Next Steps

We have now executed a major part of the financial plans I developed in 2018. We deployed almost all the inherited capital - we still have some Ford bonds, which were intended as a short term investment, we have completed the initial set up of the SMSF and set up accounts for our two children. We have a much more diversified portfolio. So, on the investment front it will now be more business as usual going forward. I explored trading and made a little money but haven't got to the stage of setting up a proper system. This is something I will need to revisit very soon. To decide once and for all if that is a direction I want to take. If I do it, it would be in collaboration with some other people I know. The other major thing we haven't done is estate planning. I wanted to get the SMSF done first. So, we should really look at that seriously soon too.

Time-weighted Versus Dollar-weighted Returns

There was an interesting comment in the latest Millionaire Interview at the ESI Blog:

"I find it a bit silly how most people focus on their time-weighted returns instead of their asset-weighted returns... Your financial freedom is affected by your asset weighted returns, not your time weighted returns."

I have thought about this before, but not exactly in these terms. This is an interesting way of putting this idea. 

The way I thought about it is: When you start investing you will probably make mistakes. But you will have less money and so they matter less. What matters more is what your returns are when you have a lot of money.  So, you can afford to pay some tuition fees. I really paid too much tuition...

This graph shows an index of my returns in Australian Dollar terms starting at 1000 in 1996:

Initially, I did well. But then the dot.com crash came and I started losing, ending up below where I started. Then I rode the next bull market. I started getting out as the financial crisis began to appear. But I got back in again too early and crashed. I wasn't quite back to square one, but not far from it. Not much happened in the next few years following the crisis and then things took off from 2012 on. These are my time-weighted returns.

In the last 10 years, my rate of return has been 11.1% vs. 12.0% for the ASX 200. In the last 20 years it was 4.8% vs. 10.6% for the ASX 200. Since "inception" the numbers are 6.2% and 11.2%. I got through the COVID-19 crash a lot better than the previous bear markets. Hopefully, that improvement will be maintained in the future.

The following graph shows relative out-performance compared to the ASX 200 over every time horizon:

The way to interpret this is: If you invested with me in 1996 then you would have under-performed the ASX 200 by 4-5% p.a. since then. However, if you invested with me in some months in 2012 you would have matched or just beaten the ASX 200 since then. Similarly, investing in the year before the COVID-19 crash you would now be ahead of the ASX. Investing with me in the year after the COVID-19 crash you would be behind the ASX and so forth.

This graph shows my absolute profits in Australian Dollars:

A simple way of showing dollar-weighted returns. Basically, things went nowhere till 2012. All the gains have happened since then. So, I "wasted" 15 years learning to invest while saving.

Including Neighboring Development Sales in my House Price Model

This graph shows the increase as a fraction of the original when new sales price in two neighboring developments in our city since the beginning of 2015. The green dots are in our development and the red dots in the neighboring development, which was built by the same developer a year earlier:

The final red dot is the recent AUD 1.3 million sale. Using the increase above the initial price automatically adjusts for the different characteristics of each house sold. I only include free-standing houses. Our development also has row townhouses.

Prices are trending up over time in both developments but clearly houses are selling for greater premia in the neighboring development. By an average of 19%. But I think this is just because it was built earlier. When we use a logarithmic y-axis the two trendlines are almost parallel:

Therefore, I think it is valid to include the two developments in one model and just include a dummy variable for the neighboring development. Based on the analysis our house would be worth AUD 970k.

Sale in Neighbouring Development for AUD 1.3 Million

This house is in the sister development to ours on the other side of the hill. It borders the reserve just like ours. The house is a bit bigger than ours and so should sell for a higher price. But it sold for an 88% premium on its original 2007 price. Recent prices in our development have been for 25-35% premia on the original 2008 prices. I am valuing our house at a 31% premium to the 2008 price or 19% more than what we paid in 2014. I've been surprised at the sluggishness of prices in our development compared to the city as a whole. Maybe I should use prices from this neighbouring development too when estimating the value of our house?

 

If I do use data from this development as well, the current value of our house increases by about AUD 80k or 10%.

Career Plan

A couple of months ago I discussed my career decision making issues. I made a decision and will take long service leave next year and reduce my teaching load. I will drop my current courses and teach a new (for me) course in the second half of the year instead of teaching in the first half of the year. In the two years following that I plan to continue teaching the reduced load while taking on a "leadership" position. This takes me to the end of 2024 when I will 60. At that point I will either go half time or retire depending on the situation. Anyway, that's the plan at the moment. My immediate "boss" knows agreed to the plan for 2022 and the "boss" at the next level knows the 2023-24 plan. No-one has the full picture.

Spending 2020-21

For the last four years I've been putting together reports on our spending over the Australian financial year, which runs from 1 July to 30 June. This makes it easy to do a break down of gross income including taxes that's comparable to many you'll see online, though all our numbers are in Australian Dollars. At the top level we can break down total income (as reported in our tax returns plus superannuation contributions):

The gross income for this year is just an estimate. Tax includes local property tax as well as income tax and tax on superannuation contributions. Investing costs include margin interest. Mortgage interest is included in spending, while mortgage principal payments are considered as saving. Spending also includes the insurance premia paid through our superannuation. Current saving is then what is left over. This is much bigger than saving out of salaries because gross income includes investment returns reported in our tax returns. The latter number depends on capital gains reported for tax purposes, so is fairly arbitrary. Still, it has increased each year over this period. Spending also increased until this year when it was flat. Graphically, it looks like this:

We break down spending into quite detailed categories. Some of these are then aggregated up into broader categories:

Our biggest spending category, if we don't count tax, is now childcare and education, which has risen steeply. Given this it is surprising that spending didn't increase this year. Commentary on each category follows:

Franking credits: Income reported on our tax returns includes franking credits (tax paid by companies we invest in). We need to deduct this money which we don't receive as cash. Foreign tax paid is the same story.

Life and disability insurance: I have been trying to bring this under control and the amount paid has fallen as a result.

Health: Includes health insurance and direct spending. Spending peaked with the birth of our second child.

Housing: Includes mortgage interest, maintenance, and body corporate fees (condo association).

