed by US stocks and ROW stocks. On the other hand, private equity and real assets had negative returns in February.
Things that worked well this month:
What really didn't work:
Here are the investment performance statistics for the last five years:
The top three lines give our performance in USD and AUD terms, while the last three lines give results for three indices. Compared to the ASX200 we have a lower average return but also lower volatility, resulting in a higher Sharpe ratio of 0.90 vs. 0.69. But as we optimise for Australian Dollar performance our USD statistics are much worse and worse than either the MSCI world index or the HFRI hedge fund index. Well, we do beat the HFRI in terms of return, but at the expense of much higher volatility. We have a positive alpha relative to the ASX200 with a beta of only 0.45.
The SMSF outperformed both its benchmark funds after underperforming for a few months:
We receive employer contributions to superannuation every two weeks. We are now contributing USD 10k each quarter to Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. In contrast to January, it was a busy month:
This post follows up on EnoughWealth's comments on my previous post on Ramit's Conscious Spending Plan. In that post, I commented that I should have more cash in our offset account, in case I die or something, as otherwise bills might start to bounce (like the bill for tuition for the term for two children... or an AUD 25k capital call from Aura), especially once my salary was stopped. Even though I now have my salary coming into our offset account I am finding I have to shuffle money around quite frequently to able to pay the bills. This is because investments like in Unpopular Ventures are also coming out of this account. We are earning the mortgage rate implicitly on money in the offset account. But as that is less than our top margin rate that we are paying I have been reluctant to just put a lump of tens of thousands in the offset account.
EnoughWealth said that that is the purpose of life insurance. Yes, we both have life insurance attached to our employer superannuation. But getting life insurance paid out could take weeks. Only in 50% of cases is it within 2 weeks. My death cover is AUD 168k. This number seems to be falling as I get older.
So, probably I should hold more cash in our offset account despite the interest cost. I also need to write an "operating manual" and get Moominmama who has no interest in finances to read it...
I recently learned that I have an above average probability of getting a heart attack for my age (59). I am taking statins now to try to reduce that rate, but who knows how effective that will be.
I like to watch Ramit Sethi's podcasts where he has an in depth discussion with a couple about their finances. These sessions usually involve the "Conscious Spending Plan", which is basically a type of budget. You can get a copy of the spreadsheet here. I was curious how our numbers compared to the guests on the show and so filled in the template myself.
My main issue was deciding what income number to use. At first, I tried using our income as reported in our tax returns plus employer superannuation contributions. That includes net investment income outside of superannuation. But then it was pretty tricky working out what amounts to put in for investment flows. I switched to using just our salaries plus employer superannuation contributions and it all made much more sense. I added a childcare and education category as that is our largest expense. For the "clothes" category I used our spending on mail order and groceries is what we spend in the supermarkets category. Transportation includes all our transportation spending including petrol, car repair, buses, taxis, e-scooters etc. Saving is our employer superannuation contribution plus the concessional contributions we make for Moominmama to our SMSF. All the numbers in the following are in Australian Dollars:
What do I notice in the results? One is that we don't really do "savings" both in terms of saving towards goals and having savings. Our savings are basically money in "checking" accounts. If we need more money we take it out of an investment account or borrow money. I am thinking I probably should get the savings buffer up more in case something happens to me. Otherwise, the family will quickly have payments bouncing without someone to make sure there is always enough money to cover bills. We used to keep about 1% of net worth in our offset account.
Our total "fixed costs" are at 76%, which Ramit considers too high. On the other hand, our investment contributions are at double the recommended level and I think they are now very low.
The amount left over in the "guilt-free spending" category is only 4%, which Ramit considers to be very low. There is a lot of flexibility here in what should fall into the fixed cost and this category. Is subscribing to e-scooters, which saves me a lot of time and is fun, something I should consider a fixed cost or "guilt-free spending"? Should private school and music lessons be considered a "fixed cost"? I have included some hobby-related subscriptions in the subscription fixed cost... But moving those would only change things by $100 a month at most.
What is in the guilt-free spending is in practice spending on eating out (mostly lunch these days) and travel - mostly the money we spent on renting a house for our vacation. The recommended 20-35% of spending is really a lot!
Expected that some or even many companies will go bust in this space. This is the first individual venture investment of ours that went bust. Luckily I only invested USD 2,500 so it is about a 0.1% loss to our portfolio. One of my main criteria for making an individual investment rather than through a fund is that there is a clear pathway to profitability or breakeven laid out. So, surprising this went under relatively quickly. I was going to mention the company involved but see that the email is marked confidential so can't give you more details. I think it should be OK to mention the company when they are no longer going to be in business but I'm paranoid about getting removed from AngelList so won't do so...
We have now been running an SMSF for almost three years. How is it doing?
The SMSF got a good start after which it gradually trudged higher. The two industry funds both declined substantially in 2022 and then recovered. PSS(AP) is almost catching up with the SMSF now.
The SMSF has had lower volatility than the two industry funds, though, at 1.85% per month, its standard deviation is only marginally lower than PSS(AP) at 1.87%. Up and down moves are both penalized using this metric. Unisuper's standard deviation is 2.23%.
Using Unisuper as the benchmark, the SMSF has a beta of 0.42 and an annualized alpha of 4.75%.* Another way of expressing this is that the SMSF captures 64% of the Unisuper's upside but only 24% of its downside. Reducing downside risk is one of our main goals.
* This is treating the risk free rate as zero. The official CAPM alpha using the RBA cash rate will be a bit lower.
I sold our holding in WAM Leaders (WLE.AX). It was down to only 0.1% of the portfolio. Once we held a lot more but gradually sold it off over time to fund other things. I think it is a good investment and maybe we will come back to it in the future. We got a 7.8% internal rate of return on this investment.
The other was Ruffer Investment Company (RICA.L) a diversified listed investment company on the London Stock Exchange. This has not been doing well in the last couple of years and I am tired of losing money. I think the managers got too clever for their own good in being bearish. We got a -3.9% internal rate of return on this investment.
I also sold the holding of Hearts and Minds (HM1.AX) in the SMSF to tidy things up. We still hold more than 40,000 shares of that. Hearts and Minds is currently at an IRR of 3.7%. Our median investment is at 8.5% (PSSAP).
I started a new investment/trade with some of the proceeds, which I'll talk about in due course.
My aunt died in 2020. She was single all her life. My father and her did not get on well. They fought each other in court over their mother's will. We wondered who she left her money to. Turns out she set up a foundation with about £5 million in assets. Most of the value came from her house and a company that seems to rent properties. The charities commission in the UK is already investigating the foundation for donating money to things that she didn't specify and maybe benefiting the trustees.... I wonder what happened to the art she inherited that they fought over? Either she had already sold it or she must have given it to someone else.
One of my cousin's children found out about this charity when they were looking for grants for education, which did fall within one of the approved purposes of the foundation.
