Fund Update January 2019 – Benny Bounces Back (a Bit)

It’s a new year, and a new race for the annual Fully Franked Finance trophy. 

But as fun as these annual contests are, they are merely a sprint in a much longer journey.  The ultimate trophy is ending up with a sizeable portfolio that has been successfully managed and grown over the years – and everyone can win that competition.

For regular readers, you’ll notice some slight changes to the monthly reporting format.  Rather than just sharing the details of my own portfolio, and how far ahead or behind Ian and Benny’s it is, all of the Fully Franked Finance gang will have a full summary of their own portfolio and holdings.

You’ll also see all the details for each in one easy-to-digest picture.

So let’s see how the year has started for everyone… Frankie First…

Benny’s Bunch – Your 10 Randomly Selected Stocks

Thanks to everyone who helped with the selection of random numbers for Benny’s Bunch – now we can find out which stocks you’ve chosen for Benny!

First, for transparency, let me explain how the full list of companies was created:

  • Starting with all companies within the ASX 300 as at 1 November 2018 (297 companies in total)
  • Companies ranked in reverse alphabetical order (Z’s at the top, A’s at the bottom)
  • Companies beginning with the letters B (Benny), F (Frankie), I (Ian) and G (Gary) were pulled out and moved to the top of the list, in that order (this shuffling was done to give an extra layer of randomness to your number selections).

I haven’t shared the complete list here, so that we can continue to use it for future stock picks for Benny’s Bunch, but you can replicate the list pretty easily and compare the numbers below if you’re really keen.

But much more interesting is to see which stocks your random numbers have selected – and here they are!

* Note 299 was actually selected by Tom, but as there were only 297 companies (not 300 as I expected!) I’ve taken the 2nd last company on the list

Ian Introduces… Benny the Blindfolded Monkey!

The last time Frankie gave me the Floor here at Fully Franked Finance (over 4 months ago can you believe it!), I poked a little fun at Frankie for trying to find some ‘Needles in my Stock-Stack’. I effectively own a little piece of 400+ stocks, but Frankie is trying to pick a handful of those that will do better than the index using his ‘value based’ investing approach.

And yes, he came out slightly ahead of me for 2018 – although Global Gary outgunned us all in the end.

However, it’s way, way too early to make any calls on how successful Frankie’s approach is – we might need to wait 5 or 10 years or so to judge that.  In the meantime, one of the big challenges is understanding the role that pure luck plays in his specific stock selections and Fund performance, compared to his investment abilities.

So as my own little experiment to test this, I’m introducing a new Friend to Fully Franked Finance – Benny the Blindfolded* Monkey!

Picking the ‘I’s out of the Index

OK Frankie – you’ve woken me from my slumber.

One of your 7 stocks has single-handedly launched your portfolio ahead of mine – for only the first time since we began 6 months ago by the way – and cast a shadow over my simple index investing approach.

I may never see such a huge move in my investments, but I sleep very easy at night.

It’s very easy to forget that I don’t just have two investments in VAS and VSO – I actually own hundreds of individual stocks.

Let’s start with VAS – the Vanguard Australian Shares Index ETF. This holds every stock in the S&P ASX 300 Index, i.e. the biggest 300 (give or take) companies in Australia.  As at 1 August 2018, there are 297 separate companies I effectively own a piece of:

Transaction Costs – Part 2: TAX

It’s been a couple of months now since Frankie last gave me the limelight.  My last post before exploring the wide world of ETFs was a detailed look at the tipping point on transaction costs – specifically brokerage costs – and the potential impact this has on your returns.

I promised a follow up to that analysis on the other big transaction cost – TAX.  So here it is!

Not only does every brokerage transaction fee you pay chip away at your portfolio, but for every sell transaction, you also have the tax man (or woman) waiting to take a piece of your gains away.

Tax can be even more insidious than transaction costs. When you buy or sell shares, you can clearly see the brokerage fee on every transaction statement.  But nowhere are you presented with the specific tax costs.

It’s not until it comes time to do your tax return, when you need to add up all the gains you’ve made, that you’ll know how much of those gains you need to pay away in tax.

But even then it’s not necessarily that transparent – especially if you don’t do the tax returns yourself.  You (or your accountant) pull together all your financial information for the year, do a bit of maths, and finally come up with a single figure that will either be paid by you to the tax office, or vice versa.

Unless you pay attention to the detail, the tax consequences of your investment decisions can blend into the background.

So the first step for us here is to make very clear what tax you might pay whenever you sell shares.…

Buying ‘the Market’? Which Market? Ian Investigates the Wide World of ETFs

If you’ve been following since Frankie and I launched our respective Funds, you’ll know that I’m investing 100% in ‘Index’ Funds, which basically means I own a little piece of hundreds of different businesses.

Even though it’s a simple decision for me to hold ‘the Market’, unfortunately there isn’t just one single ‘Market’ fund that you can buy. You need to make some choices about which markets you want to own – which can be not so simple.

I’m keeping things very simple to start with by owning only two Market or Index funds (technically, Exchanged Traded Funds or ETF’s – we’ll come back to this terminology later):

  • Vanguard Australian Shares Index ETF (VAS) – tracks the return of the S&P/ASX 300 Index (i.e. the top 300 companies in Australia, weighted by size); and
  • Vanguard MSCI Australian Small Companies Index ETF (VSO) – tracks the MSCI Australian Shares Small Cap Index (around 158 different holdings).

But if you’re new to the Index Investing World, there’s a whole buffet of markets and sub-markets for you to choose from.

Let me try and paint a picture of the ETF landscape from the top down – solely focusing on the asset class of shares.

 

Ignoring International Investments – Is Ian an Idiot?

Hi everyone, Ian here again!

That title might be a little harsh, but some of you are no doubt asking the question if you read my original post!

I’ve previously explained my strategy for index investing, which involves sticking to my home country of Australia.

You may be wondering, why on earth would I restrict myself to a region that only makes up around 3% of the world equity markets? Am I lazy? Patriotic? Or just plain ignorant?

Fair questions, but I actually have two reasons – and I’ll let you judge whether they’re compelling enough…

1) I’m Not Convinced Global Will Perform Better

History is always a useful starting point to set the scene. How has Australia fared over the years compared with the rest of the world?

I absolutely love this interactive chart from Vanguard. It allows you to compare the growth of $10,000 invested in different asset classes over any historic period since 1970. I’ve focused on shares in three different regions – Australia, US, and International – over a few different periods.

Let’s start with the performance since 2010:

(PS – that little straight line at the bottom is cash)

Introducing… Indexing Ian!

Hi everyone! I’m Ian, or ‘Indexing Ian’ as Frankie likes to call me.

You’ve heard Frankie’s Investment ‘F’hilosophy, so let me tell you a bit about mine. I haven’t always been an ‘Indexer’, in fact, for many, many years, I spent HUGE amounts of time analysing stocks, buying and selling, trying to time my investments perfectly. I’m a pretty smart guy, always thought of myself as ‘above average’ in many ways, and like Frankie, have plenty of experience in the finance industry, so I didn’t want to settle for an ‘average’ index fund – how BORING!…