Transport: Continues to rise as I spend more on Uber and e-scooters and Moominmama drives more.

Utilities: This includes spending on online subscriptions etc as well as more conventional utilities.

Supermarkets: Includes convenience stores, liquor stores etc as well as supermarkets.

Restaurants: This was low in 2017-18 because we spent a lot of cash at restaurants. It's low this year because of the pandemic.

Cash spending: This has collapsed. It's hard to believe it is really that low, but that's what the numbers say. Moominmama also gets some cash out at supermarkets that is included in that category.

Department stores: All other stores selling goods that aren't supermarkets. No real trend here.

Mail order: This continues to rise. For example, I recently bought a new iMac by mail order.

Childcare and education: We are paying for private school for one child, full time daycare for the other, plus music classes...

Travel: This includes flights, hotels etc. It was very high in 2017-18 when we went to Europe and Japan. This year it was down to zero due to the pandemic and having a small child. We haven't travelled in Australia either. With the family it needs a lot of planning and borders are likely to suddenly close.

Charity: A growing category.

Other: This is mostly other services. It includes everything from haircuts to professional photography.

Clearly, we only kept spending under control in 2020-21 because we have stopped spending on travel and greatly reduced spending on restaurants.

June 2021 Report

This month I completed the review of all our investments.

The Australian Dollar fell from USD 0.7738 to USD 0.7500. It was another month of increases in world stock markets. The MSCI World Index rose 1.35%, the S&P 500 by 2.33%, and the ASX 200 rose 2.32%. All these are total returns including dividends. We gained 1.16% in Australian Dollar terms or lost 1.95% in US Dollar terms. The target portfolio is expected to have gained 2.32% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 0.68% in US Dollar terms. So, we underperformed all benchmarks. Here is a report on the performance of investments by asset class (currency neutral terms):

Gold detracted the most from performance followed by private equity and futures. Hedge funds contributed the most followed by large cap Australian shares. The reason we under-performed the target portfolio were mainly that we had a negative private equity return rather than a strongly positive private equity return and our international stocks didn't perform as well as the index.

Things that worked well this month:

• Regal Funds (RF1.AX) gained a lot (AUD 28k) before going ex-dividend on the last day of the month. I sold into the rally. Hearts and Minds also did well (14k).
  

What really didn't work:

• Gold lost 30k followed by Cadence Capital losing 8k. Aspect Diversified Futures debuted with a $4k loss though Winton and soybean trading both made gains. 3i, Pengana Private Equity, and Pershing Square Tontine Holdings all lost money in the private equity category.
  

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 are doing a little worse than the median hedge fund levered 1.6 times. 

We moved a little away from our desired long-run asset allocation. Hedge funds is the asset class that is now furthest from its target allocation (4.25% of total assets too little) following selling most of our Regal Funds shares.

On a regular basis there are retirement contributions. I have stopped making regular contributions to investments outside of superannuation. This was a again a very busy month:

• I sold most of our Regal Funds (RF1.AX) shares as the price soared above NAV.
• I bought shares in my tenth painting at Masterworks for USD 10k.
• Following the investments review, I closed our holding of CFS Future Leaders and CFS Diversified Fund and increased our holdings of CFS Imputation Fund, CFS Developing Companies, and opened a position in Aspect Diversified Futures.
• I sold our holdings of two baby bonds: SBBA and SBKLZ.
• USD 15k of our Ford bonds were subject to an early call.
  
• I bought 8,000 more shares of Ruffer Investment Company (RICA.L) doubling our position.
  
• I opened a position (3,000 shares) in Pershing Square Tontine Holdings (PSTH).
• There was a net increase in our holding of MCP Income Opportunities (MOT.AX).
• I increased and rolled our position in the soybeans future calendar spread. I bought a put option as well which was a losing trade.
  
• I added 1,000 shares to our PMGOLD.AX position.
• We received 83,320 shares in the WAM Strategic Value (WAR.AX) IPO.
  
• There were a lot of foreign currency transactions, but I'm not going to try to summarize them.
  

Update on PSTH

Bill Ackman posted a link to this presentation on Twitter. I have 3,000 shares or a 2% of net worth position. We also have 5,000 shares of PSH.L, Ackman's hedge fund that will be buying $1.5 billion of UMG shares by buying PSTH shares. Vivendi shareholders vote on Tuesday to approve the listing of UMG (hopefully) and presentations take place on Wednesday morning US time.

Investments Review: Part 8, Managed Futures

Managed futures have not performed well in recent years, but I am betting that they will make a bit of a comeback.

Macquarie Winton Global Alpha Fund. Share of net worth: 3.53%. IRR: -0.3%. This is a Macquarie Bank fund that provides access to the Winton fund management firm. Winton, Aspect, and Man AHL are all offshoots of the same original Adam, Harding, and Lueck team. Our profits in this fund peaked in August 2019 at AUD 29k and then fell to a minimum of AUD -19k in November 2020. Since then they have recovered to near break even.

Aspect Diversified Futures. Share of net worth: 2.04%. IRR: n.a. We hold this recent investment via the Colonial First State platform. It has performed better than Winton recently:

Investments Review: Part 7, Bonds

MCP Income Opportunities Fund (MOT.AX). Share of net worth: 1.75%. IRR: 14.8%. This fund invests in Australian private credit. It yields around 7% per annum. It performed better than other similar listed funds during the COVID crash. We use this to park cash that we don't need immediately as it pays more than our margin loans cost.

Ford. Share of net worth: 1.46%. IRR: 2.1%. We own two Ford bond issues that mature later this year. This is the tail end of the bond investments we made with the inherited money while we decided how to deploy it.

Ready Capital (RCB). Share of net worth: 0.77%. IRR: 5.3%. This is a so-called baby bond. These trade on US stock exchanges and usually have an issue and redemption price of $25. The distributions are considered to be interest but they have none of the other peculiarities of actual bond issues. They usually have high yields. This issue matures in July 2022 and has a "coupon" of 6.2%.

Investments Review: Part 6, Real Assets

In my usual reporting, gold is a separate category from real assets. I plan to put 10% of gross assets into gold and 15% into real assets. 10% would be in real estate and 5% in other assets, such as art.

Gold (PMGOLD.AX). Share of net worth: 12.10%. IRR: 15.2%. This is one of the more cost and tax effective ways to hold gold. The fund reflects rights to gold held by the Perth Mint. This is much more tax effective than using futures and less hassle than owning real gold, though Perth Mint provide some fairly easy options there. The IRR reflects our total gains on gold ETFs. The management fee is taken by the manager cancelling some shares each year. That means the price exactly tracks the Australian Dollar price of 1/100 of an ounce of gold.

WAM Alternatives (WMA.AX). Share of net worth: 4.32%. IRR: 16.9%. About 10% of this fund is in real estate and half in real assets, mainly water rights. The rest is in venture capital and cash. This fund was started by the failed Bluesky group and has now been taken over by Wilson Asset Management. The fund has traded deep below NAV. It has closed some of the gap but is still below NAV. I'm holding the fund mainly in the hope that eventually it trades at a premium to NAV. The underlying performance is not that good. In 2020 it lost 3 cents per share in NAV to $1.08 per share while paying out 4 cents in dividends. This year, so far it's gained 6 cents per share, which I guess is OK.

TIAA Real Estate. Share of net worth: 2.78%. IRR: 4.8%. This fund invests in US real estate - offices, retail, apartments, and industrial. It is in my US retirement account (403b). The IRR for this fund is low, but its returns are very smoothed and so it has a nominally high Sharpe ratio and a low correlation to my other assets. Based on my analysis, I'm hoping that the coming period is one of higher returns than average for this fund. It is easy to market time this fund due to the lag in revaluations.

Masterworks. Share of net worth: 2.63%. IRR: -0.28%. This fund provides fractional access to paintings, mostly works from the last few decades. I have now invested in nine paintings through the platform, investing USD 10k in each. Not much to report so far regarding performance. The downside of the platform I think, is that it isn't worthwhile for the manager to buy a painting for $100k or even $1 million. Buying a $10 million painting has a huge economy of scale for them. They are incentivised to make profits, but they could make it either by getting a lot of appreciation or less appreciation but more assets under management faster. Less expensive paintings that have a larger potential for gain cost them too much to offer.

US Masters Residential Property Fund (URF.AX). Share of net worth: 1.25%. IRR: -1.85%.This is an Australian fund that invests in residential real estate in metropolitan New York. The fund has had a quite disastrous history and now trades at less than 50% of NAV. The fund's underlying exposure to real estate is much larger than the value of the shares on the ASX. The fund has stabilized after refinancing its debt. Previously, it had assets in US Dollars and a lot of debt in Australian Dollars. My bet is that house prices rise in the New York area, that fund costs are now lower after the restructuring, and that the fund eventually trades nearer NAV.

Australian Unity Diversified Fund. Share of net worth: 1.17%. IRR: 28.2%. A recent investment in our SMSF. Invests in Australian office, retail, and healthcare real estate. This is unlisted property and so the price reflects the actual net asset value. Listed real estate provides much less diversification from stock market risk.

Domacom Investments. Share of net worth: 1.12%. IRR: 0.16%. Another recent investment in our SMSF. Fractional investing in Australian real estate. So far, I bought a small share in a farm, but the platform is very slow moving regarding new investments and most existing investments that are trading don't look like good bets.

Investments Review: Part 5, Private Equity

The private equity category includes both venture capital, buyout funds, and SPACs, which acquire private companies to take them public.

WAM Alternatives (WMA.AX). Share of net worth: 4.32%. IRR: 16.9%. About a quarter of this fund is allocated to venture capital (one quarter is in real estate and half in real assets, mainly water rights). This fund was started by the failed Bluesky group and has now been taken over by Wilson Asset Management. The fund has traded deep below NAV. It has closed some of the gap but is still below NAV. I'm holding the fund mainly in the hope that eventually it trades at a premium to NAV and for exposure to real assets like water rights. The underlying performance is not that good. In 2020 it lost 3 cents per share in NAV to $1.08 per share while paying out 4 cents in dividends. This year, so far it's gained 6 cents per share, which I guess is OK.

Aura Venture Fund I. Share of net worth: 3.05%. IRR: 20.0%. This is an early stage venture capital fund run by Australian/Singaporean company Aura. It invests in Australian start ups. This fund actually has a negative tax rate – fund earnings are tax free and you get a 10% tax offset on your investment contributions. This is part of the Australian government's policy to encourage start-up companies. None of its investees has failed, though some are now valued below the fund's initial investment price. Some have done really well. Shippit is the star. Some investees have already been exited or are on the way there. The latest is Superestate, which is a residential real estate super fund acquired by Raiz. Superestate has been struggling due to the incompetence of the ATO. The fund is receiving shares in Raiz, which is listed on the ASX, which value the company below the carrying value. Hopefully, Raiz will do well and the shares will gain in value.

Pengana Private Equity (PE1.AX). Share of net worth: 2.40%. IRR: 15.3%. This fund invests in mostly North American private equity (but also in Europe) via funds managed by its partner Grosvenor Capital Management. There are a LOT of fees in this structure, but when I attended the pre-IPO presentation I was persuaded that there was still upside for investors. Initially the share price performed very well and I made money trading the stock. But then the firm issued more shares and the price has settled at NAV. It has struggled to make headway due to the rise in the Australian Dollar negating the gains on the underlying funds. So, the IRR mostly reflects my earlier trading.

3i (III.L). Share of net worth: 2.06%. IRR: 13.8%. This is my oldest private equity investment. I first invested in 2008, during the GFC. By investing in this company, you invest in the business itself, but also in its investments. The firm invests its own capital as well as managing outside funds. When I first invested, the firm invested in venture and buyout. It has pivoted to invest in buyout and infrastructure. It also manages far less outside money than it did. I haven't really been following the company in detail recently until I had to write this report. The proprietary capital is mostly invested in private equity. The fund invests mostly in Europe (but also in North America).

Aura Venture Fund II. Share of net worth: 1.40%. IRR: n.a. Based on the success of Aura VF I, I invested 2.5 times as much money in their next fund. It has not yet made any investments. The initial investment is 25% of the total. So, this would be about 5% of our current net worth when fully invested (not counting any returns on top of that).

Pershing Square Tontine Holdings (PSTH). Share of net worth: 1.35%. IRR: n.a. My newest investment. Pershing announced that they are going to acquire a 10% stake in Universal Music (UMG), which Vivendi is taking public in the next couple of months. But that will leave cash in PSTH and Ackman has a convoluted plan for keeping the company going as a private equity company, acquiring private companies and taking them public. Investors didn't like the UMG deal, but I think it is worth being in on the potential upside of future deals.

Pershing Square Tontine Holdings

This video was posted on Reddit and endorsed by Bill Ackman on Twitter. I had been thinking about buying into Pershing Square Tontine Holdings in the last few days since the Universal Music deal was announced. I now took the plunge, buying shares in our SMSF. I'm still pretty unclear about the details or what it means for Pershing Square Holdings shareholders like us, but I'm figuring that this should have a higher value. 

I'm going to classify this as private equity, which now totals 9% of total assets.

BTW, Neri Oxman denies that she was Brad Pitt's girlfirend.

Investments Review: Part 4, Hedge Funds

Regal Funds (RF1.AX). Share of net worth: 5.63%. IRR: 45.7%. This is a multi-strategy hedge fund listed on the ASX that has performed very well since the COVID crash:

It has a beta of one to the stock market but has added a lot of alpha. The downside is that it has a trust structure and, therefore, pays out all profits in the form that they were earned in. So, it is not very tax-effective. We have now moved our holding to our SMSF. The stated focus is on Australian stocks, but they hold a lot of foreign stocks too.

Tribeca Global Natural Resources (TGF.AX). Share of net worth: 5.57%. IRR: 19.2%. This a global resource sector focused hedge fund listed on the ASX. From launch the price collapsed from $2.50 to under $1. They also lost a lot of money on a large loan to a US based coal mining company. They now have revised the investment guidelines to prevent a recurrence. The NAV is now above the IPO price and the stock price is almost there. We have gained a lot by buying when the price was depressed as well as in after-tax terms by selling when the price was depressed to take a tax loss.

Pershing Square Holdings (PSH.L). Share of net worth: 5.33%. IRR: 39.8%. This fund is listed on the London stock exchange but managed by Bill Ackman, a famous US hedge fund manager. The fund is very focused. They invest in around 10 large cap mostly US stocks at any one time. It is mostly a long fund. But they gained during the COVID crash by putting on a credit -ased hedge. Almost perfect market timing. The history of Pershing Square Holdings has been a bit erratic but since we invested it has been very good. The fund is still trading a lot below net asset value. Pershing Square Tontine Holdings has been in the news recently following its deal to buy 10% of Universal Music. I'm still not clear what will be the pay-off for PSH.L holders from this deal. Both PSTH and PSH fell on the news.

Cadence Capital (CDM.AX). Share of net worth: 3.80%. IRR: 10.2%. This is a long-biased long-short fund that mostly invests in Australian stocks. I invested in this fund when it had been performing well. Then, soon enough, it started to perform badly. Since the COVID crash it has done well. They also invested in a private investment in DeepGreen Minerals, which will be taken public by a SPAC for a huge gain on Cadence's investment price. I am thinking to trim my exposure to this fund once the price has built in the value of the DeepGreen Investment. There is no reason to hold both this and the Cadence Opportunities Fund, and this is also the worst performing of the hedge funds that I have held for at least a few years.

Cadence Opportunities Fund. Share of net worth: 2.76%. IRR: 41.6%. This fund was launched recently by the managers of Cadence Capital. This fund has performed extremely well. It is a long-biased long-short fund that trades more actively than CDM.AX. It was supposed to be listed on the ASX but the IPO failed and it became a private company. At the time I didn't invest. That was a bad decision. When a second opportunity to invest came up, I took it. Our IRR so far shows that was a good move.

Platinum Capital (PMC.AX). Share of net worth: 2.67%. IRR: 13.0%. I first invested in Platinum Capital back in 2001. Over time, we also held various unlisted versions of the fund. I have gained by trading the fund depending on whether the share price was above or below NAV. The fund's best performance was during the dot.com crash when I first invested in it. Most of the time since then it has underperformed the market but has also had lower volatility. In the last year, value investing has come back into favor and the fund has again been outperforming the market.

APSEC. Share of net worth: 2.07%. IRR: -7.5%. This is an unlisted Australian stocks focused hedge fund. They did very well in the COVID crash:

So, I invested in them, and then they haven't done so well since then.

Contango Income Generator (CIE.AX). Share of net worth: 1.41%. IRR: -11.9%. This is a very new investment, so the IRR likely is pretty meaningless. This listed fund recently changed strategy to a global equity long short portfolio managed by WCM Investment Management. This is supposed to be their track record:

This was the result of an activist campaign by Wilson Asset Management. It is supposed to be hedged into the Australian Dollar.

In summary, a bit more than half of our hedge fund exposure is to the Australian Dollar but there is definitely quite a lot more international than Australian equity exposure.

Cancelled Moominmama's Income Protection Insurance

In 2019 I cancelled my own, but didn't know I could cancel Moominmama's. As she is 11 years younger than me, the premia were nowhere near as high yet but going up quickly. Like me, she has a year of sick and annual leave accumulated. It's hard to imagine her being so ill that she's off work for a year but not bad enough that she is still is planning on returning to work. Anyway, we wouldn't suffer any financial hardship if she stopped working. We would just be investing less and we already have more than AUD 5 million in net worth. Again, I still kept the death and disablement insurance, because the premium is not so much, though I'm not sure I should. I also learned more about disablement insurance in the process. In Australia, it turns out that it is a lump sum like life insurance, I didn't realise that.

May 2021 Report

This was a month of consolidation as I tidied up the SMSF and its repercussions and launched a review of all our investments.

The Australian Dollar rose from USD 0.7725 to USD 0.7738. It was another month of increases in world stock markets. The MSCI World Index rose 1.61%, the S&P 500 by 0.70%, and the ASX 200 rose 2.13%. All these are total returns including dividends. We gained 1.96% in Australian Dollar terms or 2.10% in US Dollar terms. The target portfolio is expected to have gained 1.58% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 0.80% in US Dollar terms. So, we outperformed all benchmarks apart from the ASX 200. Here is a report on the performance of investments by asset class (currency neutral terms):

Gold added the most to performance followed by hedge funds. and only Australian small cap had a negative return. Things that worked well this month:

• Gold had a very strong performance, gaining 8.7% in AUD terms or AUD 43k. Next was Tribeca Global Resources (TGF.AX) gaining AUD 19k, and third was PSS(AP), which gained AUD 7k.
  

What really didn't work:

• The worst performer was new investment Fortescue Metals (FMG.AX), which lost AUD 5k. It was followed by Pershing Square Holdings (PSH.L) and Hearts and Minds (HM1.AX) (-AUD 4k each).
  

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 and MSCI indices. We are doing a little worse than the median hedge fund levered 1.6 times. Interestingly, USD performance is now stronger over the last five years than AUD performance because the Australian Dollar has appreciated over that time.

We stuck close to our desired long-run asset allocation. Real assets is the asset class that is now furthest from its target allocation (3.0% of total assets too much). Private equity and futures are underweight. The former will solve itself over time as Aura make capital calls. We will fix the latter this month.

 

On a regular basis there are retirement contributions. I have stopped making regular contributions to investments outside of superannuation. This was a again a very busy month:

• I sold some Regal Funds (RF1.AX) shares getting back down to 60k shares.
• I invested in Contango Income Generator (CIE.AX).
• I sold Treasury Wine and invested in Fortescue. This was a very bad move.
• I invested in the Ruffer Investment Company (RICA.L).
• I switched funds from Platinum International Fund to Generation Global Fund.
• I made the first investment through Domacom.
• I bought some more shares in Pershing Square Holdings (PSH.L).
  
• I invested in another painting at Masterworks.
  
• I switched funds from the CREF Social Choice Fund to the TIAA Real Estate Fund.
  
• I opened a new calendar spread trade in soybeans. 
• We applied for shares in the WAM Strategic Value IPO.
  

More Investment Review Actions

 Following up on Parts 1 and 3 of the Investment Review I am making the following changes:

1. Switching from CFS Future Leaders to CFS Developing Companies

2. Closing investment in CFS Diversified Fund and switching one third to CFS Imputation Fund and 2/3 to Aspect Diversified Futures. 

The latter is a bet that trend-following will become more profitable again than it's been in recent years.

Investments Review: Part 3, Small Cap Australian Equities

CFS Developing Companies. Share of net worth: 2.14%. IRR: 12.86%. This is one of my oldest investments. I originally invested in May 1997. However, I sold out again in 1998 and bought back in in 2001. Until recently, when I closed my CFS superannuation account, we had a larger position. It's performance relative to CFS's "custom benchmark" has been erratic. It has strongly outperformed over 10 years but underperformed over horizons up to 5 years. Still it gained 80% in the year up to March 2021 but that was less than the benchmark's 104% gain. However, I don't see any reason to change this investment, unless someone knows a better small cap Australian fund. Wilson Microcap (WMI.AX) is such a fund but trading at a big premium to NAV.

WAM Strategic Value. Share of net worth: 2.04%. IRR: Too new. We have applied for shares in this listed investment company that is in the process of IPO-ing and is managed by Wilson Asset Management. The fund's goal is mostly to invest in undervalued closed-end funds in Australia with the aim to closing the gap. It doesn't qualify as a hedge fund as far as I am concerned because it won't go short or use puts etc. As most of these funds are small caps, I'm categorizing it as a small cap investment.

CFS Future Leaders. Share of net worth: 1.00%. IRR: 10.37%. This is the oldest investment I still have. I originally invested in December 1996. This fund invests in somewhat larger companies than Developing Companies does. It has not performed as strongly in the long run. Like Developing Companies, it outperformed its benchmark over 10 years, though not as strongly, and has underperformed in recent years. I'm inclined to roll this into Developing Companies, despite nostalgia.

Domacom (DCL.AX). Share of net worth: 0.73%. IRR: -3.04%. This is a company rather than a fund and its business is fractional property investment. The company has developed a series of innovative products but has struggled to increase funds under management and so continues to make large losses. My thesis for investing was that they would likely get acquired by a larger financial player who could put a lot more funds into their products. Really it is surprising that this is a listed company rather than a venture capital sponsored investment. Now the company has "voluntarily suspended" its shares because ASIC is investigating its merger/takeover of a company called AustAgri that has made all kinds of wild claims the most solid of which was it was buying Cedar Meats in Melbourne. Why they would want to become a Domacom managed fund, paying management fees to Domacom was not clear. In return they were supposed to receive Domacom shares. Whatever the outcome of this is I don't think this will be a complete loss, because again I think they could sell the platform. I don't have any choice but to hold at the moment.

Career Update etc.

About a month ago I posted about my career decision-making. So, because I ummed and ahhed, the incoming director found someone else for the leadership position for a year with a view to me doing it after that. On the other hand, she was happy for me to get a teaching reduction when I am in that leadership position.

I talked with HR and my immediate department head about long service leave. He was happy for me to get a reduction in teaching next year but not the course I wanted to drop. Instead, he suggested I drop both courses that are supposed to run in the first half of the year and do another course instead in the second half of the year. This is somewhat appealing as after a few year I get bored of teaching a course even though preparing a new course is a lot of work. So, then I would have a year out of teaching, then teach the new course, and then take on the leadership position while still teaching this course. 

That takes us to the end of 2024 when I will be 60 years old. So, my thinking is to then drop to a 50% position rather than retire outright and teach one course a year. 

On another front, a former student who I am collaborating with on research and maybe on another fintech business venture (at the moment I am on the informal "advisory board") is interested in trying to implement automatic systematic trading with my methods. He already has 2-3 other collaborators on the other (research intensive) business development. These guys are pretty expert in Python etc while I am relatively expert in markets. But he wants me to pay for their time up front for development. So, I really need to make sure I have something profitable before paying for this. So, I am going to do more extensive backtesting of my soybeans model, which is the easier one to backtest using my existing software. Most of the work is in compiling futures data together into a continuous series. I will go back at least to the Great Recession and maybe further. Currently I've tested about 6 years. If that works out (I am skeptical actually) they would then do more testing of other markets once we are trading the first market.

My thinking is to pay for development by being issued shares in return for cash in their (to be founded) company. After that when trading is up and running there would be profit sharing with the management company of which I would also be then a shareholder. One of the team is an accountant who would set all this up. They already have an IP agreement in place.

This actually all seems pretty crazy to me but you won't succeed if you don't try.

TIAA Real Estate Fund

I haven't gotten around to reviewing the TIAA Real Estate Fund yet, but have decided to buy more of it. There are two reasons. First, after reviewing the CREF Social Choice Fund, I'm a bit concerned that it is 40% bonds even though it has been a pretty decent fund relative to benchmarks. Second, it looks like timing is good to switch into TIAA Real Estate. The following chart shows its monthly returns and a 12 month moving average:

The fund does well after recessions but with a lag compared to the stock market. The moving average has just turned the corner again and monthly returns are above anything seen in recent years. In March I switched out of this fund as I was worried about the pandemic and into Social Choice and Money Market. Then in December I switched back into Real Estate. Now I just switched most of my remaining holding of Social Choice.

Already Making Changes Based on the Investment Review

I've only done the first two parts of the Investments Review, but am already making changes to our portfolio based on it. I switched our holding of the Platinum International Fund for more units in the Generation Global Fund. The internal rate of return of the latter is twice that of the former and the alpha of the former is about zero, while the latter is around 3%. We still have a holding in the listed investment company Platinum Capital (PMC.AX). I also cancelled the automatic investment plan for Moominmama's account that holds the Generation Global Fund. Now that we are trying to get more money into superannuation, it doesn't make sense to keep putting AUD 2k per month into these accounts. Her account now holds the Generation investment (now 2.45% of net worth) and holdings in CFS Imputation (0.98% of net worth) and CFS Developing Companies (not reviewed yet).

Third Point and AlphaSimplex

I don't write much on the blog about investments I evaluated but rejected. There are quite a lot of these, of course. Recently, I evaluated and rejected Third Point and AlphaSimplex. Third Point is  a well-known hedge fund managed by Daniel Loeb. Retail investors can invest in it through TPOU.L a closed-end fund on the London stock exchange. AlphaSimplex is a managed futures manager based in Boston that developed out of MIT. U.S. retail investors can invest with them through mutual funds issued by Natixis Funds. ASFYX has a USD 100k minimum and a lower expense ratio than AMFAX which has a low minimum investment. Non-U.S. investors can access them via Luxembourg based funds. There are institutional (USD 100k minimum and lower management fee) and retail classes (USD 1k minimum and higher management fee) and the funds are available in various currencies. Even the Australian Dollar! Kathryn Kaminski, their chief research strategist, was just on Meb Faber's podcast.

So, is this fund any good? And what about Third Point? Both these investments were interesting enough for me to do some proper analysis on them. These are some results using annual returns:

The period of analysis is the length of the track record provided by AlphaSimplex. All returns are in U.S. Dollars. None of this analysis deducts the risk-free-rate from returns. My returns in U.S. Dollars are not very good over the last ten years. In Australian Dollar terms they are much better.

So, it turns out that using annual data AlphaSimplex has a beta of 0.34 to the MSCI World Index and no alpha. Its correlation with the market is 0.4. Its average return was just 3.4% with a Sharpe ratio of 0.3. The Winton Global Alpha Fund has had similarly poor returns but actually has a negative beta and positive alpha. Before the 2020 debacle, Winton was a lot better than AlphaSimplex. I'm definitely not sold on AlphaSimplex.

Third Point is more attractive. However, it acts more or less like a good quality long-only fund. It's correlation with the MSCI is 0.92. It has an alpha of 1.4%. I added Pershing Square Holdings as a comparison. It has a much lower correlation to the market though it has a beta of 1.04. With an alpha of 4.3% it adds much more uncorrelated return. So, I haven't found Third Point convincing enough to add to the portfolio.

Investments Review: Part 2, Long-only Large Cap Equities

For the second part of the investments review, I am looking at our long-only large cap equities funds. Usually, I would divide these into Australian large cap, U.S., and rest of world equities, but Hearts and Minds spans all of these and Generation the last two. The funds all have strong IRRs. Note that the IRR of an investment depends both on its underlying performance and our trading and timing.

Hearts and Minds (HM1.AX). Share of net worth: 4.13%. IRR: 27.52%. This fund invests across Australia and global markets by picking the best ideas of a set of fund managers. 35% of the portfolio is allocated according to the stocks pitched at the annual Sohn Hearts and Minds Conference. 65% is allocated according to the best ideas of six core fund managers: Caledonia Investments, Cooper Investors, Magellan Financial Group, Paradice Investment Management, Regal Funds Management, and TDM Growth Partners. Instead of charging management fees, the fund contributes 1.5% of NAV to charity every year. Since inception, this fund has performed very well. On the other hand, it has been weaker this year as the conference stocks this time are mostly high growth stocks, which are now falling out of favor:

The China Fund (CHN). Share of net worth: 1.77%. IRR: 16.00%. This is a closed-end fund investing in Chinese stocks. There have been changes of manager over time and the latest manager seems to be doing well:

The reason to hold this fund is to tilt towards exposure to emerging markets. I think our diversified funds have a relatively low exposure to emerging markets, though it's impossible to get that information for most of them. OTOH, one of our "hedge funds", Platinum Capital has a 17% allocation to China and Hong Kong and 2% to India. So, this seems a good fund to get that exposure through. But is almost one third of our allocation to "rest of the world stocks" too much?

Generation Global Fund. Share of net worth: 1.60%. IRR: 16.50%. This fund is hosted on the Colonial First State platform and is closed to new investors. We are automatically adding AUD 400 to this fund every month. The question is whether to raise that or stop contributing to funds outside of super altogether. The fund is managed by Generation Investment Management, who are an ESG fund manager. Compared to the MSCI World Index it has a beta of 1.11 and annual alpha of 3.2% over the last five years. So, this is a good long-only fund.

Fortescue Metals (FMG.AX). Share of net worth: 1.60%. IRR: Too new. I very recently switched out of Treasury Wines and into this stock, which so far has been a very bad move. I guess I just like to do some trading with a small part of the portfolio. I am hoping this will pay nice franked dividends and that I at least won't lose capital value in the long term.

Colonial First State Imputation Fund. Share of net worth: 0.99%. IRR: 18.00%. This fund invests in large cap Australian stocks with strong "franked" dividends. There is little logic to hold both this fund and Argo Investments... Argo has a much lower management fee. On the other hand, this fund has outperformed the benchmark on many time scales despite the high management fee (0.96%):

So, if we retain this account, then I think this fund makes sense as one of the investments.

Berkshire Hathaway (BRK/B).  Share of net worth: 0.87%. IRR: 9.80%. My thesis for investing in Berkshire is here. Berkshire is providing more exposure to the US market in the SMSF.

Argo Investments (ARG.AX). Share of net worth: 0.79%. IRR: 23.03%. This is a closed end fund (listed investment company) investing in mainly large cap Australian shares. The expense ratio is only 0.15%! Timing has boosted our IRR for this fund... The fund has outperformed the benchmark recently and over 20 years, but not over the interim time frames:

So, maybe this isn't such a good idea? I recently invested again in this fund to get more exposure to the Australian market after rolling over my Colonial First State superannuation fund into the SMSF. Note that the share price performed poorly recently as the premium to NTA fell, after which we purchased the fund.

Investments Review: Part 1, Diversified Funds

After noting that we had at a conservative count, 40 different investments, I thought it'd be a good idea to do a review of all of them to see what makes sense and what doesn't. Maybe my readers will learn about some interesting investments too. Or about what not to invest in. Each post will look at one type of investment starting with diversified funds. Shares of net worth don't include our house in net worth.

Unisuper Balanced Fund. Share of net worth: 10.02%. IRR: 10.64%. This is my employer superannuation fund. I think in theory we could have contributions made to another fund instead but then they would only pay the 9.5% (of salary p.a.) superannuation guarantee instead of 17%! What I do have an option to do is to switch to other investment options within Unisuper. I also think I could rollover the investment into another fund such as our SMSF. The balanced fund is diversified across Australian stocks (33%), international equities (27%), bonds (30%), property (5%), and infrastructure and private equity (5%). It is one of the better performing balanced super funds in Australia. I used to invest more aggressively by investing in the growth option instead. Unless our SMSF outperforms strongly, I'm inclined to leave this as it is.

PSS(AP) Balanced Fund. Share of net worth: 9.16%. IRR: 9.41%. This is Moominmama's employer superanniation fund. It's not quite as well-performing as Unisuper. They only offer four investment options now. There used to be more. They provide even less information about their investments than Unisuper do. Generally, it's amazing how little information most Australian fund managers provide compared to U.S. fund managers. The fund is allocated across equities (56%), bonds (18%), hedge funds (15%), and real assets (11%). I think there is a similar condition on fund choice.

Colonial First State Diversified Fund. Share of net worth: 3.12%. IRR: 10.31%. I contribute automatically AUD 500 into this fund each month. Before rolling over my CFS superannuation account into our SMSF we had a lot of superannuation invested in this fund too. There isn't really a strong justification for holding this fund, especially given the 20% of net worth that we have invested in the two superannuation funds above. Selling would mean a capital gains tax bill, but I'm really not sure why I am continuing to put money into the fund. The CGT bill would actually not be that big as the distributions have been taxed all along the way. The fund is allocated 30% to Australia shares, 20% to global shares, 30% to bonds, 5% to property securities, 5% to infrastructure securities, and 10% to "real return". It has returned 7.78% p.a. in the last ten years to March, which is less than our portfolio return.

CREF Social Choice. Share of net worth: 1.66%. IRR: 13.33%. This fund is 40% U.S. stocks, 20% rest of the world stocks, and 40% bonds with an ESG overlay. I use this as the core fund in my former U.S. employer retirement fund (403b account). Apparently, my market timing since 2002 when I first invested in this fund has paid off to boost the IRR. I have been both more aggressive and more conservative in the allocation in this account. It has returned 8.33% in the last ten years and outpaced the relevant Morningstar benchmarks. The question is whether to be more aggressive in this account and shift to the Global Equities option instead.

Ruffer Investment Company (RICA.L). Share of net worth: 0.97%. IRR: Too new. This is an extremely new investment that plays more of the role of a hedge fund in the portfolio. But as it doesn't use shorting or charge a performance fee I've classified it as a diversified fund. The allocation is 9% U.S. stocks, 31% rest of the world equities, 39% bonds (mostly index linked), 8% gold, and 13% in what they describe as "illiquid strategies" and options. The illiquid strategies seem to be hedge funds specialising in mitigating tail risk. I'm counting this part of the fund towards our hedge fund allocation.

Adjusting Estimated Real Estate Exposure for Leverage

I realized that because the URF.AX fund, which is invested in New York and New Jersey real estate, is highly levered, my exposure to real estate is much greater than I previously estimated. The market value of this investment is AUD 51, but the underlying value of the real estate assets is almost AUD 1/2 million.

Based on this, the share of real assets in the portfolio is 17.28% currently, which is above the target share of 15%. The asset allocation pie chart now looks like this:

 In recent months the share of real estate increased a lot:

Two More New Investments

We're still in the process of reinvesting after the most recent reorganization, which centred on rolling over my Colonial First State superannuation fund into the SMSF. I bought the first "tranche" of a position in Fortescue Metals (FMG.AX) replacing the just closed Treasury Wines position. By the way that position made around AUD 15k in profit with an internal rate of return of around 90%. Fortescue is expected to pay out an enormous franked dividend very soon. The interim dividend was AUD 1.47, which was double that in the previous year. Brokers expect the final dividend to be around AUD 2.50 per share plus franking. This is around a 16% annual yield. The reason the share price isn't higher is that brokers also expect profits to fall in the following years. The thinking is that the iron ore price can't remain this high for long. My thesis is that retail investors will continue to buy the stock to get the dividend and that maybe future profits won't fall as much as expected. In the last 90 days they have increased their forecasts of 2022 profits but the share price is below where it was a the beginning of the year.

The second investment is in Contango Income Generator (CIE.AX). This is a listed investment company (closed end fund). It has been a failure, losing money since inception. Wilson Asset Management got involved, buying up shares and agitating for change. The company switched to a new strategy managed by WCM Investment Management who are based in California. This is a global long-short equity strategy, which supposedly has performed extremely well:

Of course, it is trading below net asset value. It's not that liquid, and so getting a full position will take a little while.

We now have 40 different investments not including cash in various currencies, our house etc. And that's counting the eight paintings at Masterworks as one investment. I still have a couple more investments in mind.

And in to Ruffer

 

I invested most of the remaining cash in the SMSF into Ruffer Investment Company. This is a closed end fund trading on the London Stock Exchange. It is a diversified fund invested 40% in stocks, 40% in bonds – mostly inflation indexed – and the remainder in gold, options etc. They are betting on inflation. It has done very well during market crises. The fund:  "has a simple aim – consistent positive returns, regardless of how the financial markets perform. We try not to lose money in any 12 month period, and to grow the value of our investors’ wealth over the long haul. If we can do this, we should outpace inflation, protecting and increasing the real value of our investors’ income and capital."

Got Out of Treasury Wine

Was getting bored of Treasury Wine (TWE.AX) so I exited the position. Probably now there will be a takeover announced :) Previous rumours about takeovers didn't eventuate so far.

First Investment through Domacom

 

 

I made my first investment using the Domacom platform. I bought some shares in a cattle grazing property in Victoria. Mostly, I just want to see how the platform works, so this is a very small investment. I also have made "pledges" for three "campaigns". Activity seems low on the platform in terms of either trading or crowdfunding campaigns. It's not surprising that the company seems to be focusing on other ways to generate funds under management. The platform provides quite a bit of information but I think deals mostly are a bit too nebulous to commit a lot of money to any one. For example, these are the financials for another farm property in Victoria:

What exactly are the outgoings? If there are finance costs, then how big is the mortgage on this property? The "position" has no loan listed. Was the loan paid off? But last year there were no finance costs. It's hard to understand the financials of most properties I looked at.

What farming activity is generating the rent? The pds says: "It is intended that this property will be used to derive income from mixed agriculture use including the farming of sheep and the growing of trees producing nuts." I'm doubtful about the latter. Is it happening? 

Most residential property listed on the site has fallen in value since the initial investment was made. Are initial valuations over-valuing the properties?

I think if this platform is going to be successful it needs to have much more transparent information.

April 2021 Report

This month we completed the initial investments in our self-managed superannuation fund (SMSF). I stopped systematic trading for the moment. We also reached a big round net worth number in  Australian Dollar terms. But once I raised the value of our house to reflect a recent sale in our neighborhood, I realised we would have actually reached that number in February.

The Australian Dollar rose from USD 0.7612 to USD 0.7725. It was another month of increases in world stock markets. The MSCI World Index rose 4.41%, the S&P 500 by 5.34%, and the ASX 200 rose 3.48%. All these are total returns including dividends. We gained 2.54% in Australian Dollar terms or 4.06% in US Dollar terms. The target portfolio is expected to have gained 1.76% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 2.07% in US Dollar terms. So, we outperformed these benchmarks and did OK vs. the MSCI. Here is a report on the performance of investments by asset class (currency neutral terms):

Hedge funds added the most to performance and only Australian small cap had a negative return. Things that worked well this month:

• Tribeca Global Resources was the largest contributor in dollar terms contributing AUD 21k. Gold bounced back, contributing AUD 15k. Unisuper, Cadence Capital, and Pershing Square Holdings all also contributed more than AUD 10k. Other notable strong performers were URF.AX (NY/NJ residential real estate), 3i (UK private equity), and soybeans.
  

What really didn't work:

• The worst performers were Hearts and Minds (HM1.AX) and Domacom (DCL.AX).
  

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. Against the MSCI World Index we could be doing better and we are doing a little worse than the median hedge fund levered 1.6 times.

We moved decisively towards our desired long-run asset allocation again as I implemented our SMSF investments. In October 2018, when we received the inheritance we were 48 percentage points away from our target allocation at the time. Now we are less than 6 percentage points away. We compute this by calculating the Euclidean distance between the target and actual allocation vectors. This is the square root of the sum of squared differences between the actual and target allocations for each asset.  Real assets is the asset class that is now furthest from its target allocation (4.6% of total assets too little):

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. This was a very busy month. I'm only recording net changes here:

• Australian large cap: I invested in Argo Investments again.
  
• Hearts and Minds (HM1.AX): I bought back 20k shares I had sold a while ago at higher prices. This is a long only global equities fund.
  
• Hedge funds: I increased our holding of Regal Funds (RF1.AX). This wasn't intentional, but I didn't get the price I wanted in exiting part of our holding in a regular brokerage account while also establishing a position in the SMSF.
  
• Private equity: I increased our holding of the Pengana private equity fund (PE1.AX).
  
• Bonds: Our Medallion Financial baby bond matured and we bought shares in Scorpio Tankers,  Star Bulk Carriers, and Ready Capital baby bonds, increasing our net holdings of US corporate bonds by USD 50k. We also bought shares in the Australian MCP Income Opportunities Trust (MOT.AX).
  
• Art: I invested in another painting at Masterworks.
  
• Real estate: I invested in the Domacom and Australian Unity Diversified Funds. I also doubled our holding of URF.AX (NY/NJ residential property).
  
• Futures: I successfully closed a calendar spread trade in soybeans and stopped systematic trading of ASX futures.
  

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